FORWARD-LOOKING INFORMATION
Statements contained in this Form 10-Q that are not historical facts are forward-looking statements made pursuant to the safe harbor provisions of the Private Securities Litigation Reform Act of 1995. In addition, words such as "believes," "expects," "anticipates," and similar expressions are intended to identify forward-looking statements. These statements are made as of the date of this report based upon current expectations, and we undertake no obligation to update this information. These forward-looking statements involve certain risks and uncertainties, including, but not limited to: our substantial liquidity needs and liquidity pressure; our indebtedness and its impact on our financial health and operations; risks associated with our indebtedness containing floating interest rate provisions and its effect on our financial health if rates rise significantly; liquidity issue associated with increased funding related to our defined benefit plans; our ability to obtain additional financing in the future; risks associated with claims not discharged in the Chapter 11 Cases and their effect on our results of operations and profitability; risks associated with the transfers of our equity, or issuances of equity in connection with our reorganization and our ability to utilize our federal income tax net operating loss carry-forwards in the future; our dependence on and change in our management and employees; the adverse effect of competition on our performance; reduced raw material margins; availability and cost of raw materials; reduced sales volumes; increase in costs; prices and volumes of PET resin imports; the financial condition of our customers; change in tax risks; environmental risks; natural disasters; regulatory changes; U.S., European, Asian and global economic conditions; work stoppages; levels of production capacity and profitable operations of assets; prices of competing products; acts of terrorism; and maintaining the operations of our existing production facility. Actual results may differ materially from those expressed herein. Results of operations in any past period should not be considered indicative of results to be expected in future periods. Fluctuations in operating results may result in fluctuations in the price of our common stock.
For a more complete description of the prominent risks and uncertainties inherent in our business described above, see our Form 10-K for the year ended December 31, 2007.
RECENT DEVELOPMENTS
Proceedings Under Chapter 11 of the Bankruptcy Code On February 22, 2008, Wellman, Inc. and certain of its subsidiaries (collectively, the "Debtors") listed in the following table filed voluntary petitions in the United States Bankruptcy Court for the Southern District of New York (the "Bankruptcy Court") seeking reorganization relief under the provisions of Chapter 11 of Title 11 of the United States Code (the "Bankruptcy Code"):

Wellman, Inc.
Fiber Industries, Inc.
Wellman of Mississippi, Inc.
PTA Resources LLC
Prince, Inc.
ALG, Inc.
Wellman Fibres Ltd.
MRF, Inc.
Warehouse Associates Inc.
MED Resins, Inc.
Carpet Recycling of Georgia, Inc.
Josdav, Inc.
The Chapter 11 Cases are being jointly administered under the caption In re Wellman, Inc., et al., Case No. 08-10595 (SMB) (the "Chapter 11 Cases"). The Debtors will continue to operate their businesses and manage their properties as Debtors-in-possession under the jurisdiction of the Bankruptcy Court and in accordance with the applicable provisions of the Bankruptcy Code and orders of the Bankruptcy Court.
We operate largely in a commodities industry. Our financial results are determined largely by sales volume and raw material margins (i.e., the difference between the net selling price of our products and raw material costs related to manufacturing our products). Four main factors determine our margins:
raw material availability and pricing; competition; capacity utilization; and customer demand. Adverse trends in each of these factors over the past few years have impaired our profitability. This, together with the significant damage and lost profits caused by hurricane Katrina, the recent alleged infringement of our new patented technology related to our PET resin business, and certain unexpected cash outlays, has reduced our financial resources. After these events we did not have the ability to withstand unexpected raw material disruptions and diminished customer demand. The combination of these events triggered a liquidity crisis for us and we were not able to support our debt load. This necessitated the commencement of proceedings under Chapter 11 of the Bankruptcy Code.
In connection with the Chapter 11 Cases, the Debtors filed a motion seeking Bankruptcy Court approval of a senior secured superpriority debtor-in-possession credit agreement (the "DIP Credit Agreement") among Wellman, Inc. and certain of its domestic subsidiaries, as borrowers, Deutsche Bank Securities Inc., as sole lead arranger and bookrunner, Deutsche Bank Trust Company Americas, as administrative agent and collateral agent, and the lenders that from time to time become party thereto. On April 7, 2008, the Bankruptcy Court for the Southern District of New York entered an order (the "Final DIP Order") approving the DIP Credit Agreement and authorizing the Debtors to use cash collateral and to grant adequate protection to its pre-petition secured lenders. Pre-petition secured lenders include lenders holding the outstanding debt under our $185.0 million first lien secured term loan (the "First Lienholders") and lenders holding the outstanding debt under our $265.0 million secured term loan (the "Second Lienholders"). Pursuant to the terms of the Final DIP Order, the First Lienholders and the Second Lienholders were provided with replacement liens on certain collateral to protect these secured lenders from any diminution in value of their collateral from the commencement of these Chapter 11 Cases.
Specifically, the First Lienholders were provided with replacement liens on all pre-petition and post-petition property that would constitute collateral under the first lien secured term loan. In turn, the Second Lienholders were provided with second priority replacement liens on the DIP Credit Agreement collateral and the First Lien collateral.

The proceeds of the loans under the DIP Credit Agreement will be used to, among other things, provide the Debtors with working capital. The DIP Credit Agreement contains certain financial covenants, other covenants and events of default. For additional information on the DIP Credit Agreement, see "Capital Resources and Liquidity" below.
The Bankruptcy Court has approved payment of certain of the Debtors' pre-petition obligations, including, among other things, employee wages, salaries and benefits, and other business-related payments necessary to maintain the operation of our businesses. The Debtors have retained, with Bankruptcy Court approval, legal and financial professionals to advise the Debtors on the bankruptcy proceedings and certain other "ordinary course" professionals. From time to time, the Debtors may seek Bankruptcy Court approval for the retention of additional professionals.
Subsequent to quarter end, we obtained amendments to our DIP Credit Agreement, providing us longer time periods to accomplish certain milestones related to our plan of reorganization. Based on the amendments, we are required to:
• Provide an acceptable executed backstop agreement to a rights offering which provides $90 million in proceeds to the Debtors as part a Plan of Reorganization by November 25, 2008;

• Have the Plan of Reorganization confirmed by December 16, 2008; and

• Consummate the Plan of Reorganization by December 31, 2008.

On October 22, 2008, we announced that we have completed the sale of the remaining assets of our recycled-based segment, located in Johnsonville, S.C.
On November 10, 2008, we filed our third amended Plan of Reorganization and Disclosure Statement, and the Disclosure Statement was approved by the Bankruptcy Court on November 12, 2008. The plan of reorganization is expected to allow us to emerge from bankruptcy by the end of the year with a stronger balance sheet, focused on our North American PET resins business. As part of the plan of reorganization, we will exit our polyester staple fiber and engineering resins businesses and consolidate our PET resin production at our Pearl River facility in Hancock County, Mississippi. The plan of reorganization also includes closing our Palmetto Plant in Darlington, S.C. and our corporate headquarters in Fort Mill, S.C. A copy of the plan of reorganization may be accessed at the following Internet website: http://www.kccllc.net/Wellman.
Under the terms of the amended Plan of Reorganization, holders of our common and preferred stock will receive no consideration.
GENERAL
Our operations are grouped into two reportable operating segments: a chemical-based segment and a recycled-based segment.
Our chemical-based segment is principally engaged in the manufacturing and marketing of high-quality PermaClear® polyethylene terephthalate ("PET") packaging resin and Fortrel® polyester staple fiber. This segment has stated annual operating capacity to manufacture approximately 1.9 billion pounds of polyester, consisting of 1.4 billion pounds of solid-stated PET resin and 0.5 billion pounds of polyester staple fiber. These products, which are produced from purified terephtalic acid ("PTA") and monoethylene glycol ("MEG") feedstocks, are manufactured at two major production facilities in the United States.

Our recycled-based segment is principally engaged in the manufacturing and marketing of Wellamid® and Wellamid Ecolon® recycled-based nylon engineering resin for use in the injection molding industry. This segment has stated annual operating capacity to manufacture approximately 70 million pounds of compounded resin at our Johnsonville, S.C. facility. On October 22, 2008, we announced that we have completed the sale of the remaining assets of our recycled-based segment, located in Johnsonville, S.C. For additional information on the sale, see Note 13 to the Condensed Consolidated Financial Statements.
After the closing of our Palmetto Plant in Darlington, S.C. and the sale of our Johnsonville facility in Johnsonville, S.C., we will be a PET resins producer with stated annual production capacity of approximately 960 million pounds.
Our financial results are primarily determined by our sales volume and raw material margins, which is the difference between net selling price and raw material cost. Both PET resin and polyester staple fiber volume and raw material margins increase or decrease as a result of supply and demand factors, competitive conditions, global economic and market conditions, export and import activity, and the prices of competing materials. Seasonal factors, such as weather and the vacation and holiday closings of our facilities or those of our customers, may also affect our operations. Given our substantial unit volumes, the impact on profitability of changes in raw material margins is significant.
IMPACT OF ACCOUNTING CHANGES AND RECENTLY ISSUED ACCOUNTING PRONOUNCEMENTS
New Accounting Standards Adopted
In January 2008, we adopted Statement of Financial Accounting Standards (SFAS) No 157, "Fair Value Measurements," (SFAS No. 157). SFAS No. 157 defines fair value, establishes a framework for measuring fair value in accordance with generally accepted accounting principles, and expands disclosures about fair value measurements. The adoption of SFAS No. 157 had no impact on our financial statements.
On October 10, 2008, the Financial Accounting Standards Board (FASB) issued FASB Staff Position No. 157-3 (FSP 157-3), "Determining the Fair Value of a Financial Asset When the Market for That Asset is Not Active." FSP 157-3 clarifies the application of SFAS No. 157, "Fair Value Measurements," in a market that is not active and provides an example to illustrate key considerations in determining the fair value of a financial asset when the market for that financial asset is not active. FSP 157-3 is effective immediately, including prior periods for which financial statements have not been issued. We adopted FSP 157-3 effective with the financial statements for the period ended September 30, 2008. The adoption of FSP 157-3 had no impact on our consolidated results of operations, financial position, or cash flows.
In January 2008, we adopted SFAS No. 159, "The Fair Value Option for Financial Assets and Financial Liabilities - Including an Amendment of FASB Statement No. 115," (SFAS No. 159). SFAS No. 159 permits entities to measure certain financial instruments and other items at fair value. The fair value option established by SFAS No. 159 permits all entities to choose to measure eligible items at fair value at specified election dates and report unrealized gains and losses on items for which the fair value option has been elected in earnings (loss) at each subsequent reporting date. The adoption of SFAS No. 159 did not have any impact on our financial statements.

Recently Issued Accounting Pronouncements In December 2007, the Financial Accounting Standards Board ("FASB") issued SFAS No. 141 (revised 2007), "Business Combinations (SFAS No. 141R). SFAS No. 141R replaces SFAS No. 141, "Business Combinations," (SFAS No. 141) and it supersedes or amends other related authoritative literature although it retains the fundamental requirements of SFAS No. 141 that the purchase method of accounting be used for all business combinations and for an acquirer to be identified for each business combination. SFAS No. 141R applies to any transaction or other event that meets the definition of a business combination and establishes principles and requirements for how the acquirer recognizes and measures the identifiable assets acquired, the liabilities assumed, any noncontrolling interest in the acquiree and the goodwill acquired. In addition, SFAS No. 141R establishes disclosure requirements to enable the evaluation of the nature and financial effects of the business combination. SFAS No. 141R is to be applied prospectively for fiscal years beginning after December 15, 2008.
In December 2007, the FASB issued SFAS No. 160, "Noncontrolling Interests in Consolidated Financial Statements, an Amendment of ARB No. 51," (SFAS No. 160). SFAS No. 160 amends ARB No. 51 to establish accounting and reporting standards for the noncontrolling interest in a subsidiary and for the deconsolidation of a subsidiary. It also establishes disclosure requirements that clearly identify and distinguish between the interests of the parent and the interests of the noncontrolling owners. SFAS No. 160 is effective for fiscal years, and interim periods within those fiscal years, beginning on or after December 15, 2008. The adoption of SFAS No. 160 is not expected to have an impact on our consolidated financial position or results of operations.
In March 2008, the FASB issued SFAS No. 161, "Disclosures about Derivative Instruments and Hedging Activities, an Amendment of SFAS No. 133," (SFAS No. 161). SFAS No. 161 is intended to improve financial reporting about derivative instruments and hedging activities by requiring enhanced disclosures to enable investors to better understand their effects on an entity's financial position, financial performance, and cash flows. SFAS No. 161 is effective for financial statements issued for fiscal years and interim periods beginning after November 15, 2008. We are currently evaluating the impact, if any, the adoption of SFAS No. 161 will have on our consolidated financial position and results of operations.
In May 2008, the FASB issued SFAS No. 162, "The Hierarchy of Generally Accepted Accounting Principles," (SFAS No. 162). SFAS No. 162 identifies the sources of accounting principles and the framework for selecting the principles used in the preparation of financial statements. SFAS No. 162 is effective 60 days following the SEC's approval of the Public Company Accounting Oversight Board amendments to AU Section 411, "The Meaning of Present Fairly in Conformity with Generally Accepted Accounting Principles." The implementation of this standard is not expected to have a material impact on our consolidated financial position and results of operations.
In April 2008, the FASB issued FASB Staff Position 90-7-1, "An Amendment of AICPA Statement of Position 90-7," (FSP 90-7-1). FSP 90-7-1, which is effective immediately, amends SOP 90-7, paragraph .38 to nullify the requirement regarding changes in accounting principles. Previously under paragraph .38 of SOP 90-7, changes in accounting principles what will be required in the financial statements of the emerging entity within the 12 months following the adoption of fresh-start accounting were required to be adopted at the time fresh-start reporting is adopted. As a result of the amendment, an entity emerging from bankruptcy that applies fresh-start reporting should follow only the accounting standards in effect at the date fresh-start reporting is adopted, which include those standards eligible for early adoption if an election is made to adopt early.

In April 2008, the FASB issued FASB Staff Position 142-3, "Determination of the Useful Life of Intangible Assets," (FSP 142-3). FSP 142-3 amends the factors that should be considered in developing renewal or extension assumptions used to determine the useful life of a recognized intangible asset under SFAS No. 142, "Goodwill and Other Intangible Assets," In order to improve the consistency between the useful life of a recognized intangible asset under SFAS No. 142 and the period of expected cash flows used to measure the fair value of the asset under SFAS No. 141R and other GAAP. FSP 142-3 is effective for fiscal years beginning after December 15, 2008, and interim periods within those years and is applied prospectively to intangible assets acquired after the effective date. We do not expect the adoption of FSP 142-3 to have a material impact on our financial position, results of operations or cash flows.

RESULTS OF OPERATIONS
THREE MONTHS ENDED SEPTEMBER 30, 2008 COMPARED TO THREE MONTHS ENDED SEPTEMBER
30, 2007
   The following table summarizes reasons for the changes in third quarter 2008
from third quarter 2007 for net sales, cost of sales, and gross profit.

 (In millions)                           Chemical-Based       Recycled-Based       Total
 Net Sales
 Sales volumes                          $          (71.7 )   $           (4.1 )   $ (75.8 )
 Net selling prices                                 37.7                  0.9        38.6

 Decrease in net sales                             (34.0 )               (3.2 )     (37.2 )


 Cost of Sales
 Volume effect                          $          (69.0 )   $           (3.2 )   $ (72.2 )
 Raw material unit costs                            42.3                  8.4        50.7
 Plant-added unit costs                              5.2                  0.2         5.4

 Increase (decrease) in cost of sales              (21.5 )                5.4       (16.1 )

 Decrease in gross profit               $          (12.5 )   $           (8.6 )   $ (21.1 )

Total net sales decreased by $37.2 million for the three months ended September 30, 2008, compared to the three months ended September 30, 2007. The sales volume in our chemical-based segment was lower in the third quarter of 2008 primarily because of uncertainty related to our future after our bankruptcy filing, liquidity constraints imposed by our DIP financing which forced us to reduce our sales volume to lower our investment in receivables and inventory, and weaker demand. The decrease in sales volumes in the chemical-based segment was partially offset by an increase in net selling prices. The decrease in volumes in the recycled-based segment was also due to a decline in the automotive industry, which affects demand for our nylon engineering resins.
Total cost of sales decreased by $16.1 million in the 2008 period compared to the 2007 period. Cost of sales in our chemical-based segment decreased due to the lower volumes, partially offset by higher raw material unit costs and plant-added unit costs, and weak demand. The higher raw material unit costs were due to higher purchase prices for chemical-based raw materials in the third quarter of 2008. Cost of sales in our recycled-based segment increased due primarily to a $6.8 million increase in a lower-of-cost or market reserve in the third quarter of 2008, based on a letter of intent to sell the remaining assets of the segment. We signed a letter of intent to sell all of the remaining assets of our Johnsonville facility in the third quarter of 2008.

As a result, our gross profit decreased by $21.1 million to a loss of $21.5 million in the 2008 period, compared to a loss of $0.4 million in the 2007 period.
Selling, general and administrative expenses decreased $4.3 million to $6.6 million, or 2.8% of net sales, in the 2008 period compared to $10.9 million, or 4.0% of net sales, in the 2007 period, primarily as a result of lower sales volumes and cost reduction efforts.
We incurred restructuring charges of $7.4 million for the three months ended September 30, 2008. This charge is related to the WARN Act and severance costs associated with closing our Palmetto facility in Darlington, S.C. and our corporate headquarters in Fort Mill, S.C. For additional information on our restructurings, see Note 5 to the Condensed Consolidated Financial Statements.
We increased our provision for uncollectible accounts by $3.9 million in the third quarter of 2008, compared to $0.2 million in the third quarter of 2007. The increase is due an increase in the provision for our recycled-based receivables, based on a letter of intent signed during the third quarter of 2008 to sell those assets.
Other (income) expense, net consisted of the following pretax amounts for the periods indicated:

                                                           Three Months Ended
                                                              September 30,
     (In millions)                                       2008           2007
     Johnsonville fibers closure costs                       -              (1.0 )
     Proceeds relating to anti-dumping activities, net       -              (0.1 )
     Other                                                   -              (0.5 )

$ - $ (1.6 )

The income in the three months ended September 30, 2007 is due primarily to $1.0 million of income from the reduction of accruals associated with our Johnsonville fibers closure, resulting primarily from our ability to sell some of the equipment and remaining inventory at prices greater than originally expected
As a result of the foregoing, we reported an operating loss of $39.4 million in the 2008 period compared to an operating loss of $9.9 million in the 2007 period.
Interest expense, net was $3.3 million in the 2008 period compared to $16.0 million in the 2007 period. Since we believe our first and second lien term loans are undersecured, we have recorded interest expense only for the DIP Credit Agreement subsequent to our proceedings under Chapter 11 of the Bankruptcy Code. Contractual interest for all of our outstanding debt was $13.3 million for the three months ended September 30, 2008, compared to $16.0 million for the three months ended September 30, 2007. The lower interest expense in the 2008 period is due primarily to lower interest rates.
In connection with our proceedings under Chapter 11 of the Bankruptcy Code, we incurred $7.8 million of reorganization items, consisting of legal and professional fees, in the 2008 period.
We did not report a tax benefit in the 2008 or 2007 periods due to our inability to provide a tax benefit for federal net operating losses originating after 2006. For the three months ending September 30, 2007, our effective tax rate, excluding discrete tax items, on the loss from continuing operations was 2.0%. The discrete

tax item benefit in the 2007 period resulted from the settlement of uncertain tax positions. The $3.1 million tax benefit associated with the discrete item, including interest, was recorded in the third quarter of 2007.
Prior to our proceedings under Chapter 11 of the Bankruptcy Code, we recorded accretion based on the fair market value of the increase in the liquidation preference of the preferred stock and the amortization of the discount related to the common stock warrants. No accretion was recorded after the petition date. We recorded $4.0 million of accretion for the three months ended September 30, 2007.
As a result of the foregoing, we reported a net loss from continuing operations of $50.5 million, or $1.56 per diluted share, for the three months ended September 30, 2008, compared to a net loss from continuing operations of $22.3 million, or $0.81 per diluted share, for the three months ended September 30, 2007.
During 2007, we disposed of our European recycled-based fibers business ("WIL") and our European PET resins business. The results for these subsidiaries, including the gain (loss) loss from discontinued operations, net of tax, were included in discontinued operations for the three months ending September 30, 2007. For additional information, including a breakdown of the results for discontinued operations, see Note 6 to the Condensed Consolidated Financial Statements.
As a result of the foregoing, we reported a net loss attributable to common stockholders of $50.5 million, or $1.56 per diluted share, for the 2008 period, compared to a net loss attributable to common stockholders of $22.0 million, or $0.68 per diluted share, for the 2007 period.

NINE MONTHS ENDED SEPTEMBER 30, 2008 COMPARED TO NINE MONTHS ENDED SEPTEMBER 30,
2007
The following table summarizes reasons for the changes in our net sales, cost of
sales, and gross profit in the nine months ended September 30, 2008 compared to
the nine months ended September 30, 2007.

                                        Chemical-       Recycled-
           (In millions)                  Based           Based         Total
           Net Sales
           Sales volumes               $    (217.6 )   $     (25.9 )   $ (243.5 )
           Net selling prices                 99.0             9.3        108.3

           Decrease in net sales            (118.6 )         (16.6 )     (135.2 )


           Cost of Sales
           Volume effect               $    (208.0 )   $     (17.6 )   $ (225.6 )
           Raw material unit costs           102.2             8.9        111.1
           Plant-added unit costs              1.5            (0.5 )        1.0

           Decrease in cost of sales        (104.3 )          (9.2 )     (113.5 )

           Decrease in gross profit    $     (14.3 )   $      (7.4 )   $  (21.7 )

. . .