##### Table of Contents



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 1934
 For the quarterly period ended September 30, 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.
 (Exact name of registrant as specified in its charter)
 Delaware
    
    04-1671740(State or other jurisdiction of
    
    (I.R.S. Employerincorporation or organization)
    
    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 and nine months ended September 30, 2006 and 2005
    
    
    3Condensed Consolidated Balance Sheets  September 30, 2006 and December 31, 2005 (Audited)
    
    
    4Condensed Consolidated Statements of Stockholders Equity  For the nine months ended September 30, 2006 and the year ended December 31, 2005 (Audited)
    
    
    5Condensed Consolidated Statements of Cash Flows  For the nine months ended September 30, 2006 and 2005
    
    
    6Notes to Condensed Consolidated Financial Statements
    
    
    7ITEM 2 - Managements Discussion and Analysis of Financial Condition and Results of Operations
    
    
    19ITEM 3 - Quantitative and Qualitative Disclosures About Market Risk
    
    
    28ITEM 4 - Controls and Procedures
    
    
    28PART II  OTHER INFORMATIONITEM 1 - Legal Proceedings
    
    
    28ITEM 6 - Exhibits and Reports on Form 8-K
    
    
    30SIGNATURES
    
    
    31EX-31.1 Section 302 Certification of CEOEX-31.2 Section 302 Certification of CFOEX-32.1 Section 906 Certification 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
    
    
    Nine MonthsEnded September 30,
    
    
    Ended September 30,2006
    
    
    2005
    
    
    2006
    
    
    2005Net sales
    
    $
    362.2
    
    
    $
    344.3
    
    
    $
    1,067.5
    
    
    $
    1,075.6Cost of sales
    
    
    353.6
    
    
    
    311.7
    
    
    
    1,036.1
    
    
    
    977.5Gross profit
    
    
    8.6
    
    
    
    32.6
    
    
    
    31.4
    
    
    
    98.1Selling, general and administrative expenses
    
    
    14.8
    
    
    
    14.7
    
    
    
    43.8
    
    
    
    46.3Johnsonville fibers disposal costs
    
    
    34.1
    
    
    
    
    
    
    
    34.1
    
    
    
    Restructuring charges
    
    
    
    
    
    
    
    
    
    
    1.5
    
    
    
    0.6Provision for uncollectible accounts
    
    
    
    
    
    
    0.4
    
    
    
    0.1
    
    
    
    0.4Other expense, net
    
    
    1.1
    
    
    
    15.3
    
    
    
    8.3
    
    
    
    43.1Operating income (loss)
    
    
    (41.4
    )
    
    
    2.2
    
    
    
    (56.4
    )
    
    
    7.7Interest expense, net
    
    
    16.0
    
    
    
    11.6
    
    
    
    42.6
    
    
    
    33.2Loss before income tax benefit
    
    
    (57.4
    )
    
    
    (9.4
    )
    
    
    (99.0
    )
    
    
    (25.5
    )Income tax benefit
    
    
    (21.8
    )
    
    
    (3.9
    )
    
    
    (35.7
    )
    
    
    (9.6
    )Net loss
    
    $
    (35.6
    )
    
    $
    (5.5
    )
    
    $
    (63.3
    )
    
    $
    (15.9
    )Net loss attributable to common stockholders:Net loss
    
    $
    (35.6
    )
    
    $
    (5.5
    )
    
    $
    (63.3
    )
    
    $
    (15.9
    )Accretion
    
    
    (3.6
    )
    
    
    (3.4
    )
    
    
    (10.6
    )
    
    
    (10.8
    )Net loss attributable to common stockholders
    
    $
    (39.2
    )
    
    $
    (8.9
    )
    
    $
    (73.9
    )
    
    $
    (26.7
    )Basic and diluted net loss per common share:Net loss attributable to common stockholders
    
    $
    (1.23
    )
    
    $
    (0.28
    )
    
    $
    (2.32
    )
    
    $
    (0.84
    )Dividends per common share
    
    $
    0.02
    
    
    $
    0.05
    
    
    $
    0.12
    
    
    $
    0.15
  3




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##### Table of Contents



WELLMAN, INC.
 
 CONDENSED CONSOLIDATED BALANCE SHEETS
 September 30,
    
    
    December 31,2006
    
    
    2005(Unaudited)
    
    
    (Note 1)ASSETS:Current assets:Cash and cash equivalents
    
    $
    
    
    
    $
    Accounts
receivable, less allowance of $1.9 and $2.1 in 2006 and 2005
    
    
    214.1
    
    
    
    160.3Inventories
    
    
    150.1
    
    
    
    162.3Prepaid expenses and other current assets
    
    
    20.9
    
    
    
    21.7Total current assets
    
    
    385.1
    
    
    
    344.3Property, plant and equipment, at cost:Land, buildings and improvements
    
    
    102.7
    
    
    
    118.1Machinery and equipment
    
    
    1,069.2
    
    
    
    1,046.7Construction in progress
    
    
    9.6
    
    
    
    45.81,181.5
    
    
    
    1,210.6Less accumulated depreciation
    
    
    566.9
    
    
    
    574.1Property, plant and equipment, net
    
    
    614.6
    
    
    
    636.5Property, plant and equipment held for sale, net
    
    
    
    
    
    
    10.8Goodwill, net
    
    
    33.4
    
    
    
    33.4Other assets, net
    
    
    39.7
    
    
    
    51.5$
    1,072.8
    
    
    $
    1,076.5LIABILITIES AND STOCKHOLDERS EQUITY:Current liabilities:Accounts payable
    
    $
    96.1
    
    
    $
    102.4Accrued liabilities
    
    
    43.6
    
    
    
    45.8Current portion of long-term debt
    
    
    0.2
    
    
    
    0.2Total current liabilities
    
    
    139.9
    
    
    
    148.4Long-term debt
    
    
    602.5
    
    
    
    498.4Deferred income taxes and other liabilities
    
    
    75.9
    
    
    
    112.9Total liabilities
    
    
    818.3
    
    
    
    759.7Stockholders equity:Series A preferred stock, $0.001 par value, 5,000,000 shares authorized,
4,502,143 shares issued and outstanding
    
    
    65.9
    
    
    
    61.7Series B preferred stock, $0.001 par value; 6,700,000 shares authorized, issued
and outstanding
    
    
    98.2
    
    
    
    91.8Class A common stock, $0.001 par value; 100,000,000 shares authorized,
35,204,944 shares issued and outstanding in 2006 and 34,965,922 in 2005
    
    
    
    
    
    
    Class B common stock, $0.001 par value, 5,500,000 shares authorized, no shares
issued
    
    
    
    
    
    
    Paid-in capital
    
    
    248.2
    
    
    
    247.2Common stock warrants
    
    
    4.9
    
    
    
    4.9Accumulated other comprehensive income
    
    
    26.1
    
    
    
    22.2Accumulated deficit
    
    
    (139.3
    )
    
    
    (61.5
    )Less common stock in treasury at cost: 2,500,000 shares
    
    
    (49.5
    )
    
    
    (49.5
    )Total stockholders equity
    
    
    254.5
    
    
    
    316.8$
    1,072.8
    
    
    $
    1,076.5
  4




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##### Table of Contents



CONDENSED 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
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (63.3
    )
    
    
    
    
    
    
    (63.3
    )Currency translation adjustments
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    4.2
    
    
    
    
    
    
    
    
    
    
    
    4.2Fair value of derivatives
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (0.3
    )
    
    
    
    
    
    
    
    
    
    
    (0.3
    )Total comprehensive loss
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (59.4
    )Cash dividends ($0.12 per share)
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (3.9
    )
    
    
    
    
    
    
    (3.9
    )Accretion
    
    
    
    
    
    
    4.2
    
    
    
    
    
    
    
    6.4
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (10.6
    )
    
    
    
    
    
    
    Issuance of restricted stock, net
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    0.3
    
    
    
    
    
    
    
    1.0
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    1.0Balance at September 30, 2006
(unaudited)
    
    
    4.5
    
    
    $
    65.9
    
    
    
    6.7
    
    
    $
    98.2
    
    
    
    35.2
    
    
    $
    
    
    
    $
    248.2
    
    
    $
    4.9
    
    
    $
    26.1
    
    
    $
    (139.3
    )
    
    $
    (49.5
    )
    
    $
    254.5
  5




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##### Table of Contents



WELLMAN, INC.
 
 CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2006 AND 2005
(UNAUDITED)
 2006
    
    
    2005Cash flows from operating activities:Net loss
    
    $
    (63.3
    )
    
    $
    (15.9
    )Adjustments to reconcile net loss to net cash used in operating activities:Depreciation
    
    
    40.8
    
    
    
    39.8Amortization
    
    
    13.2
    
    
    
    13.0Amortization in interest expense, net
    
    
    3.2
    
    
    
    3.2Deferred income taxes and other
    
    
    (36.9
    )
    
    
    (11.5
    )Johnsonville fibers disposal costs
    
    
    34.0
    
    
    
    Changes in operating assets and liabilities
    
    
    (61.4
    )
    
    
    (30.1
    )Net cash used in operating activities
    
    
    (70.4
    )
    
    
    (1.5
    )Cash flows from investing activities:Additions to property, plant and equipment
    
    
    (26.6
    )
    
    
    (40.8
    )Net cash used in investing activities
    
    
    (26.6
    )
    
    
    (40.8
    )Cash flows from financing activities:Borrowings under long-term debt, net
    
    
    103.3
    
    
    
    41.4Dividends paid on common stock
    
    
    (3.9
    )
    
    
    (4.8
    )Debt issuance costs
    
    
    (2.4
    )
    
    
    Net cash provided by financing activities
    
    
    97.0
    
    
    
    36.6Effect of exchange rate changes on cash and cash equivalents
    
    
    
    
    
    
    0.1Decrease in cash and cash equivalents
    
    
    
    
    
    
    (5.6
    )Cash and cash equivalents at beginning of period
    
    
    
    
    
    
    5.6Cash and cash equivalents at end of period
    
    $
    
    
    
    $
    Supplemental cash flow data:Cash paid during the period for:Interest, net
    
    $
    39.4
    
    
    $
    30.2Income taxes
    
    $
    0.7
    
    
    $
    1.0
  6




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##### Table of Contents



WELLMAN, INC.
 
 NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
 1. BASIS OF PRESENTATION
   2. ACCOUNTING CHANGES AND RECENTLY-ISSUED PRONOUNCEMENTS
   7




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##### Table of Contents



Three Months Ended
    
    Nine Months EndedSeptember 30, 2005
    
    September 30, 2005(In millions, except per share data)
    
    As
 Reported
    
    Effect of
 Change
    
    As
 Adjusted
    
    As
 Reported
    
    Effect of
 Change
    
    As
 AdjustedOperating Income
    
    $
    1.3
    
    
    $
    0.9
    
    
    $
    2.2
    
    
    $
    5.2
    
    
    $
    2.5
    
    
    $
    7.7Income Tax Benefit
    
    $
    (4.1
    )
    
    $
    0.2
    
    
    $
    (3.9
    )
    
    $
    (10.1
    )
    
    $
    0.5
    
    
    $
    (9.6
    )Net Loss Attributable to
Common Stockholders
    
    $
    (9.6
    )
    
    $
    0.7
    
    
    $
    (8.9
    )
    
    $
    (28.7
    )
    
    $
    2.0
    
    
    $
    (26.7
    )Basic and Diluted Net Loss Per
Common Share
    
    $
    (0.30
    )
    
    $
    0.02
    
    
    $
    (0.28
    )
    
    $
    (0.91
    )
    
    $
    0.07
    
    
    $
    (0.84
    )
  (In millions)
    
    As
    
    Effect of
    
    AsAs of December 31, 2005
    
    Reported
    
    Change
    
    AdjustedOther assets, net
    
    $
    73.7
    
    
    $
    (22.2
    )
    
    $
    51.5Deferred income taxes and other
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




(In millions)
    
    September 30,
    
    
    December 31,2006
    
    
    2005Raw materials
    
    $
    61.1
    
    
    $
    61.5Finished and semi-finished goods
    
    
    81.8
    
    
    
    92.2Supplies
    
    
    7.2
    
    
    
    8.6$
    150.1
    
    
    $
    162.3




4. JOHNSONVILLE FIBERS DISPOSAL


9




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##### Table of Contents



®
 For thethree and ninemonths ended(in millions)
    
    September 30, 2006Impairment on asset disposals
    
    $
    13.6Impairment on assets-held-for-sale
    
    
    8.2Inventory write-downs
    
    
    6.7Employee restructuring charges
    
    
    4.1Miscellaneous
    
    
    1.5$
    34.1
 ®
 5. RESTRUCTURING CHARGES
  Severance(in millions)
    
    CostsAccruals recorded in first quarter 2006
    
    $
    0.4Accrual balance at March 31, 2006
    
    
    0.4Accruals recorded in second quarter 2006
    
    
    1.1Cash payments
    
    
    (0.4
    )Accrual balances at June 30, 2006
    
    
    1.1Cash payments
    
    
    (1.1
    )Accrual balances at September 30, 2006
    
    $
    0.0
 10




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##### Table of Contents



6. BORROWINGS
    7. OTHER EXPENSE, NET
  Three months ended
    
    
    Nine months ended(in millions)
    
    September 30,
    
    
    September 30,2006
    
    
    2005
    
    
    2006
    
    
    2005Hurricane Katrina costs
    
    $
    0.9
    
    
    $
    7.4
    
    
    $
    8.0
    
    
    $
    7.4Legal and settlement costs
    
    
    
    
    
    
    8.0
    
    
    
    
    
    
    
    35.9Costs (proceeds) relating to anti-dumping activities, net
    
    
    0.2
    
    
    
    (0.1
    )
    
    
    0.3
    
    
    
    (0.2
    )$
    1.1
    
    
    $
    15.3
    
    
    $
    8.3
    
    
    $
    43.1
  11




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##### Table of Contents



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.
  Costs incurred for the three month periods ended:September 30, 2005
    
    $
    7.4December 31, 2005
    
    
    16.6March 31, 2006
    
    
    5.7June 30, 2006
    
    
    1.4September 30, 2006
    

    0.9Hurricane Katrina costs incurred to date
    
    $
    32.0
    12




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8. NET LOSS PER COMMON SHARE
  Three Months
    
    
    Nine MonthsEnded
    
    
    Ended(In millions)
    
    September 30,
    
    
    September 30,2006
    
    
    2005
    
    
    2006
    
    
    2005Numerator for basic and diluted net loss attributable to common
stockholders per common share:Net loss attributable to common stockholders
    
    $
    (39.2
    )
    
    $
    (8.9
    )
    
    $
    (73.9
    )
    
    $
    (26.7
    )Denominator:Denominator for basic and diluted net loss attributable to
common stockholders per common share  weighted-average
shares
    
    
    32.0
    
    
    
    31.7
    
    
    
    31.9
    
    
    
    31.7
 9. DEFINED BENEFIT PLANS
   Three Months Ended
    
    
    
    
    
    
    
    
    
    
    Nine Months EndedSeptember 30,
    
    
    
    
    
    
    
    
    
    
    September 30,(In millions)
    
    2006
    
    
    2005
    
    
    2006
    
    
    2005Domestic
    
    
    Foreign
    
    
    Domestic
    
    
    Foreign
    
    
    Domestic
    
    
    Foreign
    
    
    Domestic
    
    
    ForeignService cost
    
    $
    0.1
    
    
    $
    1.2
    
    
    $
    0.5
    
    
    $
    0.6
    
    
    $
    0.5
    
    
    $
    3.4
    
    
    $
    0.8
    
    
    $
    2.0Interest cost
    
    
    0.9
    
    
    
    1.3
    
    
    
    0.8
    
    
    
    0.9
    
    
    
    2.6
    
    
    
    3.7
    
    
    
    2.4
    
    
    
    2.9Expected return on assets
    
    
    (0.8
    )
    
    
    (1.4
    )
    
    
    (0.9
    )
    
    
    (1.2
    )
    
    
    (2.4
    )
    
    
    (4.0
    )
    
    
    (2.6
    )
    
    
    (3.8
    )Curtailment gain
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (0.1
    )
    
    
    
    
    
    
    Total net periodic
pension expense
    
    $
    0.2
    
    
    $
    1.1
    
    
    $
    0.4
    
    
    $
    0.3
    
    
    $
    0.7
    
    
    $
    3.0
    
    
    $
    0.6
    
    
    $
    1.1
 13




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Employer contributions
  10. STOCK OPTIONS
   (In millions, except per share data)
    
    Three Months Ended
    
    
    Nine Months EndedSeptember 30,
    
    
    September 30,2005
    
    
    2005Net loss attributable to common stockholders, as
reported
    
    $
    (8.9
    )
    
    $
    (26.7
    )Add: Stock-based employee compensation expense
included in reported net loss, net of related tax
effects
    
    
    
    
    
    
    Deduct: Total stock-based employee compensation
expense determined under fair value based method for
all awards, net of related tax effects
    
    
    
    
    
    
    (0.1
    )Pro forma net loss attributable to common stockholders
    
    $
    (8.9
    )
    
    $
    (26.8
    )Net loss attributable to common stockholders per basic
and diluted share:As reported
    
    $
    (0.28
    )
    
    $
    (0.84
    )Pro forma
    
    $
    (0.28
    )
    
    $
    (0.84
    )
 11. COMMITMENTS AND CONTINGENCIES
   14




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Nine Months Ended(In millions)
    
    September 30,2006
    
    
    2005Balance at beginning of period
    
    $
    6.6
    
    
    $
    7.0Changes in remediation costs
    
    
    (0.4
    )
    
    
    Expenditures
    
    
    (0.1
    )
    
    
    (0.4
    )Balance at end of period
    
    $
    6.1
    
    
    $
    6.6










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Nine Months Ended(In millions)
    
    September 30,2006
    
    
    2005Balance at beginning of period
    
    $
    4.9
    
    
    $
    1.0Additional accruals
    
    
    
    
    
    
    35.9Expenditures
    
    
    (1.2
    )
    
    
    (29.0
    )Balance at end of period
    
    $
    3.7
    
    
    $
    7.9
  12. FOREIGN CURRENCY TRANSLATION AND ACCUMULATED OTHER COMPREHENSIVE
INCOME (LOSS)
   13. SEGMENT INFORMATION
   16




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
    
    PermaClear®, PermaClear HP®, and ThermaClear Ti®,
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 and markets:
    
    Fortrel® chemical-based polyester staple fiber for use in apparel, non-woven,
home furnishing, and industrial products,
    
    recycled-based polyester 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.
  (In millions)
    
    Packaging
    
    Fibers andProducts
    
    Recycled ProductsGroup
    
    Group
    
    TotalThree months ended September 30, 2006Revenues
    
    $
    228.9
    
    
    $
    133.3
    
    
    $
    362.2Segment profit (loss)
    
    
    1.2
    
    
    
    (7.4
    )
    
    
    (6.2
    )Assets
    
    
    771.4
    
    
    
    266.5
    
    
    
    1,037.9Three months ended September 30, 2005Revenues
    
    $
    197.2
    
    
    $
    147.1
    
    
    $
    344.3Segment profit
    
    
    14.5
    
    
    
    3.4
    
    
    
    17.9Assets
    
    
    719.6
    (a)
    
    
    314.5
    
    
    
    1,034.1Nine months ended September 30, 2006Revenues
    
    $
    644.1
    
    
    $
    423.4
    
    
    $
    1,067.5Segment loss
    
    
    (5.2
    )
    
    
    (7.2
    )
    
    
    (12.4
    )Nine months ended September 30, 2005Revenues
    
    $
    621.2
    
    
    $
    454.4
    
    
    $
    1,075.6Segment profit
    
    
    43.0
    
    
    
    8.8
    
    
    
    51.8
 
 (a)
    
    This includes our Pearl River facility, which had a net book value of $293.1 million at
September 30, 2005 and was temporarily shutdown due to hurricane Katrina (see Note 7). 17




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Three Months Ended
    
    
    Nine Months Ended(In millions)
    
    September 30,
    
    
    September 30,2006
    
    
    2005
    
    
    2006
    
    
    2005Segment Profit (Loss)Total for reportable segments
    
    $
    (6.2
    )
    
    $
    17.9
    
    
    $
    (12.4
    )
    
    $
    51.8Johnsonville fibers disposal costs
    
    
    (34.1
    )
    
    
    
    
    
    
    (34.1
    )
    
    
    Restructuring charges
    
    
    
    
    
    
    
    
    
    
    (1.5
    )
    
    
    (0.6
    )Provision for uncollectible accounts
    
    
    
    
    
    
    (0.4
    )
    
    
    (0.1
    )
    
    
    (0.4
    )Other expense, net
    
    
    (1.1
    )
    
    
    (15.3
    )
    
    
    (8.3
    )
    
    
    (43.1
    )Interest expense, net
    
    
    (16.0
    )
    
    
    (11.6
    )
    
    
    (42.6
    )
    
    
    (33.2
    )Loss before income tax benefit
    
    $
    (57.4
    )
    
    $
    (9.4
    )
    
    $
    (99.0
    )
    
    $
    (25.5
    )AssetsTotal for reportable segments
    
    $
    1,037.9
    
    
    $
    1,034.1Corporate assets (1)
    
    
    34.9
    
    
    
    62.3$
    1,072.8
    
    
    $
    1,096.4
 
 (1)
    
    Corporate assets include cash, certain prepaid expenses, construction in progress, and
certain other assets not allocated to the segments. 18




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ITEM 2.
MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
 GENERAL
 ® ® ®
 ® ® ®
   IMPACT OF RECENTLY ISSUED ACCOUNTING PRONOUNCEMENTS
   19




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RESULTS OF OPERATIONS
 THREE MONTHS ENDED SEPTEMBER 30, 2006 COMPARED TO THREE MONTHS ENDED
SEPTEMBER 30, 2005
  (In millions)
    
    PPG
    
    
    FRPG
    
    
    TOTALNet SalesSales volumes
    
    $
    1.1
    
    
    $
    (16.7
    )
    
    $
    (15.6
    )Net selling prices
    
    
    29.5
    
    
    
    1.7
    
    
    
    31.2Foreign currency translation
    
    
    1.1
    
    
    
    1.2
    
    
    
    2.3Increase (decrease) in net sales
    
    
    31.7
    
    
    
    (13.8
    )
    
    
    17.9Cost of SalesVolume effect
    
    $
    1.0
    
    
    $
    (13.5
    )
    
    $
    (12.5
    )Raw material unit costs
    
    
    45.3
    
    
    
    11.5
    
    
    
    56.8Plant added unit costs
    
    
    (2.5
    )
    
    
    (3.1
    )
    
    
    (5.6
    )Foreign currency translation
    
    
    1.1
    
    
    
    2.1
    
    
    
    3.2Increase (decrease) in cost of sales
    
    
    44.9
    
    
    
    (3.0
    )
    
    
    41.9Decrease in gross profit
    
    $
    (13.2
    )
    
    $
    (10.8
    )
    
    $
    (24.0
    )
 Net Sales
  Cost of Sales
  21




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NINE MONTHS ENDED SEPTEMBER 30, 2006 COMPARED TO NINE MONTHS ENDED SEPTEMBER 30, 2005
  (In millions)
    
    PPG
    
    
    FRPG
    
    
    TOTALNet SalesSales volumes
    
    $
    12.7
    
    
    $
    (46.0
    )
    
    $
    (33.3
    )Net selling prices
    
    
    10.6
    
    
    
    16.5
    
    
    
    27.1Foreign currency translation
    
    
    (0.4
    )
    
    
    (1.5
    )
    
    
    (1.9
    )Increase (decrease) in net sales
    
    
    22.9
    
    
    
    (31.0
    )
    
    
    (8.1
    )Cost of SalesVolume effect
    
    $
    11.0
    
    
    $
    (40.0
    )
    
    $
    (29.0
    )Raw material unit costs
    
    
    53.1
    
    
    
    26.4
    
    
    
    79.5Plant added unit costs
    
    
    8.1
    
    
    
    ( 0.7
    )
    
    
    7.4Foreign currency translation
    
    
    (0.1
    )
    
    
    0.8
    
    
    
    0.7Increase (Decrease) in cost of
sales
    
    
    72.1
    
    
    
    (13.5
    )
    
    
    58.6Decrease in gross profit
    
    $
    (49.2
    )
    
    $
    (17.5
    )
    
    $
    (66.7
    )
 Net Sales
  Cost of Sales
  23




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OUTLOOK
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CAPITAL RESOURCES AND LIQUIDITY
     For the Quarter EndedDec. 31,
    
    
    Mar. 31,
    
    
    June 30,
    
    
    Sept. 30,(In Millions)
    
    2005
    
    
    2006
    
    
    2006
    
    
    2006
    
    
    TotalFixed ChargesCash interest expense
    
    $
    10.9
    
    
    $
    11.9
    
    
    $
    12.7
    
    
    $
    14.8
    
    
    $
    50.3Capital expenditures
    
    
    10.7
    
    
    
    9.3
    
    
    
    12.7
    
    
    
    4.6
    
    
    
    37.3Cash payment of taxes
    
    
    
    
    
    
    0.3
    
    
    
    0.1
    
    
    
    0.3
    
    
    
    0.7Dividend payments
    
    
    1.6
    
    
    
    1.6
    
    
    
    1.7
    
    
    
    0.7
    
    
    
    5.6Total Fixed Charges
    
    $
    23.2
    
    
    $
    23.1
    
    
    $
    27.2
    
    
    $
    20.4
    
    
    $
    93.9EBITDA, as definedNet loss
    
    $
    (44.0
    )
    
    $
    (16.0
    )
    
    $
    (11.7
    )
    
    $
    (35.6
    )
    
    $
    (107.3
    )Income tax benefit
    
    
    (16.3
    )
    
    
    (8.8
    )
    
    
    (5.1
    )
    
    
    (21.8
    )
    
    
    (52.0
    )Interest expense, net
    
    
    12.2
    
    
    
    12.6
    
    
    
    14.0
    
    
    
    16.0
    
    
    
    54.8Depreciation
and amortization
    
    15.9
    
    
    
    17.7
    
    
    
    18.5
    
    
    
    17.8
    
    
    
    69.9Nonrecurring fees/cash
charges
    
    
    60.4
    
    
    
    6.2
    
    
    
    2.3
    
    
    
    37.9
    
    
    
    106.9EBITDA, as defined
    
    $
    28.2
    
    
    $
    11.7
    
    
    $
    18.0
    
    
    $
    14.3
    
    
    $
    72.3Consolidated Fixed Charge Coverage Ratio
    
    
    0.77:1.0
 
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FORWARD-LOOKING STATEMENTS; RISKS AND UNCERTAINTIES
   
 ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURE OF MARKET RISK
  
 ITEM 4. CONTROLS AND PROCEDURES
 (a)
    
    Based on an evaluation of the effectiveness of the Companys
disclosure controls and procedures as of September 30, 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 upon an evaluation of whether any change in the Companys
internal control over financial reporting (as defined in Rule
13a-15(f) promulgated under the Exchange Act) that materially
affected, or is reasonably likely to materially affect, such internal
control occurred during the period covered by this Report, both the
Chief Executive Officer and the Chief Financial Officer of the Company
concluded that no such change occurred .
 
 PART II  OTHER INFORMATION
 
 ITEM 1. LEGAL PROCEEDINGS
  28




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ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
  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.4.2
    
    First Amendment to the Amended and
Restated Credit Agreement, dated October 20, 2006, between Wellman, Inc. and Deutsch Bank Trust
Company Americas as administrative agent and collateral agent
(Exhibit 99.1 of the Companys Form 8-K filed on October 26, 2006,
incorporated by reference31.1
    
    Certification of the Chief Executive Officer pursuant to Section 302
of the Sarbanes-Oxley Act of 200231.2
    
    Certification of the Chief Financial Officer pursuant to Section 302
of the Sarbanes-Oxley Act of 200232.1
    
    Certification of the Chief Executive Officer pursuant to Section 906
of the Sarbanes-Oxley Act of 200232.2
    
    Certification of the Chief Financial Officer pursuant to Section 906
of the Sarbanes-Oxley Act of 2002
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SIGNATURES
  WELLMAN, INC.Dated November 9, 2006
    
    By /s/ Keith R. PhillipsChief Financial Officer andVice President(Principal Financial Officer)Dated November 9, 2006
    
    By /s/ Mark J. RudayChief Accounting Officer,Vice President and Controller(Principal Accounting Officer)
 31