##### 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 March 31, 2008
 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
    
    29707(Address of principal executive offices)
    
    (Zip Code)
 (803) 835-2000
 þ o
  o þ o o
  o þ




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WELLMAN, INC.
(Debtor-in-Possession)
 INDEX
 Page No.PART I  FINANCIAL INFORMATIONITEM 1  Financial Statements (Unaudited, except where noted).Condensed Consolidated Statements of Operations -
For the three months ended March 31, 2008 and 2007
    
    
    3Condensed Consolidated Balance Sheets -
March 31, 2008 and December 31, 2007 (Audited)
    
    
    4Condensed Consolidated Statements of
Stockholders Equity (Deficit) -
For the three months ended March 31, 2008 and the year ended December
31, 2007
(Audited)
    
    
    5Condensed Consolidated Statements of Cash Flows -
For the three months ended March 31, 2008 and 2007
    
    
    6Notes to Condensed Consolidated Financial Statements
    
    
    7ITEM 2  Managements Discussion and Analysis of Financial Condition
and Results of Operations.
    
    
    21ITEM 3  Quantitative and Qualitative Disclosures About Market Risk.
    
    
    31ITEM 4  Controls and Procedures.
    
    
    31PART II  OTHER INFORMATIONITEM 1  Legal Proceedings.
    
    
    31ITEM 3  Defaults Upon Senior Securities.
    
    
    31ITEM 6  Exhibits.
    
    
    33SIGNATURES
    
    
    34EX-31.1 SECTION 302 CERTIFICATION OF THE CEOEX-31.2 SECTION 302 CERTIFICATION OF THE CFOEX-32.1 SECTION 906 CERTIFICATION OF THE CEOEX-32.2 SECTION 906 CERTIFICATION OF THE CFO
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##### Table of Contents



ITEM 1. FINANCIAL STATEMENTS
 WELLMAN, INC.
(Debtor-in-Possession)
 
 CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED)
(In millions, except per share data)
 Three Months endedMarch 31,2008
    
    
    2007Net sales
    
    $
    240.0
    
    
    $
    319.2Cost of sales
    
    
    235.7
    
    
    
    316.2Gross profit
    
    
    4.3
    
    
    
    3.0Selling, general and administrative expenses
    
    
    9.5
    
    
    
    11.7Provision for uncollectible accounts
    
    
    0.2
    
    
    
    0.1Restructuring charges
    
    
    
    
    
    
    2.9Other (income) expense, net
    
    
    0.1
    
    
    
    (2.7
    )Operating loss
    
    
    (5.5
    )
    
    
    (9.0
    )Interest expense, net (contractual interest of $15.3 for 2008 period)
    
    
    11.1
    
    
    
    15.1Loss from continuing operations before reorganization items and income tax
benefit
    
    
    (16.6
    )
    
    
    (24.1
    )Reorganization items, net
    
    
    6.1
    
    
    
    Loss from continuing operations before income taxes
    
    
    (22.7
    )
    
    
    (24.1
    )Income tax expense (benefit)
    
    
    
    
    
    
    Loss from continuing operations
    
    
    (22.7
    )
    
    
    (24.1
    )Loss from discontinued operations, net of income taxes
    
    
    
    
    
    
    (0.2
    )Net loss
    
    $
    (22.7
    )
    
    $
    (24.3
    )Net loss attributable to common stockholders:Net loss
    
    $
    (22.7
    )
    
    $
    (24.3
    )Accretion
    
    
    (2.3
    )
    
    
    (3.7
    )Net loss attributable to common stockholders
    
    $
    (25.0
    )
    
    $
    (28.0
    )Basic and diluted net loss per common share:Net loss attributable to common stockholders from continuing operations
    
    $
    (0.77
    )
    
    $
    (0.86
    )Net loss attributable to common stockholders from discontinued operations
    
    
    (0.00
    )
    
    
    (0.01
    )Net loss attributable to common stockholders
    
    $
    (0.77
    )
    
    $
    (0.87
    )Dividends per common share
    
    $
    
    
    
    $
    0.02
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##### Table of Contents



WELLMAN, INC.
(Debtor-in-Possession)
 
 CONDENSED CONSOLIDATED BALANCE SHEETS
(In millions, except share data)
 March 31,
    
    
    December 31,2008
    
    
    2007(Unaudited)
    
    
    (Note 1)ASSETS:Current assets:Cash and cash equivalents
    
    $
    1.3
    
    
    $
    --Accounts receivable, less allowance of $3.3 in 2008 and $3.1 in 2007
    
    
    135.3
    
    
    
    129.0Inventories
    
    
    85.2
    
    
    
    97.0Prepaid expenses and other current assets
    
    
    39.4
    
    
    
    25.0Total current assets
    
    
    261.2
    
    
    
    251.0Property, plant and equipment, at cost:Land, buildings and improvements
    
    
    90.5
    
    
    
    90.4Machinery and equipment
    
    
    336.9
    
    
    
    336.7Construction in progress
    
    
    6.3
    
    
    
    5.4433.7
    
    
    
    432.5Less accumulated depreciation
    
    
    193.9
    
    
    
    190.7Property, plant and equipment, net
    
    
    239.8
    
    
    
    241.8Other assets, net
    
    
    10.7
    
    
    
    10.4$
    511.7
    
    
    $
    503.2LIABILITIES AND STOCKHOLDERS DEFICIT:Current liabilities:Accounts payable
    
    $
    7.8
    
    
    $
    69.7Accrued liabilities
    
    
    18.1
    
    
    
    23.3Debt, current
    
    
    123.9
    
    
    
    554.3Total current liabilities
    
    
    149.8
    
    
    
    647.3Deferred income taxes and other liabilities
    
    
    37.8
    
    
    
    41.5Total liabilities not subject to compromise
    
    
    187.6
    
    
    
    688.8Liabilities subject to compromise
    
    
    531.1
    
    
    
    Stockholders deficit:Series A preferred stock, $0.001 par value, 5,000,000 shares authorized,
4,502,143
shares issued and outstanding
    
    
    74.7
    
    
    
    73.8Series B preferred stock, $0.001 par value; 6,700,000 shares authorized,
issued and
outstanding
    
    
    111.1
    
    
    
    109.7Class A common stock, $0.001 par value; 100,000,000 shares authorized,
35,361,632 shares issued in 2008 and 35,372,382 in 2007
    
    
    
    
    
    
    Class B common stock, $0.001 par value, 5,500,000 shares authorized;
no shares issued
    
    
    
    
    
    
    Paid-in capital
    
    
    248.5
    
    
    
    248.6Common stock warrants
    
    
    4.9
    
    
    
    4.9Accumulated other comprehensive loss
    
    
    
    
    
    
    (1.4
    )Accumulated deficit
    
    
    (596.7
    )
    
    
    (571.7
    )Less common stock in treasury at cost: 2,500,000 shares
    
    
    (49.5
    )
    
    
    (49.5
    )Total stockholders deficit
    
    
    (207.0
    )
    
    
    (185.6
    )Total liabilities and stockholders deficit
    
    $
    511.7
    
    
    $
    503.2
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##### Table of Contents



CONSOLIDATED
STATEMENTS OF STOCKHOLDERS EQUITY (DEFICIT)
 AccumulatedSeries A
    
    
    Series B
    
    
    Class A
    
    
    
    
    
    
    Common
    
    
    OtherPreferred
    
    
    Preferred
    
    
    Common
    
    
    Paid-In
    
    
    Stock
    
    
    Comprehensive
    
    
    Accumulated
    
    
    TreasuryStock Issued
    
    
    Stock Issued
    
    
    Stock Issued
    
    
    Capital
    
    
    Warrants
    
    
    Income/(Loss)
    
    
    (Deficit)
    
    
    Stock
    
    
    Total(in millions)
    
    Shares
    
    
    Amount
    
    
    Shares
    
    
    Amount
    
    
    Shares
    
    
    AmountBalance at December 31, 2006
    
    
    4.5
    
    
    $
    67.5
    
    
    
    6.7
    
    
    $
    100.4
    
    
    
    35.2
    
    
    $
    
    
    
    $
    248.3
    
    
    $
    4.9
    
    
    $
    28.4
    
    
    $
    (192.9
    )
    
    $
    (49.5
    )
    
    $
    207.1Net loss
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (361.3
    )
    
    
    
    
    
    
    (361.3
    )Currency translation adjustments
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (27.3
    )
    
    
    
    
    
    
    
    
    
    
    (27.3
    )Fair value of derivatives
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (2.5
    )
    
    
    
    
    
    
    
    
    
    
    (2.5
    )Total comprehensive loss
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (391.1
    )Cash dividends ($0.06 per share)
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (1.9
    )
    
    
    
    
    
    
    (1.9
    )Accretion
    
    
    
    
    
    
    6.3
    
    
    
    
    
    
    
    9.3
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (15.6
    )
    
    
    
    
    
    
    Issuance of restricted stock, net
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    0.2
    
    
    
    
    
    
    
    0.3
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    0.3Balance at December 31, 2007
    
    
    4.5
    
    
    
    73.8
    
    
    
    6.7
    
    
    
    109.7
    
    
    
    35.4
    
    
    
    
    
    
    
    248.6
    
    
    
    4.9
    
    
    
    (1.4
    )
    
    
    (571.7
    )
    
    
    (49.5
    )
    
    
    (185.6
    )Net loss
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (22.7
    )
    
    
    
    
    
    
    (22.7
    )Fair value of derivatives
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    1.4
    
    
    
    
    
    
    
    
    
    
    
    1.4Total comprehensive loss
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (21.3
    )Accretion
    
    
    
    
    
    
    0.9
    
    
    
    
    
    
    
    1.4
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (2.3
    )
    
    
    
    
    
    
    Tax effect
of restrictions lapsing on restricted stock
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (0.4
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (0.4
    )Amortization of deferred compensation
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    0.3
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    0.3Balance
at March 31, 2008 (unaudited)
    
    
    4.5
    
    
    $
    74.7
    
    
    
    6.7
    
    
    $
    111.1
    
    
    
    35.4
    
    
    $
    
    
    
    $
    248.5
    
    
    $
    4.9
    
    
    $
    
    
    
    $
    (596.7
    )
    
    $
    (49.5
    )
    
    $
    (207.0
    )
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WELLMAN, INC.
(Debtor-in-Possession)
 
 CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE THREE MONTHS ENDED MARCH 31, 2008 AND 2007
(UNAUDITED)
(In millions)
 2008
    
    
    2007Cash flows from operating activities:Net loss
    
    $
    (22.7
    )
    
    $
    (24.3
    )Adjustments to reconcile net loss to net cash provided by (used in)
operating
activities:Loss from discontinued operations, net of tax
    
    
    
    
    
    
    0.2Depreciation
    
    
    3.2
    
    
    
    11.7Amortization
    
    
    0.4
    
    
    
    0.2Amortization in interest expense, net
    
    
    0.5
    
    
    
    0.9Amortization of acquisition costs of long-term raw material contract
    
    
    3.9
    
    
    
    3.9Deferred income taxes and other
    
    
    
    
    
    
    (0.1
    )Reorganization items
    
    
    6.1
    
    
    
    Payments of reorganization items
    
    
    (6.1
    )
    
    
    Changes in assets and liabilities
    
    
    2.4
    
    
    
    10.0Net cash (used in) provided by operating activities
    
    
    (12.3
    )
    
    
    2.5Cash flows from investing activities:Additions to property, plant and equipment
    
    
    (1.1
    )
    
    
    (2.3
    )Net cash used in investing activities
    
    
    (1.1
    )
    
    
    (2.3
    )Cash flows from financing activities:Proceeds from DIP Credit Agreement, net
    
    
    123.9
    
    
    
    Borrowings under pre-petition debt, net
    
    
    (105.2
    )
    
    
    3.9Dividends paid on common stock
    
    
    
    
    
    
    (0.7
    )Debt issuance costs related to the DIP Credit Agreement
    
    
    (4.0
    )
    
    
    Net cash provided by financing activities
    
    
    14.7
    
    
    
    3.2Discontinued Operations:Operating activities
    
    
    
    
    
    
    (1.1
    )Investing activities
    
    
    
    
    
    
    (0.5
    )Financing activities
    
    
    
    
    
    
    (1.8
    )Net cash used in discontinued operations
    
    
    
    
    
    
    (3.4
    )Increase in cash and cash equivalents
    
    
    1.3
    
    
    
    Cash and cash equivalents at beginning of period
    
    
    
    
    
    
    Cash and cash equivalents at end of period
    
    $
    1.3
    
    
    $
    Supplemental cash flow data:Cash paid during the period for:Interest, net
    
    $
    16.2
    
    
    $
    14.7Income taxes
    
    $
    0.2
    
    
    $
    0.4
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WELLMAN, INC.
(Debtor-in-Possession)
 
 NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
(In millions, except per share data)
 1. BASIS OF PRESENTATION
    ® ® ® ® ® ®
 7




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2. ACCOUNTING CHANGES AND RECENTLY-ISSUED PRONOUNCEMENTS
 New Accounting Standards Adopted
   Recently Issued Accounting Pronouncements
    8




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3. PROCEEDINGS UNDER CHAPTER 11 OF THE BANKRUPTCY CODE
  
     (In millions)Accounts payable  trade
    
    $
    77.2First Lien Term Loan
    
    
    185.0Second Lien Term Loan
    
    
    263.3Accrued interest on First and Second Lien Term Loans
    
    
    2.4Other
    
    
    3.2Total liabilities subject to compromise
    
    $
    531.1
 9




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Minimum EBITDAApplicable Month
    
    (cumulative)March 2008
    
    $2.1 millionApril 2008
    
    $5.61 millionMay 2008
    
    $10.37 millionJune 2008
    
    $15.81 millionJuly 2008
    
    $19.635 millionAugust 2008
    
    $22.865 millionSeptember 2008
    
    $23.8 millionOctober 2008
    
    $27.455 millionNovember 2008
    
    $28.56 millionDecember 2008
    
    $30.855 millionJanuary 2009
    
    $31.5 million
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4. INVENTORIES
  March 31,
    
    
    December 31,(In millions)
    
    2008
    
    
    2007Raw materials
    
    $
    29.4
    
    
    $
    29.7Finished and semi-finished goods
    
    
    51.9
    
    
    
    63.0Supplies
    
    
    3.9
    
    
    
    4.3$
    85.2
    
    
    $
    97.0
 5. JOHNSONVILLE FIBERS CLOSURE
   (In millions)Impairment on asset disposals
    
    $
    13.6Impairment on assets held-for-sale
    
    
    8.2Inventory write-downs
    
    
    6.7Employee restructuring charges
    
    
    3.9Miscellaneous
    
    
    0.9$
    33.3
   13




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EmployeeRestructuring(In millions)
    
    ChargesAccruals during the third quarter of 2006
    
    $
    4.1Adjustments to accrual in fourth quarter of 2006
    
    
    (0.2
    )Payments during 2006
    
    
    (1.6
    )Remaining accrual at December 31, 2006
    
    
    2.3Payments during first quarter 2007
    
    
    (1.9
    )Remaining accrual at March 31, 2007
    
    
    0.4Adjustments to accrual
    
    
    (0.1
    )Payments during the remainder of 2007
    
    
    (0.3
    )Remaining accrual at December 31, 2007
    
    $
    
 6. RESTRUCTURINGS
 Research & Development Realignment
  Severance(In millions)
    
    AccrualAccruals recorded in fourth quarter of 2007
    
    $
    0.4Payments during 2007
    
    
    (0.1
    )Accrual balance at December 31, 2007
    
    
    0.3Payments during first quarter 2008
    
    
    (0.2
    )Accrual balance at March 31, 2008
    
    $
    0.1
 2007 Organizational Restructuring
  14




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Severance(In millions)
    
    AccrualAccruals recorded during the first quarter 2007
    
    $
    2.9Payments during first quarter 2007
    
    
    (1.5
    )Accrual balance at March 31, 2007
    
    
    1.4Payments during remainder of 2007
    
    
    (1.3
    )Adjustments to accrual during remainder of 2007
    
    
    (0.1
    )Accrual balance at December 31, 2007
    
    $
    
 7. DISCONTINUED OPERATIONS
    European(In millions)
    
    WIL
    
    
    PET ResinsNet sales
    
    $
    35.3
    
    
    $
    19.8Earnings (loss) from discontinued operations
before income tax expense (benefit)
    
    $
    0.8
    
    
    $
    (0.8
    )Income tax expense
    
    
    0.1
    
    
    
    0.1Earnings (loss) from discontinued operations, net
    
    $
    0.7
    
    
    $
    (0.9
    )
 15




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8. OTHER (INCOME) EXPENSE, NET
  For the ThreeMonths EndedMarch 31,(In millions)
    
    2008
    
    
    2007Legal and Settlement Costs
    
    $
    
    
    
    $
    (1.9
    )Johnsonville fibers closure costs (See Note 5)
    
    
    
    
    
    
    (1.0
    )Hurricane Katrina costs, net
    
    
    0.1
    
    
    
    0.2$
    0.1
    
    
    $
    (2.7
    )
  9. NET LOSS PER COMMON SHARE
  Three MonthsEndedMarch 31,(In millions, except per share data)
    
    2008
    
    
    2007Numerator for basic and diluted net loss attributable to common stockholders
per common share:Loss from continuing operations
    
    $
    (22.7
    )
    
    $
    (24.1
    )Accretion(a)
    
    
    (2.3
    )
    
    
    (3.7
    )Net loss attributable to common stockholders from continuing operations
    
    
    (25.0
    )
    
    
    (27.8
    )Net loss attributable to common stockholders from discontinued operations
    
    
    
    
    
    
    (0.2
    )Net loss attributable to common stockholders
    
    $
    (25.0
    )
    
    $
    (28.0
    )Denominator:Denominator for basic net loss attributable to common stockholders per
common share  weighted-average shares
    
    
    32.4
    
    
    
    32.2Effect of dilutive securities:Employee stock options, warrants, and restricted stock
    
    
    
    
    
    
    Preferred stock  if converted (b)
    
    
    
    
    
    
    Denominator for diluted net loss attributable to common stockholders per
common share  adjusted weighted-average shares
    
    
    32.4
    
    
    
    32.2
 
 (a)
    
    Accretion is recorded based on the fair market value of the increase in the liquidation
preference of the preferred stock. Subsequent to our filing voluntary petitions in the United
States Bankruptcy Court on February 22, 2008, no accretion has been recorded. The liquidation
preference of the preferred stock was $188.1 million at March 31, 2008. For additional information
regarding the bankruptcy, see Note 3.(b)
    
    These shares were not included in the EPS calculation, since their effect would have been
anti-dilutive, but may be included under the if-converted method in future calculations. 16




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10. DEFINED BENEFIT PLANS
  For the Three Months Ended(In millions)
    
    March 31, 2008
    
    
    March 31, 2007Service cost
    
    $
    
    
    
    $
    Interest cost
    
    
    0.9
    
    
    
    0.9Expected return on assets
    
    
    (0.9
    )
    
    
    (0.9
    )Total net periodic
pension expense
    
    $
    
    
    
    $
    
 Employer contributions
  11. COMMITMENTS AND CONTINGENCIES
    17




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Three Months endedMarch 31,(In millions)
    
    2008
    
    
    2007Balance at beginning of period
    
    $
    5.4
    
    
    $
    5.1Changes in remediation costs
    
    
    0.2
    
    
    
    Expenditures
    
    
    (0.1
    )
    
    
    Balance at end of period
    
    $
    5.5
    
    
    $
    5.1
     12. FOREIGN CURRENCY TRANSLATION AND ACCUMULATED OTHER COMPREHENSIVE
INCOME (LOSS)
  13. SEGMENT INFORMATION
   
    
    PermaClear®, PermaClear HP®, and Thermaclear Ti®
solid-stated PET resin from chemical-based raw materials for use in the manufacturing of
plastic beverage bottles and other food packaging and Fortrel® chemical-based polyester staple fiber for use in home furnishing,
non-woven, apparel, and industrial products.
 18




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® ®
   Chemical-
    
    Recycled-(In millions)
    
    Based Segment
    
    Based Segment
    
    TotalThree
months ended March 31, 2008Revenues
    
    $
    226.5
    
    
    $
    13.5
    
    
    $
    240.0Segment profit (loss)
    
    
    4.1
    
    
    
    (0.7
    )
    
    
    3.4Depreciation and amortization from continuing
operations
    
    
    7.3
    
    
    
    0.2
    
    
    
    7.5Assets
    
    
    447.7
    
    
    
    32.1
    
    
    
    479.8Three months ended March 31, 2007 (Restated)Revenues
    
    $
    295.8
    
    
    $
    23.4
    
    
    $
    319.2Segment profit (loss)
    
    
    4.8
    
    
    
    (0.5
    )
    
    
    4.3Depreciation and amortization from continuing
operations
    
    
    15.3
    
    
    
    0.5
    
    
    
    15.8Assets
    
    
    779.9
    
    
    
    55.1
    
    
    
    835.0
 19




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##### Table of Contents



Three Months EndedMarch 31,(In millions)
    
    2008
    
    
    2007Segment ProfitTotal for reportable segments
    
    $
    3.4
    
    
    $
    4.3Interest expense, net
    
    
    (11.1
    )
    
    
    (15.1
    )Depreciation and amortization
    
    
    (7.5
    )
    
    
    (15.8
    )Provision for uncollectible accounts
    
    
    (0.2
    )
    
    
    (0.1
    )Permitted adjustments
    
    
    (7.3
    )
    
    
    2.6Loss from continuing operations before income tax expense (benefit)
    
    $
    (22.7
    )
    
    $
    (24.1
    )
 As of March 31,(In millions)
    
    2008
    
    
    2007Assets
Total for reportable segments
    
    $
    479.8
    
    
    $
    835.0Corporate assets (1)
    
    
    31.9
    
    
    
    158.6$
    511.7
    
    
    $
    993.6
 
 (1)
    
    Corporate assets include cash, certain prepaid expenses, construction
in progress, and certain other assets not allocated to the segments. 20




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##### Table of Contents



ITEM 2. MANAGEMENT S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
 FORWARD-LOOKING INFORMATION
   RECENT DEVELOPMENTS
 Proceedings Under Chapter 11 of the Bankruptcy Code
  
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Strategic Alternatives and Sales Process
  GENERAL
  ® ®
 ® ®
   23




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IMPACT OF ACCOUNTING CHANGES AND RECENTLY ISSUED ACCOUNTING PRONOUNCEMENTS
 New Accounting Standards Adopted
   Recently Issued Accounting Pronouncements
   24




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RESULTS OF OPERATIONS
 THREE MONTHS ENDED MARCH 31, 2008 COMPARED TO THREE MONTHS ENDED MARCH 31, 2007
  Chemical-
    
    
    Recycled-(In millions)
    
    Based
    
    
    Based
    
    
    TotalNet SalesSales volumes
    
    $
    (98.3
    )
    
    $
    (9.8
    )
    
    $
    (108.1
    )Net selling prices
    
    
    29.0
    
    
    
    (0.1
    )
    
    
    28.9Decrease in net sales
    
    
    (69.3
    )
    
    
    (9.9
    )
    
    
    (79.2
    )Cost of SalesVolume effect
    
    $
    (95.1
    )
    
    $
    (9.3
    )
    
    $
    (104.4
    )Raw material unit costs
    
    
    23.8
    
    
    
    0.8
    
    
    
    24.6Plant-added unit costs
    
    
    0.2
    
    
    
    (0.9
    )
    
    
    (0.7
    )Decrease in cost of sales
    
    
    (71.1
    )
    
    
    (9.4
    )
    
    
    (80.5
    )Increase (decrease) in gross profit
    
    $
    1.8
    
    
    $
    (0.5
    )
    
    $
    1.3
    25




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Three MonthsEnded March 31,(In millions)
    
    2008
    
    
    2007Legal and settlement costs
    
    $
    
    
    
    $
    (1.9
    )Johnsonville fibers closure costs
    
    
    
    
    
    
    (1.0
    )Hurricane Katrina costs, net
    
    
    0.1
    
    
    
    0.2$
    0.1
    
    
    $
    (2.7
    )
       26




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CAPITAL RESOURCES AND LIQUIDITY
 Historical Flow of Funds
    Our
Liquidity in Chapter 11
   27




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Applicable
    
    Minimum EBITDAMonth
    
    (cumulative)March 2008
    
    $2.1 millionApril 2008
    
    $5.61 millionMay 2008
    
    $10.37 millionJune 2008
    
    $15.81 millionJuly 2008
    
    $19.635 millionAugust 2008
    
    $22.865 millionSeptember 2008
    
    $23.8 millionOctober 2008
    
    $27.455 millionNovember 2008
    
    $28.56 millionDecember 2008
    
    $30.855 millionJanuary 2009
    
    $31.5 million
  Month
    
    
    Month
    
    
    Month
    
    
    Year-To-Ending
    
    
    Ending
    
    
    Ending
    
    
    DateJanuary
    
    
    February
    
    
    March 31,
    
    
    March 31,(In millions)
    

31, 2008
    
    

29, 2008
    
    
    2008 (a)
    
    
    2008Loss from continuing operations
    
    $
    (5.0
    )
    
    $
    (15.3
    )
    
    $
    (2.4
    )
    
    $
    (22.7
    )Interest expense, net
    
    
    4.7
    
    
    
    5.5
    
    
    
    0.9
    
    
    
    11.1Depreciation and amortization
    
    
    2.5
    
    
    
    2.5
    
    
    
    2.5
    
    
    
    7.5Provision for uncollectible
accounts
    
    
    0.1
    
    
    
    
    
    
    
    0.1
    
    
    
    0.2Permitted Adjustments:Reorganization items
    
    
    
    
    
    
    3.3
    
    
    
    2.8
    
    
    
    6.1Inventory reserves
    
    
    0.3
    
    
    
    0.9
    
    
    
    
    
    
    
    1.2Total permitted adjustments
    
    
    0.3
    
    
    
    4.2
    
    
    
    2.8
    
    
    
    7.3EBITDA, as defined
    
    $
    2.6
    
    
    $
    (3.1
    )
    
    $
    3.9
    
    
    $
    3.4
 
 (a)
    
    EBITDA, as defined for the month ending March 31, 2008 exceeded the Minimum EBITDA, as
required by our DIP Credit Agreement by $1.8 million. This amount will be applied to future
months.  28




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ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURE OF MARKET RISK
  
 ITEM 4. CONTROLS AND PROCEDURES
 (a)
    
    Based on an evaluation of the effectiveness of the Companys
disclosure controls and procedures as of March 31, 2008, both the
Chief Executive Officer and the Chief Financial Officer of the Company
concluded that the Companys disclosure controls and procedures, as
defined in Rules 13a14(c) and 15d14(c) promulgated under the
Securities Exchange Act of 1934, were effective on that date.(b)
    
    Based on an evaluation of whether any change in the Companys internal
control over financial reporting (as defined in Rule 13a-15(f)
promulgated under the Exchange Act) that materially affected, or is
reasonably likely to materially affect, such internal control occurred
during the period covered by this Report, both the Chief Executive
Officer and the Chief Financial Officer of the Company concluded that
no such change occurred.
 
 PART II  OTHER INFORMATION
 
 ITEM 1. LEGAL PROCEEDINGS
    
 ITEM 3. DEFAULTS UPON SENIOR SECURITIES
  31




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(In millions)
 Principal at
    
    
    Interest Owed atDescription
    
    March 31, 2008
    
    
    March 31, 2008 (b)First Lien Term Loan that matures
on February 10, 2009 and has an
annual interest rate of three-month
LIBOR plus 4.00% due quarterly
    
    $
    185.0
    
    
    $
    2.2Second Lien Term Loan that matures
on February 10, 2010 and has an
annual interest rate of three-month
LIBOR plus 6.75% due quarterly (a)
    
    
    263.3
    
    
    
    4.4Other
    
    
    1.0
    
    
    
    $
    449.3
    
    
    $
    6.6
 
 (a)
    
    The amount outstanding at March 31, 2008 is net of the unamortized portion of the
original issue discount. Subsequent to our proceedings under Chapter 11 of the Bankruptcy
Code, we ceased amortization of the original issue discount, since the liability is
compromised. The additional liability would have been $0.1 million.(b)
    
    Interest expense recorded subsequent to February 22, 2008, consists only of interest
related to our DIP Credit Agreement. These amounts represent contractual interest owed at
March 31, 2008. Of the amounts, only $2.4 million has been
accrued at March 31, 2008, and is included in compromised
liabilities.  32




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ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
  10.1
    
    Credit Agreement, dated as of February 26, 2008, among Wellman, Inc.
and the other Borrowers Named Herein, Debtors and Debtors in
Possession as Borrowers, with Wellman, Inc. as Funds Administrator,
the Lenders Signatory Hereto From Time to Time, as Lenders, and
Deutsche Bank Securities, Inc. as Lead Arranger and Book runner, JP
Morgan Chase Bank, National Association, as Syndication Agent,
General Electric Capital Corporation, LaSalle Business Credit, LLC,
Wachovia Capital Finance Corporation (Central) as Co-Documentation
Agents (Exhibit 10.1 of the Companys Form 8-K filed March 4, 2008,
incorporated by reference herein)10.2
    
    Security Agreement, dated as of February 26, 2008, between Wellman,
Inc. and certain of its subsidiaries and Deutsche Bank Trust Company
Americas as collateral agent (Exhibit 10.2 of the Companys Form 10-K
for the year ended December 31, 2007, incorporated by reference
herein)10.3
    
    Grant of Security Interest in U.S. Trademarks and Patents between
Wellman, Inc. and Fiber Industries, Inc. as debtors and debtors in
possession and Deutsche Bank Trust Company Americas as collateral
agent (Exhibit 10.3 of the Companys Form 10-K for the year ended
December 31, 2007, incorporated by reference herein)10.4
    
    Grant of Security Interest in U.S. Copyrights between Wellman, Inc.
MRF, Inc., and Fiber Industries, Inc. as debtors and debtors in
possession and Deutsche Bank Trust Company Americas as collateral
agent (Exhibit 10.4 of the Companys Form 10-K for the year ended
December 31, 2007, incorporated by reference herein)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
 33




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SIGNATURES
  WELLMAN, INC.Dated May 12, 2008
    By /s/ Keith R. PhillipsChief Financial Officer andVice President
(Principal Financial Officer) Dated May 12, 2008
    By /s/ David R. StykaChief Accounting Officer,Vice President and Controller
(Principal Accounting Officer) 34