-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, SkW2dtgk7dnvFcVibig43J7ZA7C+Br+/2LMLe8wOcuhbfLiWS3kAjMHI79MhGG4U Td/SrY6ZVpL91mUIPrXG5g== 0001068800-01-500186.txt : 20010730 0001068800-01-500186.hdr.sgml : 20010730 ACCESSION NUMBER: 0001068800-01-500186 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 3 CONFORMED PERIOD OF REPORT: 20010630 FILED AS OF DATE: 20010727 FILER: COMPANY DATA: COMPANY CONFORMED NAME: SOLUTIA INC CENTRAL INDEX KEY: 0001043382 STANDARD INDUSTRIAL CLASSIFICATION: CHEMICALS & ALLIED PRODUCTS [2800] IRS NUMBER: 431781797 STATE OF INCORPORATION: DE FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-Q SEC ACT: SEC FILE NUMBER: 001-13255 FILM NUMBER: 1690133 BUSINESS ADDRESS: STREET 1: 575 MARYVILLE CENTRE DRIVE STREET 2: P O BOX 66760 CITY: ST. LOUIS STATE: MO ZIP: 63166-6760 BUSINESS PHONE: 3146741000 MAIL ADDRESS: STREET 1: P O BOX 66760 CITY: ST. LOUIS STATE: MO ZIP: 63166-6760 FORMER COMPANY: FORMER CONFORMED NAME: QUEENY CHEMICAL CO DATE OF NAME CHANGE: 19970804 10-Q 1 tenq.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, 2001 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, 2001 ----- -------------- COMMON STOCK, $0.01 PAR VALUE 103,813,231 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, ------------------- --------------------- 2001 2000 2001 2000 ----- ----- ------ ------ NET SALES.......................................... $ 737 $ 834 $1,484 $1,680 Cost of goods sold................................. 609 676 1,228 1,324 ----- ----- ------ ------ GROSS PROFIT....................................... 128 158 256 356 Marketing expenses................................. 45 41 91 88 Administrative expenses............................ 38 50 74 93 Technological expenses............................. 15 21 32 43 Amortization expense............................... 8 8 16 15 ----- ----- ------ ------ OPERATING INCOME................................... 22 38 43 117 Equity earnings (loss) from affiliates............. 8 (2) 12 7 Interest expense................................... (22) (21) (44) (41) Other income (expense)--net........................ 6 (9) 37 (4) ----- ----- ------ ------ INCOME BEFORE INCOME TAXES......................... 14 6 48 79 Income taxes....................................... 1 2 13 24 ----- ----- ------ ------ NET INCOME......................................... $ 13 $ 4 $ 35 $ 55 ===== ===== ====== ====== BASIC EARNINGS PER SHARE........................... $0.13 $0.04 $ 0.34 $ 0.51 ===== ===== ====== ====== DILUTED EARNINGS PER SHARE......................... $0.12 $0.04 $ 0.33 $ 0.50 ===== ===== ====== ====== Weighted average equivalent shares (in millions): Basic.......................................... 103.7 107.4 103.6 108.3 Effect of dilutive securities: Common share equivalents--common shares issuable upon exercise of outstanding stock options............................ 1.3 1.6 1.3 1.6 ----- ----- ------ ------ Diluted........................................ 105.0 109.0 104.9 109.9 ===== ===== ====== ======
STATEMENT OF CONSOLIDATED COMPREHENSIVE LOSS (DOLLARS IN MILLIONS)
THREE MONTHS SIX MONTHS ENDED JUNE 30, ENDED JUNE 30, ------------------- --------------------- 2001 2000 2001 2000 ----- ----- ------ ------ NET INCOME......................................... $ 13 $ 4 $ 35 $ 55 OTHER COMPREHENSIVE INCOME (LOSS): Currency translation adjustments................... (24) (45) (60) (65) Net unrealized loss on derivative instruments...... (2) -- (2) -- Net gain on derivative instruments................. -- -- (2) -- ----- ----- ------ ------ COMPREHENSIVE INCOME (LOSS)........................ $ (13) $ (41) $ (29) $ (10) ===== ===== ====== ====== 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, 2001 2000 -------- ------------ ASSETS CURRENT ASSETS: Cash and cash equivalents................................... $ 17 $ 19 Trade receivables, net of allowance of $13 in 2001 and $12 in 2000................................................... 430 406 Miscellaneous receivables and prepaid expenses.............. 99 126 Deferred income tax benefit................................. 110 107 Inventories................................................. 355 357 ------ ------ TOTAL CURRENT ASSETS........................................ 1,011 1,015 PROPERTY, PLANT AND EQUIPMENT: Land........................................................ 57 60 Buildings................................................... 412 421 Machinery and equipment..................................... 2,944 2,982 Construction in progress.................................... 78 62 ------ ------ Total property, plant and equipment......................... 3,491 3,525 Less accumulated depreciation............................... 2,334 2,320 ------ ------ NET PROPERTY, PLANT AND EQUIPMENT........................... 1,157 1,205 INVESTMENTS IN AFFILIATES................................... 376 351 GOODWILL, net of accumulated amortization of $33 in 2001 and $24 in 2000............................................... 385 421 IDENTIFIED INTANGIBLE ASSETS, net of accumulated amortization of $21 in 2001 and $16 in 2000............... 197 217 LONG-TERM DEFERRED INCOME TAX BENEFIT....................... 153 190 OTHER ASSETS................................................ 179 182 ------ ------ TOTAL ASSETS................................................ $3,458 $3,581 ====== ====== LIABILITIES AND SHAREHOLDERS' DEFICIT CURRENT LIABILITIES: Accounts payable............................................ $ 313 $ 359 Wages and benefits.......................................... 48 45 Accrued liabilities......................................... 402 451 Short-term debt............................................. 597 494 ------ ------ TOTAL CURRENT LIABILITIES................................... 1,360 1,349 LONG-TERM DEBT.............................................. 770 784 POSTRETIREMENT LIABILITIES.................................. 925 941 OTHER LIABILITIES........................................... 455 541 SHAREHOLDERS' DEFICIT: Common stock (authorized, 600,000,000 shares, par value $0.01) Issued: 118,400,635 shares in 2001 and 2000............... 1 1 Additional contributed capital............................ (151) (141) Treasury stock, at cost (14,587,404 shares in 2001 and 15,484,194 shares in 2000).............................. (279) (296) Unearned ESOP shares........................................ (5) (9) Accumulated other comprehensive loss........................ (172) (108) Reinvested earnings......................................... 554 519 ------ ------ SHAREHOLDERS' DEFICIT....................................... (52) (34) ------ ------ TOTAL LIABILITIES AND SHAREHOLDERS' DEFICIT................. $3,458 $3,581 ====== ====== See accompanying Notes to Consolidated Financial Statements.
2 SOLUTIA INC. STATEMENT OF CONSOLIDATED CASH FLOW (DOLLARS IN MILLIONS)
SIX MONTHS ENDED JUNE 30, ------------------ 2001 2000 ----- ---- INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS OPERATING ACTIVITIES: Net income.................................................. $ 35 $ 55 Adjustments to reconcile to Cash From Operations: Items that did not use (provide) cash: Deferred income taxes............................... 38 15 Depreciation and amortization....................... 90 96 Amortization of deferred credits.................... (7) (5) Restructuring expenses and other charges--net....... -- 41 Other............................................... (3) (13) Working capital changes that provided (used) cash: Trade receivables................................... (25) (21) Inventories......................................... 1 (13) Accounts payable and accrued liabilities............ (96) 21 Other............................................... 31 (18) Net pretax gains from asset disposals................... (31) -- Other items............................................. (115) (27) ----- ---- CASH FROM OPERATIONS........................................ (82) 131 ----- ---- INVESTING ACTIVITIES: Property, plant and equipment purchases..................... (43) (123) Acquisition and investment payments, net of cash acquired... (18) (107) Property disposals and investment proceeds, net............. 32 28 ----- ---- CASH FROM INVESTING ACTIVITIES.............................. (29) (202) ----- ---- FINANCING ACTIVITIES: Net change in short-term debt obligations................... 101 125 Long-term debt reductions................................... -- (9) Treasury stock purchases.................................... -- (53) Common stock issued under employee stock plans.............. 8 1 ----- ---- CASH FROM FINANCING ACTIVITIES.............................. 109 64 ----- ---- INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS............ (2) (7) CASH AND CASH EQUIVALENTS: BEGINNING OF YEAR........................................... 19 28 ----- ---- END OF PERIOD............................................... $ 70 $ 21 ===== ==== 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, technical service, customer problem solving, polymer chemistry and fiber technology. These world-class skills are applied to create solutions and products for customers in the consumer, household, automotive, industrial products and pharmaceutical industries. Solutia's products and services include SAFLEX(R) plastic interlayer; window and industrial films; GELVA(R) pressure-sensitive adhesives; liquid, powder and waterborne resins; process research, process development and scale-up services for the pharmaceutical industry; VYDYNE(R) and ASCEND(TM) nylon polymers; and nylon fibers. These financial statements should be read in conjunction with the audited financial statements and notes to consolidated financial statements included in Solutia's 2000 Annual Report on Form 10-K, filed with the Securities and Exchange Commission on March 8, 2001. 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, 2001, are not necessarily indicative of the results to be expected for the full year. Certain reclassifications to prior year's financial information have been made to conform to the 2001 presentation. 2. ACQUISITIONS During the first quarter of 2000, Solutia completed two acquisitions in the Specialty Products segment, which provide custom process research, process development and technology services to the global pharmaceutical industry. In the first acquisition, which closed on February 10, 2000, Solutia acquired CarboGen Holdings AG. CarboGen is a leading process research and development firm. In the second acquisition, which closed March 24, 2000, 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 current assets of $17 million, non-current assets of $27 million, goodwill of $57 million, other intangible assets of $41 million, current liabilities of $21 million and non-current liabilities of $3 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. Results of operations for CarboGen and AMCIS were 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. 3. RESTRUCTURING AND BUSINESS COMBINATION RESERVES During the fourth quarter of 2000, Solutia recorded restructuring charges of $53 million ($33 million aftertax) to cost of goods sold for costs associated with workforce reductions of approximately 700 people and the closure of certain non-strategic facilities. The restructuring actions are expected to be carried out by the end of 2001. Approximately 80 percent of the workforce reductions are planned for North American business and manufacturing operations, and approximately 20 percent are planned for European, Asian and Latin American 4 operations and sales offices. Management and senior management positions represent approximately one-third of the workforce reductions. The closure of non-strategic facilities is not anticipated to have a significant impact on future operations. For the six months ended June 30, 2001, Solutia has reduced its workforce by approximately 400 positions incurring cash outlays associated with this restructuring action of approximately $26 million. The following table summarizes the fourth quarter 2000 restructuring charge and amounts utilized to carry out those plans:
EMPLOYMENT SHUTDOWN OF REDUCTIONS FACILITIES TOTAL ---------- ----------- ----- Balance at January 1, 2000............................. $-- $-- $-- Charges taken...................................... 50 3 53 Amounts utilized................................... -- (3) (3) ---- ---- ---- Balance at December 31, 2000........................... 50 -- 50 Amounts utilized................................... (9) -- (9) ---- ---- ---- Balance at March 31, 2001.............................. 41 -- 41 Amounts utilized................................... (17) -- (17) ---- ---- ---- BALANCE AT JUNE 30, 2001............................... $ 24 $-- $ 24 ==== ==== ====
During the second quarter of 2000, Solutia completed its plans to integrate Vianova Resins operations with Solutia's resins business and service organizations and recorded a liability of $11 million to accrue for costs of integration, in accordance with Emerging Issues Task Force Issue 95-3, "Recognition of Liabilities in Connection with a Purchase Business Combination." The integration plans included employment reductions of approximately 130 people, primarily from Vianova Resins' service organizations located in approximately 10 countries. In addition, the plans included amounts to shutdown certain Vianova Resins sales offices. During the second quarter of 2001, Solutia completed the integration actions of shutting down certain Vianova Resins sales offices at a cost of approximately $1 million and reduced its workforce by approximately 130 positions at a cost of approximately $10 million. The following table summarizes the Vianova Resins integration costs and amounts utilized to carry out those plans:
EMPLOYMENT SHUTDOWN OF REDUCTIONS FACILITIES TOTAL ---------- ----------- ----- Balance at January 1, 2000............................. $-- $-- $-- Charges taken...................................... 10 1 11 Amounts utilized................................... (2) -- (2) ---- ---- ---- Balance at December 31, 2000........................... 8 1 9 Amounts utilized................................... (3) -- (3) ---- ---- ---- Balance at March 31, 2001.............................. 5 1 6 Amounts utilized................................... (5) (1) (6) ---- ---- ---- BALANCE AT JUNE 30, 2001............................... $-- $-- $-- ==== ==== ====
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 its 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 of plant assets 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. Solutia provided notice of intent to exit on June 30, 2000, and will exit the site in June of 2002. The 5 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 second quarter 2000 restructuring charge and amounts utilized to carry out those plans:
SHUTDOWN OF ASSET WRITE- OTHER FACILITIES DOWNS COSTS TOTAL ----------- ------------ ----- ----- Balance at January 1, 2000.................... $-- $-- $-- $-- Charges taken............................. 2 2 4 8 Amounts utilized.......................... -- (2) -- (2) ---- ---- ---- ---- Balance at December 31, 2000.................. 2 -- 4 6 Amounts utilized.......................... -- -- -- -- ---- ---- ---- ---- Balance at March 31, 2001..................... 2 -- 4 6 Amounts utilized.......................... -- -- -- -- ---- ---- ---- ---- BALANCE AT JUNE 30, 2001...................... $ 2 $-- $ 4 $ 6 ==== ==== ==== ====
4. INVENTORY VALUATION The components of inventories as of June 30, 2001, and December 31, 2000, were as follows:
JUNE 30, DECEMBER 31, 2001 2000 -------- ------------ Finished goods................................ $ 262 $ 305 Goods in process.............................. 121 105 Raw materials and supplies.................... 106 108 ----- ----- Inventories, at FIFO cost..................... 489 518 Excess of FIFO over LIFO cost................. (134) (161) ----- ----- TOTAL......................................... $ 355 $ 357 ===== =====
5. CONTINGENCIES Solutia is a party to numerous legal proceedings that result from the size and nature of its business. Most of these proceedings have arisen in the ordinary course of business and involve claims for money damages. In addition, in connection with the spinoff from Monsanto Company (now Pharmacia Corporation) on September 1, 1997, Solutia assumed from Monsanto, under a distribution agreement, liabilities related to specified legal proceedings. As a result, although Monsanto remains the named defendant, Solutia is required to manage the litigation and indemnify Monsanto for costs, expenses and judgments arising from the litigation. 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 believes that the final outcome of such litigation will not have a material adverse effect on Solutia's consolidated financial position, liquidity or profitability in any one year. On October 12, 2000, the printing ink resins unit and a small phenolics production unit at Wiesbaden, Germany were severely damaged by an explosion and fire. No fatalities, serious injuries or environmental damage resulted from the incident. During the first quarter of 2001, Solutia finalized insurance recoveries and, accordingly, recognized a $28 million gain ($17 million aftertax) in other income--net from insurance settlements in excess of the net book value of plant assets and associated losses. On April 14, 2001, Solutia reached an agreement to settle the claims brought by 1,596 plaintiffs in one of the actions pending in the U.S. District Court for the Northern District of Alabama. The settlement agreement was approved by the court and will not have a material adverse effect on Solutia's consolidated financial position, liquidity or profitability in any one year. 6 6. DERIVATIVE FINANCIAL INSTRUMENTS Effective January 1, 2001, Solutia adopted Statement of Financial Accounting Standard (SFAS) No. 133, "Accounting for Derivative Instruments and Hedging Activities," as amended, which requires that all derivative instruments be reported on the balance sheet at fair value and establishes criteria for designation and effectiveness of hedging relationships. The cumulative effect of adopting SFAS No. 133 as of January 1, 2001, did not have a material effect on Solutia's consolidated financial statements. Solutia's business operations give rise to market risk exposures that result from changes in currency exchange rates, interest rates and certain commodity prices. To manage the volatility relating to these exposures, Solutia enters into various hedging transactions that enable it to alleviate the adverse effects of financial market risk. Solutia's hedging transactions are carried out under policies and procedures approved by the Audit and Finance Committee of the Board of Directors, which do not permit the purchase or holding of any derivative financial instruments for trading purposes. FOREIGN CURRENCY EXCHANGE RATE RISK Solutia manufactures and sells its products in a number of countries throughout the world and, as a result, is exposed to movements in foreign currency exchange rates. The primary purpose of Solutia's foreign currency hedging activities is to manage the volatility associated with foreign currency purchases of materials and other assets and liabilities created in the normal course of business. Solutia primarily utilizes forward exchange contracts and purchased options to hedge these risks. Solutia also enters into certain foreign currency derivative instruments primarily to protect against exposure related to intercompany financing transactions. Solutia has chosen not to designate these instruments as hedges and to allow the gains and losses that arise from marking the contracts to market to be recorded in other income--net in the period. The net impact of the related gains and losses was not material. In addition, Solutia utilizes purchased forward exchange contracts which are designated and qualify as cash flow hedges. These are intended to offset the effect of exchange rate fluctuations on forecasted collection of certain accounts receivable and certain equipment purchases. Gains and losses on these instruments to the extent that the hedge is effective are deferred in other comprehensive income (OCI) until the related collection of accounts receivable or related depreciation of equipment purchased is recognized in earnings. The earnings impact is reported in other income--net to match the collection of accounts receivable and in cost of goods sold to match the classification of depreciation. At June 30, 2001, hedge ineffectiveness was assessed and deemed immaterial. No cash flow hedges were discontinued during the quarter ended June 30, 2001. Foreign currency hedging activity is not material to Solutia's financial statements. INTEREST RATE RISK Interest rate risk is primarily related to the changes in fair value of fixed-rate long-term debt and short-term, floating rate debt. Solutia believes its current debt structure appropriately protects the company from changes in interest rates and is not actively using any contracts to manage interest rate risk. COMMODITY PRICE RISK Raw materials used by Solutia are subject to price volatility caused by weather, crude oil prices, supply conditions, political and economic variables and other unpredictable factors. Solutia periodically uses forward and option contracts to manage the volatility related to anticipated energy and raw material purchases. These market instruments are designated as cash flow hedges. The mark-to-market gain or loss on qualifying hedges is included in OCI to the extent effective, and reclassified into cost of goods sold in the period during which the hedged transaction affects earnings. The mark-to-market gains or losses on ineffective portions of hedges are recognized in cost of goods sold immediately. No outstanding contracts matured during the quarter ended June 30, 2001. Net unrealized losses on current open contracts totaled $2 million aftertax during the quarter ended June 30, 2001. Commodity hedging activity is not material to Solutia's financial statements. 7 7. OTHER On July 20, 2001, the Financial Accounting Standards Board issued SFAS No. 141, "Business Combinations," and SFAS No. 142, "Goodwill and Other Intangible Assets." The statements will change the accounting for business combinations and goodwill in two significant ways. SFAS No. 141 requires that the purchase method of accounting be used for all business combinations initiated after June 30, 2001. Use of the pooling-of-interests method will be prohibited. SFAS No. 142 changes the accounting for goodwill from an amortization method to an impairment-only approach. Thus, amortization of goodwill, including goodwill recorded in past business combinations, will cease upon adoption of that statement, which for Solutia, will be January 1, 2002. Solutia expects that the adoption of SFAS No. 142 will reduce annual amortization expense by approximately $22 million aftertax. Additionally, Solutia does not expect to have significant goodwill impairment charges associated with the adoption of this statement. 8. SEGMENT DATA Effective January 1, 2001, Solutia reorganized its management structure from a centralized organization to a decentralized organization. This change redefined segment profitability as the costs for certain functional services, which were previously managed centrally, are now reflected in the operating segments. In addition, certain product groups have been moved between operating segments in recognition of the new management structure and related product management responsibilities. Financial data for prior periods have been restated to conform to the current presentation. Solutia's management is organized around four strategic business platforms: Performance Films, Resins and Additives, Specialties and Integrated Nylon. Resins and Additives and Specialties have been aggregated into the Specialty Products reportable segment because of their similar economic characteristics, as well as their similar products and services, production processes, types of customers and methods of distribution. Solutia's reportable segments and their major products are as follows:
PERFORMANCE FILMS SPECIALTY PRODUCTS INTEGRATED NYLON ----------------- ------------------ ---------------- SAFLEX(R) plastic interlayer Resins and additives, Intermediate "building block" including ALFTALAT(R) chemicals KEEPSAFE(R), SAFLEX polyester resins, INSIDE(R) (in Europe only) RESIMENE(R) and MAPRENAL(R) and KEEPSAFE MAXIMUM(R) crosslinkers and glass for residential SYNTHACRYL(R) acrylic resins security and hurricane protection windows LLUMAR(R), VISTA(R) and THERMINOL(R) heat transfer Merchant polymer and nylon GILA(R) professional and fluids extrusion polymers, after-market window films including VYDYNE(R) and ASCEND(TM) Conductive and anti-reflective DEQUEST(R) water treatment Carpet fibers, including the coated films and deep-dyed chemicals WEAR-DATED(R) and ULTRON VIP films brands SKYDROL(R) hydraulic fluids Industrial nylon fibers and SKYKLEEN(R) cleaning fluids for aviation GELVA(R) pressure-sensitive ACRILAN(R) acrylic fibers for adhesives apparel, upholstery fabrics, craft yarns and other applications Pharmaceutical services-- process research, process development services for scale-up capabilities and small scale manufacturing for the pharmaceutical industry
Accounting policies of the segments are the same as those used in the preparation of Solutia's consolidated financial statements. Solutia evaluates the performance of its operating segments based on segment earnings before interest expense and income taxes (EBIT), which includes marketing, administrative, technological and amortization expenses and other non-recurring charges such as restructuring and asset impairment charges that 8 can be directly attributable to the operating segment. Certain expenses and other items that are managed outside of the segments are excluded. These unallocated items consist primarily of corporate expenses, equity earnings from affiliates, interest expense, other income--net and expense items and certain non-recurring items such as gains and losses on asset dispositions and restructuring charges that are not directly attributable to the operating segment. Solutia accounts for intersegment sales at agreed upon transfer prices. Intersegment sales are eliminated in consolidation. Segment assets consist primarily of customer receivables, raw materials and finished goods inventories, fixed assets, goodwill and identified intangible assets directly associated with the production processes of the segment (direct fixed assets). Segment depreciation and amortization are based upon direct tangible and intangible assets. Unallocated assets consist primarily of deferred taxes, certain investments in equity affiliates and indirect fixed assets. Segment data for the three months and the six months ended June 30, 2001, and 2000, were as follows:
THREE MONTHS ENDED JUNE 30, --------------------------------------------------------------------------------- 2001 2000 ------------------------------------ ------------------------------------ NET INTERSEGMENT NET INTERSEGMENT SALES SALES PROFIT SALES SALES PROFIT ----- ------------ ------ ----- ------------ ------ SEGMENT: Performance Films................ $ 159 $-- $ 20 $ 197 $-- $ 33 Specialty Products (a)........... 234 -- 14 248 -- 2 Integrated Nylon (b)............. 344 -- 9 389 -- 1 ------ ---- ---- ------ ---- ---- SEGMENT TOTALS..................... 737 -- 43 834 -- 36 RECONCILIATION TO CONSOLIDATED TOTALS: Sales eliminations............... -- -- -- -- Corporate expenses (c)........... (16) (19) Equity earnings (loss) from affiliates (c), (d)............ 7 (1) Interest expense................. (22) (21) Other income--net (c), (e)....... 2 11 CONSOLIDATED TOTALS: ------ ---- ------ ---- NET SALES........................ $ 737 $-- $ 834 $-- ====== ==== ---- ====== ==== ---- INCOME BEFORE INCOME TAXES....... $ 14 $ 6 ==== ==== SIX MONTHS ENDED JUNE 30, --------------------------------------------------------------------------------- 2001 2000 ------------------------------------ ------------------------------------ NET INTERSEGMENT NET INTERSEGMENT SALES SALES PROFIT SALES SALES PROFIT ----- ------------ ------ ----- ------------ ------ SEGMENT: Performance Films................ $ 310 $-- $ 36 $ 382 $-- $ 65 Specialty Products (a), (f)...... 485 -- 63 553 -- 31 Integrated Nylon (b)............. 689 -- 4 746 1 32 ------ ---- ---- ------ ---- ---- SEGMENT TOTALS..................... 1,484 -- 103 1,681 1 128 RECONCILIATION TO CONSOLIDATED TOTALS: Sales eliminations............... -- -- (1) (1) Corporate expenses (c)........... (26) (31) Equity earnings (loss) from affiliates (c), (d)............ 12 9 Interest expense................. (44) (41) Other income--net (c), (e)....... 3 14 CONSOLIDATED TOTALS: ------ ---- ------ ---- NET SALES........................ $1,484 $-- $1,680 $-- ====== ==== ---- ====== ==== ---- INCOME BEFORE INCOME TAXES....... $ 48 $ 79 ==== ==== (a) Specialty Products profit for the periods ended June 30, 2000, includes a restructuring charge related to exiting operations at the Port Plastics site in Addyston, Ohio ($8 million pretax, $5 million aftertax). 9 (b) Integrated Nylon profit for the periods ended June 30, 2000, includes 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). (c) For the periods ended June 30, 2000, amounts include charges related to the formation and startup of the Astaris joint venture ($16 million pretax, $11 million aftertax). (d) For the periods ended June 30, 2000, amount includes a charge associated with the impairment and closure of certain manufacturing operations in the United Kingdom for the Flexsys joint venture ($13 million pretax, $13 million aftertax). (e) For the periods ended June 30, 2000, amount includes a gain on the sale of P4 Production L.L.C., a phosphorus manufacturing venture ($15 million pretax, $9 million aftertax). (f) Specialty Products profit for the six months ended June 30, 2001, includes a gain from an insurance settlement associated with the explosion and fire that destroyed the Vianova printing inks and phenolics production facility in Wiesbaden, Germany ($28 million pretax, $17 million aftertax).
10 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 forward-looking statements include all statements regarding the expected future financial position, results of operations, profitability, cash flows, liquidity and the 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, increased competitive and/or customer pressure and ability to implement cost reduction initiatives in a timely manner. RESULTS OF OPERATIONS--THREE MONTHS ENDED JUNE 30, 2001, COMPARED WITH THE THREE MONTHS ENDED JUNE 30, 2000 Net sales for the second quarter of 2001 decreased by 12 percent as compared with the second quarter of 2000. Excluding the contribution of the Phosphorus Derivatives business to the Astaris LLC joint venture in April 2000 and the Polymer Modifiers business that was sold in August 2000, net sales for the second quarter decreased 6 percent from the comparable period in 2000. Lower sales volumes, lower average selling prices and unfavorable currency exchange rate fluctuations contributed to the decrease in net sales. Performance Films Net sales for the second quarter of 2001 in the Performance Films segment decreased by 19 percent over the same period of the prior year primarily because of the sale of the Polymer Modifiers business. Excluding the Polymer Modifiers business, net sales decreased 2 percent for the segment primarily because of unfavorable currency exchange rate fluctuations due to the devaluation of the euro and Japanese yen in relation to the U.S. dollar. Also, to a lesser extent, businesses in this segment achieved lower average selling prices than those of the year-ago period due to competitive pricing pressures. Sales volumes in the segment were up because of increased demand for the SAFLEX(R) plastic interlayer products by European and Asian automotive glass manufacturers and European architectural glass laminators, partially offset by decreased demand by North American automotive glass manufacturers and lower sales of specialty films into the electronic display market. Performance Films segment profit for the three-month period ended June 30, 2001, decreased 39 percent over the three-month period ended June 30, 2000, because of the loss of income associated with the sale of the Polymer Modifiers business, unfavorable manufacturing variances associated with lower capacity utilization rates and higher raw material costs, partially offset by lower personnel expense associated with restructuring activities. Specialty Products Net sales in the Specialty Products segment for the second quarter of 2001 decreased 6 percent over the comparable quarter of 2000. Excluding sales from the Phosphorus Derivatives business which was contributed to the Astaris joint venture in April 2000, net sales declined by 1 percent. The decrease primarily resulted from unfavorable currency exchange movements due to the devaluation of the euro in relation to the U.S. dollar and lower demand from European customers in the Resins and Additives business. Partially offsetting the impact of unfavorable currency exchange rate fluctuations and lower European sales volumes was increased demand for the process research, process development and small scale manufacturing services provided by the Pharmaceutical Services business and higher average selling prices in the Resins and Additives business. Segment profit for the Specialty Products segment increased six-fold for the quarter ended June 30, 2001, over the year-ago quarter primarily because of a restructuring charge of $8 million ($5 million aftertax) incurred in June of 2000 related to exiting operations at the Port Plastics site in Addyston, Ohio. Excluding the restructuring charge, segment profit increased due to higher net sales in the Pharmaceutical Services business, lower personnel expense associated with restructuring activities and a small gain associated with certain asset sales in the Resins and Additives business. 11 Integrated Nylon The Integrated Nylon segment's net sales for the three-month period ended June 30, 2001, decreased 12 percent from the second quarter of 2000. Volume declines and lower average selling prices contributed to the decrease in sales throughout most of the product lines in this segment. The effects of a slowing U.S. economy continue to unfavorably impact the Integrated Nylon segment. The most significant volume declines were shown in nylon carpet and industrial fibers and nylon plastics and polymers. Carpet fiber sales volumes decreased as carpet mills continue to manage inventory levels in response to lower retail demand. Decreased sales volumes of nylon plastics and polymers resulted from lower shipments of VYDYNE(R) nylon molding resins to the Dow Plastics alliance because of the slowdown in the U.S. automotive industry, and lower global demand for textile polymers. Nylon industrial product sales volumes decreased because of the slowdown in the U.S. automotive industry. Segment profit for the Integrated Nylon segment increased eight-fold for the quarter ended June 30, 2001, compared to the second quarter of 2000. Excluding charges of $19 million ($11 million aftertax) incurred in June of 2000 to write down certain investments in Asia and to accrue for the payment of debt obligations associated with one of the investments, segment profit decreased 55 percent. The profit decrease resulted primarily from lower net sales in the segment and unfavorable manufacturing variances associated with lower capacity utilization rates, partially offset by decreased raw material costs and lower personnel expense associated with restructuring activities. Lower Integrated Nylon volumes will continue to adversely affect profitability over the near term. Operating Income Operating income for the second quarter of 2001 declined to $22 million from $38 million in the second quarter of 2000. However, operating income for the second quarter of 2000 reflected 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 and the Port Plastics restructuring charge that was taken in the Specialty Products segment. Excluding these charges, the decline in operating income was primarily driven by lower segment profit discussed above. Equity Earnings (Loss) from Affiliates Equity earnings from affiliates was $8 million in the second quarter of 2001 compared to a loss of $2 million in the comparable quarter in 2000. Profitability in the prior year was negatively affected by special charges incurred by the Flexsys, L.P. and Astaris joint ventures. During 2000, 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 charges, equity earnings from affiliates in the quarter ended June 30, 2001, decreased approximately $5 million because of lower earnings from the Astaris joint venture resulting from lower sales volumes, higher raw material costs and severance charges of approximately $2 million ($2 million aftertax) associated with headcount reductions at certain production facilities. To a lesser extent, lower sales volumes from the Advanced Elastomer Systems, L.P. joint venture contributed to lower earnings. Other Income (Expense)--Net Other income for the quarter ended June 30, 2001, was $6 million compared to other expense of $9 million for the same period in 2000. The significant increase in income was principally attributable to 2000 charges of $8 million ($5 million aftertax) associated with the startup and formation of the Astaris joint venture and charges of $19 million ($11 million aftertax) to write down certain investments in Asia and to accrue for payment of debt obligations associated with one of the investments. Offsetting the 2000 charges was a $15 million gain ($9 million aftertax) resulting from the sale of substantially all of Solutia's 40 percent interest in an Idaho phosphorus manufacturing venture. Excluding these charges and gain, other income in the second quarter of 2001 increased $3 million over the same period in 2000, which was due in part to a small gain from certain asset sales. 12 RESULTS OF OPERATIONS--SIX MONTHS ENDED JUNE 30, 2001, COMPARED WITH SIX MONTHS ENDED JUNE 30, 2000 Net sales for the six-month period ended June 30, 2001, decreased by 12 percent as compared with the six-month period ended June 30, 2000. Excluding the contribution of the Phosphorus Derivatives business to the Astaris joint venture in April 2000 and the Polymer Modifiers business that was sold in August 2000, net sales for the first six months of 2001 were down 3 percent from the comparable period in 2000. Sales decreases reflect lower volumes and unfavorable currency exchange rate fluctuations, partially offset by higher average selling prices. Performance Films Performance Films' net sales for the first six months of 2001 decreased 19 percent in comparison to the first six months of 2000 primarily because of the sale of the Polymer Modifiers business. Excluding the Polymer Modifiers business, net sales decreased slightly for the segment primarily because of unfavorable currency exchange rate fluctuations due to the devaluation of the euro and Japanese yen in relation to the U.S. dollar. Also, to a lesser extent, businesses in this segment achieved lower average selling prices than those of the year-ago period due to competitive pricing pressures. Sales volumes for the first half of 2001 increased over the prior year period because of increased demand for the SAFLEX(R) plastic interlayer products by European and Asian automotive glass manufacturers and European architectural glass laminators. Partially offsetting the increases in sales volumes were decreased demand by North American automotive glass manufacturers and lower specialty films sales into the electronic display market. Performance Films' segment profit for the first half of 2001 decreased 45 percent from the first half of 2000 because of the loss of income associated with the sale of the Polymer Modifiers business, higher raw material and energy costs and unfavorable manufacturing costs associated with production cutbacks to control inventory, partially offset by lower personnel expense associated with restructuring activities. Specialty Products Net sales in the Specialty Products segment decreased 12 percent for the six months ended June 30, 2001, over the comparable period of the prior year primarily because of the contribution of the Phosphorus Derivatives business to the Astaris joint venture. Excluding the contribution of the Phosphorus Derivatives business, net sales increased by 1 percent due to higher average selling prices in the Resins and Additives business and two full quarters of net sales from the Pharmaceutical Services businesses. Partially offsetting the increases in average selling prices and sales volumes were unfavorable currency exchange movements due to the devaluation of the euro in relation to the U.S. dollar and lower sales volumes in the Resins and Additives business because of decreased demand by European customers. Segment profit for the six-month period ended June 30, 2001, increased 103 percent as compared to the six-month period ended June 30, 2000. Excluding a first quarter of 2001 gain from an insurance settlement of $28 million ($17 million aftertax) associated with the explosion and fire that destroyed the Vianova printing inks and phenolics production facility in Wiesbaden, Germany, and a restructuring charge of $8 million ($5 million aftertax) incurred in June of 2000 related to exiting operations at the Port Plastics site in Addyston, Ohio, segment profit decreased 10 percent due to the loss of income associated with the Phosphorus Derivatives business and to a lesser extent, higher raw material costs and unfavorable manufacturing variances for the Resins and Additives business. Integrated Nylon The Integrated Nylon segment's net sales for the six months ended June 30, 2001, decreased 8 percent as compared with the six months ended June 30, 2000. The decrease in sales occurred in almost all product lines in this segment as volume declines more than offset improvements in average selling prices. The effects of a slowing U.S. economy continue to unfavorably impact the Integrated Nylon segment. The most significant volume declines were shown in nylon carpet and industrial fibers, as well as acrylic fibers and nylon plastics and polymers. Carpet fiber sales volumes decreased as carpet mills continue to manage inventory levels in response to lower retail demand. Decreased sales volumes of nylon plastics and polymers resulted from lower shipments of 13 VYDYNE(R) nylon molding resins to the Dow Plastics alliance because of the slowdown in the U.S. automotive industry, and lower global demand for textile polymers. Nylon industrial product sales volumes decreased because of the slowdown in the U.S. automotive industry. Sales volumes for acrylic fibers decreased in the U.S. because of the slowing U.S. economy and increasing price pressure from foreign competitors. Integrated Nylon's segment profit for the first half of 2001 decreased 88 percent from the first half of 2000. Excluding charges of $19 million ($11 million aftertax) incurred in June of 2000 to write down certain investments in Asia and to accrue for the payment of debt obligations associated with one of the investments, segment profit decreased 92 percent. The decline resulted primarily from higher raw material and energy prices, lower net sales and unfavorable manufacturing variances associated with lower capacity utilization rates. The cost of natural gas, which is used as an energy source and affects the cost of various raw materials within the segment, increased more than 80 percent over the year-ago period. Elevated natural gas costs as well as lower Integrated Nylon volumes will continue to adversely affect profitability over the near term. In addition to higher raw material and energy costs and decreased volumes, segment profitability was also negatively affected by the shutdown of the Chocolate Bayou Intermediates facility in February of 2001 as a result of a power outage. Operating Income Operating income for the first six months of 2001 declined to $43 million from $117 million in the first six months of 2000. However, operating income for the first six months of 2000 reflected 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 and the Port Plastics restructuring charge that was taken in the Specialty Products segment. Excluding these charges, the decline in operating income was primarily driven by lower segment profit discussed above. As more fully described in footnote 3, during the first six months of 2001 under its two restructuring actions, Solutia reduced its workforce by approximately 470 positions (400 positions under the fourth quarter 2000 restructuring plan and 70 positions under the Vianova integration plan) incurring cash outlays associated with its restructuring actions of approximately $34 million. As a result of these actions, Solutia expects to realize approximately $23 million in savings during 2001, primarily reflected in cost of goods sold, from reduced employee expense. Equity Earnings from Affiliates Equity earnings from affiliates increased to $12 million in the first half of 2001 from $7 million in the comparable period of 2000. Prior year comparisons were affected by charges recorded in June of 2000 by the Flexsys and Astaris joint ventures. During 2000, 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 charges, equity earnings from affiliates in the first half of 2001 decreased approximately $10 million from the comparable period in 2000 because of lower earnings from the Astaris joint venture resulting from lower sales volumes, higher raw material costs and severance charges of approximately $2 million ($2 million aftertax) associated with headcount reductions at certain production facilities. To a lesser extent, lower sales volumes from the Advanced Elastomer Systems joint venture contributed to lower earnings. Other Income (Expense)--Net Other income for the six months ended June 30, 2001, was $37 million compared to other expense of $4 million for the same period in 2000. However, both periods were affected by various gains and charges. The six months ended June 30, 2001, included a $28 million gain ($17 million aftertax) from an insurance settlement. The six months ended June 30, 2000, included net special charges of $12 million ($7 million aftertax) principally associated with the formation of the Astaris joint venture, certain asset impairments and a gain on the sale of a phosphorus manufacturing venture. Excluding these gains and charges from both periods, other income for the six months ended June 30, 2001, was $9 million compared to $8 million for the same period in 2000. 14 Summary of Events Affecting Comparability Charges recorded in the three- and six-month periods ended June 30, 2001, and 2000 and other events affecting comparability have been summarized in the table below (dollars in millions).
THREE MONTHS SIX MONTHS ENDED JUNE 30, ENDED JUNE 30, ------------------- ----------------------- 2001 2000 2001 2000 ----- ----- ---- ---- Cost of goods sold........................ $ -- $ 8 (a) $-- $ 8 (a) Marketing, administrative and technological expenses............... -- 6 (b) -- 6 (b) ----- ----- ---- ---- OPERATING INCOME.......................... -- (14) -- (14) ----- ----- ---- ---- Equity earnings from affiliates........... -- (2) (b) -- (2) (b) -- (13) (c) -- (13) (c) ----- ----- ---- ---- Other income (expense)--net............... -- (8) (b) -- (8) (b) -- 15 (d) -- 15 (d) -- (12) (e) -- (12) (e) -- (7) (e) 28 (f) (7) (e) ----- ----- ---- ---- INCOME BEFORE INCOME TAXES................ -- (41) 28 (41) Income taxes (benefit).................... -- (10) 11 (10) ----- ----- ---- ---- NET INCOME (LOSS)......................... $ -- $ (31) $ 17 $(31) ===== ===== ==== ==== (a) Solutia incurred restructuring charges related to exiting operations at the Port Plastics site in Addyston, Ohio. ($8 million pretax, $5 million aftertax). (b) Solutia incurred charges related to the formation and startup of the Astaris joint venture ($16 million pretax, $11 million aftertax). (c) Solutia incurred charges associated with the impairment and closure of certain manufacturing operations in the United Kingdom for the Flexsys joint venture. ($13 million aftertax). (d) Solutia recognized a gain on the sale of a minority interest in a phosphorus manufacturing venture ($15 million pretax, $9 million aftertax). (e) Solutia recorded charges to write down certain investments in Asia which exhibited indicators that the loss in their values was other than temporary and to accrue for payment of debt obligations associated with one of the investments ($19 million pretax, $11 million aftertax). (f) Solutia recorded a gain from an insurance settlement associated with the explosion and fire that destroyed the Vianova printing inks and phenolics production facility in Wiesbaden, Germany ($28 million pretax, $17 million aftertax).
15 FINANCIAL CONDITION AND LIQUIDITY At June 30, 2001, Solutia had outstanding commercial paper balances of $591 million, a $106 million increase from the December 31, 2000, balance of $485 million. Increased commercial paper balances reflect lower profitability, severance and other restructuring payments and an increase in overall working capital levels. Solutia's commercial paper program is supported by an $800 million, five-year revolving credit facility ($800 million facility) with a syndicate of commercial banks and, a $250 million, 364-day multi-currency revolving credit agreement ($250 million facility) with a syndicate of commercial banks. The $800 million facility and the $250 million facility are also available for working capital and other general corporate purposes. Both the $800 million facility and the $250 million facility contain various covenants that, among other things, restrict Solutia's ability to merge with another entity and require Solutia to meet certain leverage and interest coverage ratios. During the first quarter of 2001, Solutia completed an amendment of its credit agreements to modify the financial covenants. Solutia does not anticipate that future borrowings will be limited by the terms of these agreements. In connection with the finalization of the external financing agreement for Astaris during the third quarter of 2000, Solutia contractually agreed to provide Astaris with funding in the event the joint venture fails to meet certain financial benchmarks. Solutia contributed $16 million during the second quarter of 2001 to Astaris and anticipates an additional $10 million contribution during the second half of 2001. This obligation is not expected to have a significant impact on Solutia's consolidated financial position, liquidity or profitability. On April 14, 2001, Solutia reached an agreement to settle the claims brought by 1,596 plaintiffs in one of the actions pending in the U.S. District Court for the Northern District of Alabama. The settlement will not have a material adverse effect on Solutia's consolidated financial position, liquidity or profitability in any one year. Solutia believes that its cash flow from operations and available borrowing capacity under the $800 million facility and the $250 million facility provide sufficient resources to finance its operations and planned capital needs for the next 12 months. RECENTLY ISSUED ACCOUNTING STANDARDS On July 20, 2001, the Financial Accounting Standards Board issued Statement of Financial Accounting Standard (SFAS) No. 141, "Business Combinations," and SFAS No. 142, "Goodwill and Other Intangible Assets." The statements will change the accounting for business combinations and goodwill in two significant ways. SFAS No. 141 requires that the purchase method of accounting be used for all business combinations initiated after June 30, 2001. Use of the pooling-of-interests method will be prohibited. SFAS No. 142 changes the accounting for goodwill from an amortization method to an impairment-only approach. Thus, amortization of goodwill, including goodwill recorded in past business combinations, will cease upon adoption of that statement, which for Solutia, will be January 1, 2002. Solutia expects that the adoption of SFAS No. 142 will reduce annual amortization expense by approximately $22 million aftertax. Additionally, Solutia does not expect to have significant goodwill impairment charges associated with the adoption of this statement. 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 2001 that affect the disclosures presented in the information appearing under "Derivative Financial Instruments" on pages 23 and 24 of Solutia's Annual Report on Form 10-K for the year ended December 31, 2000. 16 PART II. OTHER INFORMATION ITEM 1. LEGAL PROCEEDINGS Solutia's Annual Report on Form 10-K for the year ended December 31, 2000, described a case brought in Circuit Court for Shelby County, Alabama on behalf of a purported class of property owners around a waterway downstream from the Anniston plant. On May 4, 2001, the Alabama Supreme Court issued an opinion affirming in part and reversing in part the order of the trial court granting Solutia's motion for summary judgment. The Alabama Supreme Court held that the trial court properly granted summary judgment for claims relating to the period up to the date of settlement of a previous action for damage to plaintiffs' property, which did not involve Monsanto Company (now Pharmacia Corporation) or Solutia. However, the Alabama Supreme Court held that plaintiffs were permitted to maintain claims relating to the period from the settlement of the prior action until the filing of the instant action. Solutia's Form 10-K also described an action pending in Circuit Court for Calhoun County, Alabama brought on behalf of a purported class of owners of property upon which was deposited soil allegedly contaminated with polychlorinated biphenyls ("PCBs") and taken from the site of a nearby commercial development. Plaintiffs have advised the court and Solutia that they have withdrawn their class action allegations, and are maintaining this suit solely on behalf of the two named plaintiffs. Monsanto and Solutia have been named as defendants in a case filed in United States District Court for the Northern District of Alabama on May 31, 2001, on behalf of one plaintiff who allegedly lived in residential areas near the Anniston plant. On June 22, 2001, plaintiff filed an amended complaint adding as plaintiffs 915 "minor children or persons under the age of twenty-one years" who allegedly resided in "poor areas" near the plant. Plaintiffs allege that they were exposed to PCBs and suffer from unspecified physical injuries and emotional distress as a result. They seek compensatory and punitive damages in unspecified amounts and request medical testing, monitoring and treatment and unspecified injunctive relief. Monsanto has been named as a defendant in a case filed in Circuit Court for Calhoun County, Alabama on behalf of a purported class of "all persons who own property contaminated by defendant's chemicals and who are not presently represented by a legal professional." Plaintiffs allege that PCBs and other substances were released from the Anniston plant into local waterways and/or onto plaintiffs' properties, causing injury and damage to those properties. Plaintiffs seek compensatory and punitive damages in unspecified amounts. Solutia is vigorously defending these actions. ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS At Solutia's annual meeting of stockholders on April 25, 2001, two matters were submitted to a vote of stockholders. 1. The stockholders elected the following directors for a three-year term that will expire at the annual meeting of stockholders in 2004 (or until their respective successors are elected and qualified, or until their earlier death, resignation, or removal). Votes were cast as follows:
VOTES VOTES "WITHHOLD NAME "FOR" AUTHORITY" ---- ---------- ----------- John C. Hunter III........................... 90,253,996 3,775,157 Michael E. Miller............................ 90,317,866 3,771,287 William D. Ruckelshaus....................... 90,729,051 3,300,102 John B. Slaughter............................ 90,710,934 3,318,219
The following directors are continuing terms expiring at the annual meeting of stockholders in 2002: Paul H. Hatfield, J. Patrick Mulcahy, and Sally G. Narodick. The following directors are continuing terms expiring at the annual meeting of stockholders in 2003: Robert H. Jenkins and Frank A. Metz, Jr. 17 Effective June 15, 2001, Robert T. Blakely resigned from the class of directors who are continuing terms until the Annual Meeting of Stockholders in 2003. 2. The stockholders ratified the appointment by the Board of Directors of Deloitte & Touche L.L.P. as principal independent auditors for the year 2001. A total of 93,700,599 votes were cast in favor of ratification, 220,335 votes were cast against it, and 108,219 votes were counted as abstentions. ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K (a) Exhibits--See the Exhibit index at page 20 of this report. (b) Solutia did not file any reports on form 8-K during the quarter ended June 30, 2001. 18 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 26, 2001 19 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 Solutia Inc. Non-Employee Director Compensation Plan, as last amended June 27, 2001 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 Omitted--Inapplicable 99 Computation of Ratio of Earnings to Fixed Charges
20 EX-10 2 ex10.txt NON-EMPLOYEE DIRECTOR COMP. PLAN Exhibit 10 SOLUTIA INC. NON-EMPLOYEE DIRECTOR COMPENSATION PLAN 1. NAME OF PLAN. This plan shall be known as the "Solutia Inc. Non-Employee Director Compensation Plan" and is hereinafter referred to as the "Plan." 2. PURPOSES OF PLAN. The purposes of the Plan are to increase the ownership interest in Solutia Inc., a Delaware corporation (the "Company"), by Non-Employee Directors whose services are considered essential to the Company's continued progress and to provide a further incentive to serve as directors of the Company. 3. EFFECTIVE DATE AND TERM. The Plan is effective as of September 3, 1997 (the "Effective Date"). The Plan shall remain in effect until terminated by action of the Board, or until no shares of Common Stock remain available under the Plan, if earlier. 4. DEFINITIONS. The following terms shall have the meanings set forth below: "Administrator" has the meaning set forth in Section 20(a). "Annual Meeting" means an annual meeting of the shareholders of the Company. "Annual Retainer" means the amount a Non-Employee Director will be entitled to receive for serving as a director in a Plan Year, on an annualized basis, as determined by and set forth in resolutions of the Board, but shall not include reimbursement for expenses, fees associated with service on any committee of the Board, the retainer payable for serving as the chairman of any committee of the Board, or fees with respect to any other services to be provided to the Company. "Board" means the Board of Directors of the Company. "Business Combination" has the meaning set forth in subparagraph (c) of the definition of "Change of Control." "Change of Control" means any of the following events: (a) The acquisition by any person, entity or "group", within the meaning of Section 13(d)(3) or 14(d)(2) of the Securities Exchange Act of 1934 (the "Exchange Act") (a "Person"), of beneficial ownership (within the meaning of Rule 13d-3 SOLUTIA INC. NON-EMPLOYEE DIRECTOR COMPENSATION PLAN, PAGE 1 As amended 6/27/01 promulgated under the Exchange Act) of 20% or more of either (i) the then outstanding shares of Common Stock of the Company (the "Outstanding Company Common Stock") or (ii) the combined voting power of the then outstanding voting securities of the Company entitled to vote generally in the election of directors (the "Outstanding Company Voting Securities"); provided, however, that, for purposes of this subsection (a), the following acquisitions shall not constitute a Change of Control: (i) any acquisition directly from the Company, (ii) any acquisition by the Company, (iii) any acquisition by any employee benefit plan (or related trust) sponsored or maintained by the Company or any corporation controlled by the Company or (iv) any acquisition by any corporation pursuant to a transaction which complies with clauses (i), (ii) and (iii) of subsection (c) of this definition; or (b) Individuals who, as of the date hereof, constitute the Board (as of the date hereof the "Incumbent Board") cease for any reason to constitute at least a majority of the Board; provided, however, that any individual becoming a director subsequent to the date hereof whose election, or nomination for election by the Company's shareholders, was approved by a vote of at least a majority of the directors then comprising the Incumbent Board shall be considered as though such individual were a member of the Incumbent Board, but excluding, for this purpose, any such individual whose initial assumption of office occurs as a result of an actual or threatened election contest with respect to the election or removal of directors or other actual or threatened solicitation of proxies or consents by or on behalf of a Person other than the Board; or (c) Consummation of a reorganization, merger, consolidation, or sale or other disposition of all or substantially all of the assets of the Company or the acquisition of assets or stock of another entity (a "Business Combination"), in each case unless, following such Business Combination, (i) all or substantially all of the individuals and entities that were the beneficial owners of the Outstanding Company Common Stock and Outstanding Company Voting Securities immediately prior to such Business Combination beneficially own, directly or indirectly, more than 60% of the then outstanding shares of common stock and the combined voting power of the then outstanding voting securities entitled to vote generally in the election of directors, as the case may be, of the entity resulting from such Business Combination (including, without limitation, an entity that as a result of such transaction owns the Company or all or substantially all of the Company's assets either directly or through one or more subsidiaries) in substantially the same proportions as their ownership immediately prior to such Business Combination of the Outstanding Company Common Stock and Outstanding Company Voting Securities, as the case may SOLUTIA INC. NON-EMPLOYEE DIRECTOR COMPENSATION PLAN, PAGE 2 As amended 6/27/01 be; (ii) no Person (excluding any entity resulting from such Business Combination or any employee benefit plan (or related trust) of the Company or such entity resulting from such Business Combination) beneficially owns, directly or indirectly, 20% or more of, respectively, the then outstanding shares of common stock of the entity resulting from such Business Combination or the combined voting power of the then outstanding voting securities of such entity except to the extent that such ownership existed prior to the Business Combination; and (iii) at least a majority of the members of the board of directors of the entity resulting from such Business Combination were members of the Incumbent Board at the time of the execution of the initial agreement or of the action of the Board providing for such Business Combination; or (d) Approval by the shareholders of the Company of a complete liquidation or dissolution of the Company. "Change of Control Consideration" means, for purposes of this Plan, (i) the amount of any cash, plus the value of any securities and other noncash consideration, constituting the most valuable consideration per share of Common Stock paid to any shareholder in the transaction or series of transactions that results in a Change of Control or (ii) if no consideration per share of Common Stock is paid to any shareholder in the transaction or series of transactions that results in a Change of Control, the highest reported sale price of a share of Common Stock on the New York Stock Exchange composite tape (or if the Common Stock is not listed on such exchange, on any other national securities exchange on which the Common Stock is listed or the NASDAQ Stock Market) during the 60-day period prior to and including the date of a Change of Control. To the extent that such consideration consists all or in part of securities or other noncash consideration, the value of such securities or other noncash consideration shall be determined by the Committee in good faith. "Change of Control Date" has the meaning set forth in Section 19(b). "Code" has the meaning set forth in Section 9. "Committee" means the committee that supervises the Plan, as more fully defined in Section 20(a). "Common Stock" means the Company's common stock, par value $.01 per share. "Company" has the meaning set forth in Section 2. "Deferred Cash Account" means a bookkeeping account maintained by the Company SOLUTIA INC. NON-EMPLOYEE DIRECTOR COMPENSATION PLAN, PAGE 3 As amended 6/27/01 for a Non-Employee Director representing the Elective Cash Amount, if any, credited to such account pursuant to Section 6. "Deferred Stock Account" means a bookkeeping account maintained by the Company for a Non-Employee Director representing the Non-Employee Director's interest in the Stock Amount and the Elective Stock Amount, if any, credited to such account pursuant to Section 6. "Delivery Date" has the meaning set forth in Section 7. "Discretionary Amount" means with respect to each Plan Year, the dollar amount equal to 50% of the Annual Retainer for such Plan Year, all or any portion (in percentage increments determined by the Administration) of which the Non-Employee Director may, but is not required to, elect to have credited to his or her Deferred Stock Account in the form of an Elective Stock Amount and/or his or her Deferred Cash Account in the form of an Elective Cash Amount. "Dividend Equivalent" for a given dividend or distribution means a number of shares of Common Stock having a Value, as of the date such Dividend Equivalent is credited to a Deferred Stock Account, equal to the amount of cash, plus the fair market value on the date of distribution of any property, that is distributed with respect to one share of Common Stock pursuant to such dividend or distribution; such fair market value to be determined by the Committee in good faith. "Effective Date" has the meaning set forth in Section 3. "Election Amount" for each Non-Employee Director who has made a Plan Year Deferral Election pursuant to Section 5 shall be, with respect to each Plan Year, (i) the percentage that is set forth in the Non-Employee Director's Plan Year Deferral Election Notice multiplied by (ii) the Discretionary Amount. "Elective Cash Amount" means that portion of the Election Amount which the Non-Employee Director designated in his or her Plan Year Deferral Election Notice to be credited to his or her Deferred Cash Account. "Elective Stock Amount" means that portion of the Election Amount which the Non-Employee Director designated in his or her Plan Year Deferral Election Notice to be credited to his or her Deferred Stock Account in the form of Common Stock. SOLUTIA INC. NON-EMPLOYEE DIRECTOR COMPENSATION PLAN, PAGE 4 As amended 6/27/01 "Exchange Act" has the meaning set forth in subparagraph (a) of the definition of "Change of Control." "Fraction," with respect to a person who is a Non-Employee Director during part, but not all, of a Plan Quarter, means the amount obtained by dividing (i) the number of calendar months during such Plan Quarter that such person was a Non-Employee Director by (ii) 3; provided, that for purposes of the foregoing, a partial calendar month shall be treated as a whole month. "Incumbent Board" has the meaning set forth in subparagraph (b) of the definition of "Change of Control." The "Interest Rate" means Moody's Baa Bond Index Rate, as in effect from time to time. "Non-Employee Director" means any director of the Company who is not an employee of the Company or any subsidiary thereof on the date of any award made or granted to such person hereunder. "Option" means an award to purchase Common Stock granted to a Non-Employee Director pursuant to the terms of Section 8. "Outstanding Company Common Stock" has the meaning set forth in subparagraph (a) of the definition of "Change of Control." "Outstanding Company Voting Securities" has the meaning set forth in subparagraph (a) of the definition of "Change of Control." "Partial Quarter Notice Period" has the meaning set forth in Section 5. "Partial Year Fraction," with respect to a person who is a Non-Employee Director during part, but not all of a Plan Year, means the amount obtained by dividing (i) the number of calendar months during such Plan Year that such person was a Non-Employee Director by (ii) 12; provided, that for the purposes of the foregoing, a partial calendar month shall be treated as a whole month. "Person" has the meaning set forth in subparagraph (a) of the definition of "Change of Control." "Plan" has the meaning set forth in Section 1. SOLUTIA INC. NON-EMPLOYEE DIRECTOR COMPENSATION PLAN, PAGE 5 As amended 6/27/01 "Plan Quarter" means the 3 month period commencing on the first Trading Day in May, August, November or February, as applicable, during a Plan Year. "Plan Year" means the year commencing on the date of an Annual Meeting and ending on the day before the next succeeding Annual Meeting; provided, that the first Plan Year shall begin on the Effective Date and end on the day before the first Annual Meeting and provided further, that the last Plan Year with respect to a Non-Employee Director who ceases to be a Non-Employee Director during a Plan Year, shall begin on the first day of such Plan Year and end on the day such Non-Employee Director ceases to be a Non-Employee Director. "Plan Year Deferral Election" means the irrevocable election to defer, for any Plan Year, all or any part (in percentage increments determined by the Administrator) of the Discretionary Amount for the next Plan Year such that the deferred portion becomes the Election Amount. Any Plan Year Deferral Election Notice shall remain in effect for that Plan Year and for all subsequent Plan Years unless and until such Non-Employee Director delivers to the Administrator, no later than the last business day prior to the commencement of the next succeeding Plan Year, a new Plan Year Deferral Election Notice setting forth a different Plan Year Deferral Election. "Plan Year Deferral Election Notice" means the notice of the Plan Year Deferral Election delivered to the Administrator. "Rule 16b-3" has the meaning set forth in Section 20(a). "Stock Amount" means with respect to each Plan Year, the dollar amount equal to 50% of the Annual Retainer for such Plan Year which will be automatically and mandatorily credited to the Non-Employee Director's Deferred Stock Account in the form of Common Stock determined in the manner set forth in Section 6(b). "Trading Day" means any day on which there are sales of Common Stock reported on the New York Stock Exchange composite tape, or if the Common Stock is not listed on such exchange, on any other national securities exchange on which the Common Stock is listed or the Nasdaq Stock Market. The "Value" of a share of Common Stock as of any given date (including the date a Deferred Stock Account is credited, or, in the case of Options, the date the Option is granted) means the average of the highest and lowest sales prices of a share of Common Stock reported on the New York Stock Exchange Composite Transactions for such day, or, if shares of Common Stock were not traded on the New York Stock Exchange on such date, then on the next preceding date on which such shares were traded, all as SOLUTIA INC. NON-EMPLOYEE DIRECTOR COMPENSATION PLAN, PAGE 6 As amended 6/27/01 reported by The Wall Street Journal under the heading "New York Stock Exchange - Composite Transactions" or by such other source as the Committee may select. 5. ELECTION TO RECEIVE SHARES OR DEFER CASH IN LIEU OF CASH COMPENSATION. (a) In order to make a Plan Year Deferral Election pursuant to this Section 5, a Non-Employee Director who is a Non-Employee Director prior to the Effective Date must deliver to the Administrator, no later than September 30, 1997, his or her Plan Year Deferral Election Notice. (b) Except for the Plan Year Deferral Election due by September 30, 1997 as set forth in Section 5(a) and except for persons who first become Non-Employee Directors on a date other than an Annual Meeting Date (to which Section 5(c) applies), each Non-Employee Director (and each nominee for a position on the Board who would, if elected by the Company's shareholders at the next succeeding Annual Meeting, be a Non-Employee Director) may make a Plan Year Deferral Election for the next succeeding Plan Year by delivering to the Administrator, no later than the last business day prior to the commencement of the next succeeding Plan Year, a Plan Year Deferral Election Notice. (c) Except for the Plan Year Deferral Election due by September 30, 1997 as set forth in Section 5(a), each person who becomes a Non-Employee Director on a date other than the date of an Annual Meeting must deliver his or her Plan Year Deferral Election Notice within thirty days of the date he or she first becomes a Non-Employee Director (the "Partial Quarter Notice Period"). 6. ACCOUNTS; CREDIT OF SHARES AND CASH. (a) The Company shall maintain a Deferred Stock Account and a Deferred Cash Account for each Non-Employee Director. As part of the compensation payable to each Non-Employee Director for service on the Board, the Deferred Stock Account of each Non-Employee Director shall be credited with shares of Common Stock as set forth in this Section 6 and the Deferred Cash Account of each Non-Employee Director may, at the Non-Employee Director's election, be credited with cash as set forth in this Section 6. The shares credited to the Deferred Stock Account pursuant to this Section 6 may represent fractional as well as whole shares of Common Stock. (b) Except as set forth in Section 6(e), as of the first day of each Plan Quarter (or in the case of a Non-Employee Director who becomes a Non-Employee Director on a date other than on the date of an Annual Meeting, the first Trading Day in a Plan Quarter on which he or she becomes a Non-Employee Director), the Deferred Stock Account of each Non-Employee Director shall be credited with a number of shares of Common Stock having a Value equal to 25% of the Stock Amount, multiplied by the Fraction, if applicable. (c) Except as set forth in Section 6(e), as of the first day of each Plan Quarter (or in SOLUTIA INC. NON-EMPLOYEE DIRECTOR COMPENSATION PLAN, PAGE 7 As amended 6/27/01 the case of a Non-Employee Director who first becomes a Non-Employee Director on a date other than on the date of an Annual Meeting, on the first Trading Day following the conclusion of the Partial Quarter Notice Period), the Deferred Stock Account of each Non-Employee Director who has a Plan Year Deferral Election for Common Stock in effect on such date shall be credited with (i) a number of shares of Common Stock having a Value equal to 25% of the Elective Stock Amount, multiplied by the Fraction, if applicable. (d) Except as set forth in Section 6(f), as of the first day of each Plan Quarter (or in the case of a Non-Employee Director who first becomes a Non-Employee Director on a date other than on the date of an Annual Meeting, on the first Trading Day following the conclusion of the Partial Quarter Notice Period), the Deferred Cash Account of each Non-Employee Director who has a Plan Year Deferral Election for cash in effect on such date shall be credited with (i) an amount equal to 25% of the Elective Cash Amount, multiplied by the Fraction, if applicable. (e) On September 4, 1997, the Deferred Stock Account of each Non-Employee Director who becomes a Non-Employee Director prior to the Effective Date shall be credited with a number of shares of Common Stock having a Value equal to 25% of the Stock Amount, multiplied by the Fraction. In addition, the Deferred Stock Account of each Non-Employee Director who becomes a Non-Employee Director prior to the Effective Date and who has a Plan Year Deferral Election for Common Stock in effect on October 1, 1997, shall be credited with a number of shares of Common Stock having a Value equal to 25% of the Elective Stock Amount, multiplied by the Fraction. (f) On October 1, 1997, the Deferred Cash Account of each Non-Employee Director who becomes a Non-Employee Director prior to the Effective Date and who has a Plan Year Deferral Election for cash in effect on October 1, 1997, shall be credited with an amount equal to 25% of the Elective Cash Amount, multiplied by the Fraction. (g) Whenever a dividend is paid or other distribution made with respect to the Common Stock, each Deferred Stock Account shall be credited with a number of shares equal to (i) the number of shares of Common Stock in such Deferred Stock Account as of the record date for such dividend or other distribution, multiplied by (ii) the Dividend Equivalent for such dividend paid or other distribution made. (h) Each Deferred Cash Account shall accrue interest on the balance therein at the Interest Rate, such interest to be credited at least monthly. 7. DELIVERY OF SHARES AND DEFERRED CASH. The shares of Common Stock in a Non-Employee Director's Deferred Stock Account and the cash balance in a Non-Employee Director's Deferred Cash Account as of the date the Non-Employee Director ceases to be a SOLUTIA INC. NON-EMPLOYEE DIRECTOR COMPENSATION PLAN, PAGE 8 As amended 6/27/01 Non-Employee Director for any reason (the "Delivery Date") shall be delivered in accordance with this Section 7. The shares and cash balance shall be delivered as soon as practicable after the Delivery Date but in no case more than 30 days after the Delivery Date. If the number of shares to be delivered includes a fractional share, such number shall be rounded to the nearest whole number of shares. If any such shares or cash are to be delivered after the Non-Employee Director has died or become legally incompetent, they shall be delivered to the Non-Employee Director's estate, legal guardian or beneficiary designated pursuant to Section 21(a), as the case may be, as soon as practicable. References to a Non-Employee Director in this Plan shall be deemed to refer to the Non-Employee Director's estate, legal guardian or beneficiary designated pursuant to Section 21(a), where appropriate. The Non-Employee Director shall become the holder of record of the shares of Common Stock upon delivery. 8. GRANT OF OPTIONS. (a) Except as set forth in Section 8(d), each Non-Employee Director shall receive, on the date such person becomes a Non-Employee Director, an initial Option to purchase 8,000 shares of Common Stock. (b) Each person who becomes a Non-Employee Director on the date of, or who remains a Non-Employee Director on the date of and immediately following each Annual Meeting held after the Effective Date hereof, shall receive, as of such date, an annual Option to purchase 2,000 shares of Common Stock. (c) Except as set forth in Section 8(d), each person who becomes a Non-Employee Director on a date other than on an Annual Meeting date, shall receive, as of such date, an Option to purchase that number of shares of Common Stock equal to 2,000 multiplied by the Partial Year Fraction. (d) Persons who become Non-Employee Directors prior to the Effective Date shall receive, on the same date as the Committee makes the first option grants to management personnel of the Company, an Option to purchase 9,334 shares of Common Stock, 8,000 of which constitute the initial grant that would have otherwise been granted pursuant to Section 8(a) but for this Section 8(d), and 1,334 of which constitute the prorated annual Option grant for the first Plan Year calculated in accordance with Section 8(c). 9. TYPE OF OPTIONS. All Options granted under the Plan shall be "nonqualified" stock options subject to the provisions of Section 83 of the Internal Revenue Code of 1986, as amended (the "Code"). All Options granted under the Plan prior to February 24, 1999, shall be subject to the terms and conditions set forth in the certificate attached as Exhibit A hereto. All Options granted under the Plan on or after February 24, 1999, shall be subject to the terms and conditions set forth in the certificate attached as Exhibit B hereto. SOLUTIA INC. NON-EMPLOYEE DIRECTOR COMPENSATION PLAN, PAGE 9 As amended 6/27/01 10. EXERCISE PRICE. The exercise price per share of Common Stock purchasable under all Options granted pursuant to the Plan shall be the Value of a share of Common Stock on the Option Grant Date. 11. EXERCISE RIGHTS. Each Option granted hereunder prior to February 24, 1999, shall become exercisable, during the Option term set forth in Section 12, in three equal installments commencing on the first anniversary of the Option Grant Date, and annually thereafter, provided that the Non-Employee Director continues in the service of the Company as a director through such anniversaries. Each Option granted on or after February 24, 1999, shall become exercisable during the Option term set forth in Section 12, in three equal installments, on the dates of the first three Annual Meetings of Stockholders of the Company following the Option Grant Date, provided that the Non-Employee Director continues in the service of the Company as a director until such dates; provided, however, that the Option, if not already fully exercisable, shall become fully exercisable upon the Non-Employee Director's retirement from the Board at the mandatory retirement age set forth in the Charter for the Company's Board, or other applicable document. Each Option may be exercised in full share lots only. Notwithstanding the foregoing, the Committee shall have the authority to determine any vesting acceleration or forfeiture waiver regarding any Option granted under the Plan. 12. OPTION TERM. The Option term will expire at the end of the day next preceding ten years from the Option Grant Date, or at the end of the day next preceding two years from the date the Non-Employee Director ceases to be a director of the Company for any reason, whichever occurs first. 13. METHOD OF EXERCISE. The Option shall be exercised by (a) written notice or notice in such other form as may be prescribed from time to time, given to the Company or its designee (at the address specified by the Company from time to time) specifying the date the Option was granted and the number of shares of Common Stock as to which the Option is being exercised, plus (b) payment to the Company in full for the Shares so specified. Within a reasonable time after exercise of the Option, the Company shall deliver shares of Common Stock to the Non-Employee Director in respect of which the Option shall have been exercised and shall pay all stamp taxes in respect thereof, provided that upon or prior to the delivery of such shares, provision (as specified by the Company from time to time) shall be made by the Non-Employee Director for the payment to the Company of any and all taxes which it shall be required to withhold in connection with the exercise of the Option by any law or regulation of any government, whether federal, state or local, and whether domestic or foreign. The Non-Employee Director shall have the right to pay the Option exercise price by delivery of shares of Common Stock (or other evidence of ownership of shares satisfactory to the Company) already owned by the Non-Employee Director with a Value equal to the Option exercise price as payment, provided that such shares have been held by the Non-Employee Director for at least six months on the date of exercise. SOLUTIA INC. NON-EMPLOYEE DIRECTOR COMPENSATION PLAN, PAGE 10 As amended 6/27/01 14. DELIVERY OF SHARES, VOTING AND OTHER RIGHTS. The Non-Employee Director shall have no rights as a stockholder with respect to any Option shares or the shares of Common Stock credited to his or her Deferred Stock Account unless and until the Non-Employee Director becomes the holder of record of such shares and, subject to the provisions of Sections 6 and 19 hereof, no adjustment shall be made for dividends, ordinary or extraordinary (whether in cash or securities or property), or other distributions, or other rights in respect of such shares as to which the record date is prior to the date upon which the Non-Employee Director shall have become the holder of record thereof. Shares delivered under the Plan shall be in book entry form unless the Non-Employee Director has requested in the written notice specified in Section 13 that they be issued in certificate form. 15. TAX WITHHOLDING. The Company shall have the right to require, prior to the delivery of any shares of Common Stock pursuant to the Plan, that a Non-Employee Director make arrangements satisfactory to the Company for the withholding of any taxes required by law to be withheld with respect to the delivery of such shares, including without limitation by the withholding of shares that would otherwise be so delivered, by withholding from any other payment due to the Non-Employee Director, or by a cash payment to the Company by the Non-Employee Director. 16. NO TRUST OR FUND CREATED. The Plan shall not create or be construed to create a trust or separate fund of any kind or a fiduciary relationship between the Company or any of its subsidiaries and a Non-Employee Director or any other person or entity. To the extent that any person acquires a right to receive payments from the Company or any of its affiliates pursuant to the Plan, such right shall be no greater than the right of any unsecured general creditor of the Company or any of its subsidiaries. 17. GENERAL RESTRICTIONS. (a) Notwithstanding any other provision of the Plan, the Company shall not be required to deliver any shares of Common Stock under the Plan prior to fulfillment of all of the following conditions: (i) Any registration or other qualification of such shares under any state, federal, or foreign law or regulation, or the maintaining in effect of any such registration or other qualification which the Administrator shall, in its absolute discretion upon the advice of counsel, deem necessary or advisable; and (ii) Obtaining any other consent, approval, or permit from any state or federal governmental agency which the Administrator shall, in its absolute discretion after receiving the advice of counsel, determine to be necessary or advisable. SOLUTIA INC. NON-EMPLOYEE DIRECTOR COMPENSATION PLAN, PAGE 11 As amended 6/27/01 (b) Nothing contained in the Plan shall prevent the Company from adopting other or additional compensation arrangements for Non-Employee Directors. 18. SHARES AVAILABLE. Subject to Section 19 below, 400,000 shares of Common Stock may be delivered under the Plan. Shares of Common Stock deliverable under the Plan may be taken from treasury shares of the Company or purchased on the open market. 19. CHANGE IN CAPITAL STRUCTURE; CHANGE OF CONTROL. (a) In the event of any change in corporate capitalization, such as a stock split or a corporate transaction, such as any merger, consolidation, separation, including a spin-off, or other distribution of stock or property (without regard to the payment of any cash dividends by the Company in the ordinary course) of the Company, any reorganization (whether or not such reorganization comes within the definition of such term in Section 368 of the Code) or any partial or complete liquidation of the Company, the Committee or Board may make such substitution or adjustments in the aggregate number and kind of shares to be delivered under the Plan, in the number, kind and Option exercise price of shares subject to outstanding Options, in the number and kind of shares held in the Deferred Stock Accounts or subject to Options and/or such other equitable substitution or adjustments as it may determine to be appropriate in its sole discretion; provided, however, that the number of shares held in the Deferred Stock Accounts or subject to Options shall always be a whole number. (b) Without limiting the generality of the foregoing, and notwithstanding any other provision of this Plan, in the event of a Change of Control, the Options shall become fully exercisable by the Non-Employee Director on the date of the Change of Control (the "Change of Control Date"), without regard to Section 11. (c) If the shares of Common Stock credited to the Deferred Stock Accounts and subject to Options are converted pursuant to this Section 19 into another form of property, references in the Plan to the Common Stock shall be deemed, where appropriate, to refer to such other form of property, with such other modifications as may be required for the Plan to operate in accordance with its purposes. Without limiting the generality of the foregoing, references to the delivery of shares of Common Stock shall be deemed to refer to delivery of cash and the incidents of ownership of any other property held in the Deferred Stock Accounts and subject to Options. 20. ADMINISTRATION; AMENDMENT. (a) The Board shall have the power to amend or terminate the Plan. The Executive Compensation and Development Committee or any other committee of the Board (the "Committee") designated by the Board that will satisfy Rule 16b-3 of the Exchange Act, including any successor rule ("Rule 16b-3"), shall supervise the Plan. The Plan shall be administered by the Vice President - Human Resources, or such other person or persons designated by the Committee (the "Administrator"). The Committee shall consist SOLUTIA INC. NON-EMPLOYEE DIRECTOR COMPENSATION PLAN, PAGE 12 As amended 6/27/01 solely of two or more "non-employee directors" of the Company who shall be appointed by the Board. A member of the Board shall be deemed to be a "non-employee director" for the purposes of this Section 20 only if he satisfies such requirements as the Securities and Exchange Commission may establish for "non-employee directors" under Rule 16b-3. Members of the Board receive no additional compensation for their services in connection with the administration of the Plan. (b) Any act that the Committee is authorized to perform hereunder may instead be performed by the Board at its discretion, and to the extent the Board so acts, references in the Plan to the Committee shall refer to the Board as so applicable. Anything to the contrary herein notwithstanding, to the extent that any permitted action taken by the Board conflicts with action taken by the Committee, the Board action shall control. (c) The Committee may adopt such rules or guidelines as it deems appropriate to implement the Plan. All questions of interpretation of the Plan or of any shares delivered under it shall be determined by the Committee and such determination shall be final and binding upon all persons having an interest in the Plan. (d) Notwithstanding any other provision of the Plan, no amendment or termination of the Plan shall adversely affect the interest of any Non-Employee Director in Options granted to him or her, in shares previously credited to such Non-Employee Director's Deferred Stock Account, or in cash previously credited to such Non-Employee Director's Deferred Cash Account without that Non-Employee Director's express written consent. 21. TRANSFERABILITY. (a) In the event of a Non-Employee Director's death, all of such person's rights with respect to his or her Deferred Stock Account and Deferred Cash Account will transfer to the maximum extent permitted by law to such person's beneficiary. Each Non-Employee Director may name, from time to time, any beneficiary or beneficiaries (which may be named contingently or successively) as his or her beneficiary for receiving delivery of the shares of Common Stock from the Deferred Stock Account and the cash from the Deferred Cash Account under this Plan. Each designation shall be on a form prescribed by the Administrator, will be effective only when delivered to the Company and when effective will revoke all prior designations by the Non-Employee Director. If a Non-Employee Director dies with no such beneficiary designation in effect, such person's beneficiary shall be his or her estate and such person's payments will be transferable by will or pursuant to laws of descent and distribution applicable to such person. (b) Each Option granted under the Plan by its terms shall not be transferable by the Non-Employee Director otherwise than by will, or by the laws of descent and distribution, and shall be exercised during the lifetime of the Non-Employee Director only by him or her. No Option or interest therein may be transferred, assigned, pledged or hypothecated by the Non- SOLUTIA INC. NON-EMPLOYEE DIRECTOR COMPENSATION PLAN, PAGE 13 As amended 6/27/01 Employee Director during his or her lifetime, whether by operation of law or otherwise, or be made subject to execution, attachment or similar process. 22. MISCELLANEOUS. Nothing in the Plan shall be deemed to create any obligation on the part of the Board to nominate any Non-Employee Director for reelection by the Company's shareholders or to limit the rights of the shareholders to remove any director. 23. GOVERNING LAW. The Plan and all actions taken thereunder shall be governed by and construed in accordance with the laws of the State of Delaware. SOLUTIA INC. NON-EMPLOYEE DIRECTOR COMPENSATION PLAN, PAGE 14 As amended 6/27/01 EXHIBIT A FORM OF SOLUTIA INC. 1997 NON-QUALIFIED STOCK OPTION (NOT TRANSFERABLE) CERTIFICATE Grant to [insert Name of Optionee] (The "Optionee") to purchase from Solutia Inc. (the "Company") [insert Number of shares] shares of its common stock par value $0.01 per share (the "Optioned Shares") at the price of [insert Option Price] per share pursuant to and subject to the provisions of the Solutia Inc. Non-Employee Director Compensation Plan (the "Plan") and to the Terms and Conditions set forth on the reverse hereof Option Grant Date: [insert grant date] TERMS AND CONDITIONS OF NON-QUALIFIED STOCK OPTION DEFINITIONS. The terms "Administrator", "Value", and "Common Stock" when used herein, shall have the meanings set forth in the Plan. EXERCISE RIGHTS. The Option shall become exercisable, during the Option term set forth in the third paragraph hereof and subject to the other terms and conditions hereof, as to one-third of the Optioned Shares on the first anniversary of the Option Grant Date, as to an additional one-third of the Optioned shares on the second anniversary of the Option Grant Date, and as to any or all of the Optioned Shares on the third anniversary of the Option Grant Date, provided that the Optionee continues in the service of the Company as a director through such anniversaries. Notwithstanding the foregoing, but subject to the third paragraph hereof, an Option shall become fully and immediately exercisable upon the occurrence of a Change in Control as set forth in Section 19 of the Plan. The Option may be exercised in full share lots only. OPTION TERM. The Option term will expire at the end of the day next preceding ten years from the date the Option was granted, or at the end of the day next preceding two years from the date the Optionee ceases to be a director of the Company for any reason, whichever first occurs. METHOD OF EXERCISE. The Option shall be exercised by (a) written notice, or notice in such other form as may be prescribed from time to time, given to the Company or its designee (at the address specified by the Company from time to time) specifying the date the Option was granted and the number of shares of Common Stock as to which the Option is being exercised, plus (b) payment to the Company in full for the shares so specified. Within a reasonable time after exercise of the Option, the Company shall deliver shares of Common Stock to the Optionee in respect of which the Option shall have been exercised and shall pay all stamp taxes in respect thereof, provided that upon or prior to the delivery of such shares of Common Stock, provision (as specified by the Company from time to time) shall be made by the Optionee for the payment to the Company of any and all taxes which it shall be required to withhold in connection with exercise of the Option, by any law or regulation of any government, whether federal, state or local and whether domestic or foreign. Payment may be made by delivery of shares of Common Stock (or other evidence of ownership of shares of Common Stock satisfactory to the Company) with a Value equal to the Option exercise price, provided that such shares have been held by the Optionee for at least six months at the time of exercise. STOCKHOLDER STATUS. The Optionee shall have no rights as a stockholder with respect to any shares of Common Stock subject to an Option unless and until the Optionee shall have become the holder of record of such underlying shares of Common Stock and, subject to the provisions of the sixth paragraph hereof, no adjustment shall be made for dividends, ordinary or extraordinary (whether in cash or securities or other property), or other distributions, or other rights in respect of such shares of Common Stock as to which the record date is prior to the date upon which the Optionee shall have become the holder of record thereof. SHARE AND PRICE ADJUSTMENT. In the event of any adjustments in the outstanding shares of Common Stock, as provided for in Section 19 of the Plan, the Executive Compensation and Development Committee of the Board of Directors of the Company may make such substitution or adjustments in the aggregate number and kind of shares to be delivered under the Plan, in the number, kind and Option exercise price of shares subject to outstanding Options and/or such other equitable substitution or adjustments as it may determine to be appropriate in its sole discretion. The Optionee shall be notified of any such adjustment and any adjustment, or failure to adjust, shall be final and binding upon the Company and the Optionee. SERVICE AS A DIRECTOR. The grant of this Option is a separate inducement in connection with the Optionee's service as a director of the Company. Neither the Option nor any provision hereof shall be deemed to create any obligation on the part of the Board of Directors of the Company to nominate any Optionee for reelection to the Company's Board of Directors by the Company's shareholders or to limit the rights of the shareholders to remove any director. OPTION SUBJECT TO LAWS AND REGULATION. Each exercise of the Option shall be subject to all requirements as to (a) any registration or other qualifications of such shares under any state, federal, or foreign law or regulation, or the maintaining in effect of any such registration or other qualification which the Administrator shall, in his or her absolute discretion upon the advice of counsel, deem necessary or advisable, and (b) obtaining any other consent, approval, or permit from any state or federal governmental agency which the Administrator shall, in his or her absolute discretion after receiving advice of counsel, determine to be necessary or advisable. Anything herein to the contrary notwithstanding, the Option may not be exercised, in whole or in part, unless and until the Company shall have been able to comply with all such requirements and regulations free of any conditions not acceptable to the Company. As a condition to the exercise of the Option, either in whole or in part, the Optionee shall execute such documents and take such action as the Company in its sole discretion deems necessary or advisable to assist the Company in compliance with any such requirements, and Optionee shall comply with all requirements of any regulatory authority having control or supervision. GENERAL PROVISIONS. The Option is not transferable by the Optionee otherwise than by will or by the laws of descent and distribution, and during the lifetime of the Optionee shall be exercisable only by the Optionee. The validity, interpretation, performance and enforcement of this Option shall be governed by the laws of the State of Delaware. Each and every provision of the Option shall be administered, construed and interpreted so that the Option shall in all respects conform to the provisions of the Plan, a copy of which has been delivered to the Optionee, and any provision that cannot be so administered shall be deemed appropriately modified, or, if necessary, disregarded. In no event shall this Option be deemed to be an Incentive Stock Option under Section 422 of the Internal Revenue Code of 1986, as amended. EXHIBIT B FORM OF SOLUTIA INC. [Year] NON-QUALIFIED STOCK OPTION (NOT TRANSFERABLE) CERTIFICATE Grant to [insert Name of Optionee] (The "Optionee") to purchase from Solutia Inc. (the "Company") [insert Number of shares] shares of its common stock par value $0.01 per share (the "Optioned Shares") at the price of [insert Option Price] per share pursuant to and subject to the provisions of the Solutia Inc. Non-Employee Director Compensation Plan (the "Plan") and to the Terms and Conditions set forth on the following pages Option Grant Date: [insert grant date] TERMS AND CONDITIONS OF NON-QUALIFIED STOCK OPTION DEFINITIONS. - ----------- The terms "Administrator", "Value", and "Common Stock" when used herein, shall have the meanings set forth in the Plan. EXERCISE RIGHTS. - --------------- The Option shall become exercisable, during the Option term set forth in the third paragraph hereof and subject to the other terms and conditions hereof, as to one-third of the Optioned Shares on the date of the first Annual Meeting of Stockholders of the Company following the Option Grant Date, as to an additional one-third of the Optioned shares on the date of the second Annual Meeting of Stockholders of the Company following the Option Grant Date, and as to any or all of the Optioned Shares on the date of the third Annual Meeting of Stockholders of the Company following the Option Grant Date, provided that the Optionee continues in the service of the Company as a director until the date of the applicable Annual Meetings of Stockholders. Notwithstanding the foregoing, but subject to the third paragraph hereof, an Option shall become fully and immediately exercisable upon the occurrence of a Change in Control as set forth in Section 19 of the Plan or upon the Optionee's retirement from the Board of Directors at the mandatory retirement age set forth in the Charter for the Company's Board of Directors, or other applicable document. The Option may be exercised in full share lots only. OPTION TERM. - ----------- The Option term will expire at the end of the day next preceding ten years from the date the Option was granted, or at the end of the day next preceding two years from the date the Optionee ceases to be a director of the Company for any reason, whichever first occurs. METHOD OF EXERCISE. - ------------------ The Option shall be exercised by (a) written notice, or notice in such other form as may be prescribed from time to time, given to the Company or its designee (at the address specified by the Company from time to time) specifying the date the Option was granted and the number of shares of Common Stock as to which the Option is being exercised, plus (b) payment to the Company in full for the shares so specified. Within a reasonable time after exercise of the Option, the Company shall deliver shares of Common Stock to the Optionee in respect of which the Option shall have been exercised and shall pay all stamp taxes in respect thereof, provided that upon or prior to the delivery of such shares of Common Stock, provision (as specified by the Company from time to time) shall be made by the Optionee for the payment to the Company of any and all taxes which it shall be required to withhold in connection with exercise of the Option, by any law or regulation of any government, whether federal, state or local and whether domestic 2 or foreign. Payment may be made by delivery of shares of Common Stock (or other evidence of ownership of shares of Common Stock satisfactory to the Company) with a Value equal to the Option exercise price, provided that such shares have been held by the Optionee for at least six months at the time of exercise. STOCKHOLDER STATUS. - ------------------ The Optionee shall have no rights as a stockholder with respect to any shares of Common Stock subject to an Option unless and until the Optionee shall have become the holder of record of such underlying shares of Common Stock and, subject to the provisions of the sixth paragraph hereof, no adjustment shall be made for dividends, ordinary or extraordinary (whether in cash or securities or other property), or other distributions, or other rights in respect of such shares of Common Stock as to which the record date is prior to the date upon which the Optionee shall have become the holder of record thereof. SHARE AND PRICE ADJUSTMENT. - -------------------------- In the event of any adjustments in the outstanding shares of Common Stock, as provided for in Section 19 of the Plan, the Executive Compensation and Development Committee of the Board of Directors of the Company may make such substitution or adjustments in the aggregate number and kind of shares to be delivered under the Plan, in the number, kind and Option exercise price of shares subject to outstanding Options and/or such other equitable substitution or adjustments as it may determine to be appropriate in its sole discretion. The Optionee shall be notified of any such adjustment and any adjustment, or failure to adjust, shall be final and binding upon the Company and the Optionee. SERVICE AS A DIRECTOR. - --------------------- The grant of this Option is a separate inducement in connection with the Optionee's service as a director of the Company. Neither the Option nor any provision hereof shall be deemed to create any obligation on the part of the Board of Directors of the Company to nominate any Optionee for reelection to the Company's Board of Directors by the Company's shareholders or to limit the rights of the shareholders to remove any director. OPTION SUBJECT TO LAWS AND REGULATION. - ------------------------------------- Each exercise of the Option shall be subject to all requirements as to (a) any registration or other qualifications of such shares under any state, federal, or foreign law or regulation, or the maintaining in effect of any such registration or other qualification which the Administrator shall, in his or her absolute discretion upon the advice of counsel, deem necessary or advisable, and (b) obtaining any other consent, approval, or permit from any state or federal governmental agency 3 which the Administrator shall, in his or her absolute discretion after receiving advice of counsel, determine to be necessary or advisable. Anything herein to the contrary notwithstanding, the Option may not be exercised, in whole or in part, unless and until the Company shall have been able to comply with all such requirements and regulations free of any conditions not acceptable to the Company. As a condition to the exercise of the Option, either in whole or in part, the Optionee shall execute such documents and take such action as the Company in its sole discretion deems necessary or advisable to assist the Company in compliance with any such requirements, and Optionee shall comply with all requirements of any regulatory authority having control or supervision. GENERAL PROVISIONS. - ------------------ The Option is not transferable by the Optionee otherwise than by will or by the laws of descent and distribution, and during the lifetime of the Optionee shall be exercisable only by the Optionee. The validity, interpretation, performance and enforcement of this Option shall be governed by the laws of the State of Delaware. Each and every provision of the Option shall be administered, construed and interpreted so that the Option shall in all respects conform to the provisions of the Plan, a copy of which has been delivered to the Optionee, and any provision that cannot be so administered shall be deemed appropriately modified, or, if necessary, disregarded. In no event shall this Option be deemed to be an Incentive Stock Option under Section 422 of the Internal Revenue Code of 1986, as amended. EX-99 3 ex99.txt COMPUTATION OF RATIO OF EARNINGS EXHIBIT 99 SOLUTIA INC. CALCULATION OF THE RATIO OF EARNINGS TO FIXED CHARGES (DOLLARS IN MILLIONS)
FOUR MONTHS SIX MONTHS ENDED ENDED DECEMBER 31, 1997(1) 1998 1999 2000 JUNE 30, 2001 -------------------- ---- ---- ---- ------------- Income from continuing operations, before income taxes and equity earnings from affiliates(2)........... $ 37 $350 $267 $ 6 $ 36 Add: Fixed charges.............. 22 58 62 114 51 Amortization of capitalized interest................. 2 7 7 7 4 Dividends from affiliated companies................ 14 37 60 45 5 Less: Interest capitalized....... (4) (6) (13) (18) (1) ---- ---- ---- ---- ---- Income as adjusted..... $ 71 $446 $383 $154 $ 95 ==== ==== ==== ==== ==== Fixed charges Interest expensed and capitalized.............. 19 49 53 101 45 Amortization of debt premium.................. -- -- -- -- -- Estimate of interest within rental expense........... 3 9 9 13 6 ---- ---- ---- ---- ---- Fixed charges.......... $ 22 $ 58 $ 62 $114 $ 51 ==== ==== ==== ==== ==== Ratio of Earnings to Fixed Charges...................... 3.23 7.69 6.18 1.35 1.86 ==== ==== ==== ==== ==== - ------- (1) We have not calculated the ratio of earnings to fixed charges for the periods before September 1, 1997. Historical computation of earnings to fixed charges is not considered meaningful before that date because we were not an independent company and Monsanto Company did not allocate debt to us. (2) Includes restructuring and other unusual items of $122 million for the year ended December 31, 2000, $63 million for the year ended December 31, 1999, and $72 million for the four months ended December 31, 1997. For the six months ended June 30, 2001, amount includes a gain of $28 million that resulted from an insurance settlement.
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