10-Q 1 0001.txt SOLUTIA INC. FORM 10-Q ====================================================================== FORM 10-Q SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D. C. 20549 (MARK ONE) [X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 FOR THE QUARTERLY PERIOD ENDED JUNE 30, 2000 OR [ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 COMMISSION FILE NUMBER 001-13255 --------- SOLUTIA INC. ------------ (EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER) DELAWARE 43-1781797 -------- ---------- (STATE OR OTHER JURISDICTION OF (I.R.S. EMPLOYER IDENTIFICATION NO.) INCORPORATION OR ORGANIZATION) 575 MARYVILLE CENTRE DRIVE, P.O. BOX 66760, ------------------------------------------- ST. LOUIS, MISSOURI 63166-6760 ------------------- ---------- (ADDRESS OF PRINCIPAL EXECUTIVE OFFICES) (ZIP CODE) (314) 674-1000 -------------- (REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE) INDICATE BY CHECK MARK WHETHER THE REGISTRANT (1) HAS FILED ALL REPORTS TO BE FILED BY SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 DURING THE PRECEDING TWELVE MONTHS (OR FOR SUCH SHORTER PERIOD THAT THE REGISTRANT WAS REQUIRED TO FILE SUCH REPORTS), AND (2) HAS BEEN SUBJECT TO SUCH FILING REQUIREMENTS FOR THE PAST 90 DAYS. YES X NO --- --- INDICATE THE NUMBER OF SHARES OUTSTANDING OF EACH OF THE ISSUER'S CLASSES OF COMMON STOCK, AS OF THE LATEST PRACTICABLE DATE. OUTSTANDING AT CLASS JUNE 30, 2000 ----- ------------- COMMON STOCK, $0.01 PAR VALUE 106,501,595 SHARES ----------------------------- ------------------ ====================================================================== PART I. FINANCIAL INFORMATION ITEM 1. FINANCIAL STATEMENTS SOLUTIA INC. STATEMENT OF CONSOLIDATED INCOME (DOLLARS IN MILLIONS, EXCEPT PER SHARE AMOUNTS)
THREE MONTHS SIX MONTHS ENDED JUNE 30, ENDED JUNE 30, ----------------- ------------------- 2000 1999 2000 1999 ----- ----- ------ ------ NET SALES................................................. $ 834 $ 711 $1,680 $1,363 Cost of goods sold........................................ 676 518 1,323 1,065 ----- ----- ------ ------ GROSS PROFIT.............................................. 158 193 357 298 Marketing expenses........................................ 40 39 85 70 Administrative expenses................................... 50 31 94 62 Technological expenses.................................... 23 20 47 37 Amortization expense...................................... 8 1 15 1 ----- ----- ------ ------ OPERATING INCOME.......................................... 37 102 116 128 Equity earnings (loss) from affiliates.................... (1) 11 8 21 Interest expense.......................................... (21) (10) (41) (19) Other income (expense)--net............................... (9) 3 (4) 9 ----- ----- ------ ------ INCOME BEFORE INCOME TAXES................................ 6 106 79 139 Income taxes.............................................. 2 35 24 45 ----- ----- ------ ------ NET INCOME................................................ $ 4 $ 71 $ 55 $ 94 ===== ===== ====== ====== BASIC EARNINGS PER SHARE.................................. $0.04 $0.64 $ 0.51 $ 0.84 ===== ===== ====== ====== DILUTED EARNINGS PER SHARE................................ $0.04 $0.61 $ 0.50 $ 0.81 ===== ===== ====== ====== Weighted average equivalent shares (in millions): Basic................................................. 107.4 111.3 108.3 111.6 Effect of dilutive securities: Common share equivalents--common shares issuable upon exercise of outstanding stock options...... 1.6 5.2 1.6 4.6 ----- ----- ------ ------ Diluted............................................... 109.0 116.5 109.9 116.2 ===== ===== ====== ====== STATEMENT OF CONSOLIDATED COMPREHENSIVE INCOME (DOLLARS IN MILLIONS) THREE MONTHS SIX MONTHS ENDED JUNE 30, ENDED JUNE 30, ----------------- ------------------- 2000 1999 2000 1999 ----- ----- ------ ------ NET INCOME................................................ $ 4 $ 71 $ 55 $ 94 OTHER COMPREHENSIVE INCOME: Currency translation adjustments.......................... (45) (9) (65) (26) ----- ----- ------ ------ COMPREHENSIVE INCOME (LOSS)............................... $ (41) $ 62 $ (10) $ 68 ===== ===== ====== ====== See accompanying Notes to Consolidated Financial Statements.
1 SOLUTIA INC. STATEMENT OF CONSOLIDATED FINANCIAL POSITION (DOLLARS IN MILLIONS, EXCEPT PER SHARE AMOUNTS)
JUNE 30, DECEMBER 31, 2000 1999 -------- ------------ ASSETS CURRENT ASSETS: Cash and cash equivalents................................... $ 21 $ 28 Trade receivables, net of allowance of $12 in 2000 and 1999....................................................... 504 483 Miscellaneous receivables and prepaid expenses.............. 140 131 Deferred income tax benefit................................. 104 101 Inventories................................................. 367 371 ------ ------ TOTAL CURRENT ASSETS........................................ 1,136 1,114 PROPERTY, PLANT AND EQUIPMENT: Land........................................................ 62 68 Buildings................................................... 416 436 Machinery and equipment..................................... 2,715 2,919 Construction in progress.................................... 354 272 ------ ------ Total property, plant and equipment......................... 3,547 3,695 Less accumulated depreciation............................... 2,247 2,379 ------ ------ NET PROPERTY, PLANT AND EQUIPMENT........................... 1,300 1,316 INVESTMENTS IN AFFILIATES................................... 415 377 NET GOODWILL................................................ 451 511 IDENTIFIED INTANGIBLE ASSETS................................ 225 33 LONG-TERM DEFERRED INCOME TAX BENEFIT....................... 216 232 OTHER ASSETS................................................ 175 187 ------ ------ TOTAL ASSETS................................................ $3,918 $3,770 ====== ====== LIABILITIES AND SHAREHOLDERS' EQUITY CURRENT LIABILITIES: Accounts payable............................................ $ 372 $ 312 Accrued liabilities......................................... 513 504 Short-term debt............................................. 642 511 ------ ------ TOTAL CURRENT LIABILITIES................................... 1,527 1,327 LONG-TERM DEBT.............................................. 790 802 POSTRETIREMENT LIABILITIES.................................. 984 998 OTHER LIABILITIES........................................... 582 561 SHAREHOLDERS' EQUITY: Common stock (authorized, 600,000,000 shares, par value $0.01) Issued: 118,400,635 shares in 2000 and 1999............... 1 1 Additional contributed capital............................ (140) (137) Treasury stock, at cost (11,899,040 shares in 2000 and 8,859,764 shares in 1999)............................... (247) (209) Unearned ESOP shares........................................ (14) (18) Accumulated other comprehensive income...................... (94) (29) Reinvested earnings......................................... 529 474 ------ ------ SHAREHOLDERS' EQUITY........................................ 35 82 ------ ------ TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY.................. $3,918 $3,770 ====== ====== See accompanying Notes to Consolidated Financial Statements.
2 SOLUTIA INC. STATEMENT OF CONSOLIDATED CASH FLOW (DOLLARS IN MILLIONS)
SIX MONTHS ENDED JUNE 30, ------------------ 2000 1999 ----- ---- INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS OPERATING ACTIVITIES: Net income.................................................. $ 55 $ 94 Adjustments to reconcile to Cash From Operations: Items that did not use (provide) cash: Deferred income taxes............................... 15 (8) Depreciation and amortization....................... 96 74 Amortization of deferred credits.................... (5) (4) Other............................................... 28 47 Working capital changes that provided (used) cash: Trade receivables................................... (21) (55) Inventories......................................... (13) (11) Accounts payable and accrued liabilities............ 21 (19) Other............................................... (18) 8 Other items............................................. (27) 14 ----- ---- CASH FROM OPERATIONS........................................ 131 140 ----- ---- INVESTING ACTIVITIES: Property, plant and equipment purchases..................... (123) (92) Acquisition and investment payments, net of cash acquired... (107) (203) Investment and property disposal proceeds................... 28 6 ----- ---- CASH FROM INVESTING ACTIVITIES.............................. (202) (289) ----- ---- FINANCING ACTIVITIES: Long-term debt proceeds..................................... 196 -- Net change in short-term debt............................... (80) 119 Treasury stock purchases.................................... (53) (50) Common stock issued under employee stock plans.............. 1 6 ----- ---- CASH FROM FINANCING ACTIVITIES.............................. 64 75 ----- ---- INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS............ (7) (74) CASH AND CASH EQUIVALENTS: BEGINNING OF YEAR........................................... 28 89 ----- ---- END OF PERIOD............................................... $ 21 $ 15 ===== ==== See accompanying Notes to Consolidated Financial Statements.
3 SOLUTIA INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (DOLLARS IN MILLIONS) 1. BASIS OF PRESENTATION Solutia Inc. and its subsidiaries produce and market a variety of high-performance chemical-based materials. Solutia's strategic focus is built on key strengths, including complex manufacturing capabilities, process engineering expertise, polymer chemistry, fiber technology, technical service, and customer problem solving. These world-class skills are applied to create solutions and products for customers in the consumer, household, automotive, and industrial products industries. Solutia's products and services include Saflex(R) plastic interlayer; adhesives; window and industrial films; liquid, powder and waterborne resins; Vydyne(R) and Ascend(TM) nylon polymers; nylon fibers; and process research and technology services to the pharmaceutical industry. These financial statements should be read in conjunction with the audited financial statements and notes to consolidated financial statements included in Solutia's 1999 Annual Report to shareholders and incorporated by reference in Solutia's Annual Report on Form 10-K, filed with the Securities and Exchange Commission on March 10, 2000. The accompanying unaudited consolidated financial statements reflect all adjustments that, in the opinion of management, are necessary to present fairly the financial position, results of operations, comprehensive income, and cash flows for the interim periods reported. Such adjustments are of a normal, recurring nature. The results of operations for the three-month and six-month periods ended June 30, 2000, are not necessarily indicative of the results to be expected for the full year. 2. ACQUISITIONS During the first quarter of 2000, Solutia completed two acquisitions in the specialty products segment, which provide custom process and technology services to the global pharmaceutical industry. In the first acquisition, which closed on February 10, Solutia acquired CarboGen Holdings AG. CarboGen is a leading independent process research and development firm, serving the global pharmaceutical industry. In the second acquisition, which closed on March 24, Solutia purchased AMCIS AG. AMCIS serves the global pharmaceutical industry by developing production processes and by manufacturing active ingredients for clinical trials and small-volume commercial drugs. The combined purchase price for these acquisitions was approximately $118 million, which was financed with commercial paper and the assumption of debt. Both of the acquisitions have been accounted for using the purchase method. The allocations of the purchase price to the assets and liabilities acquired resulted in goodwill of approximately $57 million and other intangible assets of approximately $41 million. Goodwill is being amortized over its estimated useful life of 20 years and other intangible assets are being amortized over their estimated useful lives, which average 18 years. In addition to goodwill and other intangible assets, the major components of the purchase price allocations were current assets of $17 million, non-current assets of $27 million, current liabilities of $21 million, and non-current liabilities of $3 million. Results of operations for CarboGen and AMCIS are included in Solutia's results of operations from the acquisition dates. The results of operations for the acquired businesses were not material to Solutia's consolidated results of operations for the three-month and six-month periods ended June 30, 2000. On December 22, 1999, Solutia acquired Vianova Resins from Morgan Grenfell Private Equity Ltd. for approximately 1.2 billion deutsche marks (approximately $640 million), which was financed with commercial paper and the assumption of debt. Vianova Resins was a leading European producer of resins and additives for coatings and technical applications for the specialty, industrial and automotive sectors. The acquisition has been accounted for using the purchase method. The allocation of the purchase price to the assets and liabilities acquired resulted in goodwill of approximately $344 million and other intangible assets of approximately $163 million. Goodwill is being amortized over its estimated useful life of 20 years and other 4 intangible assets are being amortized over their estimated useful lives, which average 19 years. In addition to goodwill and other intangible assets, the major components of the purchase price allocation were current assets of $192 million, non-current assets of $227 million, current liabilities of $99 million, and non-current liabilities of $187 million. This allocation is preliminary and is subject to change based on the completion of a contractual purchase price adjustment. Solutia anticipates completing the allocation of the purchase price by the end of the third quarter of 2000. During the second quarter of 2000, Solutia completed plans to integrate Vianova Resins' operations with Solutia's resins business and service organizations and recorded a liability of $11 million to accrue for the costs of the integration, in accordance with Emerging Issues Task Force Issue 95-3, "Recognition of Liabilities in Connection with a Purchase Business Combination." The integration plans include employment reductions of approximately 130 people, primarily from Vianova Resins' service organizations located in more than 10 countries. In addition, the plans include amounts to shut down certain Vianova Resins sales offices. The integration actions are expected to be carried out by the end of the second quarter of 2001. The following table summarizes the Vianova Resins integration costs and amounts utilized to carry out those plans:
EMPLOYMENT SHUTDOWN OF REDUCTIONS FACILITIES TOTAL ---------- ------------ ------ BALANCE ESTABLISHED AT JUNE 30, 2000.......... $ 10 $ 1 $ 11 ==== ==== ====
3. RESTRUCTURING As part of the integration of Vianova Resins with Solutia's resins businesses, Solutia identified excess production capacity for certain Solutia resins products that will allow for the consolidation of production facilities. As a result, Solutia decided to exit operations at the Port Plastics site in Addyston, Ohio. An $8 million ($5 million aftertax) charge to cost of goods sold was recorded in the second quarter of 2000 to carry out the exit plan. The charge included $2 million to write down plant assets to their fair value of approximately $1 million, $2 million of dismantling costs, and $4 million of estimated costs for which Solutia is contractually obligated under an operating agreement. Fair value was determined by discounting future cash flows using an appropriate discount rate. Under the operating agreement, Solutia is required to provide 24 months notice of intent to exit and to pay contractually obligated costs for an additional 18 months thereafter to a third-party operator. The contractually obligated costs represent direct manufacturing, overhead, utilities, and severance. The financial impact will not be material to Solutia as production will be shifted to other production facilities. The following table summarizes the 2000 restructuring charge and amounts utilized to carry out those plans:
SHUTDOWN OF ASSET OTHER FACILITIES IMPAIRMENTS COSTS TOTAL ----------- ------------ ------ ------ Balance at April 1, 2000...................... $ -- $ -- $ -- $ -- Charges taken............................. 2 2 4 8 Amounts utilized.......................... -- (2) -- (2) ---- ---- ---- ---- BALANCE AT JUNE 30, 2000...................... $ 2 $ -- $ 4 $ 6 ==== ==== ==== ====
During February 1999, certain equipment critical to the ammonia production process failed. Based on an analysis of the economics of purchased ammonia versus the cost to repair the equipment, Solutia decided to exit the ammonia business. A $28 million ($18 million aftertax) charge to cost of goods sold was recorded in the first quarter of 1999 to complete the exit plan. The charge included $2 million to write down the assets to their fair value of approximately $4 million, $4 million of dismantling costs, and $22 million of estimated costs for which Solutia is contractually obligated under an operating agreement. The contractually obligated costs represent an estimate of the direct manufacturing, overhead, and utilities that Solutia is required to pay to a third-party operator during a 36-month termination period. During the first quarter of 2000, Solutia entered into an agreement for the dismantling of the ammonia assets by a third-party and as a result, transferred the liability for dismantling to the third-party. For the quarter ended March 31, 1999, net sales for the ammonia business were $1 million. Operating income for the same period in 1999 was minimal. 5 The following table summarizes the 1999 restructuring charge and amounts utilized to carry out those plans:
SHUTDOWN OF ASSET OTHER FACILITIES IMPAIRMENTS COSTS TOTAL ----------- ----------- ----- ----- Balance at January 1, 1999.................... $ -- $ -- $ -- $ -- Charges taken............................. 4 2 22 28 Amounts utilized.......................... -- (2) (6) (8) ---- ---- ---- ---- Balance at December 31, 1999.................. 4 -- 16 20 Amounts utilized.......................... (4) -- (3) (7) ---- ---- ---- ---- Balance at March 31, 2000..................... -- -- 13 13 Amounts utilized.......................... -- -- (1) (1) ---- ---- ---- ---- BALANCE AT JUNE 30, 2000...................... $ -- $ -- $ 12 $ 12 ==== ==== ==== ====
4. INVESTMENT IN AFFILIATES In April 2000, Astaris LLC, a joint venture between Solutia and FMC Corporation, started operations to manufacture and market phosphorus chemicals. Solutia contributed its Phosphorus Derivatives business to the joint venture in exchange for a 50 percent ownership share. Net assets contributed to the venture totaled approximately $87 million. Solutia accounts for the joint venture using the equity-method of accounting. 5. ASSET IMPAIRMENT During the second quarter of 2000, Solutia recorded a $6 million ($4 million aftertax) impairment charge to administrative expenses for the write down of capitalized software costs related to the formation of the Astaris joint venture. The software had previously been fully dedicated to Solutia's Phosphorus Derivatives business. Impairment was indicated by a significant change in the extent and manner in which Astaris was expected to utilize the asset under a transition services agreement. As a result, Solutia performed a review under a Statement of Financial Accounting Standards No. 121, "Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to Be Disposed Of," from which it determined that the asset was impaired. The carrying value of the asset was written down to its estimated fair value, as determined by discounting expected future cash flows, using an appropriate discount rate. 6. INVENTORY VALUATION The components of inventories as of June 30, 2000, and December 31, 1999, were as follows:
JUNE 30, DECEMBER 31, 2000 1999 -------- ------------ Finished goods................................. $ 246 $ 260 Goods in process............................... 112 121 Raw materials and supplies..................... 112 109 ----- ----- Inventories, at FIFO cost...................... 470 490 Excess of FIFO over LIFO cost.................. (103) (119) ----- ----- TOTAL.......................................... $ 367 $ 371 ===== =====
7. CONTINGENCIES Monsanto (now Pharmacia Corporation) is a party to a number of lawsuits and claims relating to Solutia, for which Solutia assumed responsibility in the spinoff. In addition, Solutia is a named party to a number of lawsuits and claims. Solutia intends to defend all suits and claims vigorously. Such matters arise out of the normal course of business and relate to product liability; government regulation, including environmental issues; employee relations; and other issues. Certain of the lawsuits and claims seek damages in very large amounts. Although the results of litigation cannot be predicted with certainty, management's belief is that the final outcome of such 6 litigation will not have a material adverse effect on Solutia's consolidated financial position, profitability or liquidity in any one year. 8. OTHER During June 2000, Solutia agreed to sell its Polymer Modifiers business to Ferro Corporation. The Polymer Modifiers business has annual sales of approximately $140 million. Closing is expected to occur during the third quarter of 2000. 9. SEGMENT DATA Segment data for the three months and the six months ended June 30, 2000, and 1999, were as follows:
THREE MONTHS ENDED JUNE 30, ------------------------------------------------------------------------------- 2000 1999 ----------------------------------- ----------------------------------- NET INTERSEGMENT NET INTERSEGMENT SALES SALES PROFIT SALES SALES PROFIT ----- ------------ ------ ----- ------------ ------ SEGMENT: Performance Films................... $208 $ -- $ 55 $175 $ -- $ 52 Specialty Products.................. 217 -- 47 152 -- 38 Integrated Nylon.................... 409 -- 43 385 1 87 ---- ---- ---- ---- ---- ---- SEGMENT TOTALS........................ 834 -- 145 712 1 177 RECONCILIATION TO CONSOLIDATED TOTALS: Sales eliminations.................. -- -- (1) (1) Less unallocated service costs: Cost of goods sold............ (25) (17) Marketing, administrative and technological expenses...... (75) (57) Amortization expense................ (8) (1) Equity earnings (loss) from affiliates..................... (1) 11 Interest expense.................... (21) (10) Other income (expense)--net..... (9) 3 CONSOLIDATED TOTALS: ---- ---- ---- ---- NET SALES........................... $834 $ -- $711 $ -- ==== ==== ---- ==== ==== ---- INCOME BEFORE INCOME TAXES.......... $ 6 $106 ==== ====
7
SIX MONTHS ENDED JUNE 30, --------------------------------------------------------------------------------- 2000 1999 ------------------------------------ ------------------------------------ NET INTERSEGMENT NET INTERSEGMENT SALES SALES PROFIT SALES SALES PROFIT ----- ------------ ------ ----- ------------ ------ SEGMENT: Performance Films................ $ 405 $ -- $ 107 $ 323 $ -- $ 94 Specialty Products............... 484 -- 106 301 -- 78 Integrated Nylon................. 792 1 100 742 3 159 ------ ---- ----- ------ ---- ----- SEGMENT TOTALS..................... 1,681 1 313 1,366 3 331 RECONCILIATION TO CONSOLIDATED TOTALS: Sales eliminations............... (1) (1) (3) (3) Less unallocated service costs: Cost of goods sold, ... (38) (93) Marketing, administrative and technological expenses... (144) (109) Amortization expense............. (15) (1) Equity earnings (loss) from affiliates.................. 8 21 Interest expense................. (41) (19) Other income (expense)--net.............. (4) 9 CONSOLIDATED TOTALS: ------ ---- ------ ---- NET SALES........................ $1,680 $ -- $1,363 $ -- ====== ==== ----- ====== ==== ----- INCOME BEFORE INCOME TAXES....... $ 79 $ 139 ===== ===== Segment profit includes only operating expenses directly attributable to the segment. Unallocated service costs are managed centrally and primarily include costs of administrative, technology, and engineering and manufacturing services that are provided to the segments. For the periods ended June 30, 2000, unallocated cost of goods sold includes restructuring charges related to exiting operations at the Port Plastics site in Addyston, Ohio ($8 million pretax, $5 million aftertax). See Note 3. For the periods ended June 30, 2000, unallocated marketing, administrative, and technological expenses includes a charge associated with the impairment of certain capitalized software costs ($6 million pretax, $4 million aftertax). See Note 5. For the periods ended June 30, 2000, equity earnings (loss) from affiliates includes Solutia's portion of charges recorded by its Flexsys and Astaris joint ventures ($15 million aftertax). For the periods ended June 30, 2000, other income (expense)--net includes charges related to the write down of two Asian investments based upon indicators that the loss in their values was other than temporary ($19 million pretax, $11 million aftertax), period costs related to the formation and startup of the Astaris joint venture ($8 million pretax, $5 million aftertax), and a gain on the sale of a minority interest in P4 Production L.L.C., a phosphorus manufacturing venture ($15 million pretax, $9 million aftertax). For the six months ended June 30, 1999, unallocated cost of goods includes special charges related to exiting Integrated Nylon's ammonia business ($28 million pretax, $18 million aftertax), the write down of an Integrated Nylon segment bulk continuous filament spinning machine ($6 million pretax, $4 million aftertax), and the anticipated settlement of certain pending property claims litigation related to the Anniston, Alabama plant site ($29 million pretax, $18 million aftertax).
8 ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS This section includes forward-looking statements within the meaning of Section 27A of the Securities Act of 1933 and Section 21E of the Securities Exchange Act of 1934. These include all statements regarding the expected future financial position, results of operations, profitability, cash flows, liquidity, and effect of changes in accounting due to recently issued accounting standards. Important factors that could cause actual results to differ materially from the expectations reflected in the forward-looking statements herein include, among others, general economic, business and market conditions, customer acceptance of new products, raw material and energy pricing, currency fluctuations, and increased competitive and/or customer pressure. RESULTS OF OPERATIONS--THREE MONTHS ENDED JUNE 30, 2000, COMPARED WITH THE THREE MONTHS ENDED JUNE 30, 1999 Net sales for the second quarter of 2000 increased by 17 percent as compared with the second quarter of 1999. Excluding the acquisitions of CPFilms Inc. in May 1999, Vianova Resins in December 1999, CarboGen Holdings AG in February 2000, and AMCIS AG in March 2000, and the contribution of the Phosphorus Derivatives business to the Astaris joint venture in April 2000, net sales for the second quarter 2000 were up 4 percent from the comparable period in 1999. Sales increases reflect increased average selling prices and volumes, partially offset by unfavorable currency exchange rate fluctuations. Performance Films Net sales for the second quarter of 2000 in the Performance Films segment increased by 19 percent over the same period of the prior year primarily as the result of higher sales volumes in CPFilms, which was acquired in the second quarter of 1999, and improved volumes in the Saflex(R) plastic interlayer business. The increase in sales of Saflex(R) plastic interlayer products was driven primarily by increased demand from European and U.S. automotive glass manufacturers. Also, to a lesser extent, businesses in this segment achieved higher average selling prices than those of the year-ago quarter. Partially offsetting the increases in sales volumes and average selling prices were unfavorable currency exchange rate fluctuations in the Saflex(R) plastic interlayer and Polymer Modifiers businesses due to the devaluation of the euro in relation to the U.S. dollar. Performance Films segment profit for the three-month period ended June 30, 2000, increased 6 percent over the three-month period ended June 30, 1999, because of higher net sales. Higher net sales in the segment were partially offset by increased raw material costs for Polymer Modifiers and Saflex(R) plastic interlayer products. Specialty Products Net sales in the Specialty Products segment for the second quarter of 2000 increased 43 percent over the comparable quarter of 1999 because of the acquisitions of Vianova, CarboGen, and AMCIS. Excluding the acquisitions and the contribution of the Phosphorus Derivatives business, net sales declined by 2 percent. The decrease primarily resulted from the loss of sales from the Scriptsets line of business, which was sold in August 1999, and to a lesser extent, unfavorable currency exchange movements due to the devaluation of the euro in relation to the U.S. dollar. Segment profit for the quarter ended June 30, 2000, increased 24 percent over the year-ago quarter primarily because of higher net sales in the segment, partially offset by unfavorable manufacturing variances for specialty chemicals products. Integrated Nylon The Integrated Nylon segment's net sales for the three-month period ended June 30, 2000, increased 6 percent from the comparable period of 1999. The increase in sales occurred in almost all businesses in this segment due to higher average selling prices and, to a lesser extent, increased sales volumes. Integrated Nylon's higher average selling prices were attributable to price increases for branded and commodity staple carpet fiber 9 and higher average selling prices of intermediates. Sales volume increases in carpet fiber and Acrilan(R) acrylic fiber products were partially offset by lower sales volumes of textile polymers. Segment profit for Integrated Nylon for the second quarter of 2000 was down 51 percent as compared to the second quarter of 1999. The decline resulted almost exclusively from higher raw material costs due to the dramatic increase in petrochemical costs over the last several quarters. The costs of propylene and cyclohexane, two major feedstocks used by the segment, have increased significantly. As compared to the second quarter of 1999, propylene costs have more than doubled and cyclohexane prices are up nearly 60 percent. While crude oil prices are anticipated to moderate somewhat due to increased production by OPEC members, elevated petrochemical costs will continue to adversely affect profitability for the remainder of the year. Additionally, the cost of natural gas has significantly increased during the second quarter of 2000 compared to the year-ago period, which has adversely affected the profitability of the segment. Solutia expects that higher natural gas costs will continue for the near term due to increased demand and limited supply. Operating Income Operating income for the second quarter of 2000 declined to $37 million as compared to $102 million for the second quarter of 1999 because of lower segment profit discussed above and special charges recorded during the quarter. Solutia recorded a restructuring charge of $8 million ($5 million aftertax) to cost of goods sold to exit operations at the Port Plastics site in Addyston, Ohio, as more fully described in Note 3. Additionally, Solutia recorded an asset impairment charge of $6 million ($4 million aftertax), to administrative expenses for the write down of capitalized software costs related to the formation of the Astaris joint venture, as more fully described in Note 5. Excluding the impact of special charges, overall lower segment profit was negatively impacted by higher marketing, administrative, technological, and amortization expenses. Higher marketing, administrative, technological, and amortization expenses were associated with the consolidation and integration of newly acquired companies and Solutia's growth programs. Equity Earnings (Loss) from Affiliates The equity loss from affiliates was $1 million in the second quarter of 2000 compared to $11 million of equity earnings in the comparable 1999 quarter. The decrease was due to special charges recorded by the Flexsys, L.P. and Astaris joint ventures. The Flexsys joint venture recorded charges associated with the closure and impairment of certain manufacturing operations in the United Kingdom. Solutia's share of these charges was $13 million ($13 million aftertax). In addition, the Astaris joint venture recorded charges related to the closure of certain of its production facilities. Solutia's share of these charges was approximately $2 million ($2 million aftertax). Excluding these special charges, equity earnings from affiliates increased because of the formation and start up of the Astaris joint venture in April 2000. Other Income (Expense)--Net Other expense for the quarter ended June 30, 2000, was $9 million compared to other income of $3 million for the same period in 1999. The significant increase in expense was principally attributable to a charge of $14 million ($8 million aftertax) for the write down of certain equity-method investments in Asia based upon indicators that the loss in their values was other than temporary, charges of $5 million ($3 million aftertax) to accrue for debt payments under certain loan guarantees associated with one of the Asian equity investments, and charges of $8 million ($5 million aftertax), associated with the startup and formation of the Astaris joint venture incurred during the period. Partially offsetting the special charges was a $15 million gain ($9 million aftertax) resulting from the sale of substantially all of Solutia's 40 percent interest in P4 Production L.L.C., a phosphorus manufacturing venture. RESULTS OF OPERATIONS--SIX MONTHS ENDED JUNE 30, 2000, COMPARED WITH SIX MONTHS ENDED JUNE 30, 1999 Net sales for the six-month period ended June 30, 2000, increased by 23 percent as compared with the six-month period ended June 30, 1999. Excluding the acquisitions of CPFilms Inc., Vianova Resins, CarboGen Holdings AG, and AMCIS AG and the contribution of the Phosphorus Derivatives business to the Astaris joint 10 venture, net sales for the first six months of 2000 were up 4 percent from the comparable period in 1999. Sales increases reflect higher average selling prices and volumes, partially offset by unfavorable currency exchange rate fluctuations. Performance Films Performance Films' net sales for the first six months of 2000 increased 25 percent in comparison to the first six months of 1999 as the result of the acquisition of CPFilms and improved volumes in the Saflex(R) plastic interlayer business. Excluding CPFilms, net sales increased approximately 3 percent. The increase in the Saflex(R) plastic interlayer business was driven primarily from increased demand by European and U.S. automotive glass manufacturers. Also, to a lesser extent, businesses in this segment achieved higher average selling prices than those of the year-ago period. Partially offsetting the increases in sales volumes and average selling prices were unfavorable currency exchange rate fluctuations in Saflex(R) plastic interlayer and Polymer Modifiers businesses due to the devaluation of the euro in relation to the U.S. dollar. Performance Films' segment profit for the first half of 2000 increased 14 percent from the first half of 1999 due to higher net sales partially offset by increased raw material costs in the Polymer Modifiers and Saflex(R) plastic interlayer businesses. Specialty Products Net sales in the Specialty Products segment increased 61 percent for the six months ended June 30, 2000, over the comparable period of the prior year because of the acquisitions of Vianova, CarboGen, and AMCIS, partially offset by the contribution of the Phosphorus Derivatives business to the Astaris joint venture. Excluding the acquisitions and the contribution of the Phosphorus Derivatives business, net sales declined by 5 percent. Net sales decreased primarily due to the loss of sales from the Scriptsets line of business, which was sold in August 1999, and to a lesser extent, unfavorable currency exchange movements due to the devaluation of the euro in relation to the U.S. dollar. Segment profit for the six-month period ended June 30, 2000, increased 36 percent as compared to the six-month period ended June 30, 1999. The profit increase was due to higher net sales, partially offset by unfavorable manufacturing variances for specialty chemicals products. Integrated Nylon The Integrated Nylon segment's net sales for the six months ended June 30, 2000, increased 7 percent as compared with the six months ended June 30, 1999. Pricing and volume contributed equally to the increase. Solutia's carpet and Acrilan(R) acrylic fiber businesses were principally responsible for the year-over-year increases in sales volumes. Solutia's carpet, Acrilan(R) acrylic fiber, and intermediates businesses were principally responsible for the year-over-year increases in average selling prices. Integrated Nylon's segment profit for the first half of 2000 decreased 37 percent from the first half of 1999. The decline resulted almost exclusively from higher raw material costs due to the sharp increase in petrochemical costs over the last three quarters. The costs of propylene and cyclohexane, two major feedstocks used by the segment, were up over 100 percent and 40 percent, respectively, versus the comparable prior-year period. While crude oil prices are anticipated to moderate somewhat due to increased production by OPEC members, elevated petrochemical costs will continue to adversely affect profitability for the remainder of the year. Additionally, the cost of natural gas has significantly increased during the second quarter of 2000 compared to the year-ago period, which has adversely affected the profitability of the segment. Solutia expects that higher natural gas costs will continue for the near term due to increased demand and limited supply. Operating Income Operating income for the first six months of 2000 declined by 9 percent as compared to the first six months of 1999 due to lower segment profit discussed above and special charges affecting the 2000 and 1999 periods. These charges are discussed below. Excluding the impact of special charges, overall lower segment profit was negatively impacted by higher marketing, administrative, technological, and amortization expenses. Higher 11 spending in these areas was associated with the consolidation and integration of newly acquired companies and other growth programs. During the second quarter of 2000, Solutia recorded a restructuring charge of $8 million ($5 million aftertax) to cost of goods sold to exit operations at the Port Plastics site in Addyston, Ohio, as more fully described in Note 3. As more fully described in Note 5, Solutia recorded an asset impairment charge of $6 million ($4 million aftertax), to administrative expenses for the write down of capitalized software costs related to the formation of the Astaris joint venture. In February 1999, Integrated Nylon's ammonia unit experienced the failure of certain equipment critical to the production process. Based on an analysis of the economics of purchased ammonia and the cost to repair the equipment, Solutia decided to exit the ammonia business. A $28 million ($18 million aftertax) special operations charge to cost of goods sold was recorded in the first quarter of 1999 to complete the exit plan. The charge included $2 million to write down the assets to fair value, $4 million of dismantling costs, and $22 million of costs for which Solutia is contractually obligated under an operating agreement. During the first quarter of 2000, Solutia entered into an agreement for the dismantling of the ammonia assets by a third-party and as a result, transferred the liability for dismantling to the third-party. For the three months ended March 31, 1999, net sales for the ammonia business was $1 million. Net income for that period was minimal. See Note 3 for additional information. A special operations charge of $6 million ($4 million aftertax) was recorded in the first quarter of 1999 to write down certain Integrated Nylon segment assets to their fair values. The charge was due to a review under Statement of Financial Accounting Standards No. 121, "Accounting for the Impairment of Long-Lived Assets and Assets to Be Disposed Of," (SFAS No. 121). The review stemmed from a historical trend of operating losses and a forecast that the trend would continue. The SFAS No. 121 review indicated that the carrying amount of the assets exceeded the identifiable undiscounted cash flows related to the assets. Fair value of the assets was determined based on estimates of market prices. Also during the 1999 first quarter, Solutia recorded a $29 million ($18 million aftertax) charge to cost of goods sold related to the anticipated settlement of two lawsuits brought against Monsanto Company relating to the alleged discharge of polychlorinated biphenyls ("PCBs") from the Anniston, Alabama plant site. The anticipated settlement of these cases provided information that allowed management to estimate more accurately Solutia's position with respect to such litigation. Equity Earnings (Loss) from Affiliates Equity earnings from affiliates decreased to $8 million in the first half of 2000 from $21 million in the comparable period of 1999. The decrease was due to special charges recorded by the Flexsys and Astaris joint ventures. The Flexsys joint venture recorded charges associated with the closure and impairment of certain manufacturing operations in the United Kingdom. Solutia's share of these charges was $13 million ($13 million aftertax). In addition, the Astaris joint venture recorded charges related to the closure of certain of its production facilities. Solutia's share of these charges was approximately $2 million ($2 million aftertax). Excluding these special charges, equity earnings from affiliates increased because of the formation and start up of the Astaris joint venture in April 2000. Other Income (Expense)--Net Other expense for the six months ended June 30, 2000, was $4 million compared to other income of $9 million for the same period in 1999. The significant increase in expense was principally attributable to a charge of $14 million ($8 million aftertax) for the write down of certain equity-method investments in Asia based upon indicators that the loss in their values was other than temporary, charges of $5 million ($3 million aftertax) to accrue for debt payments under certain loan guarantees associated with one of the Asian equity investments, and charges of $8 million ($5 million aftertax), associated with the startup and formation of the Astaris joint venture incurred during the period. Partially offsetting the special charges was a $15 million gain ($9 million aftertax) resulting from the sale of substantially all of Solutia's 40 percent interest in P4 Production L.L.C., a phosphorus manufacturing venture. 12 Summary of Special Charges Affecting Comparability Special charges recorded in the three and six-month periods ended June 30, 2000 and 1999, have been summarized in the table below (dollars in millions).
THREE MONTHS SIX MONTHS ENDED JUNE 30, ENDED JUNE 30, --------------------- --------------------------- 2000 1999 2000 1999 ---------- ---- ---------- ---------- Cost of goods sold..................... $ 8 $-- $ 8 $ 63 Marketing, administrative and technological expenses............... 6 -- 6 -- ---- ---- ---- ---- Operating income....................... (14) -- (14) (63) ---- ---- ---- ---- Equity earnings (loss) from affiliates. (2) -- (2) -- (13) (13) ---- ---- ---- ---- Other income (expense)--net............ (8) -- (8) -- 15 15 (14) (14) (5) (5) ---- ---- ---- ---- Income taxes........................... (10) -- (10) (23) ---- ---- ---- ---- Net income (loss)...................... $(31) $-- $(31) $(40) ==== ==== ==== ==== Solutia incurred restructuring charges related to exiting operations at the Port Plastics site in Addyston, Ohio ($8 million pretax, $5 million aftertax). Solutia incurred special operations charges related to the formation and startup of the Astaris joint venture ($16 million pretax, $11 million aftertax). Solutia incurred special operations charges associated with the impairment and closure of certain manufacturing operations in the United Kingdom for the Flexsys joint venture ($13 million aftertax). Solutia recognized a gain on the sale of a minority interest in P4 Production L.L.C., a phosphorus manufacturing venture ($15 million pretax, $9 million aftertax). Solutia recorded charges to write-down certain investments in Asia based upon indicators that the loss in their values was other than temporary ($14 million pretax, $8 million aftertax), and to accrue for payment of debt obligations associated with one of the investments ($5 million pretax, $3 million aftertax). Solutia recorded special charges related to exiting the Integrated Nylon's ammonia business, the write down of an Integrated Nylon segment bulk continuous filament spinning machine, and the anticipated settlement of certain pending property claims litigation related to the Anniston, Alabama plant site ($63 million pretax, $40 million aftertax).
LIQUIDITY AND CAPITAL RESOURCES Solutia's working capital at June 30, 2000, decreased to negative $391 million from negative $213 million at December 31, 1999. Working capital is negative primarily due to increases in short-term debt, which was used to finance recent acquisitions, treasury stock repurchases, and capital expenditures. The recent acquisitions include the February 2000 acquisition of CarboGen and the March 2000 purchase of AMCIS. At June 30, 2000, Solutia had short-term debt of $642 million. During February 2000, Solutia completed the issuance of EUR 200 million ($196 million) of notes, due February 2005. Proceeds from the notes were used primarily to refinance outstanding commercial paper, and also for general corporate purposes. 13 Solutia continued to reinvest in itself through share repurchases. Shares repurchased during 2000 totaled 3.9 million shares at a cost of $53 million. On April 26, 2000, the Board of Directors authorized the repurchase of up to 15 million additional shares of Solutia common stock. At June 30, 2000, this authorization combined with the unused portion of an earlier authorization, gives Solutia the authority to repurchase 15.9 million shares of its common stock. During June 2000, Solutia agreed to sell its Polymer Modifiers business to Ferro Corporation. The Polymer Modifiers business has annual sales of approximately $140 million. Closing is expected to occur during the third quarter of 2000. Solutia believes that its cash flow from operations and available borrowing capacity provide sufficient resources to finance its operations and planned capital needs for the next 12 months. Solutia has an $800 million, five-year revolving credit facility and a $300 million, 364-day multi-currency revolving credit agreement in place. RECENTLY ISSUED ACCOUNTING STANDARDS In June 1998, the Financial Accounting Standards Board (FASB) issued SFAS No. 133, "Accounting for Derivative Instruments and Hedging Activity." SFAS No. 133 provides comprehensive and consistent standards for the recognition and measurement of derivative and hedging activities. It requires that derivatives be recorded on the Statement of Consolidated Financial Position at fair value and establishes criteria for hedges of changes in the fair value of assets, liabilities or firm commitments, hedges of variable cash flows of forecasted transactions, and hedges of foreign currency exposures of net investments in foreign operations. Changes in the fair value of derivatives that do not meet the criteria for hedges are to be recognized in the Statement of Consolidated Income. During June of 1999, FASB issued SFAS No. 137, "Accounting for Derivative Instruments and Hedging Activities--Deferral of the Effective Date of FASB Statement No. 133," to defer the effective date of SFAS No. 133 by one year. The standard will now be effective for Solutia beginning January 1, 2001. During June of 2000, FASB issued SFAS No. 138, "Accounting for Certain Derivative Instruments and Certain Hedging Activities--an Amendment of FASB Statement No. 133." SFAS No. 138 amends the accounting and reporting standards of SFAS No. 133 for certain derivative instruments and certain hedging activities. Solutia does not expect the adoption of SFAS No. 133, as amended by SFAS No. 138, to have a material effect on its consolidated financial statements. In December 1999, the Securities and Exchange Commission (SEC) issued Staff Accounting Bulletin 101, "Revenue Recognition in Financial Statements" (SAB 101) which provides guidance related to revenue recognition. SAB 101 allows companies to report any changes in revenue recognition related to adopting its provisions as an accounting change at the time of implementation in accordance with APB Opinion No. 20, "Accounting Changes." Companies must adopt the new guidance no later than the fourth quarter of fiscal year 2000. Solutia does not expect the adoption of SAB 101 to have a material effect on its consolidated financial statements. ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK FACTORS There have been no material changes in market risk exposures during the first six months of 2000 that affect the disclosures in Item 7A of Solutia's Annual Report on Form 10-K for the year ended December 31, 1999. 14 PART II. OTHER INFORMATION ITEM 1. LEGAL PROCEEDINGS Monsanto (now Pharmacia Corporation) is a party to a number of lawsuits and claims relating to Solutia, for which Solutia assumed responsibility in the spinoff. Solutia's Annual Report on Form 10-K for the year ended December 31, 1999, described an action pending in Harris County (Texas) District Court on behalf of 412 plaintiffs who are former employees of owners/operators of the Brio site or members of the employees' families. On April 24, 2000, the Company reached a tentative agreement to settle this action for $6 million. Court approval of the settlement is required for those plaintiffs who are minors. Solutia's Form 10-K also described two cases pending in Circuit Court in St. Clair County, Alabama, which had been consolidated and certified as a class action on behalf of all property owners in a specified area along waterways near Solutia's Anniston plant. Proceedings in this case had been stayed by the Alabama Supreme Court following the filing of a petition for a writ of mandamus on behalf of a small group of class members opposed to a tentative settlement agreed to by the Company and class representatives in April, 1999. On June 16, 2000, the Alabama Supreme Court issued an order denying the writ of mandamus and lifted the stay of proceedings. On July 6, 2000, the trial court entered an order of final approval and final judgment, finding the settlement fair and reasonable and directing the parties to implement the provisions of the settlement agreement. In addition, Solutia's Form 10-K, described 12 cases brought in Circuit Court in Calhoun County, Circuit Court in St. Clair County, Circuit Court in Talladega County and in U. S. District Court for the Northern District of Alabama of behalf of 5,528 plaintiffs. On July 10, 2000, an application for injunctive relief was made in one case in Calhoun County brought on behalf of 787 plaintiffs. Plaintiffs seek an order prohibiting further PCB releases from the Company's property and directing the Company to remediate all PCB contamination in and around Anniston. The Company will vigorously oppose this application and has meritorious defenses, including lack of any physical injury or property damage to plaintiffs, lack of any immediate or substantial endangerment to health or the environment and the ongoing implementation of remedial action by the Company under the supervision of the Alabama Department of Environmental Management and the United States Environmental Protection Agency. Solutia's Form 10-K and Solutia's Report on Form 10-Q for the quarter ended March 31, 2000, described administrative and judicial proceedings arising out of alleged environmental violations at a coal coking facility in Rock Springs, Wyoming owned by P4 Production, L.L.C., and formerly operated by Solutia. On April 21, 2000, Solutia, Pharmacia Corporation, and P4 Production filed their memorandum supporting their motion for dismissal or summary judgment on the grounds of claim preclusion, including the doctrines of res judicata and release. The United States filed, on May 5, 2000, its memorandum in opposition to the companies' motion for summary judgment and its cross-motion for summary judgment against the companies. Oral argument on the merits of these motions occurred on June 7, 2000. On June 2, 2000, Pharmacia was served with a complaint naming Monsanto Company as the sole defendant in an action filed in United States District Court for the Northern District of Alabama on behalf of a purported class of "[a]ll persons who reside, or who at one time did reside, in the areas contaminated by the Defendant's Anniston, Alabama plant and were thereby directly or indirectly exposed to PCBs." Plaintiffs allege that as a result of this exposure, they are at an increased risk of suffering personal injuries, and seek an injunction mandating medical monitoring and funding of a study of the alleged adverse health effects of this exposure. On June 6, 2000, Pharmacia was served with a complaint naming Monsanto as a defendant in an action filed in Circuit Court for Calhoun County, Alabama on behalf of a corporate entity with a manufacturing facility located near the Anniston plant. Plaintiff alleges that PCBs and other allegedly harmful chemicals or pollutants were released from the Anniston plant onto the soil, waters and air on or adjacent to plaintiff's property, causing that property to become unusable and worthless. Plaintiff seeks compensatory and punitive damages of $2 million. On June 21, 2000, Pharmacia was served with a complaint naming it, Solutia and others as defendants in an action filed in Circuit Court for Calhoun County, Alabama on behalf of a purported class of owners of property 15 upon which soil contaminated with PCBs taken from the site of a nearby commercial development was deposited. Plaintiffs seek compensatory and punitive damages in an unspecified amount. Solutia is vigorously defending these actions, and believes that it has meritorious defenses, including lack of any physical injury or property damage to plaintiffs, lack of any imminent or substantial endangerment to health or the environment and lack of negligence or improper conduct on the part of Solutia or Monsanto. ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS At Solutia's annual meeting of shareholders on April 26, 2000, five matters were submitted to a vote of shareholders. 1. The following directors were elected to the following terms (or until their respective successors are elected and qualified, or until their earlier death, resignation, or removal):
VOTES VOTES "WITHHOLD NAME "FOR" AUTHORITY" ---- ----- ---------- For term expiring at the 2002 annual meeting: Paul H. Hatfield.......................................... 92,808,821 3,212,004 For term expiring at the 2003 annual meeting: Robert T. Blakely......................................... 92,817,565 3,203,260 Robert H. Jenkins......................................... 92,816,886 3,203,939 Frank A. Metz, Jr......................................... 92,799,083 3,221,742
The following directors are continuing terms expiring at the annual meeting of shareholders in 2001: John C. Hunter III, Michael E. Miller, William D. Ruckelshaus, and John B. Slaughter. The following directors are continuing terms expiring at the annual meeting of shareholders in 2002: J. Patrick Mulcahy and Robert G. Potter. 2. The Solutia Inc. 2000 Stock-Based Incentive Plan was approved by the stockholders. A total of 67,182,976 votes were cast in favor of the plan, 27,938,199 votes were cast against it, and 899,650 votes were counted as abstentions. 3. The Solutia Inc. Annual Incentive Plan was approved by the stockholders. A total of 87,956,602 votes were cast in favor of the plan, 7,056,556 votes were cast against it, and 1,007,667 votes were counted as abstentions. 4. The Solutia Inc. Long-Term Incentive Plan was approved by the stockholders. A total of 87,273,043 votes were cast in favor of the plan, 7,856,580 votes were cast against it, and 891,202 votes were counted as abstentions. 5. The appointment by the Board of Directors of Deloitte & Touche L.L.P. as principal independent auditors for the year 2000 was ratified by the shareholders. A total of 94,180,803 votes were cast in favor of ratification, 1,348,575 votes were cast against it, and 491,447 votes were counted as abstentions. ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K (a) Exhibits--See the Exhibit Index at page 18 of this report. (b) A Form 8-K announcing the formation of Astaris LLC, a joint venture between Solutia Inc. and FMC Corp., was filed on April 27, 2000. 16 SIGNATURE Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized. SOLUTIA INC. -------------------------- (Registrant) /s/ JAMES M. SULLIVAN -------------------------- (Vice President and Controller) (On behalf of the Registrant and as Principal Accounting Officer) Date: July 28, 2000 17 EXHIBIT INDEX These Exhibits are numbered in accordance with the Exhibit Table of Item 601 of Regulation S-K. EXHIBIT NUMBER DESCRIPTION ------- ----------- 2 Omitted--Inapplicable 3 Omitted--Inapplicable 4 Omitted--Inapplicable 10 1. Solutia Inc. 1997 Stock-Based Incentive Plan, as amended on April 26, 2000 2. Solutia Inc. 2000 Stock-Based Incentive Plan (incorporated by reference to Appendix A of the Solutia Inc. Notice of Annual Meeting and Proxy Statement dated March 9, 2000) 3. Solutia Inc. 2000 Annual Incentive Plan (incorporated by reference to Appendix B of the Solutia Inc. Notice of Annual Meeting and Proxy Statement dated March 9, 2000) 4. Solutia Inc. 2000 Long-Term Incentive Plan (incorporated by reference to Appendix C of the Solutia Inc. Notice of Annual Meeting and Proxy Statement dated March 9, 2000) 11 Omitted--Inapplicable; see "Statement of Consolidated Income" on page 1. 15 Omitted--Inapplicable 18 Omitted--Inapplicable 19 Omitted--Inapplicable 22 Omitted--Inapplicable 23 Omitted--Inapplicable 24 Omitted--Inapplicable 27 Financial Data Schedule 99 Omitted--Inapplicable 18