##### Table of Contents



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 1934For the fiscal year ended
    December 31, 2006ORo

TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)
    OF THE SECURITIES EXCHANGE ACT OF 1934For the transition period
    from          to   Commission file number 1-10033
      WELLMAN, INC.
 (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:
  Title of Each Class

Name of Each Exchange on Which RegisteredCommon Stock, $0.001 par value

New York Stock ExchangeCommon Stock Purchase Rights

New York Stock Exchange   Securities registered pursuant
    to Section 12(g) of the Act:
 None
  o þ
  o þ
  þ o
  Regulation S-K Form 10-K Form 10-K. þ
  Rule 12b-2
  o þ o
  Rule 12b-2 o þ
      DOCUMENTS
    INCORPORATED BY REFERENCE




---



TABLE OF CONTENTS  CONSOLIDATED STATEMENTS OF OPERATIONSCONSOLIDATED BALANCE SHEETSCONSOLIDATED STATEMENTS OF STOCKHOLDERS EQUITY (In millions)CONSOLIDATED STATEMENTS OF CASH FLOWSNotes to Consolidated Financial Statements (In millions, except share and per share data)REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRMSCHEDULE II VALUATION AND QUALIFYING ACCOUNTS Years Ended December 31, 2006, 2005 and 2004Item 9. Changes in and Disagreements with Accountants on Accounting and Financial DisclosureREPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM ON MANAGEMENTS ASSESSMENT AND THE EFFECTIVENESS OF INTERNAL CONTROL OVER FINANCIAL REPORTINGEx-21 SubsidiariesEx-23.1 Consent of Ernst & Young LLPEx-23.2 Consent of KPMG Chartered Accountants, Dublin, IrelandEx-31.1 Section 302 Certification of CEOEx-31.2 Section 302 Certification of CFOEx-32.1 Section 906 Certification of CEOEx-32.2 Section 906 Certification of CFOEx-99.1 Report of KPMG on the Consolidated Financial Statements of WILEx-99.2 Report on Management's Assessment of the Effectiveness of Internal Control over Financial Reporting for WIL    Table of Contents   PART I
  Item 1.
    Business  state-of-the-art
  ® ®
  ® ®
    2006


2005


2004(Adjusted)


(Adjusted)(In millions, except per share data)Net sales

$
1,332.0


$
1,305.6


$
1,228.9Gross profit

$
38.6


$
119.7


$
78.1Operating loss

$
(62.4
)

$
(37.5
)

$
(29.2
)Loss from continuing operations

$
(83.7
)

$
(58.5
)

$
(50.1
)Per share net loss attributable to
    common stockholders from continuing operations

$
(3.07
)

$
(2.29
)

$
(1.97
)Total assets

$
993.3


$
1,076.5


$
1,137.4Capital expenditures from
    continuing operations

$
29.0


$
49.4


$
14.5     (a)
    
    Certain amounts have been adjusted to reflect our voluntary
    change in accounting principle for recognizing net acturial
    gains and losses related to our defined benefit plans and
    revised to reflect discontinued operations.  and/or
 2




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##### Table of Contents



2006


2005(Adjusted)(In millions)Loss from continuing operations

$
(83.7
)

$
(58.5
)Income tax benefit


(36.7
)


(24.4
)Interest expense, net


58.0



45.4Depreciation and amortization


68.2



66.4Permitted Adjustments(a)


49.0



105.8EBITDA, as defined

$
54.8


$
134.7     (a)
    
    Permitted Adjustments are adjustments specified in our Debt
    Agreements which are used in the calculation of EBITDA, as
    defined. The following table details Permitted Adjustments for
    the periods indicated.  2006


2005(In millions)Goodwill impairment

$
33.4


$
Johnsonville Fibers closure costs,
    net


31.7



Actuarial (gains) losses for
    defined benefit plans


(22.2
)


41.4Hurricane Katrina costs, net


1.4



24.0Legal & settlement costs






35.9Other


4.7



4.5Total Permitted Adjustments

$
49.0


$
105.8     2006


2005(Adjusted)(In millions)Chemical-based segment

$
46.9


$
115.2Recycled-based segment


7.9



19.5Total

$
54.8


$
134.7      3




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##### Table of Contents



Chemical-Based
    Segment
    
    PermaClear®,
    PermaClear
    HP®,
    and Thermaclear
    Ti®
    solid-stated PET resin from chemical-based raw materials for use
    in the manufacturing of plastic beverage bottles and other food
    packaging and
    Fortrel®
    chemical-based polyester staple fiber for use in home
    furnishing, non-woven, apparel, and industrial products.      2006


2005(Adjusted)(In millions)Net Sales

$
1,050.6


$
1,008.7Segment Profit (Loss)(a)

$
46.9


$
115.2Segment Depreciation and
    Amortization

$
57.3


$
54.0Assets

$
791.4


$
781.2Capital Expenditures

$
24.6


$
41.0   (a)
    
    The measurement for segment profit (loss) is EBITDA, as defined.
    For more information, including a reconciliation of segment
    profit (loss) to loss from continuing operations, see
    Item 1. Business.      Raw
    Materials
  70-75%
  Polyester
    Chain
  
 4




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##### Table of Contents



Global
    Polyester Chemical Raw Material Costs
 January 2005 
    February 2007
  
   * China prices
    excludes VAT
  ** Feb. Far East prices are
    preliminary.
  Source: Chem-Data, PCI (Feb.
    2007), Wellman
     5




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##### Table of Contents



PET
    Resin
    2007
    NAFTA PET Resin Capacity by Producer
  
  Total
    Capacity: 9.3 billion pounds
 Source: SBA-CCI
    (Feb. 2007), Wellman, Inc.
      NAFTA PET
    Resin Consumption
  
  Source: SBA-CCI, Inc. (February
    2007)
 6




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##### Table of Contents



NAFTA PET
    Resin Industry Supply/Demand Balance
  
  Source: SBA-CCI, Inc (Feb.
    2007), Wellman, Inc.
 Capacity is based on operating
    350 days per year.
   7




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##### Table of Contents



NAFTA PET
    Resin Net Trade Balance
  
  All quarters are
    annualized Source: U.S. Department of
    Commerce, Expide Logistics SA de CV, Statistics Canada, 
    Wellman, Inc. (Feb. 2007)
  Polyester
    Staple Fiber
    2007
    NAFTA Polyester Staple Fiber Capacity
  
  Total Capacity:
    2.2 billion pounds
  Source: FEB (Jan
    2007), Wellman
     8




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##### Table of Contents



Polyester
    Staple Imports Into the U.S.*
    (Annualized)
  
  * Does not include products
    imported from Canada and Mexico
 Source: U.S. Commerce Department
    (Feb. 2007)
  Textile
    and Apparel Imports Into the U.S.
  
  % = Chinas % of U.S.
    Textile and Apparel Imports
 Source: U.S. Commerce Department
    (Feb. 2007)
     9




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##### Table of Contents



U.S.
    Polyester Staple Fiber Industry Supply/Demand Balance
  
  Source: Fiber Economics
    Bureau (FEB) (Jan. 2007), Wellman, Inc.
  Recycled-Based
    Segment
    
    Wellamid®
    and Wellamid
    Ecolon®
    recycled-based nylon engineering resin in the U.S. for use
    in the injection molding industry and
    Recycled-based polyester staple fiber in Europe sold under the
    trade names of
    Wellbond®,
    Wellene®,
    and
    Fillwell®
    for use in non-woven, home furnishing, and industrial products.    ® ®
     10




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##### Table of Contents



2007
    European Union Polyester Staple Fiber Capacity
  
  Total Capacity:
    1.2 Billion Pounds
  Source: PCI (2006 Red
    Book)
         11




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##### Table of Contents



2006


2005(Adjusted)(In millions)Net Sales

$
281.4


$
296.9Segment Profit (Loss)(a)

$
7.9


$
19.5Segment Depreciation and
    Amortization

$
10.9


$
12.4Assets

$
154.6


$
183.1Capital Expenditures

$
4.4


$
8.4   (a)
    The measurement for segment profit (loss) is EBITDA, as defined.
    For more information, including a reconciliation of segment
    profit (loss) to loss from continuing operations, see
    Item 1. Business.  Discontinued
    Operations
      Capital
    Investment Program
    Capital
    Expenditures
  2006


2005


2004(In millions)Expansion/major cost reductions

$
14.5


$
38.0


$
6.1Maintenance of business capital(a)


14.5



11.4



8.4Total

$
29.0


$
49.4


$
14.5   (a)
    
    Includes environmental, health and safety capital expenditures.      Research
    and Development
    Foreign
    Activities
  non-U.S. sales
 12




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##### Table of Contents



Employees
    2006


2005


2004


2003


2002Employees


1,500



1,900



1,700



1,900



2,200Long-term, Independent Contractors


40



80



360



270



270Total Personnel


1,540



1,980



2,060



2,170



2,470       Environmental
    Matters
      Executive
    Officers of the Registrant
    Name and Age

PositionThomas M. Duff, 59

Chairman, Chief Executive Officer,
    and DirectorKeith R. Phillips, 52

Vice President, Chief Financial
    OfficerAudrey L. Goodman, 53

Vice President, TreasurerMark J. Ruday, 41

Vice President, Chief Accounting
    Officer and ControllerJoseph C. Tucker, 59

Vice President, Fibers and
    Recycled Products Group    13




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##### Table of Contents



Thomas M. Duff.
  Keith R. Phillips.
  Audrey L. Goodman.
  Mark J. Ruday.
  Joseph C. Tucker.
  Available
    Information
  Form 10-K, Form 10-Q, Form 8-K, and/or (202) 551-8090.
  Item 2.
    Properties    Stated AnnualProduction CapacityLocation

Principal Products

(In millions of pounds)Chemical-Based:Darlington, S.C. (Palmetto)

Solid-stated PET resin


500Darlington, S.C. (Palmetto)

Amorphous polyester resin


260
(1)Darlington, S.C. (Palmetto)

Polyester staple fiber


500Hancock County, MS (Pearl River)

Solid-stated PET resin


860Emmen, the Netherlands (in
    discontinued operations)

Solid-stated PET resin


120Recycled-Based:Mullagh, Ireland

Polyester staple fiber


185Johnsonville, S.C.

Nylon engineering resin


70     (1)
    
    This capacity is currently idle, but can be converted into
    solid-stated PET resin capacity at a minimal per unit capital
    cost.  Item 3.
    Legal
    Proceedings   14




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##### Table of Contents



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


Dividend2006Fourth Quarter

$
4.31


$
2.82


$
0.02Third Quarter

$
4.50


$
2.40


$
0.02Second Quarter

$
7.14


$
3.66


$
0.05First Quarter

$
7.46


$
5.57


$
0.052005Fourth Quarter

$
8.23


$
5.36


$
0.05Third Quarter

$
10.99


$
5.62


$
0.05Second Quarter

$
14.82


$
9.35


$
0.05First Quarter

$
15.42


$
9.50


$
0.05  15




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##### Table of Contents



Stock
    Performance Graph
    Wellman
    Stock Performance
  
  Dec. 01


Dec. 02


Dec. 03


Dec. 04


Dec. 05


Dec. 06Wellman, Inc.


$
100



$
89



$
70



$
75



$
49



$
24S&P 500 Index


$
100



$
77



$
97



$
106



$
109



$
124S&P SmallCap 600 Index


$
100



$
85



$
116



$
142



$
151



$
172        16




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##### Table of Contents



Item 6.
    Selected
    Consolidated Financial Data  Years Ended December 31,2006


2005(a)


2004(a)


2003(a)


2002(a)(In millions, except per share data)Net sales

$
1,332.0


$
1,305.6


$
1,228.9


$
1,033.8


$
955.8Gross profit

$
38.6


$
119.7


$
78.1


$
75.5


$
108.3Selling, general and
    administrative expenses

$
55.2


$
58.5


$
55.4


$
62.4


$
61.1Operating income (loss)

$
(62.4
)

$
(37.5
)

$
(29.2
)

$
(144.5
)

$
24.4Interest expense, net

$
58.0


$
45.4


$
38.1


$
10.1


$
10.3Earnings (loss) from continuing
    operations

$
(83.7
)

$
(58.5
)

$
(50.1
)

$
(100.3
)

$
9.1Earnings (loss) from discontinued
    operations, net of income taxes (benefit)

$
(28.7
)

$
(1.4
)

$
0.6


$
1.4


$
(20.7
)Cumulative effect of accounting
    change, net of tax

$



$



$



$



$
(197.0
)Accretion and beneficial
    conversion charge

$
(14.4
)

$
(14.2
)

$
(12.3
)

$
(10.1
)

$
Net loss attributable to common
    stockholders

$
(126.8
)

$
(74.1
)

$
(61.8
)

$
(109.0
)

$
(208.6
)Basic net earnings (loss) per
    common share:Net earnings (loss) attributable
    to common stockholders from continuing operations

$
(3.07
)

$
(2.29
)

$
(1.97
)

$
(3.50
)

$
0.29Net earnings (loss) attributable
    to common stockholders from discontinued operations


(0.90
)


(0.05
)


0.02



0.05



(0.66
)Cumulative effect of accounting
    change


















(6.24
)Net loss attributable to common
    stockholders

$
(3.97
)

$
(2.34
)

$
(1.95
)

$
(3.45
)

$
(6.61
)Diluted net loss per common share:Net earnings (loss) attributable
    to common stockholders from continuing operations

$
(3.07
)

$
(2.29
)

$
(1.97
)

$
(3.50
)

$
0.29Net earnings (loss) attributable
    to common stockholders from discontinued operations


(0.90
)


(0.05
)


0.02



0.05



(0.65
)Cumulative effect of accounting
    change


















(6.16
)Net loss attributable to common
    stockholders

$
(3.97
)

$
(2.34
)

$
(1.95
)

$
(3.45
)

$
(6.52
)Dividends declared per common share

$
0.14


$
0.20


$
0.20


$
0.36


$
0.36   17




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##### Table of Contents



December 31,2006


2005(a)


2004(a)


2003(a)


2002(a)(In millions)Balance Sheet Data:Total assets

$
993.3


$
1,076.5


$
1,137.4


$
1,098.6


$
951.0Total debt(b)

$
579.6


$
498.6


$
471.5


$
371.0


$
236.9Stockholders equity

$
207.1


$
316.8


$
396.3


$
446.3


$
412.2     (a)
    
    Certain amounts have been adjusted to reflect our voluntary
    change in accounting principle for recognizing net actuarial
    gains and losses related to our defined benefit plans and
    revised to reflect discontinued operations.(b)
    
    The following summarizes our total debt and certain contractual
    obligations for each of the years presented.  December 31,2006


2005


2004


2003


2002(In millions)Total debt

$
579.6


$
498.6


$
471.5


$
371.0


$
236.9Certain contractual obligations:Receivables securitization














27.8



64.2Sale and leaseback transaction














155.1



165.4Raw material contract














96.4



115.7Total certain contractual
    obligations














279.3



345.3Total debt and certain contractual
    obligations

$
579.6


$
498.6


$
471.5


$
650.3


$
582.2    18




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##### Table of Contents



Item 7.
    Managements
    Discussion and Analysis of Financial Condition and Results of
    Operations  GENERAL
  ® ® ® ®
  ® ® ® ®
  state-of-the
  ® ®
  ® ® ® ® ®
     19




---



##### Table of Contents



RECENT
    DEVELOPMENTS
  New
    Organization
  state-of-the-art
  Discontinued
    Operations
      Impairment
    of Goodwill
    Johnsonville
    Fibers Closure Costs
  ®
  CRITICAL
    ACCOUNTING POLICIES AND ESTIMATES
   20




---



##### Table of Contents



Revenue
    Recognition
      Allowance
    for Doubtful Accounts
    Inventory
    Valuation
  first-in,
  Property,
    Plant and Equipment
   21




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##### Table of Contents



Goodwill
    and Other Intangible Assets
        Deferred
    Tax Assets
   22




---



##### Table of Contents



Environmental
    Liability
    Pension
    Benefits
          IMPACT OF
    RECENTLY ISSUED ACCOUNTING PRONOUNCEMENTS
   23




---



##### Table of Contents



RESULTS
    OF OPERATIONS
  2006
    to 2005
    PPG(a)


FRPG(a)


TOTAL(a)(In millions)Net SalesSales volumes

$
58.0


$
(56.0
)

$
2.0Net selling prices


(2.5
)


25.6



23.1Foreign currency translation






1.3



1.3Increase (decrease) in net
    sales


55.5



(29.1
)


26.4Cost of SalesRaw material unit costs


58.6



36.5



95.1Volume effect


47.1



(48.8
)


(1.7
)Plant added unit costs


11.1



1.6



12.7Foreign currency translation






1.4



1.4Increase (decrease) in cost of
    sales


116.8



(9.3
)


107.5Decrease in gross
    profit

$
(61.3
)

$
(19.8
)

$
(81.1
)     (a)
    
    Certain amounts have been adjusted to reflect our voluntary
    change in accounting principle for recognizing actuarial gains
    and losses related to our defined benefit plans and revised to
    reflect discontinued operations.   24




---



##### Table of Contents



start-up
            2006


2005(In millions)Johnsonville fibers closure costs

$
33.3


$
Goodwill impairment


33.4



Actuarial (gains) losses for
    defined benefit plans


(22.2
)


41.4Legal and settlement costs






35.9Hurricane Katrina costs, net


1.4



24.0Costs (proceeds) relating to
    anti-dumping activities, net


(2.0
)


(3.7
)Total Other expense, net

$
43.9


$
97.6        25




---



##### Table of Contents



26




---



##### Table of Contents



2005
    to 2004
    PPG(a)


FRPG(a)


TOTAL(a)(In millions)Net SalesNet selling prices

$
123.3


$
101.8


$
225.1Sales volumes


(85.0
)


(63.6
)


(148.6
)Foreign currency translation






0.2



0.2Increase in net sales


38.3



38.4



76.7Cost of SalesVolume effect


(67.5
)


(52.4
)


(119.9
)Raw material unit costs


83.0



69.1



152.1Plant added unit costs


(3.0
)


5.6



2.6Foreign currency translation






0.3



0.3Increase in cost of
    sales


12.5



22.6



35.1Increase in gross
    profit

$
25.8


$
15.8


$
41.6     (a)
    
    Certain amounts have been adjusted to reflect our voluntary
    change in accounting for net actuarial gains and losses related
    to our defined benefit plans and revised to reflect discontinued
    operations.               27




---



##### Table of Contents



2005


2004(In millions)Legal and settlement costs

$
35.9


$
5.4Actuarial losses for defined
    benefit plans


41.4



12.4Hurricane Katrina costs, net


24.0



Non-capitalizable financing costs






40.2Costs (proceeds) relating to
    anti-dumping activities, net


(3.7
)


(8.6
)$
97.6


$
49.4                    28




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##### Table of Contents



OUTLOOK
    state-of-the
             29




---



##### Table of Contents



CAPITAL
    RESOURCES AND LIQUIDITY
            TABLE
    I
  Amounts AvailableTotal





Amount


under CommittedDebt Agreement

Maturity

Facility


Commitment


Outstanding


Facilities(In millions)Revolving Credit Facility(1)

May 2011

$
225.0


$
214.6


$
128.0


$
86.6First Lien Term Loan(2)

February 2009


185.0



185.0



185.0



Second Lien Term Loan(3)

February 2010


265.0



265.0



262.2



European Facility(4)

June 2010


25.5



22.5



2.4



20.1Other

N/A


2.0



2.0



2.0



Total



$
702.5


$
689.1


$
579.6



106.7Adjustments(5)
















(4.2
)Total Committed Amounts Available















$
102.5  30




---



##### Table of Contents



(1)
    
    We have a $225.0 million Revolving Credit Facility, as
    amended on October 20, 2006 secured by our domestic
    accounts receivable, domestic inventory and other related
    intangibles that matures on May 4, 2011. While we do not
    expect the maturity to occur prior to this date, it could be
    accelerated by (a) not complying with the terms of our Debt
    Agreements; (b) not refinancing either of the Term Loans at
    least three months prior to their maturities in February 2009
    and 2010, or (c) not repaying a significant portion of
    either of the Term Loans, concurrent with having at least
    $75.0 million in Average Excess Availability under our
    Revolving Credit Facility. Our borrowing capacity is principally
    based on our domestic accounts receivable and inventory, less
    outstanding letters of credit and any liability related to the
    termination of certain financial instruments, but cannot exceed
    $225.0 million. Pricing on the Revolving Credit Facility is
    based on our Average Excess Availability as defined in the
    Revolving Credit Facility and has interest rates of either LIBOR
    plus 1.25%  2.00% per annum (currently 1.75%) or
    the prime lending rate plus 0.25%  1.00% per
    annum (currently 0.75%), at our option on outstanding
    borrowings. Interest payments are generally due at the end of
    each borrowing period.(2)
    
    We have a $185.0 million First Lien Term Loan which matures
    on February 10, 2009, which is primarily secured by our
    domestic real property, plant and equipment. Our annual interest
    rate is three-month LIBOR plus 4.00% and is paid quarterly.
    There is a LIBOR floor of 2.00%.(3)
    
    We have a $265.0 million Second Lien Term Loan, which
    matures on February 10, 2010 which is secured by a second
    lien in substantially all of our domestic assets. Our annual
    interest rate is three-month LIBOR plus 6.75% and is paid
    quarterly. There is a LIBOR floor of 2.00%. The amount
    outstanding is net of the unamortized portion of the original
    issue discount.(4)
    
    We have a 20 million multi-currency facility, which
    matures June 2010 and is secured by certain of our foreign
    subsidiaries trade accounts receivable. While interest
    rates vary by currency borrowed, we primarily borrow in Euros.
    The average interest rate for 2006 was 6.88%.(5)
    
    The adjustments are a reduction in the amounts available under
    the Revolving Credit Facility due to outstanding letters of
    credit and the liability, if any, related to the termination of
    certain financial instruments. For additional information on
    swaps, see Note 9 to the Consolidated Financial Statements.    TABLE II
  Payments Due by PeriodGreaterThanLess Than


Years 1-3


Years 3-5


5 YearsContractual




1 Year


(Years 2008


(Years 2010


Years 2012Obligations

Total


(Year 2007)


& 2009)


& 2011)


& Beyond(In millions)Debt Agreements (see Table I)

$
579.6


$
0.3


$
186.6


$
392.7


$
Interest Payments on Debt
    Agreements(6)


172.3



58.1



96.4



17.8



Operating Leases(7)


52.8



9.0



15.3



12.2



16.3Total

$
804.7


$
67.4


$
298.3


$
422.7


$
16.3     (6)
    
    The average interest rate for 2006 was 9.9%. Interest payments
    on Debt Agreements include the unamortized portion of the
    original issue discount on the Second Lien Term Loan. The
    methodology and key assumptions used to determine future
    interest rates and expense on our Debt Agreements are as follows:  
    Table II reflects the interest and principal payments based on
    our expectations for interest payments and maturity dates. The
    3-month
    LIBOR rate used for periods in Table II was based on a forward
    curve provided 31




---



##### Table of Contents



by a major investment bank on a date close to the filing of our
    Form 10-K.
    This interest rate curve contains
    3-month
    LIBOR rates ranging between 4.62% and 4.94% for the period 2008
    through 2011.  
    Any portion of our debt which has been swapped from
    variable-rate into fixed-rate debt as of the date of our
    Form 10-K
    filing was treated as fixed-rate debt for purposes of
    calculating interest payments on our Debt Agreements. For
    additional information on these derivatives, see Note 16 to
    the Consolidated Financial Statements.  (7)
    
    These amounts are as of December 31, 2006 and relate
    primarily to operating leases for our railcars and computer
    hardware.       32




---



##### Table of Contents



For the Quarter EndedMar. 31,


Jun. 30,


Sept. 30,


Dec. 31,2006


2006


2006


2006


Total(In millions)Fixed ChargesCash interest expense

$
11.9


$
12.7


$
14.8


$
14.8


$
54.2Capital expenditures


9.3



12.7



4.6



4.3



30.9Cash payment of taxes


0.3



0.1



0.3



(0.6
)


0.1Dividend payments


1.6



1.7



0.6



0.7



4.6Total Fixed Charges

$
23.1


$
27.2


$
20.3


$
19.2


$
89.8EBITDA, as definedLoss from continuing operations

$
(15.5
)

$
(10.9
)

$
(35.5
)

$
(21.8
)

$
(83.7
)Income tax benefit


(8.2
)


(4.4
)


(20.8
)


(3.3
)


(36.7
)Interest expense, net


12.6



14.0



15.9



15.5



58.0Depreciation and amortization


17.1



17.7



17.1



16.3



68.2Permitted Adjustments(a)


6.2



2.3



37.6



2.9



49.0EBITDA, as defined

$
12.2


$
18.7


$
14.3


$
9.6


$
54.8Consolidated Fixed Charge
    Coverage Ratio


















0.61:1.0     (a)
    
    For additional information on Permitted Adjustments, see
    Item 1. Business.        (In millions)Capital expenditures for the PET
    resin expansion

$
53.4Legal and settlement costs


40.1Hurricane Katrina costs, net


25.4Total

$
118.9      33




---



##### Table of Contents



12-18 months.
    ENVIRONMENTAL
    MATTERS
          FORWARD-LOOKING
    STATEMENTS; RISKS AND UNCERTAINTIES
  Form 10-K
 34




---



##### Table of Contents



Risk
    Related to Our Business
  Reduced
    raw material margins could adversely affect our operating
    results.
  see
  Our
    operations are dependent on the availability and cost of our raw
    materials.
      Reduced
    sales volume could adversely affect our operating
    results.
    Increases
    in costs could adversely affect our operating
    results.
    Prices
    and volumes of polyester staple fiber and PET resin imports
    could adversely impact our margins.
   35




---



##### Table of Contents



The
    actions of our competitors may adversely affect our operating
    results.
    The
    financial condition of our customers impacts our operating
    results.
  and/or
  The
    availability of financing, changes in financial markets,
    interest rates, and our credit ratings could adversely affect
    our operating results.
  and/or
    The
    inability to execute our strategy announced in 2007 could affect
    our operating results and increase our debt.
   36




---



##### Table of Contents



Additional
    liabilities may be proposed by tax authorities.
    Actual
    costs for environmental matters may vary from the
    estimates.
    Changes
    in foreign currency exchange rates could adversely affect our
    operating results.
    Natural
    disasters could disrupt our business and affect our operating
    results.
    Item 7A.
    Quantitative
    and Qualitative Disclosure about Market Risk  DERIVATIVES
    INTEREST
    RATE RISK
    FOREIGN
    CURRENCY RISK
   37




---



##### Table of Contents



Item 8.
    Financial
    Statements and Supplementary Data  WELLMAN,
    INC.
  Index to
    Consolidated Financial Statements and Consolidated Financial
    Statement
 Schedule
  Consolidated Statements of
    Operations for the years ended December 31, 2006, 2005 and
    2004


39Consolidated Balance Sheets as of
    December 31, 2006 and 2005


40Consolidated Statements of
    Stockholders Equity for the years ended December 31,
    2006, 2005 and 2004


41Consolidated Statements of Cash
    Flows for the years ended December 31, 2006, 2005 and 2004


42Notes to Consolidated Financial
    Statements


43Report of Independent Registered
    Public Accounting Firm on the Consolidated Financial Statements


79Consolidated financial statement
    schedule for the years ended December 31, 2006, 2005 and
    2004:II  Valuation and
    qualifying accounts


80Item 9.    Changes
    in and Disagreements with Accountants on Accounting and
    Financial Disclosure


81Item 9A.  Controls
    and Procedures


81Item 9B.  Other
    Information


81Reports of Independent Registered
    Public Accounting Firm on Managements Assessment and the
    Effectiveness of Internal Control over Financial Reporting


82    38




---



##### Table of Contents



CONSOLIDATED
    STATEMENTS OF OPERATIONS
  Years Ended December 31,2006


2005


2004(Adjusted)


(Adjusted)(In millions, except per share data)Net sales

$
1,332.0


$
1,305.6


$
1,228.9Cost of sales


1,293.4



1,185.9



1,150.8Gross profit


38.6



119.7



78.1Selling, general and
    administrative expenses


55.2



58.5



55.4Restructuring charges


1.5



0.6



1.8Provision for uncollectible
    accounts


0.4



0.5



0.7Other expense, net


43.9



97.6



49.4Operating loss


(62.4
)


(37.5
)


(29.2
)Interest expense, net


58.0



45.4



38.1Loss from continuing operations
    before income taxes


(120.4
)


(82.9
)


(67.3
)Income tax benefit


(36.7
)


(24.4
)


(17.2
)Loss from continuing operations


(83.7
)


(58.5
)


(50.1
)Earnings (loss) from discontinued
    operations, net of income taxes (benefit)


(28.7
)


(1.4
)


0.6Net loss

$
(112.4
)

$
(59.9
)

$
(49.5
)Net loss attributable to common
    stockholders:Net loss

$
(112.4
)

$
(59.9
)

$
(49.5
)Accretion


(14.4
)


(14.2
)


(12.3
)Net loss attributable to common
    stockholders

$
(126.8
)

$
(74.1
)

$
(61.8
)Basic and diluted net loss per
    common share:Net loss attributable to common
    stockholders from continuing operations

$
(3.07
)

$
(2.29
)

$
(1.97
)Net loss attributable to common
    stockholders from discontinued operations


(0.90
)


(0.05
)


0.02Net loss attributable to common
    stockholders

$
(3.97
)

$
(2.34
)

$
(1.95
)Basic and diluted weighted-average
    common shares outstanding


31.9



31.7



31.6    39




---



##### Table of Contents



CONSOLIDATED
    BALANCE SHEETS
  December 31,2006


2005(Adjusted)(In millions, exceptshare data)ASSETS:Current assets:Cash and cash equivalents

$



$
Accounts receivable, less
    allowance of $2.2 in 2006 and $2.1 in 2005


190.7



157.2Inventories


143.6



153.6Prepaid expenses and other current
    assets


35.6



21.6Current assets held for sale






11.9Total current assets


369.9



344.3Property, plant and equipment, at
    cost:Land, buildings and improvements


99.5



114.5Machinery and equipment


1,041.2



1,015.1Construction in progress


9.0



45.51,149.7



1,175.1Less accumulated depreciation


560.3



556.4Property, plant and equipment, net


589.4



618.7Goodwill, net






33.4Other assets, net


34.0



51.5Non-current assets held for sale






28.6$
993.3


$
1,076.5LIABILITIES AND
    STOCKHOLDERS EQUITY:Current liabilities:Accounts payable

$
95.2


$
98.4Accrued liabilities


38.8



44.4Current portion of long-term debt


0.3



0.2Current liabilities associated
    with assets held for sale


10.7



5.4Total current liabilities


145.0



148.4Long-term debt


579.3



498.4Deferred income taxes and other
    liabilities


61.9



108.0Non-current liabilities associated
    with assets held for sale






4.9Total liabilities


786.2



759.7Stockholders equity:Series A preferred stock,
    $0.001 par value, 5,000,000 shares authorized,
    4,502,143 shares issued and outstanding


67.5



61.7Series B preferred stock,
    $0.001 par value, 6,700,000 shares authorized, issued
    And outstanding


100.4



91.8Class A common stock,
    $0.001 par value; 100,000,000 shares authorized,
    35,202,944 shares issued in 2006 and 34,946,722 in 2005






Class B common stock,
    $0.001 par value; 5,500,000 shares authorized; no
    shares issued






Paid-in capital


248.3



247.2Common stock warrants


4.9



4.9Accumulated other comprehensive
    income


28.4



22.2Accumulated deficit


(192.9
)


(61.5
)Less common stock in treasury at
    cost: 2,500,000 shares


(49.5
)


(49.5
)Total stockholders equity


207.1



316.8$
993.3


$
1,076.5    40




---



##### Table of Contents



CONSOLIDATED
    STATEMENTS OF STOCKHOLDERS EQUITY
    (In millions)
  Accumulated


RetainedSeries A Preferred


Series B Preferred











Common


Other


Earnings/Stock Issued


Stock Issued


Class A Common Stock Issued


Paid-In


Stock


Comprehensive


Accumulated


TreasuryShares


Amount


Shares


Amount


Shares


Amount


Capital


Warrants


Income/(Loss)


(Deficit)


Stock


TotalBalance at December 31,
    2003 (Adjusted)


4.5


$
51.0



6.7


$
76.0



34.4


$



$
245.3


$
4.9


$
31.4


$
87.2


$
(49.5
)

$
446.3Net loss






































(49.5
)






(49.5
)Currency translation adjustments


































8.0











8.0Fair value of derivatives


































(2.4
)










(2.4
)Total comprehensive loss














































(43.9
)Cash dividends ($0.20 per
    share)






































(6.3
)






(6.3
)Equity transaction costs


























(0.1
)


















(0.1
)Accretion






5.0







7.3























(12.3
)






Exercise of stock options, net


























0.2



















0.2Issuance of restricted stock, net


















0.1







0.1



















0.1Balance at December 31,
    2004 (Adjusted)


4.5



56.0



6.7



83.3



34.5







245.5



4.9



37.0



19.1



(49.5
)


396.3Net loss






































(59.9
)






(59.9
)Currency translation adjustments


































(15.7
)










(15.7
)Fair value of derivatives


































0.9











0.9Total comprehensive loss














































(74.7
)Cash dividends ($0.20 per
    share)






































(6.5
)






(6.5
)Accretion






5.7







8.5























(14.2
)






Issuance of restricted stock, net


















0.4







1.7



















1.7Balance at December 31,
    2005 (Adjusted)


4.5



61.7



6.7



91.8



34.9







247.2



4.9



22.2



(61.5
)


(49.5
)


316.8Net loss






































(112.4
)






(112.4
)Currency translation adjustments


































6.5











6.5Fair value of derivatives


































(0.3
)










(0.3
)Total comprehensive loss














































(106.2
)Cash dividends ($0.14 per
    share)






































(4.6
)






(4.6
)Accretion






5.8







8.6























(14.4
)






Issuance of restricted stock, net


















0.3







1.1



















1.1Balance at December 31,
    2006


4.5


$
67.5



6.7


$
100.4



35.2


$



$
248.3


$
4.9


$
28.4


$
(192.9
)

$
(49.5
)

$
207.1    41




---



##### Table of Contents



CONSOLIDATED
    STATEMENTS OF CASH FLOWS
  Years Ended December 31,2006


2005


2004(Adjusted)


(Adjusted)(In millions)Cash flows from operating
    activities:Net loss

$
(112.4
)

$
(59.9
)

$
(49.5
)Adjustments to reconcile net loss
    to net cash provided by (used in) operating activities:Loss (earnings) from discontinued
    operations, net of tax


28.7



1.4



(0.6
)Depreciation


50.7



49.0



53.0Amortization


1.8



1.7



0.8Amortization of acquisition costs
    of long-term raw material contract


15.7



15.7



14.4Amortization in interest expense,
    net


4.3



4.2



4.0Deferred income taxes and other


(38.1
)


(26.3
)


(25.8
)Actuarial (gains) and losses for
    defined benefit plans


(22.3
)


37.5



11.0Goodwill impairment


33.4







Acquisition costs of long-term raw
    material contract










(77.1
)Non-capitalizable financing costs










21.0Loss on disposal of assets


31.6



1.3



1.2Changes in assets and liabilities:Accounts receivable


(30.6
)


32.5



(62.9
)Inventories


6.4



(23.3
)


(20.4
)Prepaid expenses and other current
    assets


0.5



4.0



1.0Accounts payable, accrued
    liabilities, and other current liabilities


(11.8
)


(1.7
)


23.3Other


(0.5
)


(12.8
)


5.5Net cash provided by (used in)
    operating activities


(42.6
)


23.3



(101.1
)Cash flows from investing
    activities:Additions to property, plant and
    equipment


(29.0
)


(49.4
)


(14.5
)Purchase of assets subject to sale
    and leaseback transaction










(150.0
)Net cash used in investing
    activities


(29.0
)


(49.4
)


(164.5
)Cash flows from financing
    activities:Proceeds from debt


80.1



25.1



469.7Repayments of debt










(370.0
)Termination of swaps










(11.9
)Debt issuance costs


(2.5
)






(18.0
)Financing costs










(0.1
)Exercise of employee stock options










0.2Dividends paid on common stock


(4.6
)


(6.5
)


(6.3
)Net cash provided by financing
    activities


73.0



18.6



63.6Discontinued Operations:Operating activities


0.7



2.7



2.3Investing activities


(1.9
)


(2.0
)


(0.6
)Financing activities


(0.2
)


1.2



Effect of exchange rate changes on
    cash










0.1Net cash provided by (used in)
    discontinued operations


(1.4
)


1.9



1.8Effect of exchange rate changes on
    cash and cash equivalents










0.3Increase (decrease) in cash and
    cash equivalents


0.0



(5.6
)


(199.9
)Cash and cash equivalents at
    beginning of year


0.0



5.6



205.5Cash and cash equivalents at end of
    year

$
0.0


$
0.0


$
5.6Supplemental cash flow data:Cash paid during the year for:Interest (net of amounts
    capitalized)

$
54.2


$
41.1


$
33.1Income taxes

$
0.1


$
1.0


$
6.3    42




---



##### Table of Contents



Notes to
    Consolidated Financial Statements
    (In millions, except share and per share data)
  1.
    SUMMARY
    OF SIGNIFICANT ACCOUNTING POLICIES  Organization
    and Principles of Consolidation
  ® ® ® ® ® ® ® ® ®
  Use of
    Estimates
    Revenue
    Recognition
    Cash
    and Cash Equivalents
    Derivatives
    and Hedging Activities
   43




---



##### Table of Contents



Notes to
    Consolidated Financial
    Statements  (Continued)
   Allowances
    for Doubtful Accounts
    Inventories
  first-in,
  Acquisition
    Costs of Long-Term Raw Material Contract
    Property,
    Plant and Equipment
      Pretax Impact ofNet Book Value at


ReducingEnd of Period


Depreciation(In millions)As of and for the year ending:December 31, 2004

$
0.2


$
0.7December 31, 2005

$
5.2


$
0.4December 31, 2006

$
27.0


$
1.6   ® held-for-sale
   44




---



##### Table of Contents



Notes to
    Consolidated Financial
    Statements  (Continued)
       Goodwill
    and Other Intangible Assets
        Income
    Taxes
   45




---



##### Table of Contents



Notes to
    Consolidated Financial
    Statements  (Continued)
    Environmental
    Expenditures
  and/or
  Foreign
    Currency Translation and Other Comprehensive Income
    (Loss)
        Foreign





AccumulatedCurrency


Fair Value


OtherTranslation


of


ComprehensiveAdjustments


Derivatives


Income/(Loss)(In millions)Balance at December 31, 2003

$
28.5


$
2.9


$
31.4Changes during year (net of taxes
    of $1.4 million)


8.0



(2.4
)


5.6Balance at December 31, 2004


36.5



0.5



37.0Changes during year (net of taxes
    of $0.6 million)


(15.7
)


0.9



(14.8
)Balance at December 31, 2005


20.8



1.4



22.2Changes during year (net of taxes
    of $0.8 million)


6.5



(0.3
)


6.2Balance at December 31, 2006

$
27.3


$
1.1


$
28.4   Advertising
    Costs
    Research
    and Development Costs
    Deferred
    Debt Costs
   46




---



##### Table of Contents



Notes to
    Consolidated Financial
    Statements  (Continued)
   Stock
    Based Compensation
      Reclassification
    2.
    NEW
    ACCOUNTING PRONOUNCEMENTS  Accounting
    Changes and New Accounting Standards Adopted
     47




---



##### Table of Contents



Notes to
    Consolidated Financial
    Statements  (Continued)
     Year Ended December 31,2005(a)


2004(a)As


Effect of


As


As


Effect of


AsReported


Change


Adjusted


Reported


Change


Adjusted(In millions, except per share data)Operating loss

$
(0.3
)

$
(37.2
)

$
(37.5
)

$
(18.2
)

$
(11.0
)

$
(29.2
)Income tax benefit

$
(16.6
)

$
(7.8
)

$
(24.4
)

$
(15.5
)

$
(1.7
)

$
(17.2
)Loss from continuing operations

$
(29.1
)

$
(29.4
)

$
(58.5
)

$
(40.8
)

$
(9.3
)

$
(50.1
)Earnings (loss) from discontinued
    operations, net of tax

$
(0.9
)

$
(0.5
)

$
(1.4
)

$
1.9


$
(1.3
)

$
0.6Net loss

$
(30.0
)

$
(29.9
)

$
(59.9
)

$
(38.9
)

$
(10.6
)

$
(49.5
)Per Basic and Diluted Share:Net loss attributable to common
    stockholders from continuing operations

$
(1.36
)

$
(0.93
)

$
(2.29
)

$
(1.68
)

$
(0.29
)

$
(1.97
)Net earnings (loss) attributable
    to common stockholders from discontinued operations

$
(0.04
)

$
(0.1
)

$
(0.05
)

$
0.07


$
(0.05
)

$
0.02Net loss attributable to common
    Stockholders

$
(1.40
)

$
(0.94
)

$
(2.34
)

$
(1.61
)

$
(0.34
)

$
(1.95
)     (a)
    
    Amounts have been revised to reflect effects of discontinued
    operations.    As


Effect of


AsAs of December 31, 2005

Reported


Change


Adjusted(In millions)Other assets, net

$
73.7


$
(22.2
)

$
51.5Deferred income taxes and other
    liabilities

$
(97.6
)

$
(10.4
)

$
(108.0
)Accumulated other comprehensive
    income (loss)

$
(11.3
)

$
33.5


$
22.2Retained earnings (Accumulated
    deficit)

$
4.6


$
(66.1
)

$
(61.5
)Total stockholders equity

$
349.4


$
(32.6
)

$
316.8        48




---



##### Table of Contents



Notes to
    Consolidated Financial
    Statements  (Continued)
      New
    Accounting Standards
         49




---



##### Table of Contents



Notes to
    Consolidated Financial
    Statements  (Continued)
   3.
    INVENTORIES    December 31,2006


2005(Adjusted)(In millions)Raw materials

$
54.9


$
60.8Finished and semi-finished goods


82.8



84.7Supplies


5.9



8.1$
143.6


$
153.6   4.
    JOHNSONVILLE
    FIBERS CLOSURE  ®
  (In millions)Impairment on asset disposals

$
13.6Impairment on assets
    held-for-sale


8.2Inventory write-downs


6.7Employee restructuring charges


3.9Miscellaneous


0.9$
33.3   held-for-sale ®
 50




---



##### Table of Contents



Notes to
    Consolidated Financial
    Statements  (Continued)
     EmployeeRestructuringCharges(In millions)Accrual during third quarter of
    2006

$
4.1Adjustments to initial accrual


(0.2
)Payments


(1.6
)Remaining accrual at
    December 31, 2006

$
2.3   5.
    ACCRUED
    LIABILITIES    December 31,2006


2005(In millions)Payroll, compensation, and benefits

$
8.5


$
10.7Interest


8.7



7.9Deferred taxes






2.6Accrued legal &
    professional accruals


6.7



6.3Property and other taxes


3.5



6.4Restructuring reserves


2.3



Other


9.1



10.5$
38.8


$
44.4     6.
    OTHER
    EXPENSE, NET    Year Ended December 31,2006


2005


2004(Adjusted)


(Adjusted)Actuarial (gains) losses for
    defined benefit plans

$
(22.2
)

$
41.4


$
12.4Legal and settlement costs






35.9



5.4Johnsonville fibers closure costs


33.3







Goodwill impairment


33.4







Hurricane Katrina costs, net


1.4



24.0



Non-capitalizable financing costs










40.2Costs (proceeds) relating to
    anti-dumping activities, net


(2.0
)


(3.7
)


(8.6
)$
43.9


$
97.6


$
49.4  51




---



##### Table of Contents



Notes to
    Consolidated Financial
    Statements  (Continued)
           52




---



##### Table of Contents



Notes to
    Consolidated Financial
    Statements  (Continued)
     Direct Damage to Plant
    Site 

Costs incurred to repair
    and/or
    restore all machinery, equipment, foundations, and buildings to
    their normal operating condition.Fixed Costs 

Salaries, wages, property
    insurance, electricity, and waste water treatment costs incurred
    during the shutdown period.Incremental freight
    costs 

Additional freight costs incurred
    above our normal freight expense, primarily due to the
    disruption in rail service.Infrastructure support 

Costs to maintain an adequate
    living environment for both our employees and contract workers
    starting with the initial repair period and continuing in order
    to maintain proper staffing levels to operate the plant.Inventory spoilage 

Costs representing the difference
    between the inventory cost at the time of the hurricane less the
    net realizable value of inventory that was damaged or spoiled as
    a result of the hurricane.Rail car damage 

Costs of repairing all of our
    leased rail cars that were damaged during the hurricane.Rail car leases 

Monthly lease cost related to the
    rail cars that were damaged and thus inoperable.     Costs incurred for the three month
    periods ended:September 30, 2005

$
7.4December 31, 2005


16.6March 31, 2006


5.7June 30, 2006


1.4September 30, 2006


0.9December 31, 2006


Hurricane Katrina cost incurred to
    date


32.0Less: Proceeds from claims


(6.6
)Hurricane Katrina cash costs, net
    excluding lost profits

$
25.4   1 2
       53




---



##### Table of Contents



Notes to
    Consolidated Financial
    Statements  (Continued)
  7.
    DISCONTINUED
    OPERATIONS      December 31,2006


2005(In millions)Assets held for sale:Accounts receivable

$



$
3.2Inventories






8.7Total current assets held for sale






11.9Property, plant and equipment, net






17.8Total asset held for
    sale

$



$
29.7Liabilities associated with assets
    held for sale:Accounts payable

$



$
4.1Accrued liabilities


10.7



1.3Total current liabilities
    associated with assets held for sale


10.7



5.4Non-current liabilities
    associated with assets held for sale






4.9Total liabilities associated
    with assets held for sale

$
10.7


$
10.3       Year Ended December 31,2006


2005


2004(In millions)Net sales

$
82.6


$
71.9


$
76.1Earnings (loss) from discontinued
    operations before income tax benefit

$
(3.2
)

$
(2.8
)

$
0.7Income tax benefit


(0.1
)


(1.4
)


(0.1
)Earnings (loss) from discontinued
    operations, net


(3.1
)


(1.4
)


0.6Estimated loss on disposal of
    business and impairment charge to record assets at fair value
    less costs of disposal


(26.5
)






Income tax benefit


(0.9
)






Loss on disposal of business and
    impairment loss to record assets at fair value less costs of
    disposal


(25.6
)






Net earnings (loss) from
    discontinued operations

$
(28.7
)

$
(1.4
)

$
0.6  54




---



##### Table of Contents



Notes to
    Consolidated Financial
    Statements  (Continued)
  8.
    RESTRUCTURING
    CHARGES        SeveranceCosts(In millions)Accrual balances at
    December 31, 2003

$
6.0Accruals during 2004


2.1Cash payments


(7.3
)Currency translation adjustments


Accrual balances at
    December 31, 2004


0.8Cash payments


(0.8
)Currency translation adjustments


Accrual balances at
    December 31, 2005

$
0.0   9.
    BORROWING
    ARRANGEMENTS    December 31,2006


2005(In millions)$225.0 Revolving Credit Facility

$
128.0


$
50.1$185.0 First Lien Term Loan


185.0



185.0$265.0 Second Lien Term Loan


262.2



261.420.0 European facility


2.4



Other


2.0



2.1Total debt


579.6



498.6Less current portion


0.3



0.2Total long-term debt

$
579.3


$
498.4  55




---



##### Table of Contents



Notes to
    Consolidated Financial
    Statements  (Continued)
    
    a $225.0 million Revolving Credit Facility, as amended on
    October 20, 2006 secured by our domestic accounts
    receivable, domestic inventory and other related intangibles
    that matures on May 4, 2011. While we do not expect the
    maturity to occur prior to this date, it could be accelerated by
    (a) not complying with the terms of our Debt Agreements;
    (b) not refinancing either of the Term Loans at least three
    months prior to their maturities in February 2009 and 2010, or
    (c) not repaying a significant portion of either of the
    Term Loans, concurrent with having at least $75.0 million
    in Average Excess Availability under our Revolving Credit
    Facility. Our borrowing capacity is principally based on our
    domestic accounts receivable and inventory, less outstanding
    letters of credit and any liability related to the termination
    of certain financial instruments, but cannot exceed
    $225.0 million. Pricing on the Revolving Credit Facility is
    based on our Average Excess Availability as defined in the
    Revolving Credit Facility and has interest rates of either LIBOR
    plus 1.25%-2.00% per annum (currently 1.75%) or the prime
    lending rate plus 0.25%-1.00% per annum (currently 0.75%),
    at our option on outstanding borrowings. Interest payments are
    due at the end of each borrowing period.
    a $185.0 million First Lien Term Loan that matures on
    February 10, 2009 and has an annual interest rate of
    three-month LIBOR plus 4.00% paid quarterly, and
    a $265.0 million Second Lien Term Loan that matures on
    February 10, 2010 and has an annual interest rate of
    three-month LIBOR plus 6.75% paid quarterly. The amounts
    outstanding are net of the unamortized portion of the original
    issue discount.             56




---



##### Table of Contents



Notes to
    Consolidated Financial
    Statements  (Continued)
              (In millions)Termination of Swap Agreements

$
14.4Pre-payment Penalties


13.9Write-Off of Debt Issuance Costs


6.6Other Expenses


5.3Non-Capitalizable Financing Costs

$
40.2  57




---



##### Table of Contents



Notes to
    Consolidated Financial
    Statements  (Continued)
  10.
    INCOME
    TAXES    Years Ended December 31,2006


2005


2004(Adjusted)


(Adjusted)(In millions)United States

$
(134.9
)

$
(64.0
)

$
(63.5
)Foreign


14.5



(18.9
)


(3.8
)$
(120.4
)

$
(82.9
)

$
(67.3
)     Years Ended December 31,2006


2005


2004(Adjusted)


(Adjusted)(In millions)Current:Federal

$



$



$
6.1State


0.1



0.1



Foreign


0.5



0.4



0.20.6



0.5



6.3Deferred:Federal


(36.7
)


(22.6
)


(22.5
)State


(1.6
)






Foreign


1.0



(2.3
)


(1.0
)(37.3
)


(24.9
)


(23.5
)$
(36.7
)

$
(24.4
)

$
(17.2
)     Years Ended December 31,2006


2005


2004(Adjusted)


(Adjusted)Computed at statutory rate


35.0
%


35.0
%


35.0
%State taxes, net of federal benefit


1.0



(0.1
)


Differences in income tax rates
    between the United States and foreign countries


3.0



(5.8
)


(0.8
)Repatriation of foreign earnings,
    American Jobs Creation Act of 2004










(9.0
)Goodwill


(9.7
)






Credits


0.9



0.3



0.9Other, net


0.3







(0.6
)Effective tax rate


30.5
%


29.4
%


25.5
%  58




---



##### Table of Contents



Notes to
    Consolidated Financial
    Statements  (Continued)
    December 31,2006


2005(Adjusted)(In millions)Depreciation

$
182.4


$
196.0Foreign


3.8



3.2Other


3.0



6.1Total deferred tax liabilities


189.2



205.3Foreign repatriation


20.3



20.3Other


9.3



9.1Total deferred liabilities


218.8



234.7Domestic carryforward


214.9



186.1Foreign carryforward


3.5



4.6Other


21.6



23.2Total deferred tax assets


240.0



213.9Valuation allowance


(29.4
)


(26.0
)Net deferred tax assets


210.6



187.9Net deferred liabilities

$
8.2


$
46.8       11.
    ENVIRONMENTAL
    MATTERS   59




---



##### Table of Contents



Notes to
    Consolidated Financial
    Statements  (Continued)
        2006


2005


2004(In millions)Balance at beginning of year

$
6.6


$
7.0


$
6.5Changes in remediation cost
    estimates


(1.3
)






0.8Expenditures


(0.2
)


(0.4
)


(0.3
)Balance at end of year

$
5.1


$
6.6


$
7.0       12.
    RETIREMENT
    PLANS         60




---



##### Table of Contents



Notes to
    Consolidated Financial
    Statements  (Continued)
          2006


2005(a)(In millions)Consolidated Balance
    Sheets:Non-current accrued benefit cost
    recognized on Consolidated Balance Sheets

$
34.1


$
52.1   2006


2005(a)


2004(a)Consolidated Statements of
    Operations:Net periodic pension cost
    (income)

$
(18.3
)

$
42.0


$
12.3     (a)
    
    Adjusted to reflect the change in accounting principle described
    above and discontinued operations.    Net Periodic Pension Costs,
  Projected Benefit Obligations (PBOs)
  Plan Assets
  Accumulated Benefit Obligations,
  Funded Status,
  Cash Flows,
  Recognition of Actuarial Gains and Losses
 61




---



##### Table of Contents



Notes to
    Consolidated Financial
    Statements  (Continued)
   I. Net
    Periodic Pension Costs
      2006


2005


2004Domestic


Foreign


Domestic


Foreign


Domestic


ForeignPlans


Plans


Plans


Plans(a)


Plans


Plans(a)Discount rate


5.00
%


4.00
%


5.75
%


5.00
%


6.25
%


5.50
%Expected return on plan assets


7.50
%


6.00
%


8.25
%


7.00
%


8.50
%


8.50
%Rate of compensation increase






3.75
%






3.00
%






3.00
%     (a)
    
    Adjusted to reflect discontinued operations.    2006


2005(a)


2004(a)Domestic


Foreign


Domestic


Foreign


Domestic


ForeignPlans


Plans


Plans


Plans


Plans


Plans(In millions)Service Cost

$
0.6


$
3.7


$
0.5


$
1.9


$
0.4


$
1.6Interest Cost


3.4



4.2



3.2



3.2



3.2



3.0Expected return on plan assets


(3.2
)


(4.8
)


(3.5
)


(4.6
)


(3.3
)


(5.2
)Actuarial (gain) loss


(2.6
)


(19.6
)


16.2



25.1



3.2



9.2Curtailment loss






















0.2Net periodic pension cost
    (income)

$
(1.8
)

$
(16.5
)

$
16.4


$
25.6


$
3.5


$
8.8     (a)
    
    Adjusted to reflect our voluntary charge in accounting principle
    for recognizing net actuarial gains and losses and revised to
    reflect discontinued operations.    Projected
    Benefit Obligations
    2006


2005Domestic


Foreign


Domestic


ForeignPlans


Plans


Plans


Plans(a)AssumptionsAverage weighted-average
    assumptions used to determine benefit obligations at
    December 31Discount rate


5.30
%


4.50
%


5.00
%


4.00
%Rate of compensation increases






3.75
%






3.75
%     (a)
    
    Adjusted to reflect discontinued operations. 62




---



##### Table of Contents



Notes to
    Consolidated Financial
    Statements  (Continued)
    2006


2005Domestic


Foreign


Domestic


ForeignPlans


Plans(a)


Plans


Plans(a)(In millions)Change in benefit
    obligation:Projected Benefit obligation at
    beginning of year

$
71.3


$
100.3


$
57.0


$
70.9Service cost


0.5



3.7



0.5



1.9Interest cost


3.4



4.2



3.2



3.3Actuarial loss (gain)


(1.4
)


(13.1
)


14.2



36.8Benefits paid


(3.8
)


(1.8
)


(3.6
)


(1.5
)Exchange gain (loss)






11.2







(11.1
)Projected Benefit obligation at
    end of year

$
70.0


$
104.5


$
71.3


$
100.3     (a)
    
    Revised to reflect discontinued operations.  III.  Plan Assets
    December 31, 2006


December 31, 2005Domestic Plans


Foreign Plans


Domestic Plans


Foreign Plans% of





% of





% of





% of(In millions)




Total





Total





Total





TotalEquity securities

$
29.6



63.0
%

$
72.8



78.0
%

$
27.1



61.7
%

$
58.2



77.0
%Debt securities


17.4



37.0



10.3



11.0



16.8



38.3



10.6



14.0Real estate










5.6



6.0











4.5



6.0Other










4.7



5.0











2.3



3.0Total

$
47.0



100.0
%

$
93.4



100.0
%

$
43.9



100.0
%

$
75.6



100.0
%   Investment
    Policies
      2006


2005Domestic


Foreign


Domestic


ForeignPlans


Plans(a)


Plans


Plans(a)(In millions)Change in plan
    assets:Fair value of plan assets at
    beginning of year

$
43.9


$
75.6


$
42.9


$
71.6Actual return on plan assets


4.4



9.2



1.5



13.2Contributions


2.5



1.3



3.1



2.1Benefits paid


(3.8
)


(1.8
)


(3.6
)


(1.5
)Exchange gain (loss)






9.1







(9.8
)Fair value of plan assets at
    end of year

$
47.0


$
93.4


$
43.9


$
75.6     (a)
    
    Revised to reflect discontinued operations. 63




---



##### Table of Contents



Notes to
    Consolidated Financial
    Statements  (Continued)
  IV. Funded
    Status
    2006


2005Domestic


Foreign


Domestic


ForeignPlans


Plans(a)


Plans


Plans(a)(In millions)Projected benefit obligation at
    end of year

$
70.0


$
104.5


$
71.3


$
100.3Fair value of plan assets at end
    of the year


47.0



93.4



43.9



75.6Funded status accrued at the
    end of the year

$
(23.0
)

$
(11.1
)

$
(27.4
)

$
(24.7
)     (a)
    
    Revised to reflect discontinued operations.  V.
    Accumulated
    Benefit Obligations    2006


2005Domestic


DomesticPlans


Plans(In millions)Information for pension plans
    with an accumulated
    benefit obligation in excess of plan assets:Projected benefit obligation

$
70.0


$
71.3Accumulated benefit obligation

$
70.0


$
71.3Fair value of plan assets

$
47.0


$
43.9   VI.  Cash
    Flows
  Contributions    Estimated
    Future Benefit Payments    Domestic


Foreign BenefitBenefit Payments


Payments(In millions)2007

$
4.4


$
1.92008

$
4.4


$
1.92009

$
4.4


$
2.02010

$
4.4


$
2.02011

$
4.4


$
2.1Years
    2012-2016

$
23.5


$
12.0  64




---



##### Table of Contents



Notes to
    Consolidated Financial
    Statements  (Continued)
  VII.
    Recognition
    of Actuarial Gains and Losses      13.
    STOCKHOLDERS
    EQUITY             65




---



##### Table of Contents



Notes to
    Consolidated Financial
    Statements  (Continued)
            66




---



##### Table of Contents



Notes to
    Consolidated Financial
    Statements  (Continued)
          2005


2004(In millions, except per share amounts)Net loss attributable to common
    stockholders, as reported

$
(74.1
)

$
(61.8
)Add: Stock-based employee
    compensation expense included in reported net loss, net of
    related tax effects






Deduct: Total stock-based employee
    compensation expense determined under fair value based method
    for all awards, net of related tax effects


(0.7
)


(0.2
)Pro forma net loss attributable to
    common stockholders

$
(74.8
)

$
(62.0
)Net loss attributable to common
    stockholders per share:Basic net loss per common share,
    as reported

$
(2.34
)

$
(1.95
)Basic net loss per common share,
    pro forma

$
(2.36
)

$
(1.96
)Diluted net loss per common share,
    as reported

$
(2.34
)

$
(1.95
)Diluted net loss per common share,
    pro forma

$
(2.36
)

$
(1.96
)  67




---



##### Table of Contents



Notes to
    Consolidated Financial
    Statements  (Continued)
    WeightedAverage PriceShares


per ShareOutstanding December 31, 2003


3,848,928


$
16.66Granted


8,000



8.02Exercised


(17,600
)


9.64Cancelled/Forfeited


(1,010,310
)


17.65Outstanding December 31, 2004


2,829,018



16.33Exercised


(22,880
)


9.66Cancelled/Forfeited


(214,880
)


26.38Outstanding December 31, 2005


2,591,258



15.55Cancelled/Forfeited


(246,570
)


21.58Outstanding December 31, 2006


(2,344,688
)

$
14.92     Range of exercise prices

$
8.02-$15.24


$
16.61-$18.94Number outstanding at
    December 31, 2006


958,690



1,385,998Weighted-average remaining
    contractual life


5.7



3.4Weighted-average exercise price of
    options outstanding

$
11.33


$
17.40Number exercisable at
    December 31, 2006


958,690



1,385,998Weighted-average exercise price of
    options exercisable

$
11.33


$
17.40   10-year
   68




---



##### Table of Contents



Notes to
    Consolidated Financial
    Statements  (Continued)
   14.
    NET LOSS
    ATTRIBUTABLE TO COMMON STOCKHOLDERS PER COMMON SHARE    2006


2005(a)


2004(a)(In millions)Numerator for basic and diluted
    net earnings (loss) attributable to common stockholders per
    common share:Loss from continuing operations

$
(83.7
)

$
(58.5
)

$
(50.1
)Accretion(b)


(14.4
)


(14.2
)


(12.3
)Net loss attributable to common
    stockholders from continuing operations


(98.1
)


(72.7
)


(62.4
)Net earnings (loss) attributable
    to common stockholders from discontinued operations


(28.7
)


(1.4
)


0.6Net loss attributable to common
    stockholders

$
(126.8
)

$
(74.1
)

$
(61.8
)Denominator:Denominator for basic net loss
    attributable to common stockholders per common share 
    weighted-average shares


31.9



31.7



31.6Effect of dilutive securities:Employee stock options and
    restricted stock










Preferred stock  if
    converted(c)










Denominator for diluted net loss
    attributable to common stockholders per common share 
    adjusted weighted-average shares


31.9



31.7



31.6     (a)
    
    These amounts reflect our change in accounting principle in the
    first quarter of 2006 and discontinued operations. For
    additional information on the accounting change and discontinued
    operations, see Notes 2 and 7, respectively.(b)
    
    Accretion is recorded based on the fair market value of the
    increase in the liquidation preference of the preferred stock.
    The 2005 amount included $0.9 million primarily recorded in
    the first quarter of 2005 which was the amount that the fair
    market value of the accretion exceeded the book value of the
    accretion based on the value of the underlying stock.(c)
    
    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 13.  15.
    COMMITMENTS
    AND CONTINGENCIES       69




---



##### Table of Contents



Notes to
    Consolidated Financial
    Statements  (Continued)
          For the Year EndedDecember 31,2006


2005(In millions)Balance at beginning of period

$
4.9


$
1.0Additional accruals






35.9Expenditures


(1.3
)


(32.0
)Balance at end of period

$
3.6


$
4.9           16.
    DERIVATIVES
    AND FINANCIAL INSTRUMENTS   70




---



##### Table of Contents



Notes to
    Consolidated Financial
    Statements  (Continued)
         Concentration
    of Credit Risk
    Fair
    Value of Financial Instruments
           71




---



##### Table of Contents



Notes to
    Consolidated Financial
    Statements  (Continued)
     2006


2005(a)Carrying





CarryingAmount


Fair Value


Amount


Fair Value(In millions)NonderivativesCash and cash equivalents

$



$



$



$
Accounts receivable


190.7



190.7



157.2



157.2Accounts payable


95.2



95.2



98.4



98.4Borrowing arrangements


579.7



532.9



498.6



510.1Derivatives  receive
    (pay):Cash flow hedges


0.2



0.2



(0.2
)


(0.2
)     (a)
    
    Amounts adjusted to reflect discontinued operations.  17.
    OPERATING
    SEGMENT AND GEOGRAPHIC AREAS  ® ® ® ® ® ®
          72




---



##### Table of Contents



Notes to
    Consolidated Financial
    Statements  (Continued)
  Fibers andPackaging


RecycledProducts


ProductsGroup


Group


Total(In millions)2006Net Sales

$
765.6


$
566.4


$
1,332.0Segment loss

$
(8.3
)

$
(8.3
)

$
(16.6
)Assets

$
690.6


$
255.4


$
946.0Amortization and depreciation from
    continuing operations

$
43.5


$
24.7


$
68.2Capital expenditures for
    continuing operations

$
21.3


$
7.7


$
29.02005(a)Net Sales

$
710.1


$
595.5


$
1,305.6Segment profit

$
52.1


$
9.1


$
61.2Assets

$
674.7


$
289.6


$
964.3Amortization and depreciation from
    continuing operations

$
39.1


$
27.3


$
66.4Capital expenditures for
    continuing operations

$
38.3


$
11.1


$
49.42004(a)Net Sales

$
671.8


$
557.1


$
1,228.9Segment profit (loss)

$
28.0


$
(5.3
)

$
22.7Assets

$
736.9


$
303.1


$
1,040.0Amortization and depreciation from
    continuing operations

$
41.7


$
26.4


$
68.1Capital expenditures for
    continuing operations

$
8.8


$
5.7


$
14.5     (a)
    
    Reflects our change in accounting principle (See
    Note 2) and discontinued operations (See Note 7).    2006


2005


2004(In millions)Segment Profit (Loss)Total for reportable segments

$
(16.6
)

$
61.2


$
22.7Restructuring Charges


(1.5
)


(0.6
)


(1.8
)Provision for uncollectible
    accounts


(0.4
)


(0.5
)


(0.7
)Other income (expense), net


43.9



(97.6
)


(49.4
)Interest expense, net


(58.0
)


(45.4
)


(38.1
)Loss from continuing operations
    before income taxes

$
(120.4
)

$
(82.9
)

$
(67.3
)AssetsTotal for reportable segments

$
946.0


$
964.3


$
1,040.0Corporate assets(1)


47.3



112.2



97.4Total Assets

$
993.3


$
1,076.5


$
1,137.4     (1)
    
    Corporate assets include cash, prepaid expenses, construction in
    progress and certain other assets not allocated to the segments. 73




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##### Table of Contents



Notes to
    Consolidated Financial
    Statements  (Continued)
     2006(a)


2005(a)


2004(a)(In millions)Net salesU.S.

$
1,208.3


$
1,179.8


$
1,104.6Europe


123.7



125.8



124.3$
1,332.0


$
1,305.6


$
1,228.9Operating income (loss)U.S.

$
(77.5
)

$
(18.6
)

$
(24.5
)Europe


15.1



(18.9
)


(4.8
)$
(62.4
)

$
(37.5
)

$
(29.2
)Long-lived assetsU.S.

$
557.2


$
587.4


$
587.9Europe


32.2



31.3



34.6$
589.4


$
618.7


$
622.5     (a)
    
    Revenues are attributed to geographic areas based on the
    location where the products were produced. Amounts for
    2005 & 2004 adjusted to reflect our change in
    accounting principle for amortizing actuarial gains and losses
    related to our defined benefit plans and revised for
    discontinued operations. 74




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##### Table of Contents



Notes to
    Consolidated Financial
    Statements  (Continued)
   18.
    QUARTERLY
    FINANCIAL DATA (UNAUDITED)    March 31,


June 30,


Sept. 30,


Dec. 31,


Total2006


2006


2006


2006


2006(In millions, except per share data)Income Statement Data:Net sales

$
326.0


$
345.2


$
336.3


$
324.5


$
1,332.0Cost of sales


316.6



331.3



327.5



318.0



1,293.4Gross profit


9.4



13.9



8.8



6.5



38.6Selling, general and
    administrative expenses


13.9



13.0



14.0



14.3



55.2Restructuring charges(2)


0.4



1.1











1.5Provision for uncollectible
    accounts


0.1











0.3



0.4Other expense, net(3)


6.1



1.1



35.2



1.5



43.9Operating loss


(11.1
)


(1.3
)


(40.4
)


(9.6
)


(62.4
)Interest expense, net


12.6



14.0



15.9



15.5



58.0Loss before from continuing
    operations before Income tax benefit


(23.7
)


(15.3
)


(56.3
)


(25.1
)


(120.4
)Income tax benefit


(8.2
)


(4.4
)


(20.8
)


(3.3
)


(36.7
)Loss from continuing operations


(15.5
)


(10.9
)


(35.5
)


(21.8
)


(83.7
)Loss from discontinued operations,
    net of income taxes (benefit)


(0.5
)


(0.8
)


(0.1
)


(27.3
)


(28.7
)Net loss

$
(16.0
)

$
(11.7
)

$
(35.6
)

$
(49.1
)

$
(112.4
)Net loss attributable to common
    stockholders:Net loss

$
(16.0
)

$
(11.7
)

$
(35.6
)

$
(49.1
)

$
(112.4
)Accretion


(3.4
)


(3.6
)


(3.6
)


(3.8
)


(14.4
)Net loss attributable to common
    stockholders

$
(19.4
)

$
(15.3
)

$
(39.2
)

$
(52.9
)

$
(126.8
)Basic and diluted net loss per
    common share:Net loss attributable to common
    stockholders from continuing operations(4)

$
(0.59
)

$
(0.46
)

$
(1.22
)

$
(0.80
)

$
(3.07
)Net loss attributable to common
    stockholders from discontinued operations(4)


(0.02
)


(0.02
)


(0.00
)


(0.85
)


(0.90
)Net loss attributable to common
    stockholders(4)

$
(0.61
)

$
(0.48
)

$
(1.22
)

$
(1.65
)

$
(3.97
)Basic and diluted weighted-average
    common shares outstanding


31.8



31.9



32.0



32.0



31.9   75




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##### Table of Contents



Notes to
    Consolidated Financial
    Statements  (Continued)
  March 31,


June 30,


Sept. 30,


Dec. 31,


Total2005(1)


2005(1)


2005(1)


2005(1)


2005(In millions, except per share data)Income Statement Data:Net sales

$
366.6


$
328.3


$
323.4


$
287.3


$
1,305.6Cost of sales


321.4



309.0



290.5



265.0



1,185.9Gross profit


45.2



19.3



32.9



22.3



119.7Selling, general and
    administrative expenses


16.9



12.4



13.6



15.6



58.5Restructuring charges(2)






0.6











0.6Provision for uncollectible
    accounts










0.4



0.1



0.5Other expense, net(3)


1.8



26.0



15.3



54.5



97.6Operating income (loss)


26.5



(19.7
)


3.6



(47.9
)


(37.5
)Interest expense, net


10.4



11.2



11.6



12.2



45.4Earnings (loss) from continuing
    operations before income taxes (benefit)


16.1



(30.9
)


(8.0
)


(60.1
)


(82.9
)Income tax expense (benefit)


4.2



(9.5
)


(2.8
)


(16.3
)


(24.4
)Earnings (loss) from continuing
    operations


11.9



(21.4
)


(5.2
)


(43.8
)


(58.5
)Loss from discontinued operations,
    net of income taxes (benefit)


(0.3
)


(0.5
)


(0.4
)


(0.2
)


(1.4
)Net earnings (loss)

$
11.6


$
(21.9
)

$
(5.6
)

$
(44.0
)

$
(59.9
)Net earnings (loss) attributable
    to common stockholders:Net earnings (loss)

$
11.6


$
(21.9
)

$
(5.6
)

$
(44.0
)

$
(59.9
)Accretion


(4.0
)


(3.4
)


(3.4
)


(3.4
)


(14.2
)Net earnings (loss) attributable
    to common stockholders

$
7.6


$
(25.3
)

$
(9.0
)

$
(47.4
)

$
(74.1
)Basic net earnings (loss) per
    common share:Net earnings (loss) attributable
    to common stockholders from continuing operations(4)

$
0.25


$
(0.78
)

$
(0.27
)

$
(1.49
)

$
(2.29
)Net loss attributable to common
    stockholders from discontinued operations(4)


(0.01
)


(0.02
)


(0.01
)


(0.01
)


(0.05
)Net loss attributable to common
    stockholders(4)

$
0.24


$
(0.80
)

$
(0.28
)

$
(1.50
)

$
(2.34
)Basic weighted-average common
    shares outstanding


31.7



31.7



31.7



31.7



31.7Diluted net earnings (loss) per
    common share:Net earnings (loss) attributable
    to common stockholders from continuing operations(4)

$
0.22


$
(0.78
)

$
(0.27
)

$
(1.49
)

$
(2.29
)Net loss attributable to common
    stockholders from discontinued operations(4)


0.00



(0.02
)


(0.01
)


(0.01
)


(0.05
)Net loss attributable to common
    stockholders(4)

$
0.22


$
(0.80
)

$
(0.28
)

$
(1.50
)

$
(2.34
)Diluted weighted-average common
    shares outstanding


53.8



31.7



31.7



31.7



31.7     (1)
    
    Certain amounts have been have been adjusted to reflect our
    voluntary change in accounting principle for recognizing net
    actuarial gains and losses related to our defined benefit plans
    and revised to reflect discontinued 76




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##### Table of Contents



Notes to
    Consolidated Financial
    Statements  (Continued)
  operations. For additional information on accounting changes,
    see Note 2. For additional information on discontinued
    operations, see Note 7.(2)
    
    Quarterly net earnings (loss) include restructuring charges. For
    additional information on restructuring charges, see Note 8.(3)
    
    Other expense, net consisted of the following amounts for the
    periods indicated:  March 31,


June 30,


Sept. 30,


Dec. 31,


Total2006


2006


2006


2006


2006(In millions)Johnsonville fibers closure costs
    (See Note 4)

$



$



$
34.1


$
(0.8
)

$
33.3Goodwill impairment














33.4



33.4Hurricane Katrina costs, net (See
    Note 6)


5.7



1.4



0.9



(6.6
)


1.4Actuarial gains for defined
    benefit plans (See Notes 2 and 12)














(22.2
)


(22.2
)Costs (proceeds) relating to
    anti-dumping activities, net


0.4



(0.3
)


0.2



(2.3
)


(2.0
)$
6.1


$
1.1


$
35.2


$
1.5


$
43.9   March 31,


June 30,


Sept. 30,


Dec. 31,


Total2005


2005


2005


2005


2005(In millions)Legal and settlement costs (See
    Note 6)

$
1.8


$
26.1


$
8.0


$



$
35.9Hurricane Katrina costs, net (See
    Note 6)










7.4



16.6



24.0Actuarial losses for defined
    benefit plans (See Notes 2 and 12)














41.4



41.4Costs (proceeds) relating to
    anti-dumping activities, net






(0.1
)


(0.1
)


(3.5
)


(3.7
)$
1.8


$
26.0


$
15.3


$
54.5


$
97.6   (4)
    
    Based on the requirements of SFAS No. 128,
    Earnings Per Share, to calculate the quarterly
    earnings (loss) per share independently of the annual earnings
    (loss) per share, the sum of the four quarters earnings
    (loss) per share will not necessarily equal the annual earnings
    (loss) per share. 77




---



##### Table of Contents



Notes to
    Consolidated Financial
    Statements  (Continued)
  19.
    SUBSEQUENT
    EVENT      
    PermaClear®,
    PermaClear
    HP®,
    and Thermaclear
    Ti®
    solid-stated PET resin from chemical-based raw materials for use
    in the manufacturing of plastic beverage bottles and other food
    packaging and
    Fortrel®
    chemical-based polyester staple fiber for use in non-woven, home
    furnishing, and industrial products.    
    Wellamid®
    and Wellamid
    Ecolon®
    recycled-based nylon engineering resin in the U.S. for use in
    the injection molding industry and
    Recycled-based polyester staple fiber in Europe under the trade
    names of
    Wellbond®,
    Wellene®,
    and
    Fillwell®
    for use in non-woven, home furnishing, and industrial products. 78




---



##### Table of Contents



REPORT OF
    INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
              
    79




---



##### Table of Contents



SCHEDULE II
  VALUATION
    AND QUALIFYING ACCOUNTS
 Years
    Ended December 31, 2006, 2005 and 2004
  Balance at


Charged toBeginning of


Costs and








Balance atDescription

Year


Expenses


Other


Deductions


End of Year(In millions)Allowance for doubtful accounts
    Receivable:Year ended December 31, 2006

$
2.1


$
0.4


$
0.2


$
0.5
(b)

$
2.2Year ended December 31,
    2005(a)

$
2.6


$
0.5


$



$
1.0
(b)

$
2.1Year ended December 31,
    2004(a)

$
3.8


$
0.7


$
(0.2
)

$
1.7
(b)

$
2.6     (a)
    
    Revised to reflect discontinued operations. For additional
    information on discontinued operations, see Note 7 to the
    Consolidated Financial Statements.(b)
    
    Accounts written off and reduction of allowance. 80




---



##### Table of Contents



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. Rules 13a-15(f) 15d-15(f).
    Item 9B.
    Other
    Information   81




---



##### Table of Contents



REPORT OF
    INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
    ON MANAGEMENTS ASSESSMENT AND THE EFFECTIVENESS OF
    INTERNAL CONTROL
    OVER FINANCIAL REPORTING
    Form 10-K,
       82




---



##### Table of Contents



83




---



##### Table of Contents



PART III
  Item 10.
    Directors
    and Executive Officers of the Registrant    Item 11.
    Executive
    Compensation  Regulation S-K.
  Item 12.
    Security
    Ownership of Certain Beneficial Owners and Management and
    Related Stockholder Matters    Item 13.
    Certain
    Relationships and Related Transactions  Regulation S-K.
  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 
    Exhibits 
  Regulation S-K,
 84




---



##### Table of Contents



ExhibitNumber

Description3
.1

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
.2

Restated By-Laws, as of
    August 14, 2001 (Exhibit 3.2 of the Companys
    Form 10-K
    for the year ended December 31, 2005, incorporated by
    reference herein)4
.1

Amended and Restated Credit
    agreement dated as of May 4, 2006, between Wellman, Inc.
    and Deutsche Bank Trust Company Americas as administrative agent
    and collateral agent, Deutsche Bank Securities Inc., as lead
    arranger and bookrunner; JP Morgan Chase Bank, N.A. as
    syndication agent; and General Electric Capital Corporation,
    LaSalle Business Credit, LLC, and Wachovia Capital Finance as
    co-documentation
    agents (Exhibit 4.1 of the Companys
    Form 10-Q
    for the quarter ended March 31, 2006 incorporated by
    reference herein)4
.2

First Amendment to the Amended and
    Restated Credit Agreement, dated October 20, 2006, between
    Wellman, Inc. and Deutsche Bank Trust Company Americas as
    administrative agent and collateral agent (Exhibit 99.1 of
    the Companys
    Form 8-K
    filed on October 26, 2006 incorporated by reference herein)4
.3

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
.4

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
.5

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
.6

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
.7

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
.8

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
.9

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 Arrangements10
.1

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
.2

Wellman, Inc. Third Amended and
    Restated Management Incentive Compensation Plan for the
    Executive Group (Exhibit 10(h) to the Companys
    Form 10-K
    for the year ended December 31, 2004, incorporated by
    reference herein)10
.3

Wellman, Inc. Life Insurance Plan
    for Designated Employees (Exhibit 10.3 of the
    Companys
    Form 10-K
    for the year ended December 31, 2005)10
.4

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) 85




---



##### Table of Contents



ExhibitNumber

Description10
.5

Wellman, Inc. Deferred
    Compensation and Restricted Stock Plan, effective as of
    February 17, 1998 and as amended as of December 1,
    1998 and December 31, 2002 and December 31, 2004
    (Exhibit 10.5 of the Companys
    Form 10-K
    for the year ended December 31, 2005, incorporated by
    reference herein)10
.6

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
.7

Employment Agreement dated as of
    March 14, 2005 between the Company and Thomas M. Duff
    (Exhibit 10(a) to the Companys
    Form 10-K
    for the year ended December 31, 2004, incorporated by
    reference herein)10
.8

Employment Agreement dated as of
    March 14, 2005 between the Company and Keith R. Phillips
    (Exhibit 10(b) to the Companys
    Form 10-K
    for the year ended December 31, 2004, incorporated by
    reference herein)10
.9

Employment Agreement dated as of
    March 14, 2005 between the Company and Joseph C. Tucker
    (Exhibit 10(c) to the Companys
    Form 10-K
    for the year ended December 31, 2004, incorporated by
    reference herein)10
.10

Employment Agreement dated as of
    March 14, 2005 between the Company and Audrey L. Goodman
    (Exhibit 10(e) to the Companys
    Form 10-K
    for the year ended December 31, 2004, incorporated by
    reference herein)10
.11

Employment Agreement dated as of
    March 14, 2005 between the Company and Mark J. Ruday
    (Exhibit 10(f) to the Companys
    Form 10-K
    for the year ended December 31, 2004, incorporated by
    reference herein)10
.12

Wellman, Inc. 2004 Restricted
    Stock Grant Agreement, effective July 1, 2004, between the
    Company and Thomas M. Duff (Exhibit 10(m) to the
    Companys
    Form 10-K
    for the year ended December 31, 2004, incorporated by
    reference herein)10
.13

Wellman, Inc. 2004 Restricted
    Stock Grant Agreement, effective July 1, 2004, between the
    Company and Keith R. Phillips (Exhibit 10(n) to the
    Companys
    Form 10-K
    for the year ended December 31, 2004, incorporated by
    reference herein)10
.14

Wellman, Inc. 2004 Restricted
    Stock Grant Agreement, effective July 1, 2004, between the
    Company and Joseph C. Tucker (Exhibit 10(o) to the
    Companys
    Form 10-K
    for the year ended December 31, 2004, incorporated by
    reference herein)10
.15

Wellman, Inc. 2004 Restricted
    Stock Grant Agreement, effective July 1, 2004, between the
    Company and Audrey L. Goodman (Exhibit 10(q) to the
    Companys
    Form 10-K
    for the year ended December 31, 2004, incorporated by
    reference herein)10
.16

Wellman, Inc. 2004 Restricted
    Stock Grant Agreement, effective July 1, 2004, between the
    Company and Mark J. Ruday (Exhibit 10(r) to the
    Companys
    Form 10-K
    for the year ended December 31, 2004, incorporated by
    reference herein)10
.17

Wellman, Inc. 2005 Restricted
    Stock Grant Agreement, effective March 14, 2005, between
    the Company and Thomas M. Duff (Exhibit 10(s) to the
    Companys
    Form 10-K
    for the year ended December 31, 2004, incorporated by
    reference herein)10
.18

Wellman, Inc. 2005 Restricted
    Stock Grant Agreement, effective March 14, 2005, between
    the Company and Keith R. Phillips (Exhibit 10(t) to the
    Companys
    Form 10-K
    for the year ended December 31, 2004, incorporated by
    reference herein)10
.19

Wellman, Inc. 2005 Restricted
    Stock Grant Agreement, effective March 14, 2005, between
    the Company and Joseph C. Tucker (Exhibit 10(u) to the
    Companys
    Form 10-K
    for the year ended December 31, 2004, incorporated by
    reference herein)10
.20

Wellman, Inc. 2005 Restricted
    Stock Grant Agreement, effective March 14, 2005, between
    the Company and Audrey L. Goodman (Exhibit 10(w) to the
    Companys
    Form 10-K
    for the year ended December 31, 2004, incorporated by
    reference herein)10
.21

Wellman, Inc. 2005 Restricted
    Stock Grant Agreement, effective March 14, 2005, between
    the Company and Mark J. Ruday (Exhibit 10(x) to the
    Companys
    Form 10-K
    for the year ended December 31, 2004, incorporated by
    reference herein) 86




---



##### Table of Contents



ExhibitNumber

Description10
.22

Wellman, Inc. 2006 Restricted
    Stock Grant Agreement, effective January 13, 2006, between
    the Company and Thomas M. Duff (Exhibit 10.25 to the
    Companys
    Form 10-K
    for the year ended December 31, 2005, incorporated by
    reference herein)10
.23

Wellman, Inc. 2006 Restricted
    Stock Grant Agreement, effective January 13, 2006, between
    the Company and Keith R. Phillips (Exhibit 10.26 to the
    Companys
    Form 10-K
    for the year ended December 31, 2005, incorporated by
    reference herein)10
.24

Wellman, Inc. 2006 Restricted
    Stock Grant Agreement, effective January 13, 2006, between
    the Company and Joseph C. Tucker (Exhibit 10.27 to the
    Companys
    Form 10-K
    for the year ended December 31, 2005, incorporated by
    reference herein)10
.25

Wellman, Inc. 2006 Restricted
    Stock Grant Agreement, effective January 13, 2006, between
    the Company and Audrey L. Goodman (Exhibit 10.29 to the
    Companys
    Form 10-K
    for the year ended December 31, 2005, incorporated by
    reference herein)10
.26

Wellman, Inc. 2006 Restricted
    Stock Grant Agreement, effective January 13, 2006, between
    the Company and Mark J. Ruday (Exhibit 10.30 to the
    Companys
    Form 10-K
    for the year ended December 31, 2005, incorporated by
    reference herein)Other Material
    Agreements10
.27

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)18


Preferability Letter from
    Ernst & Young LLP regarding change in accounting
    principle (Exhibit 18 of the Companys
    Form 10-Q
    for the quarter ended March 31, 2006, incorporated by
    reference herein)21


Subsidiaries23
.1

Consent of Ernst & Young
    LLP23
.2

Consent of KPMG Chartered
    Accountants, Dublin, Ireland31
.1

Certification of the Chief
    Executive Officer pursuant to Section 302 of the
    Sarbanes-Oxley Act of 200231
.2

Certification of the Chief
    Financial Officer pursuant to Section 302 of the
    Sarbanes-Oxley Act of 200232
.1

Certification of the Chief
    Executive Officer pursuant to Section 906 of the
    Sarbanes-Oxley Act of 200232
.2

Certification of the Chief
    Financial Officer pursuant to Section 906 of the
    Sarbanes-Oxley Act of 200299
.1

Report of KPMG on the Consolidated
    Financial Statements of Wellman International Limited99
.2

Report of KPMG on
    Managements Assessment and the Effectiveness of Internal
    Control over Financial Reporting for Wellman International
    Limited  87




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##### Table of Contents



SIGNATURES
      
       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/  Richard
    F. HeitmillerRichard
    F. Heitmiller

Director/s/  Kevin
    KruseKevin
    Kruse

Director/s/  David
    J. McKittrickDavid
    J. McKittrick

Director/s/  James
    E. RogersJames
    E. Rogers

Director/s/  Roger
    A. VandenbergRoger
    A. Vandenberg

Director  88