##### 









UNITED STATES SECURITIES AND EXCHANGE COMMISSION


Washington, D.C. 20549


Form 10-K


|           |  |                                                                                             
|---------- |  | --------------------------------------------------------------------------------------------
|(Mark One) |  |                                                                                             
|þ          |  | ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
    SECURITIES EXCHANGE ACT OF 1934    
|          
|           |  | For the fiscal year ended December 31, 2004                                                 
|          
|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
    incorporation or organization)                                    |  | (I.R.S. Employer
    Identification No.)
|                                                                                                     
|1041 521 Corporate Center Drive
    Fort Mill, South Carolina(Address of principal executive offices) |  | 29715(Zip Code)                         

Registrants telephone number, including area code:


(803) 835-2000





Securities registered pursuant to Section 12(b) of the
Act:


|                               |  |                        
|------------------------------ |  | -----------------------
|                               |  | Name of Each Exchange  
|Title of Each Class            |  | on Which Registered    
|                               |  |                        
|Common Stock, $0.001 par value |  | New York Stock Exchange
|Common Stock Purchase Rights   |  | New York Stock Exchange

Securities registered pursuant to Section 12(g) of the
Act:


None


þ o


þ


þ o






DOCUMENTS INCORPORATED BY REFERENCE












---



##### 



PART I




|        |                                                          
|------- | ---------------------------------------------------------
|Item 1. | Business (Dollars in millions, except per share
    data)



PRODUCTS AND MARKETS






|      |  |           |         |  |            |  |       |           |  |   |            |  |  |           |       |   |            |   |         |  |  |  |       |  
|----- |  | --------- | ------- |  | ---------- |  | ----- | --------- |  | - | ---------- |  |  | --------- | ----- | - | ---------- | - | ------- |  |  |  | ----- | -
|      |  | 2004      |         |  | 2003       |  |       | 2002      | 
|      |  |           |         |  |            |  |       |           | 
|      |  | Net Sales |         |  | % of Total |  |       | Net Sales |  |   | % of Total |  |  | Net Sales |       |   | % of Total |  
|      |  |           |         |  |            |  |       |           |  |   |            |  |  |           |       |   |            |  
|PPG   |  | $         | 747.9   |  |            |  | 57.3  | %         |  | $ | 632.0      |  |  |           | 57.0  | % |            | $ | 524.8   |  |  |  | 51.8  | %
|FRPG  |  |           | 557.1   |  |            |  | 42.7  |           |  |   | 477.3      |  |  |           | 43.0  |   |            |   | 489.2   |  |  |  | 48.2  |  
|      |  |           |         |  |            |  |       |           |  |   |            |  |  |           |       |   |            |  
|Total |  | $         | 1,305.0 |  |            |  | 100.0 | %         |  | $ | 1,109.3    |  |  |           | 100.0 | % |            | $ | 1,014.0 |  |  |  | 100.0 | %
|      |  |           |         |  |            |  |       |           |  |   |            |  |  |           |       |   |            |  



|      |  |               |      |   |      |  |           |               |  |   |      |           |  |        |       |   |   |   |      |  |  |  |       |  
|----- |  | ------------- | ---- | - | ---- |  | --------- | ------------- |  | - | ---- | --------- |  | ------ | ----- | - | - | - | ---- |  |  |  | ----- | -
|      |  | 2004          |      |   | 2003 |  |           | 2002          | 
|      |  |               |      |   |      |  |           |               | 
|      |  | Operating     |      |   |      |  | Operating |               |  |   |      | Operating |  |        |      
|      |  | Profit (Loss) |      |   | %    |  |           | Profit (Loss) |  |   | %    |           |  | Profit |       |   | % |  
|      |  |               |      |   |      |  |           |               |  |   |      |           |  |        |       |   |   |  
|PPG   |  | $             | 29.5 |   |      |  | 122.9     | %             |  | $ | 17.3 |           |  |        | 123.6 | % |   | $ | 50.0 |  |  |  | 98.8  | %
|FRPG  |  |               | (5.5 | ) |      |  | (22.9     | )             |  |   | (3.3 | )         |  |        | (23.6 | ) |   |   | 0.6  |  |  |  | 1.2   |  
|      |  |               |      |   |      |  |           |               |  |   |      |           |  |        |       |   |   |  
|Total |  | $             | 24.0 |   |      |  | 100.0     | %             |  | $ | 14.0 |           |  |        | 100.0 | % |   | $ | 50.6 |  |  |  | 100.0 | %
|      |  |               |      |   |      |  |           |               |  |   |      |           |  |        |       |   |   |  



Packaging Products Group






| |   |                                                                                                                                                      
| | - | -----------------------------------------------------------------------------------------------------------------------------------------------------
| |  | PermaClear® solid-stated and amorphous PET resin for use in
    the manufacturing of soft drink bottles and other food and
    beverage packaging and
|
| |  | EcoClear® PET resin, utilizing a percentage of recycled PET
    materials to meet customers recycled content PET resin
    requirements.            





2



---



##### 





Fibers and Recycled Products Group






| |   |                                                                                                                         
| | - | ------------------------------------------------------------------------------------------------------------------------
| |  | 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.                    













Raw Materials






3



---



##### 









Capital Investment Program




Capital Expenditures Breakdown


|                                 |  |      |      |  |      |   |      |      |  |   |      | 
|-------------------------------- |  | ---- | ---- |  | ---- | - | ---- | ---- |  | - | ---- | 
|                                 |  | 2004 |      |  | 2003 |   |      | 2002 | 
|                                 |  |      |      |  |      |   |      |      | 
|Maintenance of business capital  |  | $    | 8.8  |  |      | $ | 13.2 |      |  | $ | 15.5 | 
|Environmental, health and safety |  |      | 0.2  |  |      |   | 0.6  |      |  |   | 0.9  | 
|Expansion/major cost reductions  |  |      | 6.1  |  |      |   | 1.7  |      |  |   | 5.3  | 
|                                 |  |      |      |  |      |   |      |      | 
|Total                            |  | $    | 15.1 |  |      | $ | 15.5 |      |  | $ | 21.7 | 
|                                 |  |      |      |  |      |   |      |      | 



Sales and Marketing










4



---



##### 









Competitors










Research and Development




Foreign Activities




5



---



##### 





Employees




|     |  |           |       |             |             |  |     |       |  |  |       | 
|---- |  | --------- | ----- | ----------- | ----------- |  | --- | ----- |  |  | ----- | 
|     |  |           |       | Long-Term,  |             |  |    
|     |  |           |       | Independent |             |  |    
|Year |  | Employees |       |             | Contractors |  |     | Total | 
|     |  |           |       |             |             |  |     |       | 
|2004 |  |           | 1,700 |             |             |  | 260 |       |  |  | 1,960 | 
|2003 |  |           | 1,900 |             |             |  | 270 |       |  |  | 2,170 | 
|2002 |  |           | 2,200 |             |             |  | 270 |       |  |  | 2,470 | 
|2001 |  |           | 2,500 |             |             |  | 280 |       |  |  | 2,780 | 
|2000 |  |           | 2,600 |             |             |  | 270 |       |  |  | 2,870 | 



Environmental Matters






Executive Officers of the Registrant




|                        |  |                                                        
|----------------------- |  | -------------------------------------------------------
|Name and Age            |  | Position                                               
|                        |  |                                                        
|Thomas M. Duff, 57      |  | Chairman, Chief Executive Officer, and Director        
|Keith R. Phillips, 50   |  | Vice President, Chief Financial Officer                
|Michael E. Dewsbury, 55 |  | Vice President, PET Resins Division  U.S.             
|Audrey L. Goodman, 51   |  | Vice President, Treasurer                              
|Mark J. Ruday, 39       |  | Vice President, Chief Accounting Officer and Controller
|Joseph C. Tucker, 57    |  | Vice President, Fibers and Recycled Products Group     

6



---



##### 





Thomas M. Duff.


Keith R. Phillips.


Michael E. Dewsbury.


Audrey L. Goodman.


Mark J. Ruday.


Joseph C. Tucker.


Available Information






|        |           
|------- | ----------
|Item 2. | Properties



|                                 |  |                    |                        |                     |                         |  |     |    
|-------------------------------- |  | ------------------ | ---------------------- | ------------------- | ----------------------- |  | --- | ---
|                                 |  |                    |                        | Stated Annual       |                        
|                                 |  |                    |                        | Production Capacity |                        
|Location                         |  | Principal Products |                        |                     | (In millions of pounds) | 
|                                 |  |                    |                        |                     |                         | 
|Darlington, SC (Palmetto)        |  |                    | PET resins             |                     |                         |  | 760 | (1)
|Hancock County, MS (Pearl River) |  |                    | PET resins             |                     |                         |  | 520 | (2)
|Emmen, the Netherlands           |  |                    | PET resins             |                     |                         |  | 120 |    
|Darlington, SC (Palmetto)        |  |                    | Polyester staple fiber |                     |                         |  | 500 |    
|Johnsonville, SC                 |  |                    | Polyester staple fiber |                     |                         |  | 240 |    
|Mullagh, Ireland                 |  |                    | Polyester staple fiber |                     |                         |  | 175 |    
|Johnsonville, SC                 |  |                    | Engineering resins     |                     |                         |  | 70  |    

7



---



##### 








|    |                                                                                                                                                                                                                                                                                                                                                                 
|--- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|(1) | Includes 200 million pounds annually of amorphous PET resin
    capacity for external sales.                                                                                                                                                                                                                                                                    
|   
|(2) | Excludes polymerization production equipment with an annual
    capacity of 300 million pounds, which is in the process of
    being converted in order to manufacture PET resin. This
    conversion is expected to be fully operational in the first
    quarter of 2006. For additional information, see Note 1 to
    the Consolidated Financial Statements.



|        |                  
|------- | -----------------
|Item 3. | Legal Proceedings













8



---



##### 











|        |                                                    
|------- | ---------------------------------------------------
|Item 4. | Submission of Matters to a Vote of Security Holders



PART II




|        |                                                                          
|------- | -------------------------------------------------------------------------
|Item 5. | Market for Registrants Common Equity and Related
    Stockholder Matters



| |                   
| | ------------------
| | Market Information



|               |  |      |       |  |     |   |      |          |  |   |      | 
|-------------- |  | ---- | ----- |  | --- | - | ---- | -------- |  | - | ---- | 
|Year           |  | High |       |  | Low |   |      | Dividend | 
|               |  |      |       |  |     |   |      |          | 
|2004           |  |      |       |  |     |   |      |          |  |   |      | 
|Fourth Quarter |  | $    | 10.88 |  |     | $ | 6.89 |          |  | $ | 0.05 | 
|Third Quarter  |  | $    | 8.48  |  |     | $ | 6.38 |          |  | $ | 0.05 | 
|Second Quarter |  | $    | 8.64  |  |     | $ | 7.15 |          |  | $ | 0.05 | 
|First Quarter  |  | $    | 10.81 |  |     | $ | 7.33 |          |  | $ | 0.05 | 
|2003           |  |      |       |  |     |   |      |          |  |   |      | 
|Fourth Quarter |  | $    | 10.56 |  |     | $ | 7.57 |          |  | $ | 0.09 | 
|Third Quarter  |  | $    | 11.55 |  |     | $ | 7.29 |          |  | $ | 0.09 | 
|Second Quarter |  | $    | 12.29 |  |     | $ | 9.47 |          |  | $ | 0.09 | 
|First Quarter  |  | $    | 14.07 |  |     | $ | 8.93 |          |  | $ | 0.09 | 







9



---



##### 





Securities Authorized for Issuance Under Equity
Compensation Plans






|        |                                     
|------- | ------------------------------------
|Item 6. | Selected Consolidated Financial Data

|                                                                |                                                               |                                      |         |       |      |   |         |         |   |   |         |        |   |      |         |     |  |   |         |      | 
|--------------------------------------------------------------- | ------------------------------------------------------------- | ------------------------------------ | ------- | ----- | ---- | - | ------- | ------- | - | - | ------- | ------ | - | ---- | ------- | --- |  | - | ------- | ---- | 
|                                                                |                                                               | Years Ended December 31,             |        
|                                                                |                                                               |                                      |        
|                                                                |                                                               | 2004                                 |         |       | 2003 |   |         | 2002(2) |   |   | 2001    |        |   | 2000 |        
|                                                                |                                                               |                                      |         |       |      |   |         |         |   |   |         |        |   |      |        
|                                                                |                                                               | (In millions, except per share data) |        
|Income Statement Data:                                          |                                                               |                                      |         |       |      |   |         |         |   |   |         |        |   |      |         |     |  |   |         |     
|Net sales                                                       |                                                               | $                                    | 1,305.0 |       |      | $ | 1,109.3 |         |   | $ | 1,014.0 |        |   | $    | 1,009.6 |     |  | $ | 1,021.5 |     
|Cost of sales                                                   |                                                               |                                      | 1,221.2 |       |      |   | 1,028.7 |         |   |   | 898.8   |        |   |      | 902.3   |     |  |   | 890.3   |     
|                                                                |                                                               |                                      |         |       |      |   |         |         |   |   |         |        |   |      |        
|Gross profit                                                    |                                                               |                                      | 83.8    |       |      |   | 80.6    |         |   |   | 115.2   |        |   |      | 107.3   |     |  |   | 131.2   |     
|Selling, general and administrative expenses                    |                                                               |                                      | 59.8    |       |      |   | 66.6    |         |   |   | 64.6    |        |   |      | 68.9    |     |  |   | 68.1    |     
|Impairment charge                                               |                                                               |                                      |        |       |      |   | 135.3   |         |   |   |        |        |   |      |        |     |  |   |        |     
|Restructuring charges (benefit)                                 |                                                               |                                      | 2.6     |       |      |   | 10.2    |         |   |   |        |        |   |      |        |     |  |   | (0.8    | )   
|Provision for uncollectible accounts                            |                                                               |                                      | 0.8     |       |      |   | 3.5     |         |   |   | 4.2     |        |   |      | 0.1     |     |  |   | 0.2     |     
|Non-capitalizable financing costs                               |                                                               |                                      | 40.2    |       |      |   | 2.2     |         |   |   |        |        |   |      |        |     |  |   |        |     
|Other expense (income), net(1)                                  |                                                               |                                      | (3.2    | )     |      |   | 3.8     |         |   |   | 0.7     |        |   |      | 3.1     |     |  |   | (3.2    | )   
|                                                                |                                                               |                                      |         |       |      |   |         |         |   |   |         |        |   |      |        
|Operating income (loss)                                         |                                                               |                                      | (16.4   | )     |      |   | (141.0  | )       |   |   | 45.7    |        |   |      | 35.2    |     |  |   | 66.9    |     
|Interest expense, net                                           |                                                               |                                      | 38.1    |       |      |   | 10.1    |         |   |   | 10.3    |        |   |      | 17.9    |     |  |   | 17.9    |     
|                                                                |                                                               |                                      |         |       |      |   |         |         |   |   |         |        |   |      |        
|Earnings (loss) from continuing operations before income taxes  |                                                               |                                      | (54.5   | )     |      |   | (151.1  | )       |   |   | 35.4    |        |   |      | 17.3    |     |  |   | 49.0    |     
|Income tax expense (benefit)                                    |                                                               |                                      | (15.7   | )     |      |   | (54.4   | )       |   |   | 9.0     |        |   |      | 3.9     |     |  |   | 13.6    |     
|                                                                |                                                               |                                      |         |       |      |   |         |         |   |   |         |        |   |      |        
|Earnings (loss) from continuing operations                      |                                                               |                                      | (38.8   | )     |      |   | (96.7   | )       |   |   | 26.4    |        |   |      | 13.4    |     |  |   | 35.4    |     
|Earnings (loss) from discontinued operations, net of income tax |                                                               |                                      |        |       |      |   | 0.1     |         |   |   | (23.7   | )      |   |      | (5.0    | )   |  |   | (2.6    | )   
|                                                                |                                                               |                                      |         |       |      |   |         |         |   |   |         |        |   |      |        
|Earnings (loss) before cumulative effect of accounting change   |                                                               |                                      | (38.8   | )     |      |   | (96.6   | )       |   |   | 2.7     |        |   |      | 8.4     |     |  |   | 32.8    |     
|Cumulative effect of accounting change, net of tax              |                                                               |                                      |        |       |      |   |        |         |   |   | (197.0  | )      |   |      |        |     |  |   |        |     
|                                                                |                                                               |                                      |         |       |      |   |         |         |   |   |         |        |   |      |        
|Net earnings (loss)                                             |                                                               | $                                    | (38.8   | )     |      | $ | (96.6   | )       |   | $ | (194.3  | )      |   | $    | 8.4     |     |  | $ | 32.8    |     
|                                                                |                                                               |                                      |         |       |      |   |         |         |   |   |         |        |   |      |        
|Net earnings (loss) attributable to common stockholders:        |                                                               |                                      |         |       |      |   |         |         |   |   |         |        |   |      |         |     |  |   |         |     
|                                                                | Net earnings (loss)                                           |                                      | $       | (38.8 | )    |   | $       | (96.6   | ) |   | $       | (194.3 | ) |      | $       | 8.4 |  |   | $       | 32.8 | 
|                                                                | Accretion of preferred stock and beneficial conversion charge |                                      |         | (12.3 | )    |   |         | (10.1   | ) |   |         |       |   |      |         |    |  |   |         |     | 
|                                                                |                                                               |                                      |         |       |      |   |         |         |   |   |         |        |   |      |        
|Net earning (loss) attributable to common stockholders          |                                                               | $                                    | (51.1   | )     |      | $ | (106.7  | )       |   | $ | (194.3  | )      |   | $    | 8.4     |     |  | $ | 32.8    |     

10



---



##### 



|                                                   |                                                                                          |                                      |      |       |      |   |      |         |   |   |      |       |   |      |      |       |   |   |      |       |  
|-------------------------------------------------- | ---------------------------------------------------------------------------------------- | ------------------------------------ | ---- | ----- | ---- | - | ---- | ------- | - | - | ---- | ----- | - | ---- | ---- | ----- | - | - | ---- | ----- | -
|                                                   |                                                                                          | Years Ended December 31,             |     
|                                                   |                                                                                          |                                      |     
|                                                   |                                                                                          | 2004                                 |      |       | 2003 |   |      | 2002(2) |   |   | 2001 |       |   | 2000 |     
|                                                   |                                                                                          |                                      |      |       |      |   |      |         |   |   |      |       |   |      |     
|                                                   |                                                                                          | (In millions, except per share data) |     
|                                                   |                                                                                          |                                      |      |       |      |   |      |         |   |   |      |       |   |      |     
|Basic net earnings (loss) per common share:        |                                                                                          |                                      |      |       |      |   |      |         |   |   |      |       |   |      |      |       |   |   |      |      
|                                                   | Net earnings (loss) attributable to common stockholders from
    continuing operations   |                                      | $    | (1.61 | )    |   | $    | (3.38   | ) |   | $    | 0.84  |   |      | $    | 0.43  |   |   | $    | 1.13  |  
|                                                   | Net earnings (loss) attributable to common stockholders from
    discontinued operations |                                      |      |      |      |   |      |        |   |   |      | (0.75 | ) |      |      | (0.16 | ) |   |      | (0.09 | )
|                                                   | Cumulative effect of accounting change                                                   |                                      |      |      |      |   |      |        |   |   |      | (6.24 | ) |      |      |      |   |   |      |      |  
|                                                   |                                                                                          |                                      |      |       |      |   |      |         |   |   |      |       |   |      |     
|                                                   | Net earnings (loss) attributable to common stockholders                                  |                                      | $    | (1.61 | )    |   | $    | (3.38   | ) |   | $    | (6.15 | ) |      | $    | 0.27  |   |   | $    | 1.04  |  
|                                                   |                                                                                          |                                      |      |       |      |   |      |         |   |   |      |       |   |      |     
|Basic weighted-average common shares outstanding   |                                                                                          |                                      | 31.6 |       |      |   | 31.6 |         |   |   | 31.6 |       |   |      | 31.5 |       |   |   | 31.4 |      
|                                                   |                                                                                          |                                      |      |       |      |   |      |         |   |   |      |       |   |      |     
|Diluted net earnings (loss) per common share:      |                                                                                          |                                      |      |       |      |   |      |         |   |   |      |       |   |      |      |       |   |   |      |      
|                                                   | Net earnings (loss) attributable to common stockholders from
    continuing operations   |                                      | $    | (1.61 | )    |   | $    | (3.38   | ) |   | $    | 0.82  |   |      | $    | 0.42  |   |   | $    | 1.11  |  
|                                                   | Net earnings (loss) attributable to common stockholders from
    discontinued operations |                                      |      |      |      |   |      |        |   |   |      | (0.73 | ) |      |      | (0.16 | ) |   |      | (0.08 | )
|                                                   | Cumulative effect of accounting change                                                   |                                      |      |      |      |   |      |        |   |   |      | (6.16 | ) |      |      |      |   |   |      |      |  
|                                                   |                                                                                          |                                      |      |       |      |   |      |         |   |   |      |       |   |      |     
|                                                   | Net earnings (loss) attributable to common stockholders                                  |                                      | $    | (1.61 | )    |   | $    | (3.38   | ) |   | $    | (6.07 | ) |      | $    | 0.26  |   |   | $    | 1.03  |  
|                                                   |                                                                                          |                                      |      |       |      |   |      |         |   |   |      |       |   |      |     
|Diluted weighted-average common shares outstanding |                                                                                          |                                      | 31.6 |       |      |   | 31.6 |         |   |   | 32.0 |       |   |      | 32.0 |       |   |   | 31.9 |      
|                                                   |                                                                                          |                                      |      |       |      |   |      |         |   |   |      |       |   |      |     
|Dividends(3)                                       |                                                                                          | $                                    | 6.3  |       |      | $ | 11.5 |         |   | $ | 11.5 |       |   | $    | 11.5 |       |   | $ | 11.4 |      
|                                                   |                                                                                          |                                      |      |       |      |   |      |         |   |   |      |       |   |      |     

|                     |  |              |         |  |      |   |         |         |  |   |       |  |  |      |         |  |  |   |         | 
|-------------------- |  | ------------ | ------- |  | ---- | - | ------- | ------- |  | - | ----- |  |  | ---- | ------- |  |  | - | ------- | 
|                     |  | December 31, |        
|                     |  |              |        
|                     |  | 2004         |         |  | 2003 |   |         | 2002(2) |  |   | 2001  |  |  | 2000 |        
|                     |  |              |         |  |      |   |         |         |  |   |       |  |  |      |        
|Balance Sheet Data:  |  |              |         |  |      |   |         |         |  |   |       |  |  |      |         |  |  |   |         | 
|Total assets         |  | $            | 1,166.9 |  |      | $ | 1,117.1 |         |  | $ | 965.2 |  |  | $    | 1,234.4 |  |  | $ | 1,332.2 | 
|Total debt           |  | $            | 471.5   |  |      | $ | 371.0   |         |  | $ | 236.9 |  |  | $    | 333.1   |  |  | $ | 381.5   | 
|Stockholders equity |  | $            | 426.5   |  |      | $ | 465.6   |         |  | $ | 426.7 |  |  | $    | 612.7   |  |  | $ | 625.5   | 






|    |                                                                                              
|--- | ---------------------------------------------------------------------------------------------
|(1) | Other expense (income), net consisted of the following amounts
    for the periods indicated:

|                                                                                                          |  |                                  |      |   |      |   |      |      |  |   |      |   |  |      |       |   |  |   |      |  
|--------------------------------------------------------------------------------------------------------- |  | -------------------------------- | ---- | - | ---- | - | ---- | ---- |  | - | ---- | - |  | ---- | ----- | - |  | - | ---- | -
|                                                                                                          |  | For the Years Ended December 31, |     
|                                                                                                          |  |                                  |     
|                                                                                                          |  | 2004                             |      |   | 2003 |   |      | 2002 |  |   | 2001 |   |  | 2000 |      
|                                                                                                          |  |                                  |      |   |      |   |      |      |  |   |      |   |  |      |      
|Legal costs related to the Department of Justice investigation
    of the polyester staple fiber industry |  | $                                | 5.4  |   |      | $ | 6.0  |      |  | $ | 5.1  |   |  | $    | 3.8   |   |  | $ |     |  
|Rebates from anti-dumping duties                                                                          |  |                                  | (8.6 | ) |      |   | (3.4 | )    |  |   | (4.4 | ) |  |      |      |   |  |   |     |  
|Property damage and other costs associated with production
    outages                                    |  |                                  |     |   |      |   |     |      |  |   |     |   |  |      | 9.9   |   |  |   |     |  
|Income from property damage claims & business
    interruption insurance                                  |  |                                  |     |   |      |   |     |      |  |   |     |   |  |      | (10.6 | ) |  |   | (5.1 | )
|Charge to idle Pearl River fiber assets                                                                   |  |                                  |     |   |      |   |     |      |  |   |     |   |  |      |      |   |  |   | 1.9  |  
|Accelerated stock option vesting                                                                          |  |                                  |     |   |      |   | 1.2  |      |  |   |     |   |  |      |      |   |  |   |     |  
|                                                                                                          |  |                                  |      |   |      |   |      |      |  |   |      |   |  |      |      
|                                                                                                          |  | $                                | (3.2 | ) |      | $ | 3.8  |      |  | $ | 0.7  |   |  | $    | 3.1   |   |  | $ | (3.2 | )
|                                                                                                          |  |                                  |      |   |      |   |      |      |  |   |      |   |  |      |      



|    |                                                                                                                                                                                                               
|--- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|(2) | Net loss for 2002 includes a cumulative effect of an accounting
    change of ($197.0), or $(6.16) per diluted share. For additional
    information, see Note 2 to the Consolidated Financial
    Statements.
|   
|(3) | Dividends paid were $0.20 per share in 2004 and
    $0.36 per share in 2003, 2002, 2001, and 2000.                                                                                                            

11



---



##### 





|        |                                                                                                                                           
|------- | ------------------------------------------------------------------------------------------------------------------------------------------
|Item 7. | Managements Discussion and Analysis of Financial
    Condition and Results of Operations (Dollars in millions, except
    per share data)

GENERAL














CRITICAL ACCOUNTING POLICIES AND ESTIMATES






Allowance for Doubtful Accounts




12



---



##### 





Inventory Valuation




Property, Plant and Equipment






Goodwill and Other Intangible Assets






Deferred Tax Assets




13



---



##### 





Pension Benefits










Environmental Liability




IMPACT OF RECENTLY ISSUED ACCOUNTING PRONOUNCEMENTS AND
ACCOUNTING CHANGES




14



---



##### 













CONTINUED DUMPING AND SUBSIDY OFFSET ACT (CDO) OF
2000




15



---



##### 









RESULTS OF OPERATIONS


2004 to 2003




|                             |  |     |       |  |      |   |      |       |  |   |       | 
|---------------------------- |  | --- | ----- |  | ---- | - | ---- | ----- |  | - | ----- | 
|                             |  | PPG |       |  | FRPG |   |      | Total | 
|                             |  |     |       |  |      |   |      |       | 
|Net selling prices           |  | $   | 94.4  |  |      | $ | 22.4 |       |  | $ | 116.8 | 
|Sales volumes                |  |     | 14.4  |  |      |   | 46.7 |       |  |   | 61.1  | 
|Foreign currency translation |  |     | 7.1   |  |      |   | 10.7 |       |  |   | 17.8  | 
|                             |  |     |       |  |      |   |      |       | 
|                             |  | $   | 115.9 |  |      | $ | 79.8 |       |  | $ | 195.7 | 
|                             |  |     |       |  |      |   |      |       | 







|                             |  |     |       |   |      |   |      |       |  |   |       |  
|---------------------------- |  | --- | ----- | - | ---- | - | ---- | ----- |  | - | ----- | -
|                             |  | PPG |       |   | FRPG |   |      | Total | 
|                             |  |     |       |   |      |   |      |       | 
|Raw material costs           |  | $   | 97.8  |   |      | $ | 80.9 |       |  | $ | 178.7 |  
|Plant added costs            |  |     | (0.2  | ) |      |   | (1.0 | )     |  |   | (1.2  | )
|Foreign currency translation |  |     | 6.4   |   |      |   | 8.6  |       |  |   | 15.0  |  
|                             |  |     |       |   |      |   |      |       | 
|                             |  | $   | 104.0 |   |      | $ | 88.5 |       |  | $ | 192.5 |  
|                             |  |     |       |   |      |   |      |       | 



16



---



##### 































17



---



##### 







2003 to 2002




|                             |  |     |       |  |      |   |       |       |  |   |      | 
|---------------------------- |  | --- | ----- |  | ---- | - | ----- | ----- |  | - | ---- | 
|                             |  | PPG |       |  | FRPG |   |       | Total | 
|                             |  |     |       |  |      |   |       |       | 
|Net selling prices           |  | $   | 40.2  |  |      | $ | 6.8   |       |  | $ | 47.0 | 
|Foreign currency translation |  |     | 12.4  |  |      |   | 19.8  |       |  |   | 32.2 | 
|Sales volumes                |  |     | 54.6  |  |      |   | (38.5 | )     |  |   | 16.1 | 
|                             |  |     |       |  |      |   |       |       | 
|                             |  | $   | 107.2 |  |      | $ | (11.9 | )     |  | $ | 95.3 | 
|                             |  |     |       |  |      |   |       |       | 





|                             |  |     |       |  |      |   |       |       |  |   |       | 
|---------------------------- |  | --- | ----- |  | ---- | - | ----- | ----- |  | - | ----- | 
|                             |  | PPG |       |  | FRPG |   |       | Total | 
|                             |  |     |       |  |      |   |       |       | 
|Raw material costs           |  | $   | 68.3  |  |      | $ | 25.0  |       |  | $ | 93.3  | 
|Plant added costs            |  |     | 60.3  |  |      |   | (48.2 | )     |  |   | 12.1  | 
|Foreign currency translation |  |     | 10.7  |  |      |   | 13.8  |       |  |   | 24.5  | 
|                             |  |     |       |  |      |   |       |       | 
|                             |  | $   | 139.3 |  |      | $ | (9.4  | )     |  | $ | 129.9 | 
|                             |  |     |       |  |      |   |       |       | 











18



---



##### 





























19



---



##### 





COST REDUCTION PROGRAMS














OUTLOOK








20



---



##### 







BUSINESS AND FINANCIAL PROJECTIONS FOR 2005


|         |  |                   |       | 
|-------- |  | ----------------- | ----- | 
|         |  | Sales Volumes     |      
|Segments |  | (Millions Pounds) |      
|         |  |                   |      
|PPG      |  |                   | 1,400 | 
|FRPG     |  |                   | 800   | 

|                              |  |                       |               | 
|----------------------------- |  | --------------------- | ------------- | 
|Financial                     |  | (Dollars in Millions) |              
|                              |  |                       |              
|Depreciation and Amortization |  |                       | $67 to $73    | 
|Interest Expense              |  |                       | $43 to $47    | 
|Capital Expenditures          |  |                       | $60 to $67    | 
|Tax Rate                      |  |                       | Mid 20% Range | 

CAPITAL RESOURCES AND LIQUIDITY








21



---



##### 





|                                               |  |   |       | 
|---------------------------------------------- |  | - | ----- | 
|Pay Balance Sheet Debt                         |  | $ | 370.0 | 
|Purchase PET Resin Assets (Sale and Leaseback) |  |   | 150.0 | 
|Pre-pay Raw Material Contract                  |  |   | 77.1  | 
|Purchase Accounts Receivable                   |  |   | 51.4  | 
|Pay February 2004 Financing Costs              |  |   | 18.0  | 
|Pay Pre-payment Penalties                      |  |   | 13.9  | 
|Terminate Certain Swap Agreements              |  |   | 11.9  | 
|Pay Interest and Fees                          |  |   | 3.6   | 
|                                               |  |   |      
|                                               |  | $ | 695.9 | 
|                                               |  |   |      



|                                  |  |   |      | 
|--------------------------------- |  | - | ---- | 
|Termination of Swap Agreements    |  | $ | 14.4 | 
|Pre-payment Penalties             |  |   | 13.9 | 
|Write-Off of Debt Issuance Costs  |  |   | 6.6  | 
|Other Expenses                    |  |   | 5.3  | 
|                                  |  |   |     
|Non-Capitalizable Financing Costs |  | $ | 40.2 | 
|                                  |  |   |     





22



---



##### 





TABLE I


|                           |  |          |                |       |          |   |       |            |        |                   |             |                 |  |            |       |  |  |   |       | 
|-------------------------- |  | -------- | -------------- | ----- | -------- | - | ----- | ---------- | ------ | ----------------- | ----------- | --------------- |  | ---------- | ----- |  |  | - | ----- | 
|                           |  |          |                |       |          |   |       |            |        | Amounts Available |            
|                           |  |          |                | Total |          |   |       |            | Amount |                   |             | under Committed | 
|                           |  | Maturity |                |       | Facility |   |       | Commitment |        |                   | Outstanding |                 |  | Facilities |      
|                           |  |          |                |       |          |   |       |            |        |                   |             |                 |  |            |      
|Revolving Bank Facility(1) |  |          | February  2009 |       |          | $ | 175.0 |            |        | $                 | 175.0       |                 |  | $          | 25.0  |  |  | $ | 141.1 | 
|First Lien Term Loan(2)    |  |          | February  2009 |       |          | $ | 185.0 |            |        | $                 | 185.0       |                 |  | $          | 185.0 |  |  | $ |      | 
|Second Lien Term Loan(3)   |  |          | February  2010 |       |          | $ | 265.0 |            |        | $                 | 265.0       |                 |  | $          | 260.5 |  |  | $ |      | 
|Other                      |  |          | N/A            |       |          | $ | 1.0   |            |        | $                 | 1.0         |                 |  | $          | 1.0   |  |  | $ |      | 
|                           |  |          |                |       |          |   |       |            |        |                   |             |                 |  |            |      
|Total                      |  |          |                |       |          | $ | 626.0 |            |        | $                 | 626.0       |                 |  | $          | 471.5 |  |  | $ | 141.1 | 
|                           |  |          |                |       |          |   |       |            |        |                   |             |                 |  |            |      






|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             
|--- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|(1) | In February 2004, we terminated our $275.0 unsecured senior
    revolving credit facility and entered into a five-year, $175.0
    revolving credit facility secured by our domestic accounts
    receivable, domestic inventory and other related intangibles.
    Our borrowing capacity is based on our domestic accounts
    receivable and inventory, less outstanding letters of credit and
    the termination value of financial instruments, but cannot
    exceed $175.0. Our initial annual interest rate for amounts
    drawn under the facility is LIBOR plus 250 basis points
    (the credit spread) or the prime rate plus
    125 basis points, at our option. Beginning in the quarter
    ending June 30, 2005, pricing on the Revolving Credit
    Facility will be based on our leverage ratio as defined in the
    Revolving Credit Facility agreement. The credit spread over
    LIBOR and the prime rate will range from 200 to 275 basis
    points and 100 to 125 basis points, respectively.
|   
|(2) | In February 2004, we entered into a five-year, $185.0 First Lien
    Term Loan, which is primarily secured by our domestic real
    property, plant and equipment. Our annual interest rate is
    three-month LIBOR plus 400 basis points and is paid
    quarterly. There is a LIBOR floor of 200 basis points. The
    principal matures on February 10, 2009.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           
|   
|(3) | In February 2004, we entered into a six-year, $265.0 Second Lien
    Term Loan, which is secured by a second priority interest in
    substantially all of our domestic assets. Our annual interest
    rate is three-month LIBOR plus 675 basis points and is paid
    quarterly. There is a LIBOR floor of 200 basis points. The
    principal matures on February 10, 2010. The amount
    outstanding is net of $4.5 of an original issue discount.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     



TABLE II


|                                 |  |                        |       |             |             |   |             |         |  |             |         |  |            |          |       |  |  |   |       | 
|-------------------------------- |  | ---------------------- | ----- | ----------- | ----------- | - | ----------- | ------- |  | ----------- | ------- |  | ---------- | -------- | ----- |  |  | - | ----- | 
|                                 |  | Payments Due by Period |      
|                                 |  |                        |      
|                                 |  |                        |       | Greater     |            
|                                 |  |                        |       | Than 5      |            
|                                 |  |                        |       | Less Than 1 |             |   | Years 1-3   |         |  | Years 3-5   |         |  | Years      |         
|                                 |  |                        |       | Year        |             |   |             |         |  |             |         |  |            |         
|Contractual                      |  |                        |       |             |             |   | (Years 2006 |         |  | (Years 2008 |         |  | Years 2010 |         
|Obligations                      |  | Total                  |       |             | (Year 2005) |   |             | & 2007) |  |             | & 2009) |  |            | & Beyond |      
|                                 |  |                        |       |             |             |   |             |         |  |             |         |  |            |          |      
|Debt Agreements (see Table I)(4) |  | $                      | 476.0 |             |             | $ |            |         |  | $           |        |  |            | $        | 211.0 |  |  | $ | 265.0 | 
|Operating Leases(5)              |  |                        | 29.2  |             |             |   | 7.3         |         |  |             | 8.3     |  |            |          | 5.8   |  |  |   | 7.8   | 
|                                 |  |                        |       |             |             |   |             |         |  |             |         |  |            |          |      
|Total                            |  | $                      | 505.2 |             |             | $ | 7.3         |         |  | $           | 8.3     |  |            | $        | 216.8 |  |  | $ | 272.8 | 
|                                 |  |                        |       |             |             |   |             |         |  |             |         |  |            |          |      

23



---



##### 








|    |                                                                                                                                                       
|--- | ------------------------------------------------------------------------------------------------------------------------------------------------------
|(4) | The amounts relating to Debt Agreements in Table II include
    $4.5 of an original issue discount.                                                   
|   
|(5) | These amounts are as of December 31, 2004 and relate
    primarily to operating leases for our railcars, computer
    hardware, and executive offices.







ENVIRONMENTAL MATTERS








24



---



##### 





FORWARD-LOOKING STATEMENTS; RISKS AND UNCERTAINTIES






Risk Related to Our Business




| |                                                                               
| | ------------------------------------------------------------------------------
| | Reduced raw material margins could adversely affect our
    operating results.

see




| |                                                                       
| | ----------------------------------------------------------------------
| | Reduced sales volume could adversely affect our operating
    results.



25



---



##### 





| |                                                                     
| | --------------------------------------------------------------------
| | Increases in costs could adversely affect our operating
    results.





| |                                                                            
| | ---------------------------------------------------------------------------
| | The financial condition of our customers impacts our
    operating results.





| |                                                                                         
| | ----------------------------------------------------------------------------------------
| | Polyester staple fiber and textile imports continue to
    adversely impact our margins.







| |                                                                                    
| | -----------------------------------------------------------------------------------
| | Our operations are dependent on the availability and cost
    of our raw materials.







| |                                                                                                                                                 
| | ------------------------------------------------------------------------------------------------------------------------------------------------
| | Litigation arising out of alleged pricing practices in the
    polyester staple fiber industry could adversely impact our
    operating results.



26



---



##### 

















27



---



##### 









| |                                                                               
| | ------------------------------------------------------------------------------
| | The actions of our competitors may adversely affect our
    operating results.





| |                                                                                              
| | ---------------------------------------------------------------------------------------------
| | The availability and costs of our financing could
    adversely affect our operating results.







| |                                                                                             
| | --------------------------------------------------------------------------------------------
| | Changes in foreign currency exchange rates could adversely
    affect our operating results.





| |                                                               
| | --------------------------------------------------------------
| | Regulatory changes may affect the demand for our
    products.

see




| |                                                               
| | --------------------------------------------------------------
| | Additional liabilities may be proposed by tax
    authorities.



28



---



##### 





| |                                                                        
| | -----------------------------------------------------------------------
| | Actual costs for environmental matters may vary from the
    estimates.





|         |                                                              
|-------- | -------------------------------------------------------------
|Item 7A. | Quantitative and Qualitative Disclosure about Market
    Risk

DERIVATIVE FINANCIAL INSTRUMENTS




INTEREST RATE RISK




FOREIGN CURRENCY RISK




29



---



##### 





|        |                                            
|------- | -------------------------------------------
|Item 8. | Financial Statements and Supplementary Data

WELLMAN, INC.


Index to Consolidated Financial Statements and Consolidated
Financial Statement


Schedules


|                                                                                                                                                               |  |                                                                                          |    |  |    | 
|-------------------------------------------------------------------------------------------------------------------------------------------------------------- |  | ---------------------------------------------------------------------------------------- | -- |  | -- | 
|Consolidated Statements of Operations for the years ended
    December 31, 2004, 2003 and 2002                                                                 |  |                                                                                          | 31 | 
|Consolidated Balance Sheets as of December 31, 2004 and 2003                                                                                                   |  |                                                                                          | 32 | 
|Consolidated Statements of Stockholders Equity for the
    years ended December 31, 2004, 2003 and 2002                                                       |  |                                                                                          | 33 | 
|Consolidated Statements of Cash Flows for the years ended
    December 31, 2004, 2003 and 2002                                                                 |  |                                                                                          | 34 | 
|Notes to Consolidated Financial Statements                                                                                                                     |  |                                                                                          | 35 | 
|Report of Independent Registered Public Accounting Firm on the
    Consolidated Financial Statements                                                           |  |                                                                                          | 65 | 
|Consolidated financial statement schedules for the years ended
    December 31, 2004, 2003 and 2002:                                                           |  |                                                                                          |    | 
|II  Valuation and qualifying accounts                                                                                                                         |  |                                                                                          | 66 | 
|Item 9.                                                                                                                                                        |  | Changes in and Disagreements with Accountants on Accounting and
    Financial Disclosure |    |  | 67 | 
|Item 9A.                                                                                                                                                       |  | Controls and Procedures                                                                  |    |  | 67 | 
|Item 9B.                                                                                                                                                       |  | Other Information                                                                        |    |  | 67 | 
|Reports of Independent Registered Public Accounting Firm on
    Managements Assessment and the Effectiveness of Internal
    Control over Financial Reporting |  |                                                                                          | 68 | 



30



---



##### 






CONSOLIDATED STATEMENTS OF OPERATIONS


|                                                                |                                                                                        |                                      |         |       |      |   |         |        |   |   |         |        |       |  
|--------------------------------------------------------------- | -------------------------------------------------------------------------------------- | ------------------------------------ | ------- | ----- | ---- | - | ------- | ------ | - | - | ------- | ------ | ----- | -
|                                                                |                                                                                        | Years Ended December 31,             |        
|                                                                |                                                                                        |                                      |        
|                                                                |                                                                                        | 2004                                 |         |       | 2003 |   |         | 2002   |  
|                                                                |                                                                                        |                                      |         |       |      |   |         |        |  
|                                                                |                                                                                        | (In millions, except per share data) |        
|Net sales                                                       |                                                                                        | $                                    | 1,305.0 |       |      | $ | 1,109.3 |        |   | $ | 1,014.0 |       
|Cost of sales                                                   |                                                                                        |                                      | 1,221.2 |       |      |   | 1,028.7 |        |   |   | 898.8   |       
|                                                                |                                                                                        |                                      |         |       |      |   |         |        |  
|Gross profit                                                    |                                                                                        |                                      | 83.8    |       |      |   | 80.6    |        |   |   | 115.2   |       
|Selling, general and administrative expenses                    |                                                                                        |                                      | 59.8    |       |      |   | 66.6    |        |   |   | 64.6    |       
|Impairment charge                                               |                                                                                        |                                      |        |       |      |   | 135.3   |        |   |   |        |       
|Restructuring charges                                           |                                                                                        |                                      | 2.6     |       |      |   | 10.2    |        |   |   |        |       
|Provision for uncollectible accounts                            |                                                                                        |                                      | 0.8     |       |      |   | 3.5     |        |   |   | 4.2     |       
|Non-capitalizable financing costs                               |                                                                                        |                                      | 40.2    |       |      |   | 2.2     |        |   |   |        |       
|Other expense (income), net                                     |                                                                                        |                                      | (3.2    | )     |      |   | 3.8     |        |   |   | 0.7     |       
|                                                                |                                                                                        |                                      |         |       |      |   |         |        |  
|Operating income (loss)                                         |                                                                                        |                                      | (16.4   | )     |      |   | (141.0  | )      |   |   | 45.7    |       
|Interest expense, net                                           |                                                                                        |                                      | 38.1    |       |      |   | 10.1    |        |   |   | 10.3    |       
|                                                                |                                                                                        |                                      |         |       |      |   |         |        |  
|Earnings (loss) from continuing operations before income taxes  |                                                                                        |                                      | (54.5   | )     |      |   | (151.1  | )      |   |   | 35.4    |       
|Income tax expense (benefit)                                    |                                                                                        |                                      | (15.7   | )     |      |   | (54.4   | )      |   |   | 9.0     |       
|                                                                |                                                                                        |                                      |         |       |      |   |         |        |  
|Earnings (loss) from continuing operations                      |                                                                                        |                                      | (38.8   | )     |      |   | (96.7   | )      |   |   | 26.4    |       
|Earnings (loss) from discontinued operations, net of income tax |                                                                                        |                                      |        |       |      |   | 0.1     |        |   |   | (23.7   | )     
|                                                                |                                                                                        |                                      |         |       |      |   |         |        |  
|Earnings (loss) before cumulative effect of accounting change   |                                                                                        |                                      | (38.8   | )     |      |   | (96.6   | )      |   |   | 2.7     |       
|Cumulative effect of accounting change, net of tax              |                                                                                        |                                      |        |       |      |   |        |        |   |   | (197.0  | )     
|                                                                |                                                                                        |                                      |         |       |      |   |         |        |  
|Net loss                                                        |                                                                                        | $                                    | (38.8   | )     |      | $ | (96.6   | )      |   | $ | (194.3  | )     
|                                                                |                                                                                        |                                      |         |       |      |   |         |        |  
|Net loss attributable to common stockholders:                   |                                                                                        |                                      |         |       |      |   |         |        |   |   |         |       
|                                                                | Net loss                                                                               |                                      | $       | (38.8 | )    |   | $       | (96.6  | ) |   | $       | (194.3 | )    
|                                                                | Accretion of preferred stock and beneficial conversion charge                          |                                      |         | (12.3 | )    |   |         | (10.1  | ) |   |         |       |      
|                                                                |                                                                                        |                                      |         |       |      |   |         |        |  
|                                                                | Net loss attributable to common stockholders                                           |                                      | $       | (51.1 | )    |   | $       | (106.7 | ) |   | $       | (194.3 | )    
|                                                                |                                                                                        |                                      |         |       |      |   |         |        |  
|Basic net earnings (loss) per common share:                     |                                                                                        |                                      |         |       |      |   |         |        |   |   |         |       
|                                                                | Net earnings (loss) attributable to common stockholders from
    continuing operations |                                      | $       | (1.61 | )    |   | $       | (3.38  | ) |   | $       | 0.84   |      
|                                                                | Net loss attributable to common stockholders from                                      |                                      |         |       |      |   |         |        |   |   |         |        |      
|                                                                |                                                                                        | discontinued operations              |         |       |     |   |         |        |  |   |         |        | (0.75 | )
|                                                                | Cumulative effect of accounting change                                                 |                                      |         |      |      |   |         |       |   |   |         | (6.24  | )    
|                                                                |                                                                                        |                                      |         |       |      |   |         |        |  
|                                                                | Net loss attributable to common stockholders                                           |                                      | $       | (1.61 | )    |   | $       | (3.38  | ) |   | $       | (6.15  | )    
|                                                                |                                                                                        |                                      |         |       |      |   |         |        |  
|Basic weighted-average common shares outstanding                |                                                                                        |                                      | 31.6    |       |      |   | 31.6    |        |   |   | 31.6    |       
|                                                                |                                                                                        |                                      |         |       |      |   |         |        |  
|Diluted net earnings (loss) per common share:                   |                                                                                        |                                      |         |       |      |   |         |        |   |   |         |       
|                                                                | Net earnings (loss) attributable to common stockholders from
    continuing operations |                                      | $       | (1.61 | )    |   | $       | (3.38  | ) |   | $       | 0.82   |      
|                                                                | Net loss attributable to common stockholders from discontinued
    operations          |                                      |         |      |      |   |         |       |   |   |         | (0.73  | )    
|                                                                | Cumulative effect of accounting change                                                 |                                      |         |      |      |   |         |       |   |   |         | (6.16  | )    
|                                                                |                                                                                        |                                      |         |       |      |   |         |        |  
|                                                                | Net loss attributable to common stockholders                                           |                                      | $       | (1.61 | )    |   | $       | (3.38  | ) |   | $       | (6.07  | )    
|                                                                |                                                                                        |                                      |         |       |      |   |         |        |  
|Diluted weighted-average common shares outstanding              |                                                                                        |                                      | 31.6    |       |      |   | 31.6    |        |   |   | 32.0    |       
|                                                                |                                                                                        |                                      |         |       |      |   |         |        |  



31



---



##### 






CONSOLIDATED BALANCE SHEETS


|                                            |                                                                                                                                        |                                    |         |         |       |   |         |       |       | 
|------------------------------------------- | -------------------------------------------------------------------------------------------------------------------------------------- | ---------------------------------- | ------- | ------- | ----- | - | ------- | ----- | ----- | 
|                                            |                                                                                                                                        | December 31,                       |        
|                                            |                                                                                                                                        |                                    |        
|                                            |                                                                                                                                        | 2004                               |         |         | 2003  |  
|                                            |                                                                                                                                        |                                    |         |         |       |  
|                                            |                                                                                                                                        | (In millions, except               |        
|                                            |                                                                                                                                        | share data)                        |        
|ASSETS:                                    
|Current assets:                             |                                                                                                                                        |                                    |         |         |       |   |         |      
|                                            | Cash and cash equivalents                                                                                                              |                                    | $       | 5.6     |       |   | $       | 205.5 |      
|                                            | Accounts receivable, less allowance of $2.6 in 2004 and $3.8 in
    2003                                                               |                                    |         | 200.2   |       |   |         | 137.5 |      
|                                            | Inventories                                                                                                                            |                                    |         | 145.0   |       |   |         | 121.1 |      
|                                            | Prepaid expenses and other current assets                                                                                              |                                    |         | 27.1    |       |   |         | 12.1  |      
|                                            |                                                                                                                                        |                                    |         |         |       |  
|                                            |                                                                                                                                        | Total current assets               |         |         | 377.9 |   |         |       | 476.2 | 
|Property, plant and equipment, at cost:     |                                                                                                                                        |                                    |         |         |       |   |         |      
|                                            | Land, buildings and improvements                                                                                                       |                                    |         | 140.4   |       |   |         | 138.4 |      
|                                            | Machinery and equipment                                                                                                                |                                    |         | 1,095.9 |       |   |         | 933.2 |      
|                                            | Construction in progress                                                                                                               |                                    |         | 11.0    |       |   |         | 7.2   |      
|                                            |                                                                                                                                        |                                    |         |         |       |  
|                                            |                                                                                                                                        |                                    | 1,247.3 |         |       |   | 1,078.8 |      
|                                            | Less accumulated depreciation                                                                                                          |                                    |         | 591.8   |       |   |         | 535.8 |      
|                                            |                                                                                                                                        |                                    |         |         |       |  
|                                            |                                                                                                                                        | Property, plant and equipment, net |         |         | 655.5 |   |         |       | 543.0 | 
|Goodwill, net                               |                                                                                                                                        |                                    | 38.2    |         |       |   | 37.3    |      
|Other assets, net                           |                                                                                                                                        |                                    | 95.3    |         |       |   | 60.6    |      
|                                            |                                                                                                                                        |                                    |         |         |       |  
|                                            |                                                                                                                                        | $                                  | 1,166.9 |         |       | $ | 1,117.1 |      
|                                            |                                                                                                                                        |                                    |         |         |       |  
|                                           
|LIABILITIES AND STOCKHOLDERS EQUITY:      
|Current liabilities:                        |                                                                                                                                        |                                    |         |         |       |   |         |      
|                                            | Accounts payable                                                                                                                       |                                    | $       | 113.3   |       |   | $       | 90.6  |      
|                                            | Accrued liabilities                                                                                                                    |                                    |         | 49.2    |       |   |         | 41.1  |      
|                                            |                                                                                                                                        |                                    |         |         |       |  
|                                            |                                                                                                                                        | Total current liabilities          |         |         | 162.5 |   |         |       | 131.7 | 
|Long-term debt                              |                                                                                                                                        |                                    | 471.5   |         |       |   | 371.0   |      
|Deferred income taxes and other liabilities |                                                                                                                                        |                                    | 106.4   |         |       |   | 148.8   |      
|                                            |                                                                                                                                        |                                    |         |         |       |  
|                                            |                                                                                                                                        | Total liabilities                  |         |         | 740.4 |   |         |       | 651.5 | 
|                                            |                                                                                                                                        |                                    |         |         |       |  
|Stockholders equity:                       |                                                                                                                                        |                                    |         |         |       |   |         |      
|                                            | Series A preferred stock, $0.001 par value,
    5,000,000 shares authorized, 4,502,143 shares issued
    and outstanding               |                                    |         | 56.0    |       |   |         | 51.0  |      
|                                            | Series B preferred stock, $0.001 par value,
    6,700,000 shares authorized, issued and outstanding                                    |                                    |         | 83.3    |       |   |         | 76.0  |      
|                                            | Class A common stock, $0.001 par value;
    100,000,000 shares authorized, 34,531,747 shares
    issued in 2004 and 34,389,147 in 2003 |                                    |         |        |       |   |         |      |      
|                                            | Class B common stock, $0.001 par value;
    5,500,000 shares authorized; no shares issued                                              |                                    |         |        |       |   |         |      |      
|                                            | Paid-in capital                                                                                                                        |                                    |         | 245.5   |       |   |         | 245.3 |      
|                                            | Common stock warrants                                                                                                                  |                                    |         | 4.9     |       |   |         | 4.9   |      
|                                            | Accumulated other comprehensive income                                                                                                 |                                    |         | 31.0    |       |   |         | 25.2  |      
|                                            | Retained earnings                                                                                                                      |                                    |         | 55.3    |       |   |         | 112.7 |      
|                                            | Less common stock in treasury at cost: 2,500,000 shares                                                                                |                                    |         | (49.5   | )     |   |         | (49.5 | )    
|                                            |                                                                                                                                        |                                    |         |         |       |  
|                                            |                                                                                                                                        | Total stockholders equity         |         |         | 426.5 |   |         |       | 465.6 | 
|                                            |                                                                                                                                        |                                    |         |         |       |  
|                                            |                                                                                                                                        | $                                  | 1,166.9 |         |       | $ | 1,117.1 |      
|                                            |                                                                                                                                        |                                    |         |         |       |  



32



---



##### 






CONSOLIDATED STATEMENTS OF STOCKHOLDERS EQUITY


|                                           |                          |                 |     |  |                 |   |      |              |  |         |        |        |       |             |       |               |        |  |          |  |  |          |   |  |               |   |       |          |  |   |       |  |  |       |       |   |  |   |        |   |  |   |       |   |  |   |        |        |  
|------------------------------------------ | ------------------------ | --------------- | --- |  | --------------- | - | ---- | ------------ |  | ------- | ------ | ------ | ----- | ----------- | ----- | ------------- | ------ |  | -------- |  |  | -------- | - |  | ------------- | - | ----- | -------- |  | - | ----- |  |  | ----- | ----- | - |  | - | ------ | - |  | - | ----- | - |  | - | ------ | ------ | -
|                                           |                          | Series A        |     |  | Series B        |   |      | Class A      |  |         |        |        |       |             |       |               |        |  |          | 
|                                           |                          | Preferred Stock |     |  | Preferred Stock |   |      | Common       |  |         |        |        |       | Accumulated |       |               |        |  |          |  | 
|                                           |                          | Issued          |     |  | Issued          |   |      | Stock Issued |  |         |        | Common |       |             | Other |               |        |  |          |  |  |         
|                                           |                          |                 |     |  |                 |   |      |              |  | Paid-In |        |        | Stock |             |       | Comprehensive |        |  | Retained |  |  | Treasury |   |  |              
|                                           |                          | Shares          |     |  | Amount          |   |      | Shares       |  |         | Amount |        |       | Shares      |       |               | Amount |  | Capital  |  |  | Warrants |   |  | Income/(Loss) |   |       | Earnings |  |   | Stock |  |  | Total |      
|                                           |                          |                 |     |  |                 |   |      |              |  |         |        |        |       |             |       |               |        |  |          |  |  |          |   |  |               |   |       |          |  |   |       |  |  |       |      
|                                           |                          | (In millions)   |    
|Balance at December 31, 2001               |                          |                 |     |  |                 |   |      |              |  |         |        |        |       |             |       |               |        |  | 34.4     |  |  | $        |  |  |               | $ | 247.5 |          |  |   |       |  |  | $     | (22.0 | ) |  | $ | 436.7  |   |  | $ | (49.5 | ) |  | $ | 612.7  |       
|Net loss                                   |                          |                 |     |  |                 |   |      |              |  |         |        |        |       |             |       |               |        |  |          |  |  |          |   |  |               |   |       |          |  |   |       |  |  |       |       |   |  |   | (194.3 | ) |  |   |       |   |  |   | (194.3 | )     
|Currency translation adjustments           |                          |                 |     |  |                 |   |      |              |  |         |        |        |       |             |       |               |        |  |          |  |  |          |   |  |               |   |       |          |  |   |       |  |  |       | 21.4  |   |  |   |        |   |  |   |       |   |  |   | 21.4   |       
|Minimum pension liability adjustments      |                          |                 |     |  |                 |   |      |              |  |         |        |        |       |             |       |               |        |  |          |  |  |          |   |  |               |   |       |          |  |   |       |  |  |       | (3.7  | ) |  |   |        |   |  |   |       |   |  |   | (3.7   | )     
|Fair value of derivatives                  |                          |                 |     |  |                 |   |      |              |  |         |        |        |       |             |       |               |        |  |          |  |  |          |   |  |               |   |       |          |  |   |       |  |  |       | 1.1   |   |  |   |        |   |  |   |       |   |  |   | 1.1    |       
|                                           |                          |                 |     |  |                 |   |      |              |  |         |        |        |       |             |       |               |        |  |          |  |  |          |   |  |               |   |       |          |  |   |       |  |  |       |       |  
|                                           | Total comprehensive loss |                 |     |  |                 |   |      |              |  |         |        |        |       |             |       |               |        |  |          |  |  |          |   |  |               |   |       |          |  |   |       |  |  |       |       |   |  |   |        |   |  |   |       |   |  |   |        | (175.5 | )
|Cash dividends ($0.36 per share)           |                          |                 |     |  |                 |   |      |              |  |         |        |        |       |             |       |               |        |  |          |  |  |          |   |  |               |   |       |          |  |   |       |  |  |       |       |   |  |   | (11.5  | ) |  |   |       |   |  |   | (11.5  | )     
|Issuance of restricted stock, net          |                          |                 |     |  |                 |   |      |              |  |         |        |        |       |             |       |               |        |  |         |  |  |          |  |  |               |   | 0.4   |          |  |   |       |  |  |       |       |   |  |   |        |   |  |   |       |   |  |   | 0.4    |       
|Amortization of deferred compensation, net |                          |                 |     |  |                 |   |      |              |  |         |        |        |       |             |       |               |        |  |          |  |  |          |   |  |               |   | 0.6   |          |  |   |       |  |  |       |       |   |  |   |        |   |  |   |       |   |  |   | 0.6    |       
|                                           |                          |                 |     |  |                 |   |      |              |  |         |        |        |       |             |       |               |        |  |          |  |  |          |   |  |               |   |       |          |  |   |       |  |  |       |       |  
|Balance at December 31, 2002               |                          |                 |     |  |                 |   |      |              |  |         |        |        |       |             |       |               |        |  | 34.4     |  |  |          |  |  |               |   | 248.5 |          |  |   |       |  |  |       | (3.2  | ) |  |   | 230.9  |   |  |   | (49.5 | ) |  |   | 426.7  |       
|Net loss                                   |                          |                 |     |  |                 |   |      |              |  |         |        |        |       |             |       |               |        |  |          |  |  |          |   |  |               |   |       |          |  |   |       |  |  |       |       |   |  |   | (96.6  | ) |  |   |       |   |  |   | (96.6  | )     
|Currency translation adjustments           |                          |                 |     |  |                 |   |      |              |  |         |        |        |       |             |       |               |        |  |          |  |  |          |   |  |               |   |       |          |  |   |       |  |  |       | 27.3  |   |  |   |        |   |  |   |       |   |  |   | 27.3   |       
|Minimum pension liability adjustments      |                          |                 |     |  |                 |   |      |              |  |         |        |        |       |             |       |               |        |  |          |  |  |          |   |  |               |   |       |          |  |   |       |  |  |       | (0.8  | ) |  |   |        |   |  |   |       |   |  |   | (0.8   | )     
|Fair value of derivatives                  |                          |                 |     |  |                 |   |      |              |  |         |        |        |       |             |       |               |        |  |          |  |  |          |   |  |               |   |       |          |  |   |       |  |  |       | 1.9   |   |  |   |        |   |  |   |       |   |  |   | 1.9    |       
|                                           |                          |                 |     |  |                 |   |      |              |  |         |        |        |       |             |       |               |        |  |          |  |  |          |   |  |               |   |       |          |  |   |       |  |  |       |       |  
|                                           | Total comprehensive loss |                 |     |  |                 |   |      |              |  |         |        |        |       |             |       |               |        |  |          |  |  |          |   |  |               |   |       |          |  |   |       |  |  |       |       |   |  |   |        |   |  |   |       |   |  |   |        | (68.2  | )
|Cash dividends ($0.36 per share)           |                          |                 |     |  |                 |   |      |              |  |         |        |        |       |             |       |               |        |  |          |  |  |          |   |  |               |   |       |          |  |   |       |  |  |       |       |   |  |   | (11.5  | ) |  |   |       |   |  |   | (11.5  | )     
|Issuance of Series A preferred stock       |                          |                 | 4.5 |  |                 | $ | 48.7 |              |  |         |        |        |       |             |       |               |        |  |          |  |  |          |   |  |               |   |       |          |  |   |       |  |  |       |       |   |  |   |        |   |  |   |       |   |  |   | 48.7   |       
|Issuance of Series B preferred stock       |                          |                 |     |  |                 |   |      |              |  |         | 6.7    |        |       | $           | 72.4  |               |        |  |          |  |  |          |   |  |               |   |       |          |  |   |       |  |  |       |       |   |  |   |        |   |  |   |       |   |  |   | 72.4   |       
|Equity 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   |          |  |   |       |  |  |       |       |   |  |   |        |   |  |   |       |   |  |   | 0.2    |       
|Amortization of deferred compensation, net |                          |                 |     |  |                 |   |      |              |  |         |        |        |       |             |       |               |        |  |          |  |  |          |   |  |               |   | 1.4   |          |  |   |       |  |  |       |       |   |  |   |        |   |  |   |       |   |  |   | 1.4    |       
|Issuance of common stock warrants          |                          |                 |     |  |                 |   |      |              |  |         |        |        |       |             |       |               |        |  |          |  |  |          |   |  |               |   |       |          |  | $ | 4.9   |  |  |       |       |   |  |   |        |   |  |   |       |   |  |   | 4.9    |       
|                                           |                          |                 |     |  |                 |   |      |              |  |         |        |        |       |             |       |               |        |  |          |  |  |          |   |  |               |   |       |          |  |   |       |  |  |       |       |  
|Balance at December 31, 2003               |                          |                 | 4.5 |  |                 |   | 51.0 |              |  |         | 6.7    |        |       |             | 76.0  |               |        |  | 34.4     |  |  |          |  |  |               |   | 245.3 |          |  |   | 4.9   |  |  |       | 25.2  |   |  |   | 112.7  |   |  |   | (49.5 | ) |  |   | 465.6  |       
|Net loss                                   |                          |                 |     |  |                 |   |      |              |  |         |        |        |       |             |       |               |        |  |          |  |  |          |   |  |               |   |       |          |  |   |       |  |  |       |       |   |  |   | (38.8  | ) |  |   |       |   |  |   | (38.8  | )     
|Currency translation adjustments           |                          |                 |     |  |                 |   |      |              |  |         |        |        |       |             |       |               |        |  |          |  |  |          |   |  |               |   |       |          |  |   |       |  |  |       | 10.3  |   |  |   |        |   |  |   |       |   |  |   | 10.3   |       
|Minimum pension liability adjustments      |                          |                 |     |  |                 |   |      |              |  |         |        |        |       |             |       |               |        |  |          |  |  |          |   |  |               |   |       |          |  |   |       |  |  |       | (2.1  | ) |  |   |        |   |  |   |       |   |  |   | (2.1   | )     
|Fair value of derivatives                  |                          |                 |     |  |                 |   |      |              |  |         |        |        |       |             |       |               |        |  |          |  |  |          |   |  |               |   |       |          |  |   |       |  |  |       | (2.4  | ) |  |   |        |   |  |   |       |   |  |   | (2.4   | )     
|                                           |                          |                 |     |  |                 |   |      |              |  |         |        |        |       |             |       |               |        |  |          |  |  |          |   |  |               |   |       |          |  |   |       |  |  |       |       |  
|                                           | Total comprehensive loss |                 |     |  |                 |   |      |              |  |         |        |        |       |             |       |               |        |  |          |  |  |          |   |  |               |   |       |          |  |   |       |  |  |       |       |   |  |   |        |   |  |   |       |   |  |   |        | (33.0  | )
|Cash dividends ($0.20 per share)           |                          |                 |     |  |                 |   |      |              |  |         |        |        |       |             |       |               |        |  |          |  |  |          |   |  |               |   |       |          |  |   |       |  |  |       |       |   |  |   | (6.3   | ) |  |   |       |   |  |   | (6.3   | )     
|Equity transaction costs                   |                          |                 |     |  |                 |   |      |              |  |         |        |        |       |             |       |               |        |  |          |  |  |          |   |  |               |   | (0.1  | )        |  |   |       |  |  |       |       |   |  |   |        |   |  |   |       |   |  |   | (0.1   | )     
|Accretion of preferred stock               |                          |                 |     |  |                 |   | 5.0  |              |  |         |        |        |       |             | 7.3   |               |        |  |          |  |  |          |   |  |               |   |       |          |  |   |       |  |  |       |       |   |  |   | (12.3  | ) |  |   |       |   |  |   |       |       
|Exercise of stock options, net             |                          |                 |     |  |                 |   |      |              |  |         |        |        |       |             |       |               |        |  |         |  |  |          |  |  |               |   | 0.2   |          |  |   |       |  |  |       |       |   |  |   |        |   |  |   |       |   |  |   | 0.2    |       
|Issuance of restricted stock, net          |                          |                 |     |  |                 |   |      |              |  |         |        |        |       |             |       |               |        |  | 0.1      |  |  |          |  |  |               |   | 0.1   |          |  |   |       |  |  |       |       |   |  |   |        |   |  |   |       |   |  |   | 0.1    |       
|                                           |                          |                 |     |  |                 |   |      |              |  |         |        |        |       |             |       |               |        |  |          |  |  |          |   |  |               |   |       |          |  |   |       |  |  |       |       |  
|Balance at December 31, 2004               |                          |                 | 4.5 |  |                 | $ | 56.0 |              |  |         | 6.7    |        |       | $           | 83.3  |               |        |  | 34.5     |  |  |          |  |  |               | $ | 245.5 |          |  | $ | 4.9   |  |  | $     | 31.0  |   |  | $ | 55.3   |   |  | $ | (49.5 | ) |  | $ | 426.5  |       
|                                           |                          |                 |     |  |                 |   |      |              |  |         |        |        |       |             |       |               |        |  |          |  |  |          |   |  |               |   |       |          |  |   |       |  |  |       |       |  



33



---



##### 






CONSOLIDATED STATEMENTS OF CASH FLOWS


|                                                             |                                                                                               |                                                                          |        |        |        |   |       |        |       |   |      |        |        |  
|------------------------------------------------------------ | --------------------------------------------------------------------------------------------- | ------------------------------------------------------------------------ | ------ | ------ | ------ | - | ----- | ------ | ----- | - | ---- | ------ | ------ | -
|                                                             |                                                                                               | Years Ended December 31,                                                 |       
|                                                             |                                                                                               |                                                                          |       
|                                                             |                                                                                               | 2004                                                                     |        |        | 2003   |   |       | 2002   |      
|                                                             |                                                                                               |                                                                          |        |        |        |   |       |        |      
|                                                             |                                                                                               | (In millions)                                                            |       
|Cash flows from operating activities:                        |                                                                                               |                                                                          |        |        |        |   |       |        |       |   |      |       
|                                                             | Net loss                                                                                      |                                                                          | $      | (38.8  | )      |   | $     | (96.6  | )     |   | $    | (194.3 | )     
|                                                             | Adjustments to reconcile net loss to net cash provided by (used
    in) operating activities: |                                                                          |        |        |        |   |       |        |       |   |      |        |       
|                                                             |                                                                                               | Depreciation                                                             |        |        | 55.4   |   |       |        | 47.1  |   |      |        | 56.3   |  
|                                                             |                                                                                               | Amortization                                                             |        |        | 15.2   |   |       |        | 5.6   |   |      |        | 1.3    |  
|                                                             |                                                                                               | Amortization in interest expense, net                                    |        |        | 4.0    |   |       |        | 2.0   |   |      |        |       |  
|                                                             |                                                                                               | Deferred income taxes and other                                          |        |        | (24.0  | ) |       |        | (69.9 | ) |      |        | 3.9    |  
|                                                             |                                                                                               | Cumulative effect of accounting change                                   |        |        |       |   |       |        |      |   |      |        | 197.0  |  
|                                                             |                                                                                               | Loss on sale of discontinued business and impairment losses              |        |        |       |   |       |        | 134.8 |   |      |        | 32.1   |  
|                                                             |                                                                                               | Non-Capitalizable financing costs                                        |        |        | 21.0   |   |       |        |      |   |      |        |       |  
|                                                             |                                                                                               | Loss on disposal of assets                                               |        |        | 1.2    |   |       |        | 0.8   |   |      |        | 1.2    |  
|                                                             | Changes in assets and liabilities:                                                            |                                                                          |        |        |        |   |       |        |       |   |      |        |       
|                                                             |                                                                                               | Accounts receivable                                                      |        |        | (60.2  | ) |       |        | (68.6 | ) |      |        | (8.9   | )
|                                                             |                                                                                               | Inventories                                                              |        |        | (21.2  | ) |       |        | (1.0  | ) |      |        | 34.9   |  
|                                                             |                                                                                               | Prepaid expenses and other current assets                                |        |        | (0.3   | ) |       |        | (2.1  | ) |      |        | (1.3   | )
|                                                             |                                                                                               | Other assets                                                             |        |        | (1.7   | ) |       |        | 2.3   |   |      |        | 2.3    |  
|                                                             |                                                                                               | Accounts payable, accrued liabilities, and other current
    liabilities |        |        | 25.3   |   |       |        | 23.5  |   |      |        | 1.5    |  
|                                                             |                                                                                               | Other liabilities                                                        |        |        | 1.4    |   |       |        | (0.3  | ) |      |        | (0.1   | )
|                                                             |                                                                                               | Other                                                                    |        |        | 1.0    |   |       |        | 5.6   |   |      |        | 2.4    |  
|                                                             |                                                                                               |                                                                          |        |        |        |   |       |        |      
|                                                             |                                                                                               | Net cash provided by (used in) operating activities                      |        |        | (21.7  | ) |       |        | (16.8 | ) |      |        | 128.3  |  
|                                                             |                                                                                               |                                                                          |        |        |        |   |       |        |      
|Cash flows from investing activities:                        |                                                                                               |                                                                          |        |        |        |   |       |        |       |   |      |       
|                                                             | Additions to property, plant and equipment                                                    |                                                                          |        | (15.1  | )      |   |       | (15.5  | )     |   |      | (21.6  | )     
|                                                             | Purchase of assets subject to sale and leaseback transaction                                  |                                                                          |        | (150.0 | )      |   |       |       |       |   |      |       |       
|                                                             | Pre-payment of raw material contract                                                          |                                                                          |        | (77.1  | )      |   |       |       |       |   |      |       |       
|                                                             | Proceeds from sale of business                                                                |                                                                          |        |       |        |   |       | 1.1    |       |   |      | 1.5    |       
|                                                             |                                                                                               |                                                                          |        |        |        |   |       |        |      
|                                                             |                                                                                               | Net cash used in investing activities                                    |        |        | (242.2 | ) |       |        | (14.4 | ) |      |        | (20.1  | )
|                                                             |                                                                                               |                                                                          |        |        |        |   |       |        |      
|Cash flows from financing activities:                        |                                                                                               |                                                                          |        |        |        |   |       |        |       |   |      |       
|                                                             | Proceeds from debt                                                                            |                                                                          |        | 469.7  |        |   |       | 239.4  |       |   |      | 25.0   |       
|                                                             | Repayments of debt                                                                            |                                                                          |        | (370.0 | )      |   |       | (100.0 | )     |   |      | (124.0 | )     
|                                                             | Termination of swaps                                                                          |                                                                          |        | (11.9  | )      |   |       |       |       |   |      |       |       
|                                                             | Debt issuance costs                                                                           |                                                                          |        | (18.0  | )      |   |       |       |       |   |      |       |       
|                                                             | Issuance of preferred stock (Series A & B) and
    warrants                                   |                                                                          |        |       |        |   |       | 126.0  |       |   |      |       |       
|                                                             | Financing costs                                                                               |                                                                          |        | (0.1   | )      |   |       | (17.3  | )     |   |      |       |       
|                                                             | Exercise of employee stock options                                                            |                                                                          |        | 0.2    |        |   |       |       |       |   |      |       |       
|                                                             | Issuance of restricted stock, net                                                             |                                                                          |        |       |        |   |       | 0.2    |       |   |      | 0.4    |       
|                                                             | Dividends paid on common stock                                                                |                                                                          |        | (6.3   | )      |   |       | (11.5  | )     |   |      | (11.5  | )     
|                                                             |                                                                                               |                                                                          |        |        |        |   |       |        |      
|                                                             |                                                                                               | Net cash provided by (used in) financing activities                      |        |        | 63.6   |   |       |        | 236.8 |   |      |        | (110.1 | )
|                                                             |                                                                                               |                                                                          |        |        |        |   |       |        |      
|Effect of exchange rate changes on cash and cash equivalents |                                                                                               |                                                                          | 0.4    |        |        |   | (0.1  | )      |       |   | 0.1  |       
|                                                             |                                                                                               |                                                                          |        |        |        |   |       |        |      
|Increase (decrease) in cash and cash equivalents             |                                                                                               |                                                                          | (199.9 | )      |        |   | 205.5 |        |       |   | (1.8 | )     
|Cash and cash equivalents at beginning of year               |                                                                                               |                                                                          | 205.5  |        |        |   |      |        |       |   | 1.8  |       
|                                                             |                                                                                               |                                                                          |        |        |        |   |       |        |      
|Cash and cash equivalents at end of year                     |                                                                                               | $                                                                        | 5.6    |        |        | $ | 205.5 |        |       | $ | 0    |       
|                                                             |                                                                                               |                                                                          |        |        |        |   |       |        |      
|Supplemental cash flow data:                                 |                                                                                               |                                                                          |        |        |        |   |       |        |       |   |      |       
|                                                             | Cash paid (received) during the year for:                                                     |                                                                          |        |        |        |   |       |        |       |   |      |        |       
|                                                             |                                                                                               | Interest (net of amounts capitalized)                                    |        | $      | 33.1   |   |       | $      | 10.0  |   |      | $      | 10.3   |  
|                                                             |                                                                                               | Income taxes                                                             |        | $      | 6.3    |   |       | $      | 1.0   |   |      | $      | (18.7  | )



34



---



##### 



Notes to Consolidated Financial Statements


(In millions, except share and per share data)




|   |                                           
|-- | ------------------------------------------
|1. | SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Organization




Principles of Consolidation




Use of Estimates




Revenue Recognition




Cash and Cash Equivalents




Derivative Instruments and Hedging Activities




35



---



##### 



Notes to Consolidated Financial
Statements  (Continued)


Allowances for Doubtful Accounts




Inventories




Property, Plant and Equipment






|                                                |  |                   |     |  |                       |   |     | 
|----------------------------------------------- |  | ----------------- | --- |  | --------------------- | - | --- | 
|                                                |  | Net Book Value at |     |  | Pretax Impact of      |  
|                                                |  | End of Period     |     |  | Reducing Depreciation |  
|                                                |  |                   |     |  |                       |  
|As of and for the year ending December 31, 2002 |  | $                 | 9.0 |  |                       | $ | 1.1 | 
|As of and for the year ending December 31, 2003 |  | $                 | 3.6 |  |                       | $ | 1.6 | 
|As of and for the year ending December 31, 2004 |  | $                 | 0.2 |  |                       | $ | 0.7 | 









36



---



##### 



Notes to Consolidated Financial
Statements  (Continued)






Goodwill and Other Intangible Assets






Income Taxes




Environmental Expenditures




Foreign Currency Translation and Other Comprehensive
Income (Loss)




37



---



##### 



Notes to Consolidated Financial
Statements  (Continued)








|                             |                                            |             |       |      |           |   |       |             |             |   |               |      |   |   |       |      | 
|---------------------------- | ------------------------------------------ | ----------- | ----- | ---- | --------- | - | ----- | ----------- | ----------- | - | ------------- | ---- | - | - | ----- | ---- | 
|                             |                                            | Foreign     |       |      |           |   |       |             | Accumulated |  
|                             |                                            | Currency    |       |      | Minimum   |   |       | Fair Value  |             |   | Other         |     
|                             |                                            | Translation |       |      | Pension   |   |       | of          |             |   | Comprehensive |     
|                             |                                            | Adjustments |       |      | Liability |   |       | Derivatives |             |   | Income/(Loss) |     
|                             |                                            |             |       |      |           |   |       |             |             |   |               |     
|Balance at December 31, 2001 |                                            | $           | (15.5 | )    |           | $ | (6.4  | )           |             | $ | (0.1          | )    |   | $ | (22.0 | )   
|                             | Changes during year (net of taxes of $2.2) |             |       | 21.4 |           |   |       | (3.7        | )           |   |               | 1.1  |   |   |       | 18.8 | 
|                             |                                            |             |       |      |           |   |       |             |             |   |               |     
|Balance at December 31, 2002 |                                            |             | 5.9   |      |           |   | (10.1 | )           |             |   | 1.0           |      |   |   | (3.2  | )   
|                             | Changes during year (net of taxes of $1.7) |             |       | 27.3 |           |   |       | (0.8        | )           |   |               | 1.9  |   |   |       | 28.4 | 
|                             |                                            |             |       |      |           |   |       |             |             |   |               |     
|Balance at December 31, 2003 |                                            |             | 33.2  |      |           |   | (10.9 | )           |             |   | 2.9           |      |   |   | 25.2  |     
|                             | Changes during year (net of taxes of $1.4) |             |       | 10.3 |           |   |       | (2.1        | )           |   |               | (2.4 | ) |   |       | 5.8  | 
|                             |                                            |             |       |      |           |   |       |             |             |   |               |     
|Balance at December 31, 2004 |                                            | $           | 43.5  |      |           | $ | (13.0 | )           |             | $ | 0.5           |      |   | $ | 31.0  |     
|                             |                                            |             |       |      |           |   |       |             |             |   |               |     

Advertising Costs




Research and Development Costs




Deferred Debt Costs




Stock Based Compensation








38



---



##### 



Notes to Consolidated Financial
Statements  (Continued)


Reclassification






|   |                   
|-- | ------------------
|2. | ACCOUNTING CHANGES









|                                   |  |      |     |  |     |   |      |       |  |   |      | 
|---------------------------------- |  | ---- | --- |  | --- | - | ---- | ----- |  | - | ---- | 
|                                   |  | FRPG |     |  | PPG |   |      | Total | 
|                                   |  |      |     |  |     |   |      |       | 
|Goodwill, net at December 31, 2003 |  | $    | -0- |  |     | $ | 37.3 |       |  | $ | 37.3 | 
|Currency translation adjustment    |  |      | -0- |  |     |   | 0.9  |       |  |   | 0.9  | 
|                                   |  |      |     |  |     |   |      |       | 
|Goodwill, net at December 31, 2004 |  | $    | -0- |  |     | $ | 38.2 |       |  | $ | 38.2 | 
|                                   |  |      |     |  |     |   |      |       | 



Accounting for Discontinued Operations




39



---



##### 



Notes to Consolidated Financial
Statements  (Continued)












|                                                                                                                        |  |              |      |   |      |   |       |  
|----------------------------------------------------------------------------------------------------------------------- |  | ------------ | ---- | - | ---- | - | ----- | -
|                                                                                                                        |  | Year Ended   |     
|                                                                                                                        |  | December 31, |     
|                                                                                                                        |  |              |     
|                                                                                                                        |  | 2003         |      |   | 2002 |  
|                                                                                                                        |  |              |      |   |      |  
|Net sales                                                                                                               |  | $            | 0.7  |   |      | $ | 29.3  |  
|                                                                                                                        |  |              |      |   |      |  
|Loss from discontinued operations before income tax benefit                                                             |  | $            | (0.3 | ) |      | $ | (4.2  | )
|Income tax benefit                                                                                                      |  |              | (0.1 | ) |      |   | (1.4  | )
|                                                                                                                        |  |              |      |   |      |  
|Loss from discontinued operations, net                                                                                  |  |              | (0.2 | ) |      |   | (2.8  | )
|                                                                                                                        |  |              |      |   |      |  
|Gain (loss) on disposal of business and impairment charge to
    record assets at fair value less costs of disposal     |  |              | 0.5  |   |      |   | (32.2 | )
|Income tax expense (benefit)                                                                                            |  |              | 0.2  |   |      |   | (11.3 | )
|                                                                                                                        |  |              |      |   |      |  
|Net gain (loss) on disposal of businesses and impairment loss to
    record assets at fair value less costs of disposal |  |              | 0.3  |   |      |   | (20.9 | )
|                                                                                                                        |  |              |      |   |      |  
|Net gain (loss) from discontinued operations                                                                            |  | $            | 0.1  |   |      | $ | (23.7 | )
|                                                                                                                        |  |              |      |   |      |  



|   |            
|-- | -----------
|3. | INVENTORIES



|                                 |  |              |       |  |      |   |       | 
|-------------------------------- |  | ------------ | ----- |  | ---- | - | ----- | 
|                                 |  | December 31, |      
|                                 |  |              |      
|                                 |  | 2004         |       |  | 2003 |  
|                                 |  |              |       |  |      |  
|Raw materials                    |  | $            | 47.5  |  |      | $ | 35.3  | 
|Finished and semi-finished goods |  |              | 90.2  |  |      |   | 77.9  | 
|Supplies                         |  |              | 7.3   |  |      |   | 7.9   | 
|                                 |  |              |       |  |      |  
|                                 |  | $            | 145.0 |  |      | $ | 121.1 | 
|                                 |  |              |       |  |      |  

40



---



##### 



Notes to Consolidated Financial
Statements  (Continued)




|   |                    
|-- | -------------------
|4. | ACCRUED LIABILITIES



|                               |  |              |      |  |      |   |      | 
|------------------------------ |  | ------------ | ---- |  | ---- | - | ---- | 
|                               |  | December 31, |     
|                               |  |              |     
|                               |  | 2004         |      |  | 2003 |  
|                               |  |              |      |  |      |  
|Payroll and other compensation |  | $            | 3.3  |  |      | $ | 2.7  | 
|Retirement plans               |  |              | 9.2  |  |      |   | 3.7  | 
|Property and other taxes       |  |              | 7.3  |  |      |   | 7.2  | 
|Restructuring reserves         |  |              | 1.6  |  |      |   | 6.1  | 
|Interest                       |  |              | 6.7  |  |      |   | 2.9  | 
|Other                          |  |              | 21.1 |  |      |   | 18.5 | 
|                               |  |              |      |  |      |  
|                               |  | $            | 49.2 |  |      | $ | 41.1 | 
|                               |  |              |      |  |      |  



|   |                            
|-- | ---------------------------
|5. | OTHER EXPENSE (INCOME), NET



|                                                                                                          |  |                     |      |   |      |   |      |      |  |   |      |  
|--------------------------------------------------------------------------------------------------------- |  | ------------------- | ---- | - | ---- | - | ---- | ---- |  | - | ---- | -
|                                                                                                          |  | For the Years Ended |     
|                                                                                                          |  | December 31,        |     
|                                                                                                          |  |                     |     
|                                                                                                          |  | 2004                |      |   | 2003 |   |      | 2002 | 
|                                                                                                          |  |                     |      |   |      |   |      |      | 
|Legal costs related to the Department of Justice investigation
    of the polyester staple fiber industry |  | $                   | 5.4  |   |      | $ | 6.0  |      |  | $ | 5.1  |  
|Rebates from anti-dumping duties                                                                          |  |                     | (8.6 | ) |      |   | (3.4 | )    |  |   | (4.4 | )
|Accelerated stock option vesting                                                                          |  |                     |     |   |      |   | 1.2  |      |  |   |     |  
|                                                                                                          |  |                     |      |   |      |   |      |      | 
|                                                                                                          |  | $                   | (3.2 | ) |      | $ | 3.8  |      |  | $ | 0.7  |  
|                                                                                                          |  |                     |      |   |      |   |      |      | 



|   |                      
|-- | ---------------------
|6. | RESTRUCTURING CHARGES





| |             
| | ------------
| | January 2003



|                                     |  |           |      |  
|------------------------------------ |  | --------- | ---- | -
|                                     |  | Severance |     
|                                     |  | Costs     |     
|                                     |  |           |     
|Accruals during 2003                 |  | $         | 1.8  |  
|Cash payments                        |  |           | (1.8 | )
|                                     |  |           |     
|Accrual balance at December 31, 2003 |  | $         | 0    |  
|                                     |  |           |     

41



---



##### 



Notes to Consolidated Financial
Statements  (Continued)




| |          
| | ---------
| | July 2003





| |              
| | -------------
| | November 2003



|                                      |  |           |      |  
|------------------------------------- |  | --------- | ---- | -
|                                      |  | Severance |     
|                                      |  | Costs     |     
|                                      |  |           |     
|Accruals during 2003                  |  | $         | 8.1  |  
|Cash payments in 2003                 |  |           | (2.0 | )
|                                      |  |           |     
|Accrual balances at December 31, 2003 |  | $         | 6.1  |  
|Accruals during 2004                  |  |           | 2.9  |  
|Cash payments in 2004                 |  |           | (7.5 | )
|Currency translation adjustments      |  |           | 0.1  |  
|                                      |  |           |     
|Accrual balances at December 31, 2004 |  | $         | 1.6  |  
|                                      |  |           |     



42



---



##### 



Notes to Consolidated Financial
Statements  (Continued)




|   |                       
|-- | ----------------------
|7. | BORROWING ARRANGEMENTS



|                                                                                                                                                                                        |                      |              |       |   |      |   |       |   | 
|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- | -------------------- | ------------ | ----- | - | ---- | - | ----- | - | 
|                                                                                                                                                                                        |                      | December 31, |      
|                                                                                                                                                                                        |                      |              |      
|                                                                                                                                                                                        |                      | 2004         |       |   | 2003 |  
|                                                                                                                                                                                        |                      |              |       |   |      |  
|Five-year, $175.0 Revolving Credit Facility, with interest
    initially at either LIBOR plus 250 basis points or the
    prime rate plus 125 basis points, at the Companys
    option |                      | $            | 25.0  |   |      | $ |      |  
|Five-year, $185.0 First Lien Term Loan, with interest at LIBOR
    plus 400 basis points                                                                                                |                      |              | 185.0 |   |      |   |      |  
|Six-year, $265.0 Second Lien Term Loan, with interest at LIBOR
    plus 675 basis points                                                                                                |                      |              | 260.5 |   |      |   |      |  
|Revolving credit loan facility                                                                                                                                                          |                      |              |      |   |      |   | 270.0 |  
|7.55% senior unsecured note, due December 2011                                                                                                                                          |                      |              |      |   |      |   | 40.0  |  
|Variable rate senior unsecured note, due November 2004 (3.2% at
    December 31, 2003)                                                                                                  |                      |              |      |   |      |   | 35.0  |  
|7.46% senior unsecured note, due September 2009                                                                                                                                         |                      |              |      |   |      |   | 25.0  |  
|Other                                                                                                                                                                                   |                      |              | 1.0   |   |      |   | 1.0   |  
|                                                                                                                                                                                        |                      |              |       |   |      |  
|                                                                                                                                                                                        |                      |              | 471.5 |   |      |   | 371.0 |  
|                                                                                                                                                                                        | Less current portion |              |       |  |      |   |       |  | 
|                                                                                                                                                                                        |                      |              |       |   |      |  
|                                                                                                                                                                                        |                      | $            | 471.5 |   |      | $ | 371.0 |  
|                                                                                                                                                                                        |                      |              |       |   |      |  





43



---



##### 



Notes to Consolidated Financial
Statements  (Continued)




|                                               |  |   |       | 
|---------------------------------------------- |  | - | ----- | 
|Pay Balance Sheet Debt                         |  | $ | 370.0 | 
|Purchase PET Resin Assets (Sale and Leaseback) |  |   | 150.0 | 
|Pre-pay Raw Material Contract                  |  |   | 77.1  | 
|Purchase Accounts Receivable                   |  |   | 51.4  | 
|Pay February 2004 Financing Costs              |  |   | 18.0  | 
|Pay Pre-payment Penalties                      |  |   | 13.9  | 
|Terminate Certain Swap Agreements              |  |   | 11.9  | 
|Pay Interest and Fees                          |  |   | 3.6   | 
|                                               |  |   |      
|                                               |  | $ | 695.9 | 
|                                               |  |   |      



|                                  |  |   |      | 
|--------------------------------- |  | - | ---- | 
|Termination of Swap Agreements    |  | $ | 14.4 | 
|Pre-payment Penalties             |  |   | 13.9 | 
|Write-Off of Debt Issuance Costs  |  |   | 6.6  | 
|Other Expenses                    |  |   | 5.3  | 
|                                  |  |   |     
|Non-Capitalizable Financing Costs |  | $ | 40.2 | 
|                                  |  |   |     









44



---



##### 



Notes to Consolidated Financial
Statements  (Continued)








|   |             
|-- | ------------
|8. | INCOME TAXES



|              |  |                          |       |   |      |   |        |      |  |   |      | 
|------------- |  | ------------------------ | ----- | - | ---- | - | ------ | ---- |  | - | ---- | 
|              |  | Years Ended December 31, |      
|              |  |                          |      
|              |  | 2004                     |       |   | 2003 |   |        | 2002 | 
|              |  |                          |       |   |      |   |        |      | 
|United States |  | $                        | (61.8 | ) |      | $ | (152.9 | )    |  | $ | 28.5 | 
|Foreign       |  | $                        | 7.3   |   |      |   | 1.8    |      |  |   | 6.9  | 
|              |  |                          |       |   |      |   |        |      | 
|              |  | $                        | (54.5 | ) |      | $ | (151.1 | )    |  | $ | 35.4 | 
|              |  |                          |       |   |      |   |        |      | 



|          |         |                          |       |       |      |   |       |       |   |   |       |       |  
|--------- | ------- | ------------------------ | ----- | ----- | ---- | - | ----- | ----- | - | - | ----- | ----- | -
|          |         | Years Ended December 31, |      
|          |         |                          |      
|          |         | 2004                     |       |       | 2003 |   |       | 2002  |  
|          |         |                          |       |       |      |   |       |       |  
|Current:  |         |                          |       |       |      |   |       |       |   |   |       |      
|          | Federal |                          | $     | 6.1   |      |   | $     | 0     |   |   | $     | (20.2 | )
|          | State   |                          |       | 0     |      |   |       | 0.1   |   |   |       | 0.7   |  
|          | Foreign |                          |       | .2    |      |   |       | (0.2  | ) |   |       | 0.3   |  
|          |         |                          |       |       |      |   |       |       |  
|          |         |                          | 6.3   |       |      |   | (0.1  | )     |   |   | (19.2 | )    
|          |         |                          |       |       |      |   |       |       |  
|Deferred: |         |                          |       |       |      |   |       |       |   |   |       |      
|          | Federal |                          |       | (21.9 | )    |   |       | (53.6 | ) |   |       | 28.9  |  
|          | State   |                          |       | 0     |      |   |       | (0.8  | ) |   |       | (0.7  | )
|          | Foreign |                          |       | (.1   | )    |   |       | 0.1   |   |   |       | 0.0   |  
|          |         |                          |       |       |      |   |       |       |  
|          |         |                          | (22.0 | )     |      |   | (54.3 | )     |   |   | 28.2  |      
|          |         |                          |       |       |      |   |       |       |  
|          |         | $                        | (15.7 | )     |      | $ | (54.4 | )     |   | $ | 9.0   |      
|          |         |                          |       |       |      |   |       |       |  



45



---



##### 



Notes to Consolidated Financial
Statements  (Continued)






|                                                                                    |  |                          |       |   |      |  |      |      |  |  |      |  
|----------------------------------------------------------------------------------- |  | ------------------------ | ----- | - | ---- |  | ---- | ---- |  |  | ---- | -
|                                                                                    |  | Years Ended December 31, |      
|                                                                                    |  |                          |      
|                                                                                    |  | 2004                     |       |   | 2003 |  |      | 2002 | 
|                                                                                    |  |                          |       |   |      |  |      |      | 
|Computed at statutory rate                                                          |  |                          | 35.0  | % |      |  | 35.0 | %    |  |  | 35.0 | %
|State taxes, net of federal benefit                                                 |  |                          |      |   |      |  | 0.3  |      |  |  |     |  
|Differences in income tax rates between the United States and
    foreign countries |  |                          | 4.5   |   |      |  | 0.5  |      |  |  | (5.6 | )
|Repatriation of foreign earnings, American Jobs Creation Act of
    2004            |  |                          | (11.2 | ) |      |  |     |      |  |  |     |  
|Credits                                                                             |  |                          | 1.1   |   |      |  | 0.4  |      |  |  | (2.3 | )
|Other, net                                                                          |  |                          | (.6   | ) |      |  | (0.2 | )    |  |  | (1.6 | )
|                                                                                    |  |                          |       |   |      |  |      |      | 
|Effective tax rate                                                                  |  |                          | 28.8  | % |      |  | 36.0 | %    |  |  | 25.5 | %
|                                                                                    |  |                          |       |   |      |  |      |      | 



|                               |  |              |       |  |      |   |       | 
|------------------------------ |  | ------------ | ----- |  | ---- | - | ----- | 
|                               |  | December 31, |      
|                               |  |              |      
|                               |  | 2004         |       |  | 2003 |  
|                               |  |              |       |  |      |  
|Depreciation                   |  | $            | 212.7 |  |      | $ | 210.3 | 
|Foreign                        |  |              | 5.8   |  |      |   | 7.0   | 
|Other                          |  |              | 2.4   |  |      |   | 2.0   | 
|                               |  |              |       |  |      |  
|Total deferred tax liabilities |  |              | 220.9 |  |      |   | 219.3 | 
|                               |  |              |       |  |      |  
|Domestic carry forward         |  |              | 186.5 |  |      |   | 156.6 | 
|Foreign carry forward          |  |              | 5.8   |  |      |   | 6.0   | 
|Other                          |  |              | 7.4   |  |      |   | 6.8   | 
|                               |  |              |       |  |      |  
|Total deferred tax assets      |  |              | 199.7 |  |      |   | 169.4 | 
|Valuation allowance            |  |              | 38.9  |  |      |   | 34.5  | 
|                               |  |              |       |  |      |  
|Net deferred tax assets        |  |              | 160.8 |  |      |   | 134.9 | 
|                               |  |              |       |  |      |  
|Net deferred tax liabilities   |  | $            | 60.1  |  |      | $ | 84.4  | 
|                               |  |              |       |  |      |  





46



---



##### 



Notes to Consolidated Financial
Statements  (Continued)






|   |                      
|-- | ---------------------
|9. | ENVIRONMENTAL MATTERS







|                                      |  |      |      |   |      |   |      |      |  |   |      |  
|------------------------------------- |  | ---- | ---- | - | ---- | - | ---- | ---- |  | - | ---- | -
|                                      |  | 2004 |      |   | 2003 |   |      | 2002 | 
|                                      |  |      |      |   |      |   |      |      | 
|Balance at beginning of year          |  | $    | 6.5  |   |      | $ | 9.2  |      |  | $ | 10.5 |  
|Changes in remediation cost estimates |  |      | 0.8  |   |      |   | (2.3 | )    |  |   | (0.8 | )
|Expenditures                          |  |      | (0.3 | ) |      |   | (0.4 | )    |  |   | (0.5 | )
|                                      |  |      |      |   |      |   |      |      | 
|Balance at end of year                |  | $    | 7.0  |   |      | $ | 6.5  |      |  | $ | 9.2  |  
|                                      |  |      |      |   |      |   |      |      | 







|    |                 
|--- | ----------------
|10. | RETIREMENT PLANS



47



---



##### 



Notes to Consolidated Financial
Statements  (Continued)






48



---



##### 



Notes to Consolidated Financial
Statements  (Continued)




|                                                                                |                                                |                |       |       |               |   |       |       |   |   |      |      |   |   |      |      |  
|------------------------------------------------------------------------------- | ---------------------------------------------- | -------------- | ----- | ----- | ------------- | - | ----- | ----- | - | - | ---- | ---- | - | - | ---- | ---- | -
|                                                                                |                                                | Domestic Plans |       |       | Foreign Plans |  
|                                                                                |                                                |                |       |       |               |  
|                                                                                |                                                | 2004           |       |       | 2003          |   |       | 2004  |   |   | 2003 |     
|                                                                                |                                                |                |       |       |               |   |       |       |   |   |      |     
|Change in benefit obligation:                                                   |                                                |                |       |       |               |   |       |       |   |   |      |      |   |   |      |     
|                                                                                | Benefit obligation at beginning of year        |                | $     | 54.1  |               |   | $     | 50.0  |   |   | $    | 65.8 |   |   | $    | 49.1 |  
|                                                                                | Contributions                                  |                |       |      |               |   |       |      |   |   |      |      |   |   |      | 0.3  |  
|                                                                                | Service cost                                   |                |       | 0.4   |               |   |       | 0.4   |   |   |      | 2.2  |   |   |      | 2.0  |  
|                                                                                | Interest cost                                  |                |       | 3.2   |               |   |       | 3.3   |   |   |      | 3.6  |   |   |      | 3.1  |  
|                                                                                | Actuarial loss                                 |                |       | 2.7   |               |   |       | 3.4   |   |   |      | 11.1 |   |   |      | 1.9  |  
|                                                                                | Benefits paid                                  |                |       | (3.4  | )             |   |       | (3.0  | ) |   |      | (2.9 | ) |   |      | (1.6 | )
|                                                                                | Exchange gain                                  |                |       |      |               |   |       |      |   |   |      | 6.2  |   |   |      | 10.8 |  
|                                                                                | Curtailment loss                               |                |       |      |               |   |       |      |   |   |      | 0.2  |   |   |      | 0.2  |  
|                                                                                |                                                |                |       |       |               |   |       |       |   |   |      |     
|                                                                                | Benefit obligation at end of year              |                |       | 57.0  |               |   |       | 54.1  |   |   |      | 86.2 |   |   |      | 65.8 |  
|                                                                                |                                                |                |       |       |               |   |       |       |   |   |      |     
|Change in plan assets:                                                          |                                                |                |       |       |               |   |       |       |   |   |      |      |   |   |      |     
|                                                                                | Fair value of plan assets at beginning of year |                |       | 39.5  |               |   |       | 33.3  |   |   |      | 69.6 |   |   |      | 52.4 |  
|                                                                                | Actual return on plan assets                   |                |       | 2.9   |               |   |       | 5.3   |   |   |      | 7.3  |   |   |      | 6.7  |  
|                                                                                | Contributions                                  |                |       | 3.9   |               |   |       | 3.9   |   |   |      | 2.2  |   |   |      | 0.6  |  
|                                                                                | Benefits paid                                  |                |       | (3.4  | )             |   |       | (3.0  | ) |   |      | (2.9 | ) |   |      | (1.6 | )
|                                                                                | Exchange gain                                  |                |       |      |               |   |       |      |   |   |      | 5.8  |   |   |      | 11.5 |  
|                                                                                |                                                |                |       |       |               |   |       |       |   |   |      |     
|Fair value of plan assets at end of year                                        |                                                |                | 42.9  |       |               |   | 39.5  |       |   |   | 82.0 |      |   |   | 69.6 |     
|                                                                                |                                                |                |       |       |               |   |       |       |   |   |      |     
|Funded status                                                                   |                                                |                | (14.1 | )     |               |   | (14.6 | )     |   |   | (4.2 | )    |   |   | 3.8  |     
|Unrecognized net actuarial loss                                                 |                                                |                | 17.3  |       |               |   | 15.2  |       |   |   | 29.9 |      |   |   | 18.9 |     
|Unrecognized prior service cost                                                 |                                                |                | 0.1   |       |               |   | 0.1   |       |   |   |     |      |   |   |     |     
|Unrecognized transition obligation                                              |                                                |                |      |       |               |   |      |       |   |   | (0.2 | )    |   |   | (0.2 | )   
|                                                                                |                                                |                |       |       |               |   |       |       |   |   |      |     
|Accrued benefit cost                                                            |                                                | $              | 3.3   |       |               | $ | 0.7   |       |   |   | 25.5 |      |   |   | 22.5 |     
|                                                                                |                                                |                |       |       |               |   |       |       |   |   |      |     
|Amounts recognized in the statement of financial position
    consist of:       |                                                |                |       |       |               |   |       |       |   |   |      |      |   |   |      |     
|                                                                                | Prepaid benefit cost                           |                | $     |      |               |   | $     |      |   |   | $    | 25.6 |   |   | $    | 22.5 |  
|                                                                                | Accrued benefit liability                      |                |       | (14.1 | )             |   |       | (14.6 | ) |   |      | (2.6 | ) |   |      | (1.7 | )
|                                                                                | Intangible asset                               |                |       | 0.1   |               |   |       | 0.1   |   |   |      |     |   |   |      |     |  
|                                                                                | Accumulated other comprehensive loss           |                |       | 17.3  |               |   |       | 15.2  |   |   |      | 2.5  |   |   |      | 1.7  |  
|                                                                                |                                                |                |       |       |               |   |       |       |   |   |      |     
|Net amount recognized                                                           |                                                | $              | 3.3   |       |               | $ | 0.7   |       |   | $ | 25.5 |      |   | $ | 22.5 |     
|                                                                                |                                                |                |       |       |               |   |       |       |   |   |      |     
|Increase in minimum liability included in other comprehensive
    income (loss) |                                                | $              | 2.1   |       |               | $ | 0.1   |       |   | $ | 0.5  |      |   | $ | 0.9  |     





49



---



##### 



Notes to Consolidated Financial
Statements  (Continued)


|                                                                                                   |                                |                |   |      |               |  |   |      |   |  |      |      |   |  |   |      |  
|-------------------------------------------------------------------------------------------------- | ------------------------------ | -------------- | - | ---- | ------------- |  | - | ---- | - |  | ---- | ---- | - |  | - | ---- | -
|                                                                                                   |                                | Domestic Plans |   |      | Foreign Plans | 
|                                                                                                   |                                |                |   |      |               | 
|                                                                                                   |                                | 2004           |   |      | 2003          |  |   | 2004 |   |  | 2003 |     
|                                                                                                   |                                |                |   |      |               |  |   |      |   |  |      |     
|Assumptions                                                                                        |                                |                |   |      |               |  |   |      |   |  |      |      |   |  |   |     
|Average weighted-average assumptions used to determine benefit
    obligations at December 31      |                                |                |   |      |               |  |   |      |   |  |      |      |   |  |   |     
|                                                                                                   | Discount rate                  |                |   | 5.75 | %             |  |   | 6.25 | % |  |      | 4.96 | % |  |   | 5.46 | %
|                                                                                                   | Rate of compensation increases |                |   |     |               |  |   |     |   |  |      | 3.00 | % |  |   | 3.00 | %
|Information for pension plans with an accumulated benefit
    obligation in excess of plan assets: |                                |                |   |      |               |  |   |      |   |  |      |      |   |  |   |     
|                                                                                                   | Projected benefit obligation   |                | $ | 57.0 |               |  | $ | 54.1 |   |  | $    | 15.2 |   |  | $ | 11.7 |  
|                                                                                                   | Accumulated benefit obligation |                | $ | 57.0 |               |  | $ | 54.1 |   |  | $    | 12.9 |   |  | $ | 10.0 |  
|                                                                                                   | Fair value of plan assets      |                | $ | 43.0 |               |  | $ | 39.5 |   |  | $    | 10.3 |   |  | $ | 8.3  |  



|                                    |  |          |      |   |         |   |      |          |  |   |         |   |  |          |      |   |         |   |      |   |  |   |      |  
|----------------------------------- |  | -------- | ---- | - | ------- | - | ---- | -------- |  | - | ------- | - |  | -------- | ---- | - | ------- | - | ---- | - |  | - | ---- | -
|                                    |  | 2004     |      |   | 2003    |   |      | 2002     | 
|                                    |  |          |      |   |         |   |      |          | 
|                                    |  | Domestic |      |   | Foreign |   |      | Domestic |  |   | Foreign |   |  | Domestic |      |   | Foreign |  
|                                    |  | Plans    |      |   | Plans   |   |      | Plans    |  |   | Plans   |   |  | Plans    |      |   | Plans   |  
|                                    |  |          |      |   |         |   |      |          |  |   |         |   |  |          |      |   |         |  
|Service Cost                        |  | $        | 0.4  |   |         | $ | 2.2  |          |  | $ | 0.4     |   |  | $        | 2.0  |   |         | $ | 0.4  |   |  | $ | 1.6  |  
|Interest Cost                       |  |          | 3.2  |   |         |   | 3.6  |          |  |   | 3.3     |   |  |          | 3.0  |   |         |   | 3.5  |   |  |   | 2.5  |  
|Expected return on plan assets      |  |          | (3.3 | ) |         |   | (5.6 | )        |  |   | (3.0    | ) |  |          | (4.7 | ) |         |   | (3.5 | ) |  |   | (4.1 | )
|Net amortization and deferral       |  |          | 1.0  |   |         |   | 0.6  |          |  |   | 1.1     |   |  |          | 0.6  |   |         |   | 0.5  |   |  |   | 0.1  |  
|Curtailment loss                    |  |          |     |   |         |   | 0.2  |          |  |   |        |   |  |          | 0.2  |   |         |   |     |   |  |   |     |  
|                                    |  |          |      |   |         |   |      |          |  |   |         |   |  |          |      |   |         |  
|Net periodic pension cost (benefit) |  | $        | 1.3  |   |         | $ | 1.0  |          |  | $ | 1.8     |   |  | $        | 1.1  |   |         | $ | 0.9  |   |  | $ | 0.1  |  
|                                    |  |          |      |   |         |   |      |          |  |   |         |   |  |          |      |   |         |  
|Discount rate                       |  |          | 6.25 | % |         |   | 5.46 | %        |  |   | 6.75    | % |  |          | 5.71 | % |         |   | 7.25 | % |  |   | 5.92 | %
|Expected return on plan assets      |  |          | 8.50 | % |         |   | 8.11 | %        |  |   | 9.00    | % |  |          | 8.25 | % |         |   | 9.0  | % |  |   | 7.39 | %
|Rate of compensation increase       |  |          |     |   |         |   | 3.00 | %        |  |   |        |   |  |          | 3.21 | % |         |   |     |   |  |   | 3.21 | %



50



---



##### 



Notes to Consolidated Financial
Statements  (Continued)


Plan Assets




|                    |                   |                |   |      |               |  |  |       |      |  |       |      |  |      |  |       |       |  |      |      |  |  |       |       |   |  |   |      |  |  |  |       |  
|------------------- | ----------------- | -------------- | - | ---- | ------------- |  |  | ----- | ---- |  | ----- | ---- |  | ---- |  | ----- | ----- |  | ---- | ---- |  |  | ----- | ----- | - |  | - | ---- |  |  |  | ----- | -
|                    |                   | Domestic Plans |   |      | Foreign Plans | 
|                    |                   |                |   |      |               | 
|                    |                   | December 31,   |   |      | December 31,  | 
|                    |                   |                |   |      |               | 
|                    |                   |                |   | % of |               |  |  |       | % of |  |       |      |  | % of |  |       |       |  | % of |     
|                    |                   | 2004           |   |      | Total         |  |  | 2003  |      |  | Total |      |  | 2004 |  |       | Total |  |      | 2003 |  |  | Total |      
|                    |                   |                |   |      |               |  |  |       |      |  |       |      |  |      |  |       |       |  |      |      |  |  |       |      
|Assets by Category: |                   |                |   |      |               |  |  |       |      |  |       |      |  |      |  |       |       |  |      |      |  |  |       |       |   |  |   |      |  |  |  |      
|                    | Equity securities |                | $ | 28.3 |               |  |  | 66.0  | %    |  | $     | 23.3 |  |      |  | 59.1  | %     |  | $    | 52.9 |  |  |       | 64.5  | % |  | $ | 43.6 |  |  |  | 62.7  | %
|                    | Debt securities   |                |   | 14.6 |               |  |  | 34.0  |      |  |       | 12.1 |  |      |  | 30.5  |       |  |      | 21.3 |  |  |       | 26.0  |   |  |   | 18.6 |  |  |  | 26.7  |  
|                    | Real estate       |                |   |     |               |  |  |      |      |  |       |     |  |      |  |      |       |  |      | 4.3  |  |  |       | 5.2   |   |  |   | 4.2  |  |  |  | 6.0   |  
|                    | Other             |                |   |     |               |  |  |      |      |  |       | 4.1  |  |      |  | 10.4  |       |  |      | 3.5  |  |  |       | 4.3   |   |  |   | 3.2  |  |  |  | 4.6   |  
|                    |                   |                |   |      |               |  |  |       |      |  |       |      |  |      |  |       |       |  |      |      |  |  |       |      
|                    | Total             |                | $ | 42.9 |               |  |  | 100.0 | %    |  | $     | 39.5 |  |      |  | 100.0 | %     |  | $    | 82.0 |  |  |       | 100.0 | % |  | $ | 69.6 |  |  |  | 100.0 | %
|                    |                   |                |   |      |               |  |  |       |      |  |       |      |  |      |  |       |       |  |      |      |  |  |       |      

Investment Policies




Cash Flows




| |              
| | -------------
| | Contributions





| |                                  
| | ---------------------------------
| | Estimated Future Benefit Payments



|          |  |                  |      |  |                  |   |      | 
|--------- |  | ---------------- | ---- |  | ---------------- | - | ---- | 
|          |  | Domestic         |      |  | Foreign          |  
|Years     |  | Benefit Payments |      |  | Benefit Payments |  
|          |  |                  |      |  |                  |  
|2005      |  | $                | 3.3  |  |                  | $ | 1.8  | 
|2006      |  | $                | 3.3  |  |                  | $ | 2.0  | 
|2007      |  | $                | 3.2  |  |                  | $ | 1.9  | 
|2008      |  | $                | 3.3  |  |                  | $ | 2.1  | 
|2009      |  | $                | 3.3  |  |                  | $ | 2.2  | 
|2010-2014 |  | $                | 18.2 |  |                  | $ | 14.7 | 



51



---



##### 



Notes to Consolidated Financial
Statements  (Continued)




|    |                     
|--- | --------------------
|11. | STOCKHOLDERS EQUITY















52



---



##### 



Notes to Consolidated Financial
Statements  (Continued)












53



---



##### 



Notes to Consolidated Financial
Statements  (Continued)








|                                                                                                                                                     |  |      |       |   |      |   |        |      |  |   |        |  
|---------------------------------------------------------------------------------------------------------------------------------------------------- |  | ---- | ----- | - | ---- | - | ------ | ---- |  | - | ------ | -
|                                                                                                                                                     |  | 2004 |       |   | 2003 |   |        | 2002 | 
|                                                                                                                                                     |  |      |       |   |      |   |        |      | 
|Net loss attributable to common stockholders, as reported                                                                                            |  | $    | (51.1 | ) |      | $ | (106.7 | )    |  | $ | (194.3 | )
|Add: Stock-based employee compensation expense included in
    reported net loss attributable to common stockholders, net of
    related tax effects |  |      |      |   |      |   | 0.9    |      |  |   | 0.3    |  
|Deduct: Total stock-based employee compensation expense
    determined under fair value based method for all awards, net of
    related tax effects  |  |      | (0.2  | ) |      |   | (5.5   | )    |  |   | (2.3   | )
|                                                                                                                                                     |  |      |       |   |      |   |        |      | 
|Pro forma net loss attributable to common stockholders                                                                                               |  | $    | (51.3 | ) |      | $ | (111.3 | )    |  | $ | (196.3 | )
|                                                                                                                                                     |  |      |       |   |      |   |        |      | 
|Net loss attributable to common stockholders per share:                                                                                              |  |      |       |   |      |   |        |      |  |   |        |  
|Basic net loss per common share, as reported                                                                                                         |  | $    | (1.61 | ) |      | $ | (3.38  | )    |  | $ | (6.15  | )
|Basic net loss per common share, pro forma                                                                                                           |  | $    | (1.62 | ) |      | $ | (3.53  | )    |  | $ | (6.22  | )
|Diluted net loss per common share, as reported                                                                                                       |  | $    | (1.61 | ) |      | $ | (3.38  | )    |  | $ | (6.07  | )
|Diluted net loss per common share, pro forma                                                                                                         |  | $    | (1.62 | ) |      | $ | (3.53  | )    |  | $ | (6.13  | )



54



---



##### 



Notes to Consolidated Financial
Statements  (Continued)




|                              |                          |        |           |               |           |   |       |       | 
|----------------------------- | ------------------------ | ------ | --------- | ------------- | --------- | - | ----- | ----- | 
|                              |                          |        |           | Weighted      |          
|                              |                          |        |           | Average Price |          
|                              |                          | Shares |           |               | per Share |  
|                              |                          |        |           |               |           |  
|Outstanding December 31, 2001 |                          |        | 3,569,213 |               |           | $ | 17.91 |      
|                              | Granted                  |        |           | 313,200       |           |   |       | 15.24 | 
|                              | Exercised                |        |           | (2,200        | )         |   |       | 9.64  | 
|                              | Cancelled                |        |           | (214,445      | )         |   |       | 19.44 | 
|                              |                          |        |           |               |           |  
|Outstanding December 31, 2002 |                          |        | 3,665,768 |               |           |   | 17.59 |      
|                              | Granted                  |        |           | 498,000       |           |   |       | 10.46 | 
|                              | Exercised                |        |           | (4,800        | )         |   |       | 9.64  | 
|                              | Cancelled                |        |           | (310,040      | )         |   |       | 17.85 | 
|                              |                          |        |           |               |           |  
|Outstanding December 31, 2003 |                          |        | 3,848,928 |               |           |   | 16.66 |      
|                              | Granted (Directors Only) |        |           | 8,000         |           |   |       | 8.02  | 
|                              | Exercised                |        |           | (17,600       | )         |   |       | 9.64  | 
|                              | Cancelled                |        |           | (1,010,310    | )         |   |       | 17.65 | 
|                              |                          |        |           |               |           |  
|Outstanding December 31, 2004 |                          |        | 2,829,018 |               |           | $ | 16.33 |      
|                              |                          |        |           |               |           |  



|                                                       |  |   |                |  |  |   |                 | 
|------------------------------------------------------ |  | - | -------------- |  |  | - | --------------- | 
|Range of Exercise Prices                               |  | $ | 9.64 to $18.94 |  |  | $ | 22.75 to $29.25 | 
|                                                       |  |   |                |  |  |  
|Number outstanding at December 31, 2004                |  |   | 2,456,865      |  |  |   | 372,153         | 
|Weighted-average remaining contractual life            |  |   | 6.3            |  |  |   | 1.5             | 
|Weighted-average exercise price of options outstanding |  | $ | 14.89          |  |  | $ | 25.78           | 
|Number exercisable at December 31, 2004                |  |   | 2,132,745      |  |  |   | 372,150         | 
|Weighted-average exercise price of options exercisable |  | $ | 15.57          |  |  | $ | 25.78           | 





55



---



##### 



Notes to Consolidated Financial
Statements  (Continued)




|    |                                                                  
|--- | -----------------------------------------------------------------
|12. | NET LOSS ATTRIBUTABLE TO COMMON STOCKHOLDERS PER COMMON
    SHARE



|                                                                                                              |                                                                                          |      |   |       |      |  |   |        |   |  |   |        |  
|------------------------------------------------------------------------------------------------------------- | ---------------------------------------------------------------------------------------- | ---- | - | ----- | ---- |  | - | ------ | - |  | - | ------ | -
|                                                                                                              |                                                                                          | 2004 |   |       | 2003 |  |   | 2002   |  
|                                                                                                              |                                                                                          |      |   |       |      |  |   |        |  
|Numerator for basic and diluted net earnings (loss) attributable
    to common stockholders per common share: |                                                                                          |      |   |       |      |  |   |        |   |  |   |       
|                                                                                                              | Net earnings (loss)                                                                      |      | $ | (38.8 | )    |  | $ | (96.7  | ) |  | $ | 26.4   |  
|                                                                                                              | Accretion of preferred stock and beneficial conversion charge                            |      |   | (12.3 | )    |  |   | (10.1  | ) |  |   |       |  
|                                                                                                              |                                                                                          |      |   |       |      |  |   |        |  
|                                                                                                              | Net earnings (loss) attributable to common stockholders from
    continuing operations   |      |   | (51.1 | )    |  |   | (106.8 | ) |  |   | 26.4   |  
|                                                                                                              | Net earnings (loss) attributable to common stockholders from
    discontinued operations |      |   |      |      |  |   | 0.1    |   |  |   | (23.7  | )
|                                                                                                              | Cumulative effect of accounting change                                                   |      |   |      |      |  |   |       |   |  |   | (197.0 | )
|                                                                                                              |                                                                                          |      |   |       |      |  |   |        |  
|                                                                                                              | Net loss attributable to common stockholders                                             |      | $ | (51.1 | )    |  | $ | (106.7 | ) |  | $ | (194.3 | )
|                                                                                                              |                                                                                          |      |   |       |      |  |   |        |  

|             |                                                                                                                                             |                                             |  |      |   |  |  |      |   |  |  |      |     | 
|------------ | ------------------------------------------------------------------------------------------------------------------------------------------- | ------------------------------------------- |  | ---- | - |  |  | ---- | - |  |  | ---- | --- | 
|Denominator: |                                                                                                                                             |                                             |  |      |   |  |  |      |   |  |  |     
|             | Denominator for basic net earnings (loss) attributable to common
    stockholders per common share  weighted-average shares                |                                             |  | 31.6 |   |  |  | 31.6 |   |  |  | 31.6 |    
|             | Effect of dilutive securities:                                                                                                              |                                             |  |      |   |  |  |      |   |  |  |      |    
|             |                                                                                                                                             | Employee stock options and restricted stock |  |      |  |  |  |      |  |  |  |      | 0.4 | 
|             |                                                                                                                                             | Preferred stock  if converted(a)           |  |      |  |  |  |      |  |  |  |      |    | 
|             |                                                                                                                                             |                                             |  |      |   |  |  |      |  
|             | Denominator for diluted net earnings (loss) attributable to
    common stockholders per common share  adjusted
    weighted-average shares |                                             |  | 31.6 |   |  |  | 31.6 |   |  |  | 32.0 |    
|             |                                                                                                                                             |                                             |  |      |   |  |  |      |  






|    |                                                                                                                                                                                                                                                                                                         
|--- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|(a) | 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. For
    additional information, including the liquidation preference of
    the preferred stock, see Note 11.



|    |                              
|--- | -----------------------------
|13. | COMMITMENTS AND CONTINGENCIES







56



---



##### 



Notes to Consolidated Financial
Statements  (Continued)




















|    |                                      
|--- | -------------------------------------
|14. | DERIVATIVES AND FINANCIAL INSTRUMENTS





57



---



##### 



Notes to Consolidated Financial
Statements  (Continued)














Concentration of Credit Risk




58



---



##### 



Notes to Consolidated Financial
Statements  (Continued)




Fair Value of Financial Instruments














|                             |                                    |          |   |       |            |  |          |        |   |  |            |       |   |  |   |       |  
|---------------------------- | ---------------------------------- | -------- | - | ----- | ---------- |  | -------- | ------ | - |  | ---------- | ----- | - |  | - | ----- | -
|                             |                                    | 2004     |   |       | 2003       | 
|                             |                                    |          |   |       |            | 
|                             |                                    | Carrying |   |       |            |  | Carrying |        |   | 
|                             |                                    | Amount   |   |       | Fair Value |  |          | Amount |   |  | Fair Value |      
|                             |                                    |          |   |       |            |  |          |        |   |  |            |      
|Nonderivatives               |                                    |          |   |       |            |  |          |        |   |  |            |       |   |  |   |      
|                             | Cash and cash equivalents          |          | $ | 5.6   |            |  | $        | 5.6    |   |  | $          | 205.5 |   |  | $ | 205.5 |  
|                             | Accounts receivable                |          | $ | 200.2 |            |  | $        | 200.2  |   |  | $          | 137.5 |   |  | $ | 137.5 |  
|                             | Accounts payable                   |          | $ | 113.3 |            |  | $        | 113.3  |   |  | $          | 90.6  |   |  | $ | 90.6  |  
|                             | Borrowing arrangements             |          | $ | 471.5 |            |  | $        | 475.6  |   |  | $          | 371.0 |   |  | $ | 371.0 |  
|Derivatives  receive (pay): |                                    |          |   |       |            |  |          |        |   |  |            |       |   |  |   |      
|                             | Cash flow hedges                   |          | $ | (3.4  | )          |  | $        | (3.4   | ) |  | $          | (16.8 | ) |  | $ | (16.8 | )
|                             | Forward foreign currency contracts |          | $ | 0.1   |            |  | $        | 0.1    |   |  | $          | 0.1   |   |  | $ | 0.1   |  



|    |                                       
|--- | --------------------------------------
|15. | OPERATING SEGMENT AND GEOGRAPHIC AREAS







| |   |                                                                                                                                                      
| | - | -----------------------------------------------------------------------------------------------------------------------------------------------------
| |  | PermaClear® solid-stated and amorphous PET resin for use in
    the manufacturing of soft drink bottles and other food and
    beverage packaging and

59



---



##### 



Notes to Consolidated Financial
Statements  (Continued)




| |   |                                                                                                                                          
| | - | -----------------------------------------------------------------------------------------------------------------------------------------
| |  | EcoClear® PET resin, utilizing a percentage of recycled PET
    materials to meet customers recycled content PET resin
    requirements.





| |   |                                                                                                                        
| | - | -----------------------------------------------------------------------------------------------------------------------
| |  | 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.                   





|                                                         |  |           |       |            |          |   |       |       |  |   |         | 
|-------------------------------------------------------- |  | --------- | ----- | ---------- | -------- | - | ----- | ----- |  | - | ------- | 
|                                                         |  |           |       | Fibers and |          |   |      
|                                                         |  | Packaging |       |            | Recycled |   |       |      
|                                                         |  | Products  |       |            | Products |   |       |      
|                                                         |  | Group     |       |            | Group    |   |       | Total | 
|                                                         |  |           |       |            |          |   |       |       | 
|2004                                                     |  |           |       |            |          |   |       |       |  |   |         | 
|Revenues                                                 |  | $         | 747.9 |            |          | $ | 557.1 |       |  | $ | 1,305.0 | 
|Segment profit (loss)                                    |  |           | 29.5  |            |          |   | (5.5  | )     |  |   | 24.0    | 
|Assets                                                   |  |           | 775.4 |            |          |   | 315.3 |       |  |   | 1,090.7 | 
|Depreciation and amortization                            |  |           | 44.2  |            |          |   | 26.4  |       |  |   | 70.6    | 
|Capital expenditures                                     |  |           | 9.4   |            |          |   | 5.7   |       |  |   | 15.1    | 
|                                                        
|2003                                                     |  |           |       |            |          |   |       |       |  |   |         | 
|Revenues                                                 |  | $         | 632.0 |            |          | $ | 477.3 |       |  | $ | 1,109.3 | 
|Segment profit (loss)                                    |  |           | 17.3  |            |          |   | (3.3  | )     |  |   | 14.0    | 
|Assets                                                   |  |           | 455.2 |            |          |   | 382.7 |       |  |   | 837.9   | 
|Depreciation and amortization from continuing operations |  |           | 28.9  |            |          |   | 23.8  |       |  |   | 52.7    | 
|Capital expenditures for continuing operations           |  |           | 7.6   |            |          |   | 7.9   |       |  |   | 15.5    | 
|                                                        
|2002                                                     |  |           |       |            |          |   |       |       |  |   |         | 
|Revenues                                                 |  | $         | 524.8 |            |          | $ | 489.2 |       |  | $ | 1,014.0 | 
|Segment profit                                           |  |           | 50.0  |            |          |   | 0.6   |       |  |   | 50.6    | 
|Assets                                                   |  |           | 406.1 |            |          |   | 504.5 |       |  |   | 910.6   | 
|Depreciation and amortization from continuing operations |  |           | 24.8  |            |          |   | 30.9  |       |  |   | 55.7    | 
|Capital expenditures for continuing operations           |  |           | 14.4  |            |          |   | 7.2   |       |  |   | 21.6    | 

60



---



##### 



Notes to Consolidated Financial
Statements  (Continued)




|                      |                                                                |                                         |   |         |       |   |   |         |        |   |   |       |       |  
|--------------------- | -------------------------------------------------------------- | --------------------------------------- | - | ------- | ----- | - | - | ------- | ------ | - | - | ----- | ----- | -
|                      |                                                                | 2004                                    |   |         | 2003  |   |   | 2002    |       
|                      |                                                                |                                         |   |         |       |   |   |         |       
|Segment Profit (Loss) |                                                                |                                         |   |         |       |   |   |         |        |   |   |      
|                      | Total for reportable segments                                  |                                         | $ | 24.0    |       |   | $ | 14.0    |        |   | $ | 50.6  |      
|                      |                                                                | Impairment charge(1)                    |   |         |      |   |   |         | (135.3 | ) |   |       |      |  
|                      |                                                                | Restructuring charges(1)                |   |         | (2.6  | ) |   |         | (10.2  | ) |   |       |      |  
|                      |                                                                | Provision for uncollectible accounts(1) |   |         | (0.8  | ) |   |         | (3.5   | ) |   |       | (4.2  | )
|                      |                                                                | Non-capitalizable financing costs(1)    |   |         | (40.2 | ) |   |         | (2.2   | ) |   |       |      |  
|                      |                                                                | Legal costs(1)                          |   |         | (5.4  | ) |   |         | (6.0   | ) |   |       | (5.1  | )
|                      |                                                                | Rebates from anti-dumping duties(1)     |   |         | 8.6   |   |   |         | 3.4    |   |   |       | 4.4   |  
|                      |                                                                | Accelerated stock option vesting(1)     |   |         |      |   |   |         | (1.2   | ) |   |       |      |  
|                      |                                                                | Interest expense, net                   |   |         | (38.1 | ) |   |         | (10.1  | ) |   |       | (10.3 | )
|                      |                                                                |                                         |   |         |       |   |   |         |       
|                      | Earnings (loss) from continuing operations before income taxes |                                         | $ | (54.5   | )     |   | $ | (151.1  | )      |   | $ | 35.4  |      
|                      |                                                                |                                         |   |         |       |   |   |         |       
|Assets                |                                                                |                                         |   |         |       |   |   |         |        |   |   |      
|                      | Total for reportable segments                                  |                                         | $ | 1,090.7 |       |   | $ | 837.9   |        |   | $ | 910.6 |      
|                      | Corporate assets(2)                                            |                                         |   | 76.2    |       |   |   | 279.2   |        |   |   | 54.6  |      
|                      |                                                                |                                         |   |         |       |   |   |         |       
|                      | Total Assets                                                   |                                         | $ | 1,166.9 |       |   | $ | 1,117.1 |        |   | $ | 965.2 |      
|                      |                                                                |                                         |   |         |       |   |   |         |       






|    |                                                                                                                                                                                                                                                                                                                       
|--- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|(1) | In prior years, these items were included in segment profit
    (loss). Based on how segment profit (loss) was being measured
    and reviewed by management during 2004, these items are now
    excluded from segment profit (loss). Prior years have been
    restated to conform to the current year presentation.



|    |                                                                                                                              
|--- | -----------------------------------------------------------------------------------------------------------------------------
|(2) | Corporate assets include cash, prepaid expenses, construction in
    progress and other assets not allocated to the segments.



|                        |        |      |         |         |      |   |         |        |   |   |         |       | 
|----------------------- | ------ | ---- | ------- | ------- | ---- | - | ------- | ------ | - | - | ------- | ----- | 
|                        |        | 2004 |         |         | 2003 |   |         | 2002   |  
|                        |        |      |         |         |      |   |         |        |  
|Net sales               |        |      |         |         |      |   |         |        |   |   |         |      
|                        | U.S.   |      | $       | 1,104.6 |      |   | $       | 927.7  |   |   | $       | 861.6 | 
|                        | Europe |      |         | 200.4   |      |   |         | 181.6  |   |   |         | 152.4 | 
|                        |        |      |         |         |      |   |         |        |  
|                        |        | $    | 1,305.0 |         |      | $ | 1,109.3 |        |   | $ | 1,014.0 |      
|                        |        |      |         |         |      |   |         |        |  
|Operating income (loss) |        |      |         |         |      |   |         |        |   |   |         |      
|                        | U.S.   |      | $       | (23.7   | )    |   | $       | (143.2 | ) |   | $       | 31.7  | 
|                        | Europe |      |         | 7.3     |      |   |         | 2.2    |   |   |         | 14.0  | 
|                        |        |      |         |         |      |   |         |        |  
|                        |        | $    | (16.4   | )       |      | $ | (141.0  | )      |   | $ | 45.7    |      
|                        |        |      |         |         |      |   |         |        |  
|Long-lived assets       |        |      |         |         |      |   |         |        |   |   |         |      
|                        | U.S.   |      | $       | 603.0   |      |   | $       | 488.3  |   |   | $       | 654.9 | 
|                        | Europe |      |         | 52.5    |      |   |         | 54.7   |   |   |         | 46.2  | 
|                        |        |      |         |         |      |   |         |        |  
|                        |        | $    | 655.5   |         |      | $ | 543.0   |        |   | $ | 701.1   |      
|                        |        |      |         |         |      |   |         |        |  

61



---



##### 



Notes to Consolidated Financial
Statements  (Continued)






|    |                                     
|--- | ------------------------------------
|16. | QUARTERLY FINANCIAL DATA (UNAUDITED)



|                                                             |  |           |       |   |          |   |       |           |  |   |          |   |  |       |       |   |  |   |         |  
|------------------------------------------------------------ |  | --------- | ----- | - | -------- | - | ----- | --------- |  | - | -------- | - |  | ----- | ----- | - |  | - | ------- | -
|                                                             |  | March 31, |       |   | June 30, |   |       | Sept. 30, |  |   | Dec. 31, |   |  | Total |      
|                                                             |  | 2004      |       |   | 2004     |   |       | 2004      |  |   | 2004     |   |  | 2004  |      
|                                                             |  |           |       |   |          |   |       |           |  |   |          |   |  |       |      
|Income Statement Data:                                       |  |           |       |   |          |   |       |           |  |   |          |   |  |       |       |   |  |   |         |  
|Net sales                                                    |  | $         | 293.8 |   |          | $ | 329.0 |           |  | $ | 310.0    |   |  | $     | 372.2 |   |  | $ | 1,305.0 |  
|Cost of sales                                                |  |           | 276.4 |   |          |   | 305.7 |           |  |   | 295.5    |   |  |       | 343.6 |   |  |   | 1,221.2 |  
|                                                             |  |           |       |   |          |   |       |           |  |   |          |   |  |       |      
|Gross profit                                                 |  |           | 17.4  |   |          |   | 23.3  |           |  |   | 14.5     |   |  |       | 28.6  |   |  |   | 83.8    |  
|Selling, general and administrative expenses                 |  |           | 14.5  |   |          |   | 13.8  |           |  |   | 14.6     |   |  |       | 16.9  |   |  |   | 59.8    |  
|Non-capitalizable financing costs                            |  |           | 40.2  |   |          |   |      |           |  |   |         |   |  |       |      |   |  |   | 40.2    |  
|Restructuring charges(2)                                     |  |           | 0.3   |   |          |   | 0.8   |           |  |   | 1.3      |   |  |       | 0.2   |   |  |   | 2.6     |  
|Provision for uncollectible accounts                         |  |           | 0.3   |   |          |   |      |           |  |   |         |   |  |       | 0.5   |   |  |   | 0.8     |  
|Other expense income, net(3)                                 |  |           | 1.2   |   |          |   | 1.1   |           |  |   | 0.6      |   |  |       | (6.1  | ) |  |   | (3.2    | )
|                                                             |  |           |       |   |          |   |       |           |  |   |          |   |  |       |      
|Operating income (loss)                                      |  |           | (39.1 | ) |          |   | 7.6   |           |  |   | (2.0     | ) |  |       | 17.1  |   |  |   | (16.4   | )
|Interest expense, net                                        |  |           | 7.5   |   |          |   | 10.1  |           |  |   | 10.5     |   |  |       | 10.0  |   |  |   | 38.1    |  
|                                                             |  |           |       |   |          |   |       |           |  |   |          |   |  |       |      
|Earnings (loss) before income taxes (benefit)                |  |           | (46.6 | ) |          |   | (2.5  | )         |  |   | (12.5    | ) |  |       | 7.1   |   |  |   | (54.5   | )
|Income tax expense (benefit)                                 |  |           | (18.4 | ) |          |   | (1.0  | )         |  |   | (4.9     | ) |  |       | 8.6   |   |  |   | (15.7   | )
|                                                             |  |           |       |   |          |   |       |           |  |   |          |   |  |       |      
|Net loss                                                     |  | $         | (28.2 | ) |          | $ | (1.5  | )         |  | $ | (7.6     | ) |  | $     | (1.5  | ) |  | $ | (38.8   | )
|                                                             |  |           |       |   |          |   |       |           |  |   |          |   |  |       |      
|Net loss attributable to common stockholders:                |  |           |       |   |          |   |       |           |  |   |          |   |  |       |       |   |  |   |         |  
|Net loss                                                     |  | $         | (28.2 | ) |          | $ | (1.5  | )         |  | $ | (7.6     | ) |  | $     | (1.5  | ) |  | $ | (38.8   | )
|Accretion of preferred stock                                 |  |           | (3.0  | ) |          |   | (3.0  | )         |  |   | (3.1     | ) |  |       | (3.2  | ) |  |   | (12.3   | )
|                                                             |  |           |       |   |          |   |       |           |  |   |          |   |  |       |      
|Net loss attributable to common stockholders                 |  | $         | (31.2 | ) |          | $ | (4.5  | )         |  | $ | (10.7    | ) |  | $     | (4.7  | ) |  | $ | (51.1   | )
|                                                             |  |           |       |   |          |   |       |           |  |   |          |   |  |       |      
|Basic and diluted net loss per common share:                 |  |           |       |   |          |   |       |           |  |   |          |   |  |       |       |   |  |   |         |  
|Net loss attributable to common stockholders                 |  | $         | (0.99 | ) |          | $ | (0.14 | )         |  | $ | (0.34    | ) |  | $     | (0.15 | ) |  | $ | (1.61   | )
|                                                             |  |           |       |   |          |   |       |           |  |   |          |   |  |       |      
|Basic and diluted weighted-average common shares outstanding |  |           | 31.6  |   |          |   | 31.6  |           |  |   | 31.6     |   |  |       | 31.6  |   |  |   | 31.6    |  
|                                                             |  |           |       |   |          |   |       |           |  |   |          |   |  |       |      

62



---



##### 



Notes to Consolidated Financial
Statements  (Continued)


|                                                                             |                                                                                          |           |       |      |          |   |       |           |   |   |          |       |   |       |        |       |   |   |         |       |  
|---------------------------------------------------------------------------- | ---------------------------------------------------------------------------------------- | --------- | ----- | ---- | -------- | - | ----- | --------- | - | - | -------- | ----- | - | ----- | ------ | ----- | - | - | ------- | ----- | -
|                                                                             |                                                                                          | March 31, |       |      | June 30, |   |       | Sept. 30, |   |   | Dec. 31, |       |   | Total |       
|                                                                             |                                                                                          | 2003(1)   |       |      | 2003(1)  |   |       | 2003(1)   |   |   | 2003(4)  |       |   | 2003  |       
|                                                                             |                                                                                          |           |       |      |          |   |       |           |   |   |          |       |   |       |       
|Income Statement Data:                                                       |                                                                                          |           |       |      |          |   |       |           |   |   |          |       |   |       |        |       |   |   |         |      
|Net sales                                                                    |                                                                                          | $         | 287.3 |      |          | $ | 285.3 |           |   | $ | 262.7    |       |   | $     | 274.0  |       |   | $ | 1,109.3 |      
|Cost of sales                                                                |                                                                                          |           | 257.1 |      |          |   | 262.0 |           |   |   | 246.2    |       |   |       | 263.4  |       |   |   | 1,028.7 |      
|                                                                             |                                                                                          |           |       |      |          |   |       |           |   |   |          |       |   |       |       
|Gross profit                                                                 |                                                                                          |           | 30.2  |      |          |   | 23.3  |           |   |   | 16.5     |       |   |       | 10.6   |       |   |   | 80.6    |      
|Selling, general and administrative expenses                                 |                                                                                          |           | 17.3  |      |          |   | 17.3  |           |   |   | 15.8     |       |   |       | 16.2   |       |   |   | 66.6    |      
|Impairment charge                                                            |                                                                                          |           |      |      |          |   |      |           |   |   |         |       |   |       | 135.3  |       |   |   | 135.3   |      
|Restructuring charges(2)                                                     |                                                                                          |           | 1.2   |      |          |   | 0.1   |           |   |   | 0.3      |       |   |       | 8.6    |       |   |   | 10.2    |      
|Provision for uncollectible accounts                                         |                                                                                          |           |      |      |          |   | 0.1   |           |   |   | 3.3      |       |   |       | 0.1    |       |   |   | 3.5     |      
|Non-capitalizable financing costs                                            |                                                                                          |           |      |      |          |   |      |           |   |   |         |       |   |       | 2.2    |       |   |   | 2.2     |      
|Other expense (income), net(3)                                               |                                                                                          |           | 1.2   |      |          |   | 3.0   |           |   |   | 1.2      |       |   |       | (1.6   | )     |   |   | __3.8   |      
|                                                                             |                                                                                          |           |       |      |          |   |       |           |   |   |          |       |   |       |       
|Operating income (loss)                                                      |                                                                                          |           | 10.5  |      |          |   | 2.8   |           |   |   | (4.1     | )     |   |       | (150.2 | )     |   |   | (141.0  | )    
|Interest expense, net                                                        |                                                                                          |           | 2.0   |      |          |   | 2.3   |           |   |   | 2.4      |       |   |       | 3.4    |       |   |   | 10.1    |      
|                                                                             |                                                                                          |           |       |      |          |   |       |           |   |   |          |       |   |       |       
|Earnings (loss) from continuing operations before income taxes
    (benefit) |                                                                                          |           | 8.5   |      |          |   | 0.5   |           |   |   | (6.5     | )     |   |       | (153.6 | )     |   |   | (151.1  | )    
|Income tax expense (benefit)                                                 |                                                                                          |           | 2.8   |      |          |   | 0.2   |           |   |   | (1.9     | )     |   |       | (55.5  | )     |   |   | (54.4   | )    
|                                                                             |                                                                                          |           |       |      |          |   |       |           |   |   |          |       |   |       |       
|Earnings (loss) from continuing operations                                   |                                                                                          |           | 5.7   |      |          |   | 0.3   |           |   |   | (4.6     | )     |   |       | (98.1  | )     |   |   | (96.7   | )    
|Earnings (loss) from discontinued operations, net of income tax              |                                                                                          |           | 0.1   |      |          |   |      |           |   |   |         |       |   |       |       |       |   |   | 0.1     |      
|                                                                             |                                                                                          |           |       |      |          |   |       |           |   |   |          |       |   |       |       
|Net earnings (loss)                                                          |                                                                                          | $         | 5.8   |      |          | $ | 0.3   |           |   | $ | (4.6     | )     |   | $     | (98.1  | )     |   | $ | (96.6   | )    
|                                                                             |                                                                                          |           |       |      |          |   |       |           |   |   |          |       |   |       |       
|Net earnings (loss) attributable to common stockholders:                     |                                                                                          |           |       |      |          |   |       |           |   |   |          |       |   |       |        |       |   |   |         |      
|                                                                             | Net earnings (loss)                                                                      |           | $     | 5.8  |          |   | $     | 0.3       |   |   | $        | (4.6  | ) |       | $      | (98.1 | ) |   | $       | (96.6 | )
|                                                                             | Accretion of preferred stock and beneficial conversion charge                            |           |       |     |          |   |       | (0.1      | ) |   |          | (2.9  | ) |       |        | (7.1  | ) |   |         | (10.1 | )
|                                                                             |                                                                                          |           |       |      |          |   |       |           |   |   |          |       |   |       |       
|Net earning (loss) attributable to common stockholders                       |                                                                                          | $         | 5.8   |      |          | $ | 0.2   |           |   | $ | (7.5     | )     |   | $     | (105.2 | )     |   | $ | (106.7  | )    
|                                                                             |                                                                                          |           |       |      |          |   |       |           |   |   |          |       |   |       |       
|Basic net earnings (loss) per common share:                                  |                                                                                          |           |       |      |          |   |       |           |   |   |          |       |   |       |        |       |   |   |         |      
|                                                                             | Net earnings (loss) attributable to common stockholders from
    continuing operations   |           | $     | 0.18 |          |   | $     | 0.01      |   |   | $        | (0.24 | ) |       | $      | (3.33 | ) |   | $       | (3.38 | )
|                                                                             | Net earnings (loss) attributable to common stockholders from
    discontinued operations |           |       |     |          |   |       |          |   |   |          |      |   |       |        |      |   |   |         |      |  
|                                                                             |                                                                                          |           |       |      |          |   |       |           |   |   |          |       |   |       |       
|                                                                             | Net earnings (loss) attributable to common stockholders                                  |           | $     | 0.18 |          |   | $     | 0.01      |   |   | $        | (0.24 | ) |       | $      | (3.33 | ) |   | $       | (3.38 | )
|                                                                             |                                                                                          |           |       |      |          |   |       |           |   |   |          |       |   |       |       
|Diluted net earnings (loss) per common share:                                |                                                                                          |           |       |      |          |   |       |           |   |   |          |       |   |       |        |       |   |   |         |      
|                                                                             | Net earnings (loss) attributable to common stockholders from
    continuing operations   |           | $     | 0.18 |          |   | $     | 0.01      |   |   | $        | (0.24 | ) |       | $      | (3.33 | ) |   | $       | (3.38 | )
|                                                                             | Net earnings (loss) attributable to common stockholders from
    discontinued operations |           |       |     |          |   |       |          |   |   |          |      |   |       |        |      |   |   |         |      |  
|                                                                             |                                                                                          |           |       |      |          |   |       |           |   |   |          |       |   |       |       
|                                                                             | Net earnings (loss) attributable to common stockholders                                  |           | $     | 0.18 |          |   | $     | 0.01      |   |   | $        | (0.24 | ) |       | $      | (3.33 | ) |   | $       | (3.38 | )
|                                                                             |                                                                                          |           |       |      |          |   |       |           |   |   |          |       |   |       |       
|                                                                            
|Basic weighted-average common shares outstanding                             |                                                                                          |           | 31.6  |      |          |   | 31.6  |           |   |   | 31.6     |       |   |       | 31.6   |       |   |   | 31.6    |      
|                                                                             |                                                                                          |           |       |      |          |   |       |           |   |   |          |       |   |       |       
|Diluted weighted-average common shares outstanding                           |                                                                                          |           | 31.9  |      |          |   | 31.9  |           |   |   | 31.6     |       |   |       | 31.6   |       |   |   | 31.6    |      
|                                                                             |                                                                                          |           |       |      |          |   |       |           |   |   |          |       |   |       |       

63



---



##### 



Notes to Consolidated Financial
Statements  (Continued)







|    |                                                                                                                                  
|--- | ---------------------------------------------------------------------------------------------------------------------------------
|(1) | Certain amounts have been reclassified to conform to the
    full-year 2004 presentation.                                        
|   
|(2) | Quarterly net earnings (loss) include restructuring charges. For
    additional information on restructuring charges, see Note 6.
|   
|(3) | Other expense (income), net consisted of the following amounts
    for the periods indicated:                                    

|                                                                                        |  |           |     |  |          |   |     |           |  |   |          |   |  |       |      |   |  |   |      |  
|--------------------------------------------------------------------------------------- |  | --------- | --- |  | -------- | - | --- | --------- |  | - | -------- | - |  | ----- | ---- | - |  | - | ---- | -
|                                                                                        |  | March 31, |     |  | June 30, |   |     | Sept. 30, |  |   | Dec. 31, |   |  | Total |     
|                                                                                        |  | 2004      |     |  | 2004     |   |     | 2004      |  |   | 2004     |   |  | 2004  |     
|                                                                                        |  |           |     |  |          |   |     |           |  |   |          |   |  |       |     
|Legal costs related to the DOJ investigation of the polyester
    staple fiber industry |  | $         | 1.2 |  |          | $ | 1.1 |           |  | $ | 1.3      |   |  | $     | 1.8  |   |  | $ | 5.4  |  
|Rebates from anti-dumping duties                                                        |  |           |    |  |          |   |    |           |  |   | (0.7     | ) |  |       | (7.9 | ) |  |   | (8.6 | )
|                                                                                        |  |           |     |  |          |   |     |           |  |   |          |   |  |       |     
|                                                                                        |  | $         | 1.2 |  |          | $ | 1.1 |           |  | $ | 0.6      |   |  | $     | (6.1 | ) |  | $ | (3.2 | )
|                                                                                        |  |           |     |  |          |   |     |           |  |   |          |   |  |       |     

|                                                                                        |  |           |     |  |          |   |     |           |  |   |          |  |  |       |      |   |  |   |      |  
|--------------------------------------------------------------------------------------- |  | --------- | --- |  | -------- | - | --- | --------- |  | - | -------- |  |  | ----- | ---- | - |  | - | ---- | -
|                                                                                        |  | March 31, |     |  | June 30, |   |     | Sept. 30, |  |   | Dec. 31, |  |  | Total |     
|                                                                                        |  | 2003      |     |  | 2003     |   |     | 2003      |  |   | 2003     |  |  | 2003  |     
|                                                                                        |  |           |     |  |          |   |     |           |  |   |          |  |  |       |     
|Legal costs related to the DOJ investigation of the polyester
    staple fiber industry |  | $         | 1.2 |  |          | $ | 1.8 |           |  | $ | 1.2      |  |  | $     | 1.8  |   |  | $ | 6.0  |  
|Rebates from anti-dumping duties                                                        |  |           |    |  |          |   |    |           |  |   |         |  |  |       | (3.4 | ) |  |   | (3.4 | )
|Accelerated stock option vesting                                                        |  |           |    |  |          |   | 1.2 |           |  |   |         |  |  |       |     |   |  |   | 1.2  |  
|                                                                                        |  |           |     |  |          |   |     |           |  |   |          |  |  |       |     
|                                                                                        |  | $         | 1.2 |  |          | $ | 3.0 |           |  | $ | 1.2      |  |  | $     | (1.6 | ) |  | $ | 3.8  |  
|                                                                                        |  |           |     |  |          |   |     |           |  |   |          |  |  |       |     



|    |                                                                                                                                                                                    
|--- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|(4) | Quarterly net loss includes a pretax impairment charge of
    $135.3. For additional information on the impairment charge, see
    Note 1 to the Consolidated Financial Statements.

64



---



##### 






REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM ON


THE CONSOLIDATED FINANCIAL STATEMENTS
















| |                  
| | -----------------
| | Ernst & Young LLP





65



---



##### 



SCHEDULE II


VALUATION AND QUALIFYING ACCOUNTS


Years Ended December 31, 2004, 2003 and 2002


|                                            |  |               |     |  |            |   |     |       |  |   |            |            |  |             |     |     |  |   |     | 
|------------------------------------------- |  | ------------- | --- |  | ---------- | - | --- | ----- |  | - | ---------- | ---------- |  | ----------- | --- | --- |  | - | --- | 
|                                            |  | Balance at    |     |  | Charged to |   |     |       |  |   |            |           
|                                            |  | Beginning of  |     |  | Costs and  |   |     |       |  |   |            | Balance at | 
|Description                                 |  | Year          |     |  | Expenses   |   |     | Other |  |   | Deductions |            |  | End of Year |    
|                                            |  |               |     |  |            |   |     |       |  |   |            |            |  |             |    
|                                            |  | (In millions) |    
|Allowance for Doubtful Accounts Receivable: |  |               |     |  |            |   |     |       |  |   |            |            |  |             |     |     |  |   |     | 
|Year ended December 31, 2004                |  | $             | 3.8 |  |            | $ | 0.8 |       |  | $ | (0.3       | )          |  | $           | 1.7 | (a) |  | $ | 2.6 | 
|                                            |  |               |     |  |            |   |     |       |  |   |            |            |  |             |    
|Year ended December 31, 2003                |  | $             | 7.7 |  |            | $ | 3.5 |       |  | $ | 0.1        |            |  | $           | 7.5 | (a) |  | $ | 3.8 | 
|                                            |  |               |     |  |            |   |     |       |  |   |            |            |  |             |    
|Year ended December 31, 2002                |  | $             | 3.9 |  |            | $ | 4.2 |       |  | $ | 0.1        |            |  | $           | 0.5 | (a) |  | $ | 7.7 | 
|                                            |  |               |     |  |            |   |     |       |  |   |            |            |  |             |    






|    |                                                 
|--- | ------------------------------------------------
|(a) | Accounts written off and reduction of allowance.

66



---



##### 





|        |                                                                                         
|------- | ----------------------------------------------------------------------------------------
|Item 9. | Changes in and Disagreements with Accountants on
    Accounting and Financial Disclosure





|         |                        
|-------- | -----------------------
|Item 9A. | Controls and Procedures

Evaluation of Disclosure Controls and Procedures.


Managements Report on Internal Control over Financial
Reporting.






|         |                  
|-------- | -----------------
|Item 9B. | Other Information



67



---



##### 



REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM ON


MANAGEMENTS ASSESSMENT AND THE EFFECTIVENESS OF
INTERNAL


CONTROL OVER FINANCIAL REPORTING














68



---



##### 







| |                  
| | -----------------
| | Ernst & Young LLP





69



---



##### 



PART III




|         |                                                   
|-------- | --------------------------------------------------
|Item 10. | Directors and Executive Officers of the Registrant





|         |                       
|-------- | ----------------------
|Item 11. | Executive Compensation





|         |                                                                                                   
|-------- | --------------------------------------------------------------------------------------------------
|Item 12. | Security Ownership of Certain Beneficial Owners and
    Management and Related Stockholder Matters





|         |                                               
|-------- | ----------------------------------------------
|Item 13. | Certain Relationships and Related Transactions





|         |                                       
|-------- | --------------------------------------
|Item 14. | Principal Accountant Fees and Services



PART IV




|         |                                                                    
|-------- | -------------------------------------------------------------------
|Item 15. | Exhibits, Financial Statement Schedules and Reports on
    Form 8-K

Financial Statements




Financial Statement Schedules




70



---



##### 



Exhibits




|                                              |         |     |             |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       
|--------------------------------------------- | ------- | --- | ----------- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|Exhibit                                       |         |     |            
|Number                                        |         |     | Description
|                                              |         |     |            
|                                              | 3(a)    |     |             | Certificate of Amendment to Restated Certificate of
    Incorporation dated June 26, 2003 (Exhibit 3(a)(5) of
    the Companys Form 10-Q for the quarter ended June 30,
    2003 incorporated by reference herein)                                                                                                                                                                                                                                                                                                                                                                   
|                                              | 3(b)    |     |             | Restated By-Laws, as of May 18, 1999 (Exhibit 3(b) of the
    Companys Form 10-Q for the quarter ended June 30,
    1999 incorporated by reference herein)                                                                                                                                                                                                                                                                                                                                                                                                                           
|                                             
|                                              | 4(a)(1) |     |             | Credit agreement dated as of February 10, 2004, between
    Wellman, Inc. and Deutsche Bank Trust Company Americas as
    administrative agent and collateral agent, Deutsche Bank
    Securities Inc., as lead arranger and bookrunner, JP Morgan
    Chase Bank as syndication agent and certain other financial
    institutions (Exhibit 4(a)(1) of the Companys Form
    10-K for the year ended December 31, 2003 incorporated by
    reference herein)                                                                                                                        
|                                             
|                                              | 4(a)(2) |     |             | First Lien Senior Credit Agreement dated as of February 10,
    2004, between Wellman, Inc. and Deutsche Bank Trust Company
    Americas as administrative agent and collateral agent, JP Morgan
    Chase Bank as syndication agent, Deutsche Bank Securities Inc.,
    as joint lead arranger and joint lead bookrunner, JP Morgan
    Securities Inc. as joint lead arranger and joint lead bookrunner
    and certain other financial institutions (Exhibit 4(a)(2)
    of the Companys Form 10-K for the year ended
    December 31, 2003 incorporated by reference herein)     
|                                             
|                                              | 4(a)(3) |     |             | Second Lien Senior Credit Agreement dated as of
    February 10, 2004 between Wellman, Inc. and Deutsche Bank
    Trust Company Americas as administrative agent and collateral
    agent, JP Morgan Chase Bank as syndication agent, Deutsche Bank
    Securities Inc., as joint lead arranger and joint lead
    bookrunner, JP Morgan Securities Inc. as joint lead arranger and
    joint lead bookrunner, and certain other financial institutions
    (Exhibit 4(a)(3) of the Companys Form 10-K for the
    year ended December 31, 2003 incorporated by reference
    herein)
|                                             
|                                              | 4(b)    |     |             | Rights Agreement dated as of August 31, 2001 between the
    Company and First Union National Bank, as Rights Agent
    (Exhibit 4 of the Companys Registration Statement on
    Form 8-A, incorporated by reference herein)                                                                                                                                                                                                                                                                                                                                                         
|                                             
|                                              | 4(c)    |     |             | Amendment to Rights Agreement dated as of February 12,
    2003, by and between Wellman, Inc. and Wachovia Bank, N.A.,
    f/k/a First Union National Bank, as Rights Agent
    (Exhibit 4.1 to the Companys Form 8-K dated
    February 27, 2003 incorporated by reference herein)                                                                                                                                                                                                                                                                                                  
|                                             
|                                              | 4(d)    |     |             | Common Stock Purchase Warrant dated as of February 12, 2003
    for the purchase of 1,250,000 shares of common stock
    (Exhibit 4(f) to the Companys Form 10-K for the year
    ended December 31, 2002, incorporated by reference herein)                                                                                                                                                                                                                                                                                                                                         
|                                             
|                                              | 4(e)    |     |             | Securities Purchase Agreement by and between Wellman, Inc. and
    Warburg Pincus Private Equity VIII, LP, dated as of
    February 12, 2003 (Exhibit 4(g) to the Companys
    Form 10-K for the year ended December 31, 2002,
    incorporated by reference herein)                                                                                                                                                                                                                                                                                                                 
|                                              | 4(f)    |     |             | Common Stock Purchase Warrant dated as of June 27, 2003 for
    the purchase of 1,250,000 shares of common stock
    (Exhibit 4(h) of the Companys Form 10-Q for the
    quarter ended June 30, 2003 incorporated by reference
    herein)                                                                                                                                                                                                                                                                                                                                           
|                                             
|Executive Compensation Plans and Arrangements
|                                             
|                                              | 10(a)   |     |             | Employment Agreement dated as of March 14, 2005 between the
    Company and Thomas M. Duff                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            
|                                             
|                                              | 10      | (b) |             | Employment Agreement dated as of March 14, 2005 between the
    Company and Keith R. Phillips                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         
|                                             
|                                              | 10(c)   |     |             | Employment Agreement dated as of March 14, 2005 between the
    Company and Joseph C. Tucker                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          
|                                             
|                                              | 10(d)   |     |             | Employment Agreement dated as of March 14, 2005 between the
    Company and Michael E. Dewsbury                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       
|                                             
|                                              | 10(e)   |     |             | Employment Agreement dated as of March 14, 2005 between the
    Company and Audrey L. Goodman                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         

71



---



##### 



|                          |       |  |             |                                                                                                                                                                                                                                                                                             
|------------------------- | ----- |  | ----------- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|Exhibit                   |       |  |            
|Number                    |       |  | Description
|                          |       |  |            
|                         
|                          | 10(f) |  |             | Employment Agreement dated as of March 14, 2005 between the
    Company and Mark J. Ruday                                                                                                                                                                                                   
|                         
|                          | 10(g) |  |             | Wellman, Inc. Directors Stock Option Plan (Exhibit 10(g) of
    the Companys Form 10-Q for the quarter ended June 30,
    2001 incorporated by reference herein)                                                                                                                           
|                         
|                          | 10(h) |  |             | Wellman, Inc. Third Amended and Restated Management Incentive
    Compensation Plan for the Executive Group                                                                                                                                                                                 
|                         
|                          | 10(i) |  |             | Summary of Executive Life Insurance Plan (Exhibit 10.22 of
    the Companys Registration Statement on Form S-1, File
    No. 33-13458, incorporated by reference herein)                                                                                                                   
|                         
|                          | 10(j) |  |             | Amended and Restated Executive Retirement Restoration Plan,
    effective as of January 1, 1993, and as amended as of
    June 1, 1998 and May 31, 2001 (Exhibit 10(m) of
    the Companys Form 10-K for the year ended
    December 31, 2001 incorporated by reference herein)            
|                         
|                          | 10(k) |  |             | Wellman, Inc. Amended and Restated 1997 Stock Option Plan
    (Exhibit 10(k) of the Companys Form 10-Q for the
    quarter ended June 30, 2001 incorporated by reference
    herein)                                                                                                       
|                         
|                          | 10(l) |  |             | Wellman, Inc. Restricted Stock Plan, effective June 1, 2004
    (Exhibit 4 of the Companys Form S-8, filed on
    June 30, 2004 , incorporated by reference herein)                                                                                                                        
|                          | 10(m) |  |             | Wellman, Inc. 2004 Restricted Stock Grant Agreement, effective
    July 1, 2004, between the Company and Thomas M. Duff                                                                                                                                                                     
|                          | 10(n) |  |             | Wellman, Inc. 2004 Restricted Stock Grant Agreement, effective
    July 1, 2004, between the Company and Keith R. Phillips                                                                                                                                                                  
|                          | 10(o) |  |             | Wellman, Inc. 2004 Restricted Stock Grant Agreement, effective
    July 1, 2004, between the Company and Joseph C. Tucker                                                                                                                                                                   
|                          | 10(p) |  |             | Wellman, Inc. 2004 Restricted Stock Grant Agreement, effective
    July 1, 2004, between the Company and Michael E. Dewsbury                                                                                                                                                                
|                          | 10(q) |  |             | Wellman, Inc. 2004 Restricted Stock Grant Agreement, effective
    July 1, 2004, between the Company and Audrey L. Goodman                                                                                                                                                                  
|                          | 10(r) |  |             | Wellman, Inc. 2004 Restricted Stock Grant Agreement, effective
    July 1, 2004, between the Company and Mark J. Ruday                                                                                                                                                                      
|                          | 10(s) |  |             | Wellman, Inc. 2005 Restricted Stock Grant Agreement, effective
    March 14, 2005, between the Company and Thomas M. Duff                                                                                                                                                                   
|                          | 10(t) |  |             | Wellman, Inc. 2005 Restricted Stock Grant Agreement, effective
    March 14, 2005, between the Company and Keith R. Phillips                                                                                                                                                                
|                          | 10(u) |  |             | Wellman, Inc. 2005 Restricted Stock Grant Agreement, effective
    March 14, 2005, between the Company and Joseph C. Tucker                                                                                                                                                                 
|                          | 10(v) |  |             | Wellman, Inc. 2005 Restricted Stock Grant Agreement, effective
    March 14, 2005, between the Company and Michael E. Dewsbury                                                                                                                                                              
|                          | 10(w) |  |             | Wellman, Inc. 2005 Restricted Stock Grant Agreement, effective
    March 14, 2005, between the Company and Audrey L. Goodman                                                                                                                                                                
|                          | 10(x) |  |             | Wellman, Inc. 2005 Restricted Stock Grant Agreement, effective
    March 14, 2005, between the Company and Mark J. Ruday                                                                                                                                                                    
|                         
|Other Material Agreements
|                         
|                          | 10(y) |  |             | Trademark Assignment and License, dated January 28, 1988,
    by and among Fiber Industries, Inc., Hoechst-Celanese
    Corporation and Celanese (Exhibit 10.14 of Fiber
    Industries, Inc.s Registration Statement on Form S-1,
    File No. 33-20626, incorporated by reference herein)
|                          | 21    |  |             | Subsidiaries                                                                                                                                                                                                                                                                                
|                         
|                          | 23(a) |  |             | Consent of Ernst & Young LLP                                                                                                                                                                                                                                                                
|                         
|                          | 23(b) |  |             | Consent of KPMG                                                                                                                                                                                                                                                                             

72



---



##### 



|        |      |  |             |                                                                                                                             
|------- | ---- |  | ----------- | ----------------------------------------------------------------------------------------------------------------------------
|Exhibit |      |  |            
|Number  |      |  | Description
|        |      |  |            
|       
|        | 31.1 |  |             | Certification of the Chief Executive Officer pursuant to
    Section 302 of the Sarbanes-Oxley Act of 2002                  
|       
|        | 31.2 |  |             | Certification of the Chief Financial Officer pursuant to
    Section 302 of the Sarbanes-Oxley Act of 2002                  
|       
|        | 32.1 |  |             | Certification of the Chief Executive Officer pursuant to
    Section 906 of the Sarbanes-Oxley Act of 2002                  
|        | 32.2 |  |             | Certification of the Chief Financial Officer pursuant to
    Section 906 of the Sarbanes-Oxley Act of 2002                  
|       
|        | 99.1 |  |             | Report of KPMG on the Consolidated Financial Statements of WIL                                                              
|       
|        | 99.2 |  |             | Report of KPMG on Managements Assessment and the
    Effectiveness of Internal Control over Financial Reporting for
    WIL

Reports on Form 8-K.




73



---



##### 



SIGNATURES






| |                        
| | -----------------------
| | WELLMAN, INC.          
|
| | /s/ Thomas M. Duff     
| |                        
| | Thomas M. Duff         
| | Chief Executive Officer



|                                                   |  |                                                                                            |  | 
|-------------------------------------------------- |  | ------------------------------------------------------------------------------------------ |  | 
|Signatures                                         |  | Title                                                                                     
|                                                   |  |                                                                                           
|                                                  
|/s/ Thomas M. DuffThomas
    M. Duff               |  | Chairman, Chief Executive Officer and Director (Principal
    Executive Officer)          
|                                                  
|/s/ Keith R. PhillipsKeith
    R. Phillips         |  | Vice President and Chief Financial Officer (Principal Financial
    Officer)              
|                                                  
|/s/ Mark J. RudayMark
    J. Ruday                 |  | Vice President, Chief Accounting Officer and Controller
    (Principal Accounting Officer)
|                                                  
|/s/ James B. BakerJames
    B. Baker               |  | Director                                                                                  
|                                                  
|/s/ David A. BarrDavid
    A. Barr                 |  | Director                                                                                  
|                                                  
|/s/ Oliver M. GoldsteinOliver
    M. Goldstein     |  | Director                                                                                  
|                                                  
|/s/ Richard F. HeitmillerRichard
    F. Heitmiller |  | Director                                                                                  
|                                                  
|/s/ Gerard J. KerinsGerard
    J. Kerins           |  | Director                                                                                  
|                                                  
|/s/ David J. McKittrickDavid
    J. McKittrick     |  | Director                                                                                  
|                                                  
|/s/ James E. RogersJames
    E. Rogers             |  | Director                                                                                  
|                                                  
|/s/ Roger A. VandenbergRoger
    A. Vandenberg     |  | Director                                                                                  

74