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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549
 FORM 10-Q (Mark one)þ
    
    QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934For the quarterly period ended September 30, 2004ORo
    
    TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934For 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.)595 Shrewsbury Avenue
Shrewsbury, New Jersey
    
    07702(Address of principal executive offices)
    
    (Zip Code)
 Registrants telephone number, including area code: (732) 212-3300 Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes þ  No o Indicate by check mark whether the registrant is an accelerated filer (as
defined in Rule 12b-2 of the Exchange Act). Yes þ  No o As of October 29, 2004, there were 32,014,147 shares of the registrants
Class A common stock, $.001 par value, outstanding and no shares of Class B
common stock outstanding.    1




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WELLMAN, INC.
INDEX Page No.PART I  FINANCIAL INFORMATIONITEM 1 - Financial Statements (Unaudited, except where noted)Condensed Consolidated Statements of Operations  For the three and nine months ended
September 30, 2004 and 2003
    
    
    3Condensed Consolidated Balance Sheets  September 30, 2004 and December 31, 2003 (Audited)
    
    
    4Condensed Consolidated Statements of Stockholders Equity  For the nine months ended
September 30, 2004 and the year ended December 31, 2003 (Audited)
    
    
    5Condensed Consolidated Statements of Cash Flows  For the nine months ended September 30,
2004 and 2003
    
    
    6Notes to Condensed Consolidated Financial Statements
    
    
    7ITEM 2 - Managements Discussion and Analysis of Financial Condition and Results
of Operations
    
    
    15ITEM 3 - Quantitative and Qualitative Disclosure About Market Risk
    
    
    23ITEM 4 - Controls and Procedures
    
    
    23PART II  OTHER INFORMATIONITEM 1 - Legal Proceedings
    
    
    24ITEM 6 - Exhibits and Reports on Form 8-K
    
    
    25SIGNATURES
    
    
    26EX-31.1 Section 302 Certification C.E.O.EX-31.2 Section 302 Certification C.F.O.EX-32.1 Section 906 Certification C.E.O.EX-32.2 Section 906 Certification C.F.O.
 2




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##### Table of Contents



ITEM 1. FINANCIAL STATEMENTS 
 WELLMAN, INC.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED)
(In millions, except per share data) Three Months
    
    Nine MonthsEnded September 30,
    
    Ended September 30,2004
    
    2003
    
    2004
    
    2003Net sales
    
    $
    310.0
    
    
    $
    262.7
    
    
    $
    932.8
    
    
    $
    835.3Cost of sales
    
    
    295.5
    
    
    
    246.2
    
    
    
    877.6
    
    
    
    765.3Gross profit
    
    
    14.5
    
    
    
    16.5
    
    
    
    55.2
    
    
    
    70.0Selling, general and administrative expenses
    
    
    14.6
    
    
    
    15.8
    
    
    
    42.9
    
    
    
    50.4Non-capitalizable financing costs
    
    
    
    
    
    
    
    
    
    
    40.2
    
    
    
    Provision for uncollectible accounts
    
    
    
    
    
    
    3.3
    
    
    
    0.3
    
    
    
    3.4Restructuring charges
    
    
    1.3
    
    
    
    0.3
    
    
    
    2.4
    
    
    
    1.6Other expense, net
    
    
    0.6
    
    
    
    1.2
    
    
    
    2.9
    
    
    
    5.4Operating income (loss)
    
    
    (2.0
    )
    
    
    (4.1
    )
    
    
    (33.5
    )
    
    
    9.2Interest expense, net
    
    
    10.5
    
    
    
    2.4
    
    
    
    28.1
    
    
    
    6.7Earnings (loss) from continuing operations before income
taxes
    
    
    (12.5
    )
    
    
    (6.5
    )
    
    
    (61.6
    )
    
    
    2.5Income tax expense (benefit)
    
    
    (4.9
    )
    
    
    (1.9
    )
    
    
    (24.3
    )
    
    
    1.1Earnings (loss) from continuing operations
    
    
    (7.6
    )
    
    
    (4.6
    )
    
    
    (37.3
    )
    
    
    1.4Earnings from discontinued operations, net of
income tax
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    0.1Net earnings (loss)
    
    $
    (7.6
    )
    
    $
    (4.6
    )
    
    $
    (37.3
    )
    
    $
    1.5Net loss attributable to common stockholders:Net earnings (loss)
    
    $
    (7.6
    )
    
    $
    (4.6
    )
    
    $
    (37.3
    )
    
    $
    1.5Accretion of preferred stock
    
    
    (3.1
    )
    
    
    (2.9
    )
    
    
    (9.1
    )
    
    
    (3.0
    )Net loss attributable to common stockholders
    
    $
    (10.7
    )
    
    $
    (7.5
    )
    
    $
    (46.4
    )
    
    $
    (1.5
    )Basic and diluted net loss per common share:Net loss attributable to common stockholders
    
    $
    (0.34
    )
    
    $
    (0.24
    )
    
    $
    (1.47
    )
    
    $
    (0.05
    )Dividends per common share
    
    $
    0.05
    
    
    $
    0.09
    
    
    $
    0.15
    
    
    $
    0.27
 See Notes to Condensed Consolidated Financial Statements. 3




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WELLMAN, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
(In millions, except share data) September 30,
    
    December 31,2004
    
    2003(Unaudited)
    
    (Note 1)ASSETS:Current assets:Cash and cash equivalents
    
    $
    14.6
    
    
    $
    205.5Accounts receivable, less allowance of $2.6 in 2004 and $3.8 in 2003
    
    
    154.8
    
    
    
    137.5Inventories
    
    
    135.1
    
    
    
    121.1Prepaid expenses and other current assets
    
    
    20.6
    
    
    
    12.1Total current assets
    
    
    325.1
    
    
    
    476.2Property, plant and equipment, at cost:Land, buildings and improvements
    
    
    138.8
    
    
    
    138.4Machinery and equipment
    
    
    1,086.5
    
    
    
    933.2Construction in progress
    
    
    7.0
    
    
    
    7.21,232.3
    
    
    
    1,078.8Less accumulated depreciation
    
    
    575.2
    
    
    
    535.8Property, plant and equipment, net
    
    
    657.1
    
    
    
    543.0Goodwill, net
    
    
    37.1
    
    
    
    37.3Other assets, net
    
    
    103.5
    
    
    
    60.6$
    1,122.8
    
    
    $
    1,117.1LIABILITIES AND STOCKHOLDERS EQUITY:Current liabilities:Accounts payable
    
    $
    83.6
    
    
    $
    90.6Accrued liabilities
    
    
    38.4
    
    
    
    41.1Total current liabilities
    
    
    122.0
    
    
    
    131.7Long-term debt
    
    
    478.9
    
    
    
    371.0Deferred income taxes and other liabilities
    
    
    102.2
    
    
    
    148.8Total liabilities
    
    
    703.1
    
    
    
    651.5Stockholders equity:Series A preferred stock, $0.001 par value, 5,000,000 shares
authorized, 4,502,143 shares issued and outstanding
    
    
    54.7
    
    
    
    51.0Series B preferred stock, $0.001 par value; 6,700,000 shares
authorized, issued and outstanding
    
    
    81.4
    
    
    
    76.0Class A common stock, $0.001 par value; 100,000,000 shares
authorized, 34,514,147 shares issued at September 30, 2004 and
34,389,147 issued at December 31, 2003
    
    
    
    
    
    
    Class B common stock, $0.001 par value, 5,500,000 shares
authorized, no shares issued
    
    
    
    
    
    
    Paid-in capital
    
    
    245.4
    
    
    
    245.3Common stock warrants
    
    
    4.9
    
    
    
    4.9Accumulated other comprehensive income
    
    
    21.2
    
    
    
    25.2Retained earnings
    
    
    61.6
    
    
    
    112.7Less common stock in treasury at cost:2,500,000 shares
    
    
    (49.5
    )
    
    
    (49.5
    )Total stockholders equity
    
    
    419.7
    
    
    
    465.6$
    1,122.8
    
    
    $
    1,117.1
 See Notes to Condensed Consolidated Financial Statements. 4




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CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS EQUITY Series A
    
    Series B
    
    Class APreferred
    
    Preferred
    
    CommonStock Issued
    
    Stock Issued
    
    Stock Issued
    
    
    
    
    
    Common
    
    AccumulatedOtherPaid-In
    
    Stock
    
    Comprehensive
    
    Retained
    
    Treasury(in millions)
    
    Shares
    
    Amount
    
    Shares
    
    Amount
    
    Shares
    
    Amount
    
    Capital
    
    Warrants
    
    Income/(Loss)
    
    Earnings
    
    Stock
    
    TotalBalance at December 31, 2002
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    34.4
    
    
    $
    
    
    
    $
    248.5
    
    
    
    
    
    

    $
    (3.2
    )

    
    $
    230.9
    
    
    $
    (49.5
    )
    
    $
    426.7Net loss
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (96.6
    )
    
    
    
    
    
    
    (96.6
    )Currency translation adjustments
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    27.3
    
    
    
    
    
    
    
    
    
    
    
    27.3Minimum pension liability
adjustments
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (0.8
    )
    
    
    
    
    
    
    
    
    
    
    (0.8
    )Fair value of derivatives
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    1.9
    
    
    
    
    
    
    
    
    
    
    
    1.9Total comprehensive loss
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (68.2
    )Cash dividends ($0.36 per share)
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (11.5
    )
    
    
    
    
    
    
    (11.5
    )Issuance of Series A preferred
stock
    
    
    4.5
    
    
    $
    48.7
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    48.7Issuance of Series B preferred
stock
    
    
    
    
    
    
    
    
    
    
    6.7
    
    
    $
    72.4
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    72.4Equity transaction costs
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (9.0
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (9.0
    )Accretion of preferred stock
    
    
    
    
    
    
    2.3
    
    
    
    
    
    
    
    3.6
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (5.9
    )
    
    
    
    
    
    
    Beneficial conversion charge
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    4.2
    
    
    
    
    
    
    
    
    
    
    
    (4.2
    )
    
    
    
    
    
    
    Issuance of restricted stock, net
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    0.2
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    0.2Amortization of deferred
compensation, net
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    1.4
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    1.4Issuance of common stock warrants
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    $
    4.9
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    4.9Balance at December 31, 2003
    
    
    4.5
    
    
    
    51.0
    
    
    
    6.7
    
    
    
    76.0
    
    
    
    34.4
    
    
    
    
    
    
    
    245.3
    
    
    
    4.9
    
    
    
    25.2
    
    
    
    112.7
    
    
    
    (49.5
    )
    
    
    465.6Net loss
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (37.3
    )
    
    
    
    
    
    
    (37.3
    )Currency translation adjustments
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (1.1
    )
    
    
    
    
    
    
    
    
    
    
    (1.1
    )Fair value of derivatives
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (2.9
    )
    
    
    
    
    
    
    
    
    
    
    (2.9
    )Total comprehensive loss
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (41.3
    )Issuance of restricted stock
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    0.1
    
    
    
    
    
    
    
    0.1
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    0.1Cash dividends ($0.15 per share)
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (4.7
    )
    
    
    
    
    
    
    (4.7
    )Accretion of preferred stock
    
    
    
    
    
    
    3.7
    
    
    
    
    
    
    
    5.4
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (9.1
    )
    
    
    
    
    
    
    Balance at September 30, 2004
    
    
    4.5
    
    
    $
    54.7
    
    
    
    6.7
    
    
    $
    81.4
    
    
    
    34.5
    
    
    $
    
    
    
    $
    245.4
    
    
    $
    4.9
    
    
    $
    21.2
    
    
    $
    61.6
    
    
    $
    (49.5
    )
    
    $
    419.7
 See Notes to Condensed Consolidated Financial Statements. 5




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WELLMAN, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2004 AND 2003
(UNAUDITED)
(In millions) 2004
    
    2003Cash flows from operating activities:Net earnings (loss)
    
    $
    (37.3
    )
    
    $
    1.5Adjustments to reconcile net earnings (loss) to net cash used in operating activities:Depreciation
    
    
    41.7
    
    
    
    35.0Amortization
    
    
    11.0
    
    
    
    3.6Amortization in interest expense, net
    
    
    2.9
    
    
    
    1.0Deferred income taxes and other
    
    
    (26.3
    )
    
    
    (8.8
    )Gain on sale of business
    
    
    
    
    
    
    (0.5
    )Non-capitalizable financing costs
    
    
    21.0
    
    
    
    Changes in operating assets and liabilities
    
    
    (43.0
    )
    
    
    (39.9
    )Net cash used in operating activities
    
    
    (30.0
    )
    
    
    (8.1
    )Cash flows from investing activities:Additions to property, plant and equipment
    
    
    (6.9
    )
    
    
    (10.5
    )Purchase of sale-leaseback assets
    
    
    (150.0
    )
    
    
    Pre-payment of raw material contract
    
    
    (77.1
    )
    
    
    Proceeds from sale of business
    
    
    
    
    
    
    1.1Net cash used in investing activities
    
    
    (234.0
    )
    
    
    (9.4
    )Cash flows from financing activities:Borrowings (repayments) under long-term debt, net
    
    
    107.3
    
    
    
    (82.6
    )Termination of swaps
    
    
    (11.9
    )
    
    
    Dividends paid on common stock
    
    
    (4.7
    )
    
    
    (8.6
    )Debt issuance costs
    
    
    (18.0
    )
    
    
    Issuance of restricted stock
    
    
    0.1
    
    
    
    0.2Issuance of preferred stock (Series A & B) and warrants
    
    
    
    
    
    
    126.0Financing costs
    
    
    
    
    
    
    (16.2
    )Net cash provided by financing activities
    
    
    72.8
    
    
    
    18.8Effect of exchange rate changes on cash and cash equivalents
    
    
    0.3
    
    
    
    (0.1
    )Increase (decrease) in cash and cash equivalents
    
    
    (190.9
    )
    
    
    1.2Cash and cash equivalents at beginning of period
    
    
    205.5
    
    
    
    Cash and cash equivalents at end of period
    
    $
    14.6
    
    
    $
    1.2Supplemental cash flow data:Cash paid during the period for:Interest (net of amounts capitalized)
    
    $
    23.4
    
    
    $
    5.3Income taxes
    
    $
    0.6
    
    
    $
    0.8
 See Notes to Condensed Consolidated Financial Statements. 6




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WELLMAN, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
(In millions, except per share data) 1. BASIS OF PRESENTATION The accompanying unaudited condensed consolidated financial statements
have been prepared in accordance with generally accepted accounting principles
for interim financial information and with the instructions to Form 10-Q and
Article 10 of Regulation S-X. Accordingly, they do not include all of the
information and footnotes required by generally accepted accounting principles
for complete financial statements. In the opinion of management, all
adjustments (consisting of normal recurring accruals) considered necessary for
a fair presentation have been included. Operating results for the three and
nine-month period ended September 30, 2004 are not necessarily indicative of
the results that may be expected for the year ending December 31, 2004. The Condensed Consolidated Balance Sheet (Balance Sheet) at December 31,
2003 has been derived from the audited consolidated financial statements at
that date but does not include all of the information and footnotes required by
generally accepted accounting principles for complete financial statements. For
further information, refer to the consolidated financial statements and
footnotes thereto included in Wellman, Inc.s (which, together with its
subsidiaries, is herein referred to as the Company) Annual Report on Form
10-K for the year ended December 31, 2003. Certain 2003 amounts have been reclassified to conform to the 2004
presentation. 2. DISCONTINUED OPERATIONS In March 2003, the Company sold the assets of its small-recycled fine
denier polyester staple fiber business with a manufacturing facility in Marion,
South Carolina, which was previously reported as a discontinued operation in
the Companys financial statements. For the nine months ended September 30,
2003, the Company reported net sales from discontinued operations of $0.7 and a
loss from discontinued operations before income tax benefit of $0.3 ($0.2 after
taxes). The net cash proceeds totaled $1.1, which resulted in a gain of $0.5
($0.3 after taxes). The gain was recognized during the first quarter of 2003
and included in discontinued operations in the Companys Condensed Consolidated
Statement of Operations (Statement of Operations). 3. INVENTORIES Inventories consisted of the following: September 30,
    
    December 31,2004
    
    2003Raw materials
    
    $
    52.1
    
    
    $
    35.3Finished and semi-finished goods
    
    
    76.0
    
    
    
    77.9Supplies
    
    
    7.0
    
    
    
    7.9$
    135.1
    
    
    $
    121.1
 4. RESTRUCTURING CHARGES During 2003, the Company announced various cost reduction plans in order
to improve operating results and enhance stockholder value. These cost
reduction efforts were in response to reduced profitability as a result of
increased raw material costs, declines in PET (polyethylene
terephthalate) resin selling prices in the
Packaging Products Group (PPG) and a continuing decline in the Fibers and
Recycled Products Group (FRPG) operating results. 7




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January 2003 In January 2003, the FRPG commenced a plan to restructure its operations,
which included a reduction in the number of employees and other cost savings
initiatives at the Companys three fiber manufacturing facilities. In the nine
months ended September 30, 2003, the Company recorded termination costs of $1.6
and paid $1.2 in its FRPG segment related to this plan. These costs were
reflected in operating income (loss) in the Statements of Operations. An
additional $0.2 of severance costs was accrued and paid during the remainder of
2003. The plan was fully implemented in 2003. November 2003 In November 2003, the Company announced a plan with Company-wide cost
reduction initiatives that included eliminating levels of management, reducing
the number of employees, and other organizational and administrative
consolidations and changes. During the nine months ended September 30, 2004,
the Company incurred severance costs of $2.4 associated with this plan, of
which $0.6 related to the PPG and $1.8 related to the FRPG. These costs were
reflected in operating income (loss) in the Statements of Operations. The
following represents changes in the accruals since the plan was adopted. SeveranceCostsAccruals during 2003
    
    $
    8.1Cash payments in 2003
    
    
    (2.0
    )Accrual balances at December 31, 2003
    
    
    6.1Accruals during the first nine months
of 2004
    
    
    2.4Cash payments
    
    
    (6.5
    )Currency translation adjustments
    
    
    (0.1
    )Accrual balances at September 30, 2004
    
    $
    1.9
 The remaining accrual should be fully paid out during the remainder of
2004. In addition, pension expense of $0.2 was recorded as a restructuring
charge in the FRPG during the fourth quarter of 2003 due to the termination of
employees. 5. OTHER EXPENSE, NET Other expense, net consisted of the following amounts for the periods
indicated: Three months ended
    
    Nine months endedSeptember 30,
    
    September 30,2004
    
    2003
    
    2004
    
    2003Legal costs related to the Department of
Justice investigation of the polyester
staple fiber industry
    
    $
    1.3
    
    
    $
    1.2
    
    
    $
    3.6
    
    
    $
    4.2Accelerated stock option vesting
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    1.2Rebates from anti-dumping duties
    
    
    (0.7
    )
    
    
    
    
    
    
    (0.7
    )
    
    
    $
    0.6
    
    
    $
    1.2
    
    
    $
    2.9
    
    
    $
    5.4
 8




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##### Table of Contents



6. NET LOSS PER COMMON SHARE The following table sets forth the computation of basic and diluted net
loss attributable to common stockholders per common share for the periods
indicated: Three Months Ended
    
    Nine Months EndedSeptember 30,
    
    September 30,2004
    
    2003
    
    2004
    
    2003Numerator for basic and diluted net loss
attributable to common stockholders per
common share:Net loss attributable to common
stockholders from continuing operations
    
    $
    (10.7
    )
    
    $
    (7.5
    )
    
    $
    (46.4
    )
    
    $
    (1.6
    )Net earnings attributable to common
stockholders from discontinued operations
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    0.1Net loss attributable to common stockholders
    
    $
    (10.7
    )
    
    $
    (7.5
    )
    
    $
    (46.4
    )
    
    $
    (1.5
    )Denominator:Denominator for basic net loss attributable
to common stockholders per common
shareweighted average shares
    
    
    31.6
    
    
    
    31.6
    
    
    
    31.6
    
    
    
    31.6Effect of
dilutive securities:Employee
stock options and restricted stock
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Denominator
for diluted net earnings (loss) attributable
to common stockholders per common
shareadjusted weighted average shares
    
    
    31.6
    
    
    
    31.6
    
    
    
    31.6
    
    
    
    31.6
 7. DEFINED BENEFIT PLANS The components of the Companys net periodic pension cost are as follows
for the periods indicated: Three Months Ended
    
    Nine Months EndedSeptember 30,
    
    September 30,2004
    
    2003
    
    2004
    
    2003Domestic
    
    Foreign
    
    Domestic
    
    Foreign
    
    Domestic
    
    Foreign
    
    Domestic
    
    ForeignService cost
    
    $
    0.1
    
    
    $
    0.5
    
    
    $
    0.1
    
    
    $
    0.5
    
    
    $
    0.4
    
    
    $
    1.6
    
    
    $
    0.3
    
    
    $
    1.4Interest cost
    
    
    0.8
    
    
    
    0.9
    
    
    
    0.8
    
    
    
    0.7
    
    
    
    2.5
    
    
    
    2.6
    
    
    
    2.5
    
    
    
    2.2Expected return on assets
    
    
    (0.8
    )
    
    
    (1.4
    )
    
    
    (0.8
    )
    
    
    (1.1
    )
    
    
    (2.6
    )
    
    
    (4.2
    )
    
    
    (2.3
    )
    
    
    (3.3
    )Net amortization and deferral
    
    
    0.2
    
    
    
    0.2
    
    
    
    0.3
    
    
    
    0.1
    
    
    
    0.7
    
    
    
    0.5
    
    
    
    0.8
    
    
    
    0.4Total estimated net periodic
pension expense
    
    $
    0.3
    
    
    $
    0.2
    
    
    $
    0.4
    
    
    $
    0.2
    
    
    $
    1.0
    
    
    $
    0.5
    
    
    $
    1.3
    
    
    $
    0.7
 Employer contributions In 2004, the Company expects to contribute $3.9 to its domestic defined
benefit plans and $1.6 to its foreign plans. During the first nine months of
2004, the Company contributed $3.1 to its domestic plans and $1.4 to its
foreign plans. 8. BORROWING ARRANGEMENTS On February 10, 2004, the Company closed on $625.0 of new debt financings
(the February 2004 Financing). This financing consisted of a five-year,
$175.0 Revolving Credit Facility with an initial annual interest rate of either
LIBOR plus 250 basis points or Prime plus 125 basis points, at the Companys
option, on outstanding borrowings; a five-year, $185.0 First Lien Term Loan
with an annual interest rate of LIBOR plus 400 basis points; and a six-year,
$265.0 Second Lien Term Loan with an annual interest rate of LIBOR plus 675
basis points. The First and Second Lien Term Loans have a LIBOR floor of 200
basis points. The Company may elect to pre-pay the First Lien Term Loan for
102% and 101% of its face amount in the first and second year after its
issuance, respectively, and at par thereafter. The Second Lien Term Loan was
issued at a 2% discount, and in certain circumstances, the Company may elect to
pre-pay this loan at 105% and 103% of its face amount in the third and fourth
years after its issuance, respectively, and at par thereafter. 9




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The net proceeds from this financing of approximately $489.5 plus $206.4
in cash ($695.9 in total) were used to: Pay Balance Sheet Debt
    
    $
    370.0Purchase PET Resin Assets (Sale and Leaseback)
    
    
    150.0Pre-pay Raw Material Contract
    
    
    77.1Purchase Accounts Receivable
    
    
    51.4Pay February 2004 Financing Costs
    
    
    18.0Pay Pre-payment Penalties
    
    
    13.9Terminate Certain Swap Agreements
    
    
    11.9Pay Interest and Fees
    
    
    3.6$
    695.9
 In 2004, the Company incurred the following expenses (including non-cash
charges) as a part of this financing: Termination of Swap Agreements
    
    $
    14.4Pre-payment Penalties
    
    
    13.9Write-Off of Debt Issuance Costs.
    
    
    6.6Other Expenses
    
    
    5.3Non-Capitalizable Financing Costs
    
    $
    40.2
 As part of the restructuring of the sale and leaseback transaction in June
of 2003, the Company entered into three swaps, each with a notional amount of
$50.0 that were designated as cash flow hedges. These swaps hedged the
Companys exposure to variability in cash flows attributable to rent expense
paid in relation to the sale and leaseback transaction. In February 2004, as
part of the financing, the Company terminated two of the three swaps and
redesignated the third as a cash flow hedge against the new debt entered into
in the first quarter of 2004. The termination, redesignation and refinancing
resulted in an overall cost of $14.4, which was net of $3.8 that was previously
included in other comprehensive income (loss). In July 2004, the Company entered into interest rate hedging agreements
with financial institutions for a total notional amount of $100.0 as follows:
three-year fixed-rate swaps with a notional amount of $50.0, whereby the
Company will receive 3-Month Libor and pay 3.65% quarterly; and a three year 6%
cap whereby, for quarterly periods when 3-Month Libor exceeds 6% on its reset
date, the Company will receive the difference between 3-Month Libor and 6% on
$50.0 for such periods. The Revolving Credit Facility is collateralized by a first lien on the
Companys domestic accounts receivable, inventory, and related intangibles.
Availability under the Revolving Credit Facility is determined by the amount of
eligible accounts receivable and inventory. Borrowings under the First Lien
Term Loan are primarily collateralized by a first priority security interest in
the Companys domestic real property, plant and equipment. Borrowings under the
Second Lien Term Loan are collateralized by a second priority security interest
in substantially all of the Companys domestic assets. These debt agreements contain financial and restrictive covenants. The
terms of the Revolving Credit Facility require that the Company maintain
available liquidity (as defined in the Revolving Credit Facility) of at least
$55.0 or maintain a Fixed Charge Coverage Ratio of at least 1.0:1.0 at the
present time. This ratio increases to 1.05:1.0 beginning with the four quarters
ending December 31, 2006 and further increases to 1.10:1.0 beginning with the
four quarters ending March 31, 2008. The Fixed Charge Coverage Ratio, as
defined in the Revolving Credit Facility, is earnings before interest, taxes,
depreciation and amortization divided by the sum of cash taxes, cash interest
expense, capital expenditures and certain payments related to the Companys
equity for the same period. There are certain liquidity thresholds which must
be met in order for the Company to settle lawsuits or pay judgments. There are
other restrictions which include limitations on capital expenditures, asset
sales and dispositions, the incurrence or guarantee of additional debt,
acquisitions, certain payments and investments, affiliate and subsidiary
transactions, payment of dividends, repurchase of stock, and excess cash. The
Company is in compliance with all debt covenants. 10




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##### Table of Contents



9. STOCK OPTIONS The Company has elected to follow Accounting Principles Board Opinion No.
25, Accounting for Stock Issued to Employees (APB 25), and related
Interpretations in accounting for its employee stock options. Under APB 25, any
difference between the exercise price of the Companys employee stock options
and the market price of the underlying stock on the date of grant is recognized
as compensation expense over the vesting period of the options. The alternative
fair value accounting provided for under SFAS No. 123, Accounting for
Stock-Based Compensation, requires use of option valuation models for
determining compensation expense. The following table illustrates the effect on
net loss attributable to common stockholders and net loss attributable to
common stockholders per share if the Company had applied the fair value
recognition provisions of SFAS No. 123 to stock-based employee compensation. Three Months
    
    Nine MonthsEnded September 30,
    
    Ended September 30,2004
    
    2003
    
    2004
    
    2003Net loss attributable to common stockholders, as reported
    
    $
    (10.7
    )
    
    $
    (7.5
    )
    
    $
    (46.4
    )
    
    $
    (1.5
    )Add: Stock-based employee compensation expense included
in reported net earnings (loss), net of related tax
effects
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    0.9Deduct: Total stock-based employee compensation expense
determined under fair value based method for all awards,
net of related tax effects
    
    
    (0.1
    )
    
    
    (0.1
    )
    
    
    (0.2
    )
    
    
    (5.4
    )Pro forma net loss attributable to common stockholders
    
    $
    (10.8
    )
    
    $
    (7.6
    )
    
    $
    (46.6
    )
    
    $
    (6.0
    )Net loss attributable to common stockholders per basic
and diluted share:As reported
    
    $
    (0.34
    )
    
    $
    (0.24
    )
    
    $
    (1.47
    )
    
    $
    (0.05
    )Pro forma
    
    $
    (0.34
    )
    
    $
    (0.24
    )
    
    $
    (1.47
    )
    
    $
    (0.19
    )
 10. COMMITMENTS AND CONTINGENCIES The Company has commitments and contingent liabilities, including legal
proceedings, environmental liabilities, and various operating lease
commitments. The Companys operations are subject to extensive laws and regulations
governing air emissions, wastewater discharges and solid and hazardous waste
management activities. The Companys policy is to expense environmental
remediation costs when it is both probable that a liability has been incurred
and the amount can be reasonably estimated. While it is often difficult to
reasonably quantify future environmental-related expenditures, the Company
currently estimates its future non-capital expenditures related to
environmental matters to range between approximately $2.9 and $13.7 on an
undiscounted basis. In connection with these expenditures, the Company has
accrued undiscounted liabilities of approximately $6.5 at September 30, 2004
and December 31, 2003, which are reflected as other non-current liabilities in
the Balance Sheets. These accruals represent managements best estimate of
probable non-capital environmental expenditures. In addition, aggregate future
capital expenditures related to environmental matters are expected to range
from approximately $4.4 to $13.3. These non-capital and capital expenditures
are expected to be incurred over the next 10 to 20 years. The final resolution of these contingencies could result in expenses
different than current accruals, and therefore could have an impact on the
Companys consolidated financial results in a future reporting period. However,
management believes the ultimate outcome will not have a significant effect on
the Companys consolidated results of operations, financial position, or
liquidity. 11




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##### Table of Contents



The following represents changes in accrued undiscounted liabilities for
environmental remediation costs: Nine Months EndedSeptember 30,2004
    
    2003Balance at beginning of year
    
    $
    6.5
    
    
    $
    9.2Changes in estimated remediation costs
    
    
    0.1
    
    
    
    (2.3
    )Expenditures
    
    
    (0.1
    )
    
    
    (0.3
    )Balance at end of period
    
    $
    6.5
    
    
    $
    6.6
 The changes in estimated remediation costs during 2003 are the result of
more current information related to groundwater contamination. There are no environmental matters where a material loss is probable other
than matters for which amounts have been accrued. In order to receive certain state grants, the Company agreed to meet
certain conditions, including capital expenditures and employment levels at its
Pearl River facility. All of these conditions were satisfied by the end of the
first quarter of 2003. The Company recognized grant income of $1.5 in the first
quarter of 2003. In January 2001, the Company received a document subpoena in connection
with a federal grand jury investigation of pricing practices in the polyester
staple fiber industry. The Company cooperated with the investigation by
producing documents in response to this subpoena. On September 22, 2004, the
U.S. Department of Justice (DOJ) informed the Company that it will not seek
indictments either of the Company or any of its employees in connection with
this investigation. On October 5, 2004, the judge presiding over the federal
civil cases discussed below announced on the record that he had been informed
by DOJ that there would be no further criminal prosecution in connection with
the investigation. Following the public disclosure of the investigation in September 2002,
the Company, along with certain other companies, has been named as a defendant
in 69 actions brought by direct and indirect purchasers of polyester staple
fiber for violations of federal, state and Canadian antitrust laws. In each
lawsuit, the plaintiffs allege that the defendants engaged in a conspiracy to
fix the price of polyester staple fiber in violation of the Sherman Act, state
antitrust, state unfair competition and/or Canadian antitrust laws. Some of
these actions seek certification of a class including all persons who directly
or indirectly purchased polyester staple fiber similarly affected by such
alleged conduct. The plaintiffs in most cases seek damages of unspecified
amounts, attorneys fees and costs and unspecified relief. In addition, certain
of the actions claim restitution, injunction against alleged illegal conduct
and other equitable relief. The producers of polyester staple fiber, including the Company, may become
subject to additional proceedings and lawsuits under federal and state
antitrust and unfair competition laws. The Company continues to vehemently deny that it or its employees engaged in
price fixing or customer allocation. The Company intends to vigorously defend
against the civil claims and any civil claims or proceedings that may be
brought against it in the future. Because of the uncertainties and complexity
of these civil claims, the Company has not formed an opinion about whether
these proceedings will have a material adverse effect on our consolidated
financial position or results of operations. The Company is involved in various claims and legal actions arising in the
ordinary course of business. In the opinion of management, the ultimate
disposition of this ordinary course litigation will not have a material adverse
effect, if any, on the Companys consolidated financial position or results of
operations. 12




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##### Table of Contents



11. FOREIGN CURRENCY TRANSLATION AND ACCUMULATED OTHER COMPREHENSIVE INCOME (LOSS) The financial statements of foreign subsidiaries have been translated into
U.S. dollar equivalents in accordance with SFAS No. 52, Foreign Currency
Translation. All balance sheet accounts have been translated using the
exchange rates in effect at the balance sheet date. Income statement amounts
have been translated using the average exchange rate for the year. The gains
and losses resulting from the changes in exchange rates from period to period
have been reported in other comprehensive income (loss). The effect on the
Statements of Operations of transaction gains and losses is insignificant for
all periods presented. Accumulated other comprehensive income (loss) is comprised of foreign
currency translation, minimum pension liability adjustments, and the effective
portion of the gain (loss) for derivatives designated and accounted for as cash
flow hedges. Substantially all of the earnings associated with the Companys
investments in foreign entities are considered to be permanently invested, and
no provision for U.S. federal and state income taxes on those earnings or
translation adjustments has been provided. Comprehensive income (loss) was $
(6.4) and $ (2.2) for the three months ended September 30, 2004 and 2003,
respectively, and $ (41.3) and $ 18.4 for the nine months ended September 30,
2004 and 2003, respectively. 12. SEGMENT INFORMATION The Companys operations are classified into two reportable operating
segments: the Packaging Products Group (PPG) and Fibers and Recycled Products
Group (FRPG). The PPG manufactures:  
    
    solid-stated and amorphous PET resin for use in the manufacture of
soft drink bottles and other food and beverage packaging and
    
    EcoClear® PET resin, utilizing recycled PET materials to meet
customers recycled content PET resin requirements. The FRPG manufactures:  
    
    chemical-based polyester staple fibers for use in apparel, non-woven,
home furnishing, and industrial products,
    
    recycled-based polyester and nylon staple fibers for use in home
furnishing, non-woven and industrial products, and
    
    recycled-based nylon and polyester engineering resins for use in the
injection molding industry. Generally, the Company evaluates segment profit (loss) on the basis of
operating profit (loss) less certain charges for research and development
costs, administrative costs, and amortization expenses in a manner consistent
with how it allocates charges in its Management Incentive Compensation Plan for
the executive group. Intersegment transactions, which are not material, have
been eliminated and historical exchange rates have been applied to the data.
The accounting policies are the same as those described in the Companys Annual
Report on Form 10-K for the year ended December 31, 2003. As discussed in note 2, the Company sold the assets of its small-recycled
fine denier polyester staple fiber business during the first quarter of 2003.
These assets, which were previously reported as part of the Companys FRPG,
were reported as discontinued operations in the Companys financial statements. 13




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##### Table of Contents



Packaging
    
    Fibers andProducts
    
    Recycled ProductsThree months ended September 30, 2004
    
    Group
    
    Group
    
    TotalRevenues
    
    $
    174.0
    
    
    $
    136.0
    
    
    $
    310.0Segment profit (loss)
    
    
    2.2
    
    
    
    (2.3
    )
    
    
    (0.1
    )Assets
    
    
    735.8
    
    
    
    308.0
    
    
    
    1,043.8Three months ended September 30, 2003Revenues
    
    $
    144.2
    
    
    $
    118.5
    
    
    $
    262.7Segment profit (loss)
    
    
    2.1
    
    
    
    (1.4
    )
    
    
    0.7Assets
    
    
    435.6
    
    
    
    508.1
    
    
    
    943.7Nine months ended September 30, 2004Revenues
    
    $
    526.2
    
    
    $
    406.6
    
    
    $
    932.8Segment profit (loss)
    
    
    14.1
    
    
    
    (1.8
    )
    
    
    12.3Nine months ended September 30, 2003Revenues
    
    $
    478.0
    
    
    $
    357.3
    
    
    $
    835.3Segment profit (loss)
    
    
    22.9
    
    
    
    (3.3
    )
    
    
    19.6
 Following are reconciliations to corresponding totals in the accompanying
Condensed Consolidated Financial Statements: Three Months Ended
    
    Nine Months EndedSeptember 30,
    
    September 30,2004
    
    2003
    
    2004
    
    2003Segment
Profit (Loss)Total for reportable segments
    
    $
    (0.1
    )
    
    $
    0.7
    
    
    $
    12.3
    
    
    $
    19.6Non-capitalizable financing costs (See note 8)
    
    
    
    
    
    
    
    
    
    
    (40.2
    )
    
    
    Provision for uncollectible accounts
    
    
    
    
    
    
    (3.3
    )
    
    
    (0.3
    )
    
    
    (3.4
    )Restructuring charges (See note 4)
    
    
    (1.3
    )
    
    
    (0.3
    )
    
    
    (2.4
    )
    
    
    (1.6
    )Other expense, net (See note 5)
    
    
    (0.6
    )
    
    
    (1.2
    )
    
    
    (2.9
    )
    
    
    (5.4
    )Interest expense, net
    
    
    (10.5
    )
    
    
    (2.4
    )
    
    
    (28.1
    )
    
    
    (6.7
    )Earnings (loss) from continuing operations
before income taxes
    
    $
    (12.5
    )
    
    $
    (6.5
    )
    
    $
    (61.6
    )
    
    $
    2.5AssetsTotal for reportable segments
    
    $
    1,043.8
    
    
    $
    943.7Corporate assets (1)
    
    
    79.0
    
    
    
    83.1$
    1,122.8
    
    
    $
    1,026.8
   (1)
    
    Corporate assets include cash, prepaid expenses, construction in
progress, and certain other assets not allocated to the segments. 14




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##### Table of Contents



ITEM 2.
    MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (Dollars in millions, except per share data) GENERAL We are principally engaged in the manufacture and marketing of
high-quality PermaClear® and EcoClear® brand PET
(polyethylene terephthalate) packaging resins, Fortrel®
brand polyester staple fibers and Wellamid® engineering resins. We believe we
are the worlds largest PET plastics recycler, utilizing a significant amount
of recycled raw materials in our manufacturing operations. At September 30,
2004, we had annual operating capacity to manufacture approximately 1.4 billion
pounds of PET resins and 0.9 billion pounds of polyester staple fiber at five
major production facilities in the United States and Europe. Our operations are classified into two reportable operating segments: the
Packaging Products Group (or PPG) and the Fibers and Recycled Products Group
(or FRPG). Our PermaClear® PET resins are produced by the PPG from purified
terephtalic acid (PTA) and monoethylene glycol (MEG), and EcoClear® PET resins
are produced from a combination of chemical and recycled raw materials. These
resins are primarily used in the manufacture of plastic soft drink bottles and
other food and beverage packaging. The FRPG produces Fortrel® polyester staple
fibers and other polyester and nylon staple fibers that are primarily used in
apparel, non-woven, home furnishing and industrial products. These fibers are
produced from PTA and MEG and recycled raw materials. Demand for both North American and global PET resins continues to grow,
driven by new product applications for PET and conversions from other packaging
materials to PET. Global demand for polyester staple fiber continues to grow.
Demand for polyester staple fiber in the United States is subject to changes in
consumer preferences and spending, retail sales patterns, and fiber and textile
product imports. Imports of products throughout the textile chain continue to
negatively impact the United States fiber markets, adversely affecting our
operating results. Our profitability is primarily determined by our sales volume and our raw
material margin, which is the difference between net selling price and raw
material cost. Both PET resin and polyester staple fiber volumes and raw
material margins increase or decrease as a result of supply and demand factors
and competitive conditions. Given our substantial unit volumes, the impact on
profitability of changes in raw material margins is significant. Currently, a
one-cent per pound change in raw material margin on approximately 2.2 billion
pounds of resin and fiber volume results in an annual change of approximately
$22.0 in pre-tax earnings, or $ 0.45 per diluted share. Volumes, selling prices and raw material costs each may be affected by
actions of our competitors, global economic and market conditions, export and
import activity, and the prices and availability of competing materials. Seasonal factors, such as weather and the vacation and holiday closings of
our facilities or those of our customers, may also affect our operations. THE FEBRUARY 2004 FINANCING On February 10, 2004, we closed on $625.0 of new debt financings (the
February 2004 Financing). This financing consisted of a five-year, $175.0
Revolving Credit Facility with an initial annual interest rate of either LIBOR
plus 250 basis points or Prime plus 125 basis points, at our option, on
outstanding borrowings, a five-year $185.0 First Lien Term Loan with an annual
interest rate of LIBOR plus 400 basis points, and a six-year $265.0, Second
Lien Term Loan with an annual interest rate of LIBOR plus 675 basis points. The
term loans have a LIBOR floor of 200 basis points. This financing is secured
primarily by our domestic assets. The net proceeds from these credit facilities
were used to repay substantially all of our existing indebtedness, to satisfy
contractual obligations, to pay related costs and provide working capital. We incurred $42.4 in pre-tax charges, of which $40.2 occurred in the first
quarter of 2004, resulting from costs associated with our previous financings
that were repaid. These charges are principally the result of pre-payment
penalties associated with repayment of our private placement notes, waiver fees
and other expenses related to financings that were repaid, charges associated
with the termination of the sale and leaseback transaction, and the write-off of unamortized financing costs. 15




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On September 30, 2004, we had
$478.9 in total outstanding long-term debt, net of the original issue discount
on the Second Lien Term Loan of $4.7. For additional information related to the
new financing, see Item 2. Managements Discussion and Analysis of Financial
Condition and Results of Operations  Capital Resources and Liquidity and note
8 to the Condensed Consolidated Financial Statements (Financial Statements). RESULTS OF OPERATIONS THREE MONTHS ENDED SEPTEMBER 30, 2004 COMPARED TO THREE MONTHS ENDED SEPTEMBER
30, 2003 Total net sales from continuing operations for the three months ended
September 30, 2004 increased $47.3, or 18.0%, to $310.0 from $262.7 for the
corresponding period in 2003 due to the following: PPG
    
    FRPG
    
    TOTALNet selling prices
    
    $
    27.1
    
    
    $
    3.5
    
    
    $
    30.6Sales volumes
    
    
    1.3
    
    
    
    11.9
    
    
    
    13.2Foreign currency translation
    
    
    1.4
    
    
    
    2.1
    
    
    
    3.5$
    29.8
    
    
    $
    17.5
    
    
    $
    47.3
 Net selling prices improved in the third quarter of 2004 in both our PPG
and FRPG compared to the corresponding period in 2003 due to selling price
increases initiated in response to rising raw material costs. Sales volumes in
the FRPG increased during the third quarter of 2004 over the third quarter of
2003 primarily as a result of improved supply/demand fundamentals. Total cost of sales from continuing operations for the three months ended
September 30, 2004 increased $49.3, or 20.0%, to $295.5 from $246.2 for the
corresponding period in 2003 due to the following: PPG
    
    FRPG
    
    TOTALRaw material costs
    
    $
    27.8
    
    
    $
    19.0
    
    
    $
    46.8Plant added costs
    
    
    0.6
    
    
    
    (1.3
    )
    
    
    (0.7
    )Foreign currency translation
    
    
    1.3
    
    
    
    1.9
    
    
    
    3.2$
    29.7
    
    
    $
    19.6
    
    
    $
    49.3
 The higher raw material costs are due primarily to higher purchase prices
in both our chemical and recycled-based businesses and to a lesser extent
increased sales volume in the FRPG. Factors contributing to the
higher purchase prices are a tight supply/demand balance for both chemical and recycled-based
raw materials and higher crude oil and natural gas prices for our
chemical-based businesses. Plant added costs were lower overall compared to the same period last year
despite higher depreciation, other non-cash charges, higher energy costs, and higher volumes in the
FRPG. These higher costs were more than offset by savings from our
cost reduction programs. The additional depreciation was a result of
the February 2004 Financing (see note 8 to the Financial Statements). For additional information on our cost
reduction programs, see Cost Reduction Programs below and note 4 to the
Financial Statements. As a result of the foregoing, gross profit decreased $2.0, or 12.1%, to
$14.5 from $16.5 for the corresponding period in 2003. The gross profit margin
was 4.7% in the 2004 period compared to 6.3% in the 2003 period. Selling, general and administrative expenses were $14.6, or 4.7% of net
sales, in the 2004 period compared to $15.8, or 6.0% of net sales, in the 2003
period. The decrease was primarily due to our on-going cost reduction efforts.
For additional information on our cost reduction programs, see Cost Reduction
Programs below. We
incurred charges for uncollectible accounts of $3.3 during the three
months ended September 30, 2003. Three of our FRPG customers filed
bankruptcy proceedings during the third quarter of 2003. The
additional expense was recorded based on developments during the
third quarter of 2003 that reduced our expectations on these trade
receivables and other changes in estimates of amounts to be realized
on the remaining trade receivable balances at September 30, 2003. We incurred restructuring charges of $1.3 and $0.3 for the three months
ended September 30, 2004 and 2003, respectively. For information on our cost
reduction programs, see Cost Reduction Programs below. 16




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Other expense, net for the three months ended September 30, 2004 and 2003
consisted of legal costs related to the Department of Justice investigation of
the polyester staple fiber and rebates from anti-dumping duties in 2004. Legal
costs totaled $1.3 and $1.2 for the three months ended September 30, 2004 and
2003, respectively. Rebates from anti-dumping duties totaled $ 0.7 in the
three-month period ended September 30, 2004. For additional information on the
legal proceedings, see Item 1. Legal Proceedings and note 10 to the Financial
Statements. As a result of the foregoing, we reported an operating loss of $ 2.0 in
the 2004 period compared to an operating loss of $4.1 in the 2003 period. Interest expense, net, was $10.5 in the 2004 period compared to $2.4 in
the 2003 period. This was the result of increased long-term debt and higher
credit spreads because of the February 2004 Financing, higher short-term
interest rates, and increased amortization in interest expense, net. See
Outlook below for expected interest expense for the remainder of 2004. Our effective tax rate for the three months ended September 30, 2004 on
earnings (loss) from continuing operations was 40% compared to 29% for the
three months ended September 30, 2003. Our tax rate increased due to the
higher relative proportion of U.S. to foreign earnings. Foreign earnings are taxed at
rates lower than U.S. rates. As a result of the foregoing, we reported a loss from continuing
operations of $7.6 for the three months ended September 30, 2004, compared to a
loss from continuing operations of $4.6 for the three months ended September
30, 2003. As a result of the June 2003 private equity investment, we recorded
accretion of the preferred stock liquidation preference, including the
amortization of the discount related to the valuation of the common stock
warrants, of $3.1 and $2.9 in the three months ended September 30, 2004 and
2003, respectively. As a result of the foregoing, we reported a net loss attributable to
common stockholders of $10.7, or $0.34 per diluted share, for the three months
ended September 30, 2004, compared to net loss attributable to common
stockholders of $7.5, or $0.24 per diluted share, for the three months ended
September 30, 2003. NINE MONTHS ENDED SEPTEMBER 30, 2004 COMPARED TO NINE MONTHS ENDED SEPTEMBER
30, 2003 Total net sales from continuing operations for the nine months ended
September 30, 2004 increased $97.5, or 11.7%, to $932.8 from $835.3 million for
the corresponding period in 2003 due to the following: PPG
    
    FRPG
    
    TOTALSales volumes
    
    $
    9.5
    
    
    $
    36.4
    
    
    $
    45.9Net selling prices
    
    
    33.1
    
    
    
    4.5
    
    
    
    37.6Foreign currency translation
    
    
    5.6
    
    
    
    8.4
    
    
    
    14.0$
    48.2
    
    
    $
    49.3
    
    
    $
    97.5
 Sales volumes increased during the nine months of 2004 in both our PPG and
FRPG primarily as a result of improved supply/demand fundamentals, an improved
trade balance for U.S. polyester staple fiber and North American Free
Trade Agreement (NAFTA) PET resin, and demand growth in
the NAFTA PET resin industry. Net
selling price increases were initiated in both segments during the 2004 period
initiated in response to higher raw material costs. Total cost of sales from continuing operations for the nine months ended
September 30, 2004 increased $112.3, or 14.7%, to $877.6 from $765.3 for the
corresponding period in 2003 due to the following: 17




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PPG
    
    FRPG
    
    TOTALRaw material costs
    
    $
    50.7
    
    
    $
    50.4
    
    
    $
    101.1Plant added costs
    
    
    1.7
    
    
    
    (3.1
    )
    
    
    (1.4
    )Foreign currency translation
    
    
    5.0
    
    
    
    7.6
    
    
    
    12.6$
    57.4
    
    
    $
    54.9
    
    
    $
    112.3
 The higher raw material costs are due to both increased sales volumes and
higher purchase prices in both our chemical and recycled-based businesses.
Factors contributing to the higher purchase prices in the 2004 period are a tight
supply/demand balance for both chemical and recycled-based raw materials and
higher crude oil prices for our chemical-based businesses. Plant added costs were lower overall compared to the same period last year
despite higher depreciation, other non-cash charges, higher energy costs, and higher volumes
in both the PPG and the FRPG. These higher costs were
more than offset by savings from our cost reduction programs. The
additional depreciation was a result of the February 2004 Financing
(see note 8 to the Financial Statements). For
additional information on our cost reduction programs, see Cost Reduction
Programs below and note 4 to the Financial Statements. As a result of the foregoing, gross profit decreased $14.8, or 21.1%, to
$55.2 in the 2004 period compared to $70.0 in the 2003 period. The gross profit
margin was 5.9% in the 2004 period compared to 8.4% in the 2003 period. Selling, general and administrative expenses were $42.9, or 4.6% of net
sales, in the 2004 period compared to $50.4, or 6.0% of net sales, in the 2003
period. The decrease was primarily due to our on-going cost reduction efforts.
For additional information on our cost reduction programs, see Cost Reduction
Programs below. We incurred $40.2 of non-capitalizable costs resulting from costs
associated with our previous financings that were repaid in the first quarter
of 2004. For additional information on the new financing, see Item 2.
Managements Discussion and Analysis of Financial Condition and Results of
Operations  The February 2004 Financing and note 8 to the
Financial Statements. We incurred charges for uncollectible accounts of $0.3 and $3.4 during
the nine months ended September 30, 2004 and 2003, respectively. Seven of our
FRPG customers filed bankruptcy proceedings during the 2003 period. Additional
expense was recorded based on developments during the 2003 period that reduced
our expectations on these trade accounts receivable and other changes in
estimates of amounts to be realized on remaining trade receivable balances at
September 30, 2003. We incurred restructuring charges of $2.4 and $1.6 for the nine months
ended September 30, 2004 and 2003, respectively. For information on our cost
reduction programs, see Cost Reduction Programs below. Other expense, net for the nine months ended September 30, 2004 and 2003
consisted of legal costs related to the Department of Justice investigation of
the polyester staple fiber industry, rebates from anti-dumping duties in 2004,
and expense in 2003 associated with the acceleration of stock option vesting.
Legal costs totaled $3.6 and $4.2 for the nine months ended September 30, 2004
and 2003, respectively. Rebates from anti-dumping duties totaled $ 0.7 in the
2004 period. Expense associated with the accelerated stock option vesting
totaled $1.2 in the nine-month period ended September 30, 2003. For additional
information on the legal proceedings, see Item 1. Legal Proceedings and note
10 to the Financial Statements. As a result of the foregoing, we reported an operating loss of $33.5 in
the 2004 period compared to operating income of $9.2 in the 2003 period. 18




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Interest expense, net, was $28.1 in the 2004 period compared to $6.7 in
the 2003 period. This was the result of increased long-term debt and higher
credit spreads because of the February 2004 Financing and increased
amortization in interest expense, net. See Outlook below for expected
interest expense for the remainder of 2004. Our effective tax rate for the nine months ended September 30, 2004 on
earnings (loss) from continuing operations was 40% compared to 45% for the
nine months ended September 30, 2003. Our tax rate decreased due to the lower
relative proportion of U.S. to foreign earnings. Foreign earnings are taxed at
rates lower than U.S. rates. As a result of the foregoing, we reported a loss from continuing
operations of $37.3 for the nine months ended September 30, 2004, compared to
earnings from continuing operations of $1.4 for the nine months ended September
30, 2003. As a result of the June 2003 private equity investment, we recorded
accretion of the preferred stock liquidation preference, including the
amortization of the discount related to the valuation of the common stock
warrants, of $9.1 and $3.0 in the nine months ended September 30, 2004 and
2003, respectively. As a result of the foregoing, we reported a net loss attributable to
common stockholders of $46.4, or $1.47 per diluted share, for the nine months
ended September 30, 2004, compared to a net loss attributable to common
stockholders of $1.5, or $0.05 per diluted share, for the nine months ended
September 30, 2003. BUSINESS TRENDS The following analysis compares the results from the first quarter of 2003
through the third quarter of 2004. We believe an analysis of the seven quarters
ending with the third quarter of 2004 helps to understand our business. Gross
profit for the seven quarters ending with the third quarter of 2004 was as
follows: Gross ProfitFirst Quarter 2003
    
    $
    30.2Second Quarter 2003
    
    $
    23.3Third Quarter 2003
    
    $
    16.5Fourth Quarter 2003
    
    $
    10.6First Quarter 2004
    
    $
    17.4Second Quarter 2004
    
    $
    23.3Third Quarter 2004
    
    $
    14.5
 Gross profit in the first quarter 2003 benefited from PET resin raw
material margins and volumes that were higher than subsequent quarters. In the second quarter of 2003, gross
profit decreased because PET resin raw material margins and volumes decreased
compared to the first quarter of 2003. The gross profit was significantly lower
in the second half of 2003 due to the following:  (1)
    
    PET resin capacity additions resulted in reduced selling prices and
reduced margins as competitors tried to sell their capacity;(2)
    
    An unexpected drop in demand related to the cool and rainy summer
weather in the Eastern United States and a reduction in customers
inventory levels; and(3)
    
    A seasonal weakness in the fourth quarter due to winter buying
patterns of our North American beverage packaging customers, an increase
in lower-margin export sales, and pricing pressure associated with
annual contract negotiations. These factors resulted in our experiencing historically low PET resin
margins in the fourth quarter of 2003. During the second half of 2003, we
initiated additional company-wide cost reduction programs (see Outlook and
Cost Reduction Programs below). Since the implementation of these programs
started in August 2003, these programs helped partially offset the decrease in
our gross profit due to the decrease in raw material margins. 19




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Our gross profit improved to $17.4 in the first quarter of 2004 and $23.3
in the second quarter 2004 primarily as a result of improved PET resin margins,
improved volumes in the PPG and the FRPG, and the effect of our cost reduction
programs. Our gross profit decreased in the third quarter of 2004 principally
because of reduced PPG volumes due to competitive pressure in our domestic PET
resins business and seasonality. FRPG volumes also declined due to seasonal
slowness in the third quarter. These reduced volumes contributed to our
businesses incurring higher per unit operating costs. COST REDUCTION PROGRAMS During 2003, we announced cost reduction plans as part of our on-going low
cost business strategy and in response to reduced profitability as a result of
increased raw material costs, declines in PET resin selling prices in the PPG,
and a continuing decline in the FRPG operating results. In January 2003, the FRPG commenced a plan to restructure its operations,
which included a reduction in the number of employees and other cost savings
initiatives at our three fiber manufacturing facilities. In the nine
months ended September 30, 2003, we recorded termination costs of $1.6 and paid $1.2 in our FRPG
segment related to this plan, which was fully implemented in 2003. In July 2003, we announced reductions in compensation and benefit costs.
These compensation and benefit reductions were implemented at all levels,
including senior management. As part of this cost reduction effort, some
employer contributions to our defined contribution plans were suspended. In November 2003, we announced a third plan with cost reduction
initiatives that included eliminating levels of management, reducing the number
of employees, and other organizational and administrative consolidations and
changes. During the first nine months of 2004, we incurred severance costs of
$2.4 associated with this plan, of which $0.6 related to the PPG and $1.8
related to the FRPG. These last two cost reduction plans are expected to result in
approximately $29 of realized savings in controllable costs in 2004 over the
level achieved at the end of 2003. Annualized cumulative savings in
controllable costs of $37, since the programs were implemented at the end of
the second quarter of 2003, are expected to be achieved by the end of 2004. For
additional information on restructurings, see note 4 to the Financial
Statements. OUTLOOK The following statements are forward-looking statements and should be read
in conjunction with Forward-Looking Statements; Risks and Uncertainties
below. Our operating results will depend on raw material margins, volumes, and
maintaining the reduced level of controllable costs. We will be challenged to maintain our raw material margins at levels
comparable to those in the third quarter of 2004. Our businesses have
already announced multiple selling price increases which are effective at different times in the fourth
quarter 2004. Our U.S. PET resin business has announced selling price
increases totaling 17 cents per pound, and our U.S. polyester staple fiber business
has announced selling price increases of 6 cents per pound. We have also
announced a 3-cent per pound selling price increase effective January 2, 2005
for our U.S. polyester staple fiber business. Changes in our raw material
margins will depend on the increase in our raw material costs compared to the
amount of the selling price increases that are achieved. We expect volumes to
increase in our PPG segment in the fourth quarter of 2004, and we expect to
maintain the level of cost reductions we have achieved through the end of the
third quarter of 2004. 20




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We expect to receive a payment under the Continued Dumping and Subsidy
Offset Act in the fourth quarter of 2004. While we expect that the amount of
the payment will be more than the amount we received in 2003, there is no
certainty that we will receive any payment. We expect interest expense and
depreciation and amortization to approximate $10.0 and $19.0, respectively, for
the fourth quarter of 2004. Looking beyond 2004, we expect NAFTA consumption of PET resin to increase
based on the attractive characteristics of PET packaging. During 2005 we
expect this demand to increase faster than the NAFTA capacity to produce PET
resin, and this is expected to result in higher average NAFTA capacity
utilization, and improved PET resin margins. We believe imports throughout the textile chain will continue to adversely
impact the textile market in the U.S. The impact of textile and apparel imports
from Asia, especially from China, may increase because quotas on all textile
and apparel imports into the United States are scheduled to be eliminated as of
January 1, 2005, pursuant to the GATT (now known as the World Trade
Organization Agreement) Uruguay Round Agreement enacted in 1994. This, combined
with increased raw material costs, may adversely impact our U.S. polyester staple
fiber raw material margins and volumes. CAPITAL RESOURCES AND LIQUIDITY Net cash used in operations was $30.0 for the nine months ended September
30, 2004, compared to net cash used in operations of $8.1 for the nine months
ended September 30, 2003. The change is primarily due to reduced earnings from
continuing operations in the 2004 period and the increase in accounts
receivable in the first quarter of 2004 associated with the termination of our
asset securitization program as part of the February 2004 Financing. Net cash used in investing activities amounted to $234.0 in the 2004
period compared to $9.4 in the 2003 period. Capital expenditures were $6.9 for
the nine months ended September 30, 2004 compared to $10.5 for the nine months
ended September 30, 2003. Investing activities in 2004 included $150.0 of
additions from the purchase of the assets of the sale and leaseback transaction
and $77.1 for the pre-payment of a raw material contract, both in conjunction
with the February 2004 Financing. For additional information, see Item 2.
Managements Discussion and Analysis  The February 2004
Financing. Net cash provided by financing activities amounted to $ 72.8 in the 2004
period compared to $18.8 in the 2003 period. On February 10, 2004, we closed on
$625.0 of new debt financings. For additional information see Item 2.
Managements Discussion and Analysis  The February 2004 Financing
and note 8 to the Financial Statements. The net proceeds from the February 2004 Financing of approximately $489.5
plus $206.4 in cash ($695.9 in total) were used to: Pay Balance Sheet Debt
    
    $
    370.0Purchase PET Resin Assets (Sale and Leaseback)
    
    
    150.0Pre-pay Raw Material Contract
    
    
    77.1Purchase Accounts Receivable
    
    
    51.4Pay February 2004 Financing Costs
    
    
    18.0Pay Pre-payment Penalties
    
    
    13.9Terminate Certain Swap Agreements
    
    
    11.9Pay Interest and Fees
    
    
    3.6$
    695.9
 We incurred pre-tax charges of $42.4, of which $40.2 occurred in the first
quarter of 2004, resulting from costs associated with the financings that were
repaid. These first quarter 2004 expenses (including non-cash charges)
consisted of the following: 21




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Termination of Swap Agreements
    
    $
    14.4Pre-payment Penalties
    
    
    13.9Write-Off of Debt Issuance Costs
    
    
    6.6Other Expenses
    
    
    5.3Non-Capitalizable Financing Costs
    
    $
    40.2
 As part of the restructuring of the sale and leaseback transaction in June
of 2003, we entered into three swaps, each with a notional amount of $50.0,
that were designated as cash flow hedges. These swaps hedged our exposure to
variability in cash flows attributable to rent expense paid in relation to the
sale and leaseback transaction. As part of the February 2004 Financing, we
terminated two of the three swaps and redesignated the third as a cash flow
hedge against the new debt entered into in the first quarter of 2004. The
termination, redesignation and refinancing resulted in an overall cost of
$14.4, which was net of $3.8 that was previously included in other
comprehensive income (loss). In July 2004, we entered into interest rate hedging agreements with
financial institutions for a total notional amount of $100.0 as follows:
three-year fixed-rate swaps with a notional amount of $50.0, whereby we will
receive 3-Month Libor and pay 3.65% quarterly; and a three year 6% cap whereby,
for quarterly periods when 3-Month Libor exceeds 6% on its reset date, we will
receive the difference between 3-Month Libor and 6% on $50.0 for such period. Since the completion of the February 2004 Financing, we do not have any
material relationships with unconsolidated entities or financial partnerships,
often referred to as special purpose entities, for the purpose of facilitating
off-balance sheet arrangements with contractually narrow or limited purposes. Our debt agreements contain financial and restrictive covenants. The terms
of the Revolving Credit Facility require that we maintain available liquidity
(as defined in the Revolving Credit Facility) of at least $55.0 or maintain a
Fixed Charge Coverage Ratio initially of at least 1.0:1.0 at the present time.
This ratio increases to 1.05:1.0 beginning with the four quarters ended
December 31, 2006 and further increases to 1:10:1.0 beginning with the four
quarters ending March 31, 2008. The Fixed Charge Coverage Ratio, as defined in
the Revolving Credit Facility, is earnings before interest, taxes, depreciation
and amortization divided by the sum of cash taxes, cash interest expense,
capital expenditures and certain payments related to our equity for the same
period. There are certain liquidity thresholds, which must be met in order for
us to settle lawsuits or pay judgments. There are other restrictions which
include limitations on capital expenditures, asset sales and dispositions, the
incurrence or guarantee of additional debt, acquisitions, certain payments and
investments, affiliate and subsidiary transactions, repurchase of stock, and
excess cash. We are in compliance with all debt covenants. The financial resources available to us at September 30, 2004 included
approximately $116 available under our Revolving Credit Facility and internally
generated funds. We believe these financial resources will provide us with
sufficient liquidity to meet our foreseeable needs for working capital,
dividends, and capital expenditures. This includes our $50 capital expansion,
which is expected to add 300 million pounds of additional solid stating
capacity to our Pearl River facility in the first quarter of 2006. FORWARD-LOOKING STATEMENTS; RISKS AND UNCERTAINTIES Statements contained in this Form 10-Q that are not historical facts,
including those made in the Outlook section above, are forward-looking
statements made pursuant to the safe harbor provisions of the Private
Securities Litigation Reform Act of 1995. In addition, words such as believes,
anticipates, expects and similar expressions are intended to identify
forward-looking statements. These statements are made as of the date of this
report based upon current expectations, and we undertake no obligation to
update this information. These forward-looking statements involve certain risks
and uncertainties, including, but not limited to: raw material margins; sales
volumes; the financial condition of our customers; fiber and textile imports;
availability and cost of raw materials; the impact of litigation arising out of
alleged pricing practices in the polyester staple fiber industry; the effective
implementation of our cost reduction programs; availability of financing,
changes in financial markets, interest rates, credit ratings, and foreign
currency exchange rates; regulatory changes; tax risks; U.S., European, Asian
and global 22




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economic conditions; prices and volumes of imports; work stoppages; levels
of production capacity and profitable operations of assets; prices of competing
products; natural disasters and acts of terrorism; and maintaining the
operations of our existing production facilities. Actual results may differ
materially from those expressed herein. Results of operations in any past
period should not be considered indicative of results to be expected in future
periods. Fluctuations in operating results may result in fluctuations in the
price of our common stock. For a more complete description of the prominent risks and uncertainties
inherent in our business, see our Form 10-K for the year ended December 31,
2003. 
 ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURE OF MARKET RISK For information about our derivative financial instruments, see Item 7A.
Quantitative and Qualitative Disclosure About Market Risk of our Form 10-K
for the year ended December 31, 2003. 
 ITEM 4. CONTROLS AND PROCEDURES  (a)
    
    Based on an evaluation of the effectiveness of the Companys
disclosure controls and procedures as of September 30, 2004, both the
Chief Executive Officer and the Chief Financial Officer of the Company
concluded that there is a reasonable assurance 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, are
effective.(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. 23




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PART II  OTHER INFORMATION 
 ITEM 1. LEGAL PROCEEDINGS In January 2001, we received a document subpoena in connection with a federal
grand jury investigation of pricing practices in the polyester staple fiber
industry. We cooperated with the investigation by producing documents in
response to this subpoena. On September 22, 2004, the Department of Justice
(DOJ) informed us that it will not seek indictments either of Wellman or any
of its employees in connection with this investigation. On October 5, 2004,
the judge presiding over the federal civil cases discussed below announced on
the record that he had been informed by DOJ that there would be no further
criminal prosecution in connection with the investigation. Following the public disclosure of the investigation in September 2002,
numerous producers of polyester staple fiber, including Wellman, have been
named in various civil actions asserting claims based on alleged price fixing
and market allocation in the polyester staple industry. These proceedings are
summarized below. Wellman and certain other companies are named as defendants in twenty-four
(24) federal actions brought by direct purchasers of polyester staple fiber for
alleged violation of U.S. antitrust laws. In each lawsuit, the plaintiffs
allege that the defendants engaged in a conspiracy to fix the price of
polyester staple fiber in violation of the Sherman Act. In ten of the cases,
the plaintiff purports to represent a class of all persons who directly
purchased polyester staple fiber and were similarly affected by such alleged
conduct. Fourteen of the cases are brought by plaintiffs who do not purport to
represent a class. Certain of these cases name employees of Wellman and other
companies as defendants. All of the federal plaintiffs seek damages of unspecified amounts,
attorneys fees and costs and unspecified relief. In addition, certain of the
actions claim restitution, injunction against alleged illegal conduct and other
equitable relief. The federal suits were originally filed in the U.S. District
Court for the Middle District of Alabama, U.S. District Court for the Northern
District of California, U.S. District Court for the Middle District of Georgia,
U.S. District Court for the District of New Jersey, U.S. District Court for the
Middle District of North Carolina, U.S. District Court for the Western District
of North Carolina, U.S. District Court for the District of South Carolina and
U.S. District Court for the Western District of Virginia. The Judicial Panel
on Multi-District Litigation ruled on April 22, 2003 to transfer all the
federal cases to the Western District of North Carolina for coordinated or
consolidated pretrial proceedings. In addition to the direct purchaser actions discussed above, forty-two
purported class actions alleging violations of federal antitrust laws, state
antitrust or unfair competition laws and certain state consumer protection acts
have been filed in one federal court and various state courts on behalf of
purported classes of indirect purchasers of polyester staple fiber products.
In each lawsuit, the plaintiffs allege that the defendants engaged in a
conspiracy to fix prices of polyester staple fiber products. In addition,
certain of the actions claim restitution, injunction against alleged illegal
conduct and other equitable relief. One indirect purchaser case is pending in
the U.S. District Court for the Western District of North Carolina and is
subject to the order issued by the Judicial Panel on Multi-District Litigation
for coordination or consolidation with the other federal cases. The rest of
the indirect purchaser cases were filed in Arizona, California, the District of
Columbia, Florida, Kansas, Massachusetts, Michigan, New Mexico, North Carolina,
South Dakota, Tennessee, West Virginia and Wisconsin. In all of these cases,
the plaintiffs seek damages of unspecified amounts, attorneys fees and costs
and unspecified relief. Wellman and certain other companies were named in an action filed in the
Superior Court of Justice for Ontario, Canada, by a plaintiff purporting to
represent a class of direct and indirect purchasers of polyester staple fiber.
This complaint asserts claims under Canadian law. It contains three counts that
ask for compensatory damages of Cdn. $50 each. The extent to which these three
counts are duplicative and overlapping is unclear. The complaint also contains
one count asking for punitive damages of Cdn. $10. Additionally, Wellman and
certain 24




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other companies were also named in an action filed in the Supreme Court of
British Columbia, Canada, by a plaintiff purporting to represent a class of
direct and indirect purchasers of polyester staple fiber. This complaint also
asserts claims under Canadian law and requests compensatory, punitive and
special damages, but does not allege a specific dollar amount in damages.
Finally, Wellman and certain other corporations were named in an action filed
in the Superior Court for Quebec, Canada. This complaint asserts claims under
Canadian law seeking compensatory damages of Cdn. $15 and punitive damages of
Cdn. $5. In addition to the foregoing, Wellman may become subject to additional
proceedings and lawsuits under federal and state antitrust and unfair
competition laws. We continue to vehemently deny that we or our
employees engaged in price fixing or customer allocation. We intend to vigorously defend against the civil claims and
any civil claims or proceedings that may be brought against us in the future.
Because of the uncertainties and complexity of these civil claims, we have not
formed an opinion about whether these proceedings will have a material adverse
effect on our consolidated financial position or results of operations. 
 ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K  (a)
    
    Exhibits.  4(a)
    
    Pursuant to Item 601(b)(4)(iii) of Regulation S-K, the
registrant has not filed herewith any instrument with respect to
long-term debt, which does not exceed 10% of the total assets of
the registrant and its subsidiaries on a consolidated basis. The
registrant hereby agrees to furnish a copy of any such instrument
to the Securities and Exchange Commission upon request.31.1
    
    Certification of the Chief Executive Officer pursuant to
Section 302 of the Sarbanes-Oxley Act of 200231.2
    
    Certification of the Chief Financial Officer pursuant to
Section 302 of the Sarbanes-Oxley Act of 200232.1
    
    Certification of the Chief Executive Officer pursuant to
Section 906 of the Sarbanes-Oxley Act of 200232.2
    
    Certification of the Chief Financial Officer pursuant to
Section 906 of the Sarbanes-Oxley Act of 2002  (b)
    
    Reports on Form 8-K.  (1)
    
    The Company filed a Form 8-K on July 8, 2004, announcing it received a letter from the
Department of Justice that identifies the Company as a target in a
grand jury investigation of a
conspiracy to fix prices in connection with polyester staple fiber.
The Company was also advised that two of its employees may receive
similar target letters.(2)
    
    The Company filed a Form 8-K on July 29, 2004 for the
purpose of disclosing its second quarter
2004 results, historical adjusted EBITDA and Post Financing Adjusted
EBITDA, and information on cost reduction programs.(3)
    
    The Company filed a Form 8-K on September 24, 2004 for the
purpose of disclosing its
announcement of the Antitrust Division of the Department of Justice
advising the Company that it
will not be seeking indictment of Wellman, Inc. or any of its employees in
connection with its investigation of
price fixing on the polyester staple fiber industry. 25




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SIGNATURES Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized. WELLMAN, INC.Dated November 9, 2004
    By
    
    /s/ Keith R. PhillipsChief Financial Officer and Vice President(Principal Financial Officer)Dated November 9, 2004
    By
    
    /s/ Mark J. RudayChief Accounting Officer, Vice President andController (Principal Accounting Officer) 26