-----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, JekPTLMwFOQ77Dx2LbVe79rvnydXfBUQh1TdgCnJ8WumwLFi4zfYZuTyPaZJ7k/b CjXXhClUWv/+UuVf4r3IBw== 0001068800-06-000092.txt : 20060131 0001068800-06-000092.hdr.sgml : 20060131 20060131162250 ACCESSION NUMBER: 0001068800-06-000092 CONFORMED SUBMISSION TYPE: 8-K PUBLIC DOCUMENT COUNT: 2 CONFORMED PERIOD OF REPORT: 20060131 ITEM INFORMATION: Regulation FD Disclosure ITEM INFORMATION: Financial Statements and Exhibits FILED AS OF DATE: 20060131 DATE AS OF CHANGE: 20060131 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: 8-K SEC ACT: 1934 Act SEC FILE NUMBER: 001-13255 FILM NUMBER: 06566227 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 8-K 1 sol8k.txt UNITED STATES SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 FORM 8-K CURRENT REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 DATE OF REPORT (DATE OF EARLIEST EVENT REPORTED): JANUARY 31, 2006 SOLUTIA INC. ------------ (EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER) DELAWARE -------- (STATE OF INCORPORATION) 001-13255 43-1781797 --------- ---------- (COMMISSION (IRS EMPLOYER FILE NUMBER) IDENTIFICATION NO.) 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 Check the appropriate box below if the Form 8-K filing is intended to simultaneously satisfy the filing obligation of the registrant under any of the following provisions: [ ] Written communications pursuant to Rule 425 under the Securities Act (17 CFR 230.425) [ ] Soliciting material pursuant to Rule 14a-12 under the Exchange Act (17 CFR 240.14a-12) [ ] Pre-commencement communications pursuant to Rule 14d-2(b) under the Exchange Act (17 CFR 240.14d-2(b)) [ ] Pre-commencement communications pursuant to Rule 13e-4(c) under the Exchange Act (17 CFR 240.13e-4(c)) ITEM 7.01. REGULATION FD DISCLOSURE As previously reported, on December 17, 2003 Solutia Inc. ("Solutia") and its 14 U.S. subsidiaries filed voluntary petitions for reorganization under Chapter 11 of the U.S. Bankruptcy Code (the "Bankruptcy Code") in the U.S. Bankruptcy Court for the Southern District of New York (the "Bankruptcy Court"). The cases were consolidated for the purpose of joint administration and were assigned case number 03-17949 (PCB). Solutia's subsidiaries outside the United States were not included in the Chapter 11 filing. On January 31, 2006 Solutia filed with the Bankruptcy Court as required by the Bankruptcy Code its monthly operating report for the period December 1, 2005 through December 31, 2005. The required Monthly Operating Report is furnished hereunder as Exhibit 99. Cautionary Statements Regarding Financial and Operating Data Solutia cautions investors and potential investors not to place undue reliance upon the information contained in the Monthly Operating Reports, as they were not prepared for the purpose of providing the basis for an investment decision relating to any of the securities of any of Solutia or its subsidiaries, or any other affiliate of Solutia. The Monthly Operating Reports were not audited or reviewed by independent accountants, are as prescribed by applicable bankruptcy laws, and are subject to future adjustment and reconciliation. There can be no assurance that, from the perspective of an investor or potential investor in Solutia's securities, the Monthly Operating Reports are complete. The Monthly Operating Reports also contain information for periods which are shorter or otherwise different from those required in Solutia's reports pursuant to the Securities Exchange Act of 1934, as amended (the "Exchange Act"), and such information might not be indicative of Solutia's financial condition or operating results for the period that would be reflected in Solutia's financial statements or in its reports pursuant to the Exchange Act. Results set forth in the Monthly Operating Reports should not be viewed as indicative of future results. Limitation on Incorporation by Reference In accordance with General Instruction B.2 of Form 8-K, the information in this Form 8-K furnished pursuant to Item 7.01 shall not be deemed to be "filed" for purposes of Section 18 of the Exchange Act, or otherwise subject to the liabilities of that section, nor shall such information be deemed incorporated by reference in any filing under the Exchange Act or Securities Act of 1933, as amended, except as shall be expressly set forth by specific reference in such a filing. ITEM 9.01. FINANCIAL STATEMENTS AND EXHIBITS (c) Exhibits: Exhibit Number Description - -------------- ----------- 99 Monthly Operating Statement for the Month of December 2005 SIGNATURES 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/ Rosemary L. Klein --------------------- Senior Vice President, General Counsel and Secretary DATE: January 31, 2006 EX-99 2 ex99.txt Exhibit 99 KIRKLAND & ELLIS LLP Citigroup Center 153 East 53rd Street New York, New York 10022-4675 Telephone: (212) 446-4800 Facsimile: (212) 446-4900 Richard M. Cieri (RC-6062) Jonathan S. Henes (JH-1979) Attorneys for the Debtors and Debtors in Possession UNITED STATES BANKRUPTCY COURT SOUTHERN DISTRICT OF NEW YORK - ----------------------------------------------------x : In re : Chapter 11 : SOLUTIA INC., ET AL., : Case No. 03-17949 (PCB) : Debtors. : (Jointly Administered) : - ----------------------------------------------------x THIS MONTHLY OPERATING STATEMENT APPLIES TO: X All Debtors Axio Research Corporation - --- --- Solutia Inc. Solutia Investments, LLC - --- --- Solutia Business Enterprises, Inc. Beamer Road Management Company - --- --- Solutia Systems, Inc. Monchem, Inc. - --- --- Solutia Overseas, Inc. Solutia Inter-America, Inc. - --- --- CPFilms Inc. Solutia International Holding, LLC - --- --- Solutia Management Company, Inc. Solutia Taiwan, Inc. - --- --- Monchem International, Inc. Solutia Greater China, Inc. - --- --- MONTHLY OPERATING STATEMENT FOR THE MONTH OF DECEMBER 2005 (1) -------------------------- (1) The information contained in the Debtors' monthly operating report (the "MOR") is unaudited and is limited to the time period indicated and is presented in a format prescribed by the bankruptcy court. The MOR does not purport to represent financial statements prepared in accordance with GAAP nor is it intended to fully reconcile to the financial statements filed by Solutia Inc. with the Securities and Exchange Commission. Additionally, while every effort has been made to assure its accuracy and completeness, errors or omissions may have inadvertently occurred and the Debtors reserve the right to amend their MOR as necessary. 1 UNITED STATES BANKRUPTCY COURT SOUTHERN DISTRICT OF NEW YORK - ----------------------------------------------------x : In re : Chapter 11 : SOLUTIA INC., ET AL., : Case No. 03-17949 (PCB) : Debtors. : (Jointly Administered) : - ----------------------------------------------------x MONTHLY OPERATING STATEMENT FOR THE MONTH OF DECEMBER 2005 ---------------------- DEBTORS' ADDRESS: 575 Maryville Centre Dr. St. Louis, MO 63141 DEBTORS' ATTORNEY: KIRKLAND & ELLIS LLP Richard M. Cieri (RC-6062) Jonathan S. Henes (JH-1979) Citigroup Center 153 East 53rd Street New York, New York 10022-4675 CURRENT MONTH NET LOSS ($M): $30 REPORT PREPARER: Timothy J. Spihlman THIS OPERATING STATEMENT MUST BE SIGNED BY A REPRESENTATIVE OF THE DEBTORS The undersigned, having reviewed the attached report and being familiar with the Debtors' financial affairs verifies, under penalty of perjury, that the information contained herein is complete, accurate and truthful to the best of my knowledge. DATE: January 31, 2006 /s/ Timothy J. Spihlman ----------------------- Timothy J. Spihlman Vice President and Controller Indicate if this is an amended statement by checking here: _______ 2 SOLUTIA INC., ET. AL., Case Nos. 03-17948 (PCB) through 03-17962 (PCB) (Debtors in Possession) MONTHLY DISBURSEMENTS BY DEBTOR For the Month of December 2005 - ------------------------------------------------------------------------------- Solutia Inc. $ 218,594,743.80 - ------------------------------------------------------------------------------- Solutia Business Enterprises, Inc.* $ -- - ------------------------------------------------------------------------------- Solutia Systems, Inc. $ 3,000.00 - ------------------------------------------------------------------------------- Solutia Overseas, Inc. * $ -- - ------------------------------------------------------------------------------- CPFilms Inc. $ 11,286,530.01 - ------------------------------------------------------------------------------- Solutia Management Company, Inc. * $ -- - ------------------------------------------------------------------------------- Monchem International, Inc. * $ -- - ------------------------------------------------------------------------------- Axio Research Corporation $ 26.00 - ------------------------------------------------------------------------------- Solutia Investments, LLC * $ -- - ------------------------------------------------------------------------------- Beamer Road Management Company * $ -- - ------------------------------------------------------------------------------- Monchem, Inc. * $ -- - ------------------------------------------------------------------------------- Solutia Inter-America, Inc. $ 27,643.83 - ------------------------------------------------------------------------------- Solutia International Holding, LLC * $ -- - ------------------------------------------------------------------------------- Solutia Taiwan, Inc. $ 33,973.86 - ------------------------------------------------------------------------------- Solutia Greater China, Inc. * $ -- - ------------------------------------------------------------------------------- * These non-operating debtors had no constructive disbursements made on their behalf. 3 SOLUTIA INC., ET. AL., Case Nos. 03-17948 (PCB) through 03-17962 (PCB) (Debtors in Possession) STATEMENT ON INSURANCE For the Month of December 2005 All insurance policy premiums due, including those for workers compensation and disability insurance, have been paid and all the policies remain in effect. 4 SOLUTIA INC., ET. AL., Case Nos. 03-17948 (PCB) through 03-17962 (PCB) (Debtors in Possession) SOLUTIA GROUP* STATEMENT OF CONSOLIDATED OPERATIONS (UNAUDITED) (DOLLARS IN MILLIONS)
MONTH ENDED YEAR ENDED DECEMBER 31, DECEMBER 31, 2005 2005 ------------------- -------------------- TOTAL NET SALES $ 220 $ 2,825 TOTAL COST OF GOODS SOLD 209 2,487 ------------------- -------------------- GROSS PROFIT 11 338 TOTAL MAT EXPENSE 28 285 AMORTIZATION EXPENSE - 1 ------------------- -------------------- OPERATING INCOME (LOSS) (17) 52 EQUITY EARNINGS (LOSS) FROM AFFILIATES (3) 96 INTEREST EXPENSE (7) (84) OTHER INCOME, NET 1 10 REORGANIZATION ITEMS: Professional fees (4) (49) Employee severance and retention costs - (12) Adjustment to allowed claim amounts - (10) Settlements of pre-petition claims 1 31 Other (1) (9) ------------------- -------------------- (4) (49) ------------------- -------------------- INCOME (LOSS) BEFORE TAXES (30) 25 Income tax expense (benefit) (8) 14 ------------------- -------------------- INCOME (LOSS) FROM CONTINUING OPERATIONS (22) 11 Cumulative Effect of Change in Accounting Principle, net of tax (3) (3) ------------------- -------------------- NET INCOME (LOSS) $ (25) $ 8 =================== ==================== See Accompanying Notes to Consolidated Financial Statements. * Includes non-U.S. subsidiaries of the Solutia Inc. corporate organization that did not commence Chapter 11 cases
5 SOLUTIA INC., ET. AL., Case Nos. 03-17948 (PCB) through 03-17962 (PCB) (Debtors in Possession) SOLUTIA GROUP* STATEMENT OF CONSOLIDATED FINANCIAL POSITION (UNAUDITED) AS OF DECEMBER 31, 2005
(Dollars in ASSETS millions) ------ --------------- Cash $ 107 Trade Receivables, net 253 Inventories 267 Other Current Assets 129 --------------- TOTAL CURRENT ASSETS 756 Property, Plant and Equipment, net 804 Investments in Affiliates 205 Intangible Assets, net 111 Other Assets 106 --------------- TOTAL ASSETS $ 1,982 =============== LIABILITIES AND SHAREHOLDERS' DEFICIT ------------------------------------- Accounts Payable $ 220 Short Term Debt 300 Other Current Liabilities 240 --------------- TOTAL CURRENT LIABILITIES 760 Long-Term Debt 247 Other Long-Term Liabilities 253 --------------- TOTAL LIABILITIES NOT SUBJECT TO COMPROMISE 1,260 LIABILITIES SUBJECT TO COMPROMISE 2,176 SHAREHOLDERS' DEFICIT (1,454) --------------- TOTAL LIABILITIES & SHAREHOLDERS' DEFICIT $ 1,982 =============== See Accompanying Notes to Consolidated Financial Statements. * Includes non-U.S. subsidiaries of the Solutia Inc. corporate organization that did not commence Chapter 11 cases
6 SOLUTIA INC., ET. AL., Case Nos. 03-17948 (PCB) through 03-17962 (PCB) (Debtors in Possession) SOLUTIA GROUP* STATEMENT OF CONSOLIDATED CASH FLOWS (UNAUDITED) (DOLLARS IN MILLIONS)
MONTH ENDED YEAR ENDED DECEMBER 31, DECEMBER 31, NET CASH USED IN OPERATING ACTIVITIES: 2005 2005 -------------------- ------------------- Net income (loss) $ (25) $ 8 Cumulative effect of accounting change, net of tax 3 3 Depreciation and amortization 9 117 Restructuring expenses and other unusual items 12 (38) Changes in assets and liabilities: Trade receivables 10 33 Inventories (24) (28) Accounts payable 24 17 Other assets and liabilities (16) (71) -------------------- ------------------- NET CASH PROVIDED (USED) BEFORE REORGANIZATION ITEMS (7) 41 OPERATING CASH FLOWS - REORGANIZATION ITEMS: Professional services fees (3) (50) Employee severance and retention payments - (8) Other (1) (7) -------------------- ------------------- NET CASH USED IN REORGANIZATION ITEMS (4) (65) -------------------- ------------------- NET CASH USED IN OPERATING ACTIVITIES (11) (24) ==================== =================== NET CASH USED IN INVESTING ACTIVITIES: Property, plant and equipment purchases (12) (81) Disposal of equity affiliate investment - 76 Other investing activities - 5 -------------------- ------------------- NET CASH USED IN INVESTING ACTIVITIES (12) - ==================== =================== NET CASH PROVIDED BY FINANCING ACTIVITIES: Net change in cash collateralized letters of credit - 17 Other financing activities - (1) -------------------- ------------------- NET CASH PROVIDED BY FINANCING ACTIVITIES - 16 ==================== =================== NET DECREASE IN CASH AND CASH EQUIVALENTS (23) (8) CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD 130 115 -------------------- ------------------- CASH AND CASH EQUIVALENTS, END OF PERIOD $ 107 $ 107 ==================== =================== See Accompanying Notes to Consolidated Financial Statements. * Includes non-U.S. subsidiaries of the Solutia Inc. corporate organization that did not commence Chapter 11 cases
7 SOLUTIA INC., ET. AL., Case Nos. 03-17948 (PCB) through 03-17962 (PCB) (Debtors in Possession) SOLUTIA CHAPTER 11 DEBTORS STATEMENT OF CONSOLIDATED OPERATIONS (UNAUDITED) (DOLLARS IN MILLIONS)
MONTH ENDED YEAR ENDED DECEMBER 31, DECEMBER 31, 2005 2005 ------------------- ------------------- TOTAL NET SALES $ 181 $ 2,266 TOTAL COST OF GOODS SOLD 180 2,105 ------------------- ------------------- GROSS PROFIT 1 161 TOTAL MAT EXPENSE 22 216 ------------------- ------------------- OPERATING LOSS (21) (55) EQUITY EARNINGS (LOSS) FROM AFFILIATES (2) 102 INTEREST EXPENSE, NET (5) (60) OTHER INCOME, NET 3 33 REORGANIZATION ITEMS: Professional fees (4) (47) Employee severance and retention costs - (12) Adjustment to allowed claim amounts - (10) Settlements of pre-petition claims 4 33 Other (1) (9) ------------------- ------------------- (1) (45) ------------------- ------------------- LOSS BEFORE TAXES (26) (27) Income tax expense 2 5 ------------------- ------------------- LOSS FROM CONTINUING OPERATIONS (28) (32) Cumulative Effect of Change in Accounting Principle, net of tax (2) (2) ------------------- ------------------- NET LOSS $ (30) $ (34) =================== =================== See Accompanying Notes to Consolidated Financial Statements.
8 SOLUTIA INC., ET. AL., Case Nos. 03-17948 (PCB) through 03-17962 (PCB) (Debtors in Possession) SOLUTIA CHAPTER 11 DEBTORS STATEMENT OF CONSOLIDATED FINANCIAL POSITION (UNAUDITED) AS OF DECEMBER 31, 2005
(Dollars in ASSETS millions) ------ --------------- Cash $ 18 Trade Receivables, net 125 Account Receivables-Unconsolidated Subsidiaries 41 Inventories 174 Other Current Assets 89 --------------- TOTAL CURRENT ASSETS 447 Property, Plant and Equipment, net 674 Investments in Subsidaries and Affiliates 538 Intangible Assets, net 100 Other Assets 61 --------------- TOTAL ASSETS $ 1,820 =============== LIABILITIES AND SHAREHOLDERS' DEFICIT ------------------------------------- Accounts Payable $ 175 Short Term Debt 300 Other Current Liabilities 168 --------------- TOTAL CURRENT LIABILITIES 643 Other Long-Term Liabilities 201 --------------- TOTAL LIABILITIES NOT SUBJECT TO COMPROMISE 844 LIABILITIES SUBJECT TO COMPROMISE 2,280 SHAREHOLDERS' DEFICIT (1,304) --------------- TOTAL LIABILITIES & SHAREHOLDERS' DEFICIT $ 1,820 =============== See Accompanying Notes to Consolidated Financial Statements.
9 SOLUTIA INC., ET. AL., Case Nos. 03-17948 (PCB) through 03-17962 (PCB) (Debtors in Possession) NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 1. NATURE OF OPERATIONS AND BANKRUPTCY PROCEEDINGS Nature of Operations Solutia Inc., together with its subsidiaries (referred to herein as "Solutia", the "Solutia Group" or the "Company"), is a global manufacturer and marketer of a variety of high-performance chemical-based materials. Solutia is a world leader in performance films for laminated safety glass and after-market applications; specialty products such as water treatment chemicals, heat transfer fluids and aviation hydraulic fluids; and an integrated family of nylon products including high-performance polymers and fibers. Prior to September 1, 1997, Solutia was a wholly-owned subsidiary of the former Monsanto Company (now known as Pharmacia Corporation, a wholly-owned subsidiary of Pfizer, Inc.). On September 1, 1997, Pharmacia distributed all of the outstanding shares of common stock of Solutia as a dividend to Pharmacia stockholders (the "spinoff"). As a result of the spinoff, on September 1, 1997, Solutia became an independent publicly held company and its operations ceased to be owned by Pharmacia. A net deficiency of assets of $113 million resulted from the spinoff. Proceedings Under Chapter 11 of the Bankruptcy Code On December 17, 2003, Solutia Inc. and its 14 U.S. subsidiaries (collectively, "Debtors") filed voluntary petitions for reorganization under Chapter 11 of the U.S. Bankruptcy Code in the U.S. Bankruptcy Court for the Southern District of New York. The cases were consolidated for the purpose of joint administration and were assigned case number 03-17949 (PCB). Solutia's subsidiaries outside the United States were not included in the Chapter 11 filing. The filing was made to restructure Solutia's balance sheet by reducing indebtedness to appropriate levels, to streamline operations and reduce costs, in order to allow Solutia to emerge from Chapter 11 as a viable going concern, and to obtain relief from the negative financial impact of liabilities for litigation, environmental remediation and certain postretirement benefits and liabilities under operating contracts, all of which were assumed by Solutia at the time of the spinoff (collectively, "legacy liabilities"). These factors, combined with the weakened state of the chemical manufacturing sector, general economic conditions and continuing high, volatile energy and crude oil costs have been an obstacle to Solutia's financial stability and success. Under Chapter 11, Solutia is operating its businesses as a debtor-in-possession ("DIP") under bankruptcy court protection from creditors and claimants. Since the Chapter 11 filing, all orders sufficient to enable Solutia to conduct normal business activities, including the approval of Solutia's DIP financing, have been entered by the bankruptcy court. While Solutia is subject to Chapter 11, all transactions not in the ordinary course of business require the prior approval of the bankruptcy court. As a consequence of the Chapter 11 filing, pending litigation against the Debtors is generally stayed, and no party may take any action to collect its pre-petition claims except pursuant to an order of the bankruptcy court. November 30, 2004 was the last date by which holders of pre-petition claims 10 against the Debtors could file proofs of claim with respect to such claims. Any holder of a claim that was required to file a proof of claim by November 30, 2004, and did not do so, may be barred from asserting such claim against the Debtors and, accordingly, may not be able to participate in any distribution with respect to such claim. Differences between claim amounts identified by the Debtors and proofs of claim filed by claimants will be investigated and resolved in connection with the Debtors' claims resolution process, and only holders of claims that are ultimately allowed for purposes of the Chapter 11 case will be entitled to distributions. Solutia has not yet fully completed its analysis of all the proofs of claim. Because the settlement terms of allowed claims are subject to a confirmed plan of reorganization, the ultimate distribution with respect to allowed claims is not presently ascertainable. On June 7, 2005, Solutia reached an agreement-in-principle with Monsanto Company ("Monsanto") and the Official Committee of Unsecured Creditors in the Debtors' Chapter 11 case (the "Unsecured Creditors' Committee") that will serve as a framework for the Debtors' plan of reorganization. The agreement-in-principle is subject to the negotiation of definitive documents, approval by Solutia's board of directors and various other conditions and contingencies, some of which are not within the control of Solutia, Monsanto or the Unsecured Creditors' Committee. Until a plan of reorganization consistent with the terms of the agreement-in-principle is confirmed by the bankruptcy court, the terms of the agreement-in-principle are not binding upon any party. Under the agreement-in-principle, Solutia would emerge from bankruptcy as an independent publicly held company. The agreement-in-principle provides for $250 million of new investment in a reorganized Solutia which would be used to pay retiree benefits to those who retired prior to the spinoff, certain environmental remediation obligations of Solutia and other legacy liabilities. The $250 million would be raised in a rights offering to the Debtors' unsecured creditors. Monsanto would be obligated to backstop the rights offering, exercising any rights not exercised by the unsecured creditors. The agreement-in-principle also provides that Monsanto would pay environmental remediation costs at sites that have not been owned or operated by Solutia, and to which waste has not been sent, since the spinoff, provides a mechanism for sharing between Monsanto and Solutia responsibility for environmental liabilities at certain sites adjacent to the Anniston, Alabama, and Sauget, Illinois, plant locations, and provides that Monsanto would contribute $107 million, less certain expenses incurred, and litigation settlement costs paid, by Monsanto during the course of Solutia's Chapter 11 case, to make distributions to the holders of certain unsecured claims, including current tort and other legacy litigation claims. The agreement-in-principle provides that Solutia will continue to pay its annual installment and education fund obligations relating to the August 2003 Anniston polychlorinated biphenyls ("PCBs") settlement and education fund obligations relating to the Anniston Partial Consent Decree. The agreement-in-principle provides for pay-off of Solutia's secured debt and debtor-in-possession financing from an exit financing package to be arranged by Solutia and does not require termination of Solutia's pension plans. However, the agreement-in-principle does not provide for distributions to the holders of Solutia's existing equity. Solutia's existing shares of common stock, as well as options and warrants to purchase its common stock, would be cancelled and holders of Solutia's common stock, including options and warrants to purchase Solutia's common stock, would receive no consideration for that stock or those options and warrants. Although the agreement-in-principle does not provide for any distributions to holders of Solutia's existing equity, the Official Committee of Equity Security Holders in Solutia's bankruptcy case has filed a complaint against Pharmacia and Monsanto and an objection to the proofs of claim filed by Monsanto and Pharmacia in Solutia's bankruptcy, arguing that holders of Solutia's existing equity are entitled to some form of distribution. Although the agreement-in-principle provides for distributions of common stock in a reorganized Solutia to holders of allowed unsecured claims, Solutia is unable to predict what recovery its plan of 11 reorganization will provide to these holders of unsecured claims. The ultimate ownership interests in the reorganized Solutia held by Monsanto and other holders of unsecured claims will depend on, among other factors, the amount of allowed unsecured claims in the bankruptcy case and the number of rights exercised by unsecured creditors in the rights offering. Prior to exiting from Chapter 11, the bankruptcy court must confirm a plan of reorganization that satisfies the requirements of the U.S. Bankruptcy Code. As provided by the U.S. Bankruptcy Code, Solutia had the exclusive right to propose a plan of reorganization for 120 days following the Chapter 11 filing date. The bankruptcy court has subsequently approved several extensions of the exclusivity period, the most recent of which is set to expire on April 10, 2006. Although Solutia expects to receive further extensions of the exclusivity period, no assurance can be given that any such future extension requests will be granted by the bankruptcy court. Solutia plans to file with the bankruptcy court a plan of reorganization and disclosure statement consistent with the terms of the agreement-in-principle that provide for Solutia's emergence from bankruptcy as a going concern. There can be no assurance, however, that such a plan of reorganization would be confirmed by the bankruptcy court or that such plan would be implemented successfully. Basis of Consolidation The consolidated financial statements of the Solutia Group include the accounts of Solutia Inc. and its majority-owned U.S. and non-U.S. subsidiaries. The non-U.S. subsidiaries did not commence Chapter 11 cases. The consolidated financial statements of the Solutia Chapter 11 Debtors include the accounts of Solutia Inc. and its majority-owned U.S. subsidiaries, with investments in non-U.S. subsidiaries accounted for on the cost basis. In each case, all significant intercompany transactions and balances have been eliminated in consolidation. Companies in which Solutia has a significant interest but not a controlling interest are accounted for under the equity method of accounting and included in investments in subsidiaries and affiliates in the statement of consolidated financial position. Solutia's proportionate share of these companies' net earnings or losses is reflected in equity earnings (loss) from affiliates in the consolidated statement of operations. In accordance with Financial Accounting Standards Board Interpretation No. 46, Consolidation of Variable Interest Entities, variable interest entities in which Solutia is the primary beneficiary are consolidated within the consolidated financial statements. Certain information and footnote disclosures normally included in financial statements prepared in accordance with generally accepted accounting principles in the United States of America have been condensed or omitted for purposes of this Operating Report. The consolidated statement of operations for any interim period is not necessarily indicative of the results that may be expected for a quarter, full year, or any future interim period. Liquidity At December 31, 2005, total liquidity for the Solutia Group was approximately $238 million, consisting of $107 million of cash and DIP facility availability of $131 million. At December 31, 2005, total liquidity for the Solutia Chapter 11 Debtors was approximately $149 million, consisting of $18 million of cash and DIP facility availability of $131 million. 12 2. SIGNIFICANT ACCOUNTING POLICIES The significant accounting policies are consistent with those listed in the Company's 2004 Annual Report on Form 10-K filed with the Securities and Exchange Commission on March 10, 2005 with the exception of Solutia's change in accounting principle in 2005 related specifically to the adoption of FASB issued Interpretation No. 47, Accounting for Conditional Asset Retirement Obligations - an interpretation of FASB Statement No. 143 ("FIN 47"). FIN 47 clarifies that the term "conditional asset retirement obligation" as used in Statement of Financial Accounting Standards No. 143, Accounting for Asset Retirement Obligations ("SFAS No. 143"), refers to a legal obligation to perform an asset retirement activity in which the timing and (or) method of settlement are conditional on a future event that may or may not be within the control of the entity. The impact of adoption resulted in a charge of $3 million recorded as a cumulative effect of change in accounting principle (net of tax) in the Statement of Consolidated Operations in 2005. 3. SUPPLEMENTAL INFORMATION - STATEMENT OF CONSOLIDATED CASH FLOWS Restructuring Expenses and Other Unusual Items Month Ended December 31, 2005 - ----------------------------- Restructuring expenses and other unusual items included in the consolidated statement of operations and the statement of consolidated cash flows were approximately $12 million for the month ended December 31, 2005. These charges in the month ended December 31, 2005 consisted of approximately $10 million of pension settlement charges, approximately $1 million of charges related to Solutia's equity affiliates and $1 million of restructuring costs related principally to severance and retraining costs. Year Ended December 31, 2005 - ---------------------------- Restructuring expenses and other unusual items included in the consolidated statement of operations and the statement of consolidated cash flows in the year-ended December 31, 2005 included (i) $53 million of net one-time gains related to the Solutia's equity affiliates including a one-time gain of $50 million related to the sale of a majority of Astaris LLC's assets to Israel Chemicals Limited and a one-time, non-operational gain of $5 million at the Flexsys joint venture, partially offset by $2 million of various restructuring charges at Flexsys; (ii) net pension and OPEB curtailment and settlement charges of approximately $13 million; and (iii) restructuring costs of $2 million related principally to severance and retraining costs. 4. SUPPLEMENTAL INFORMATION - YEAR-TO-DATE RESULTS OF OPERATIONS Solutia's results of operations for the year ended December 31, 2005 were positively impacted by higher net sales, lower charges in 2005 as compared to 2004 (as further described in Note 3 above) and controlled spending, partially offset by higher overall raw material and energy costs. Higher net sales resulted from higher average selling prices, partially offset by lower sales volumes. Higher average selling prices were generally experienced in response to the escalating cost of raw materials and overall increase in demand while sales volumes decreased primarily as a result of operational disruptions resulting from the hurricanes experienced in the U.S. in 2005. 13 SOLUTIA INC., ET. AL., Case Nos. 03-17948 (PCB) through 03-17962 (PCB) (Debtors in Possession) SOLUTIA CHAPTER 11 DEBTORS SCHEDULE OF FEDERAL, STATE AND LOCAL TAXES COLLECTED, WITHHELD OR PAID MONTH ENDED DECEMBER 31, 2005
PRE-PETITION POST-PETITION TOTAL AMOUNT AMOUNT AMOUNT --------------------- ---------------------- ---------------------- 1. GROSS SALARIES AND WAGES - 17,772,732.49 17,772,732.49 2. PAYROLL TAXES WITHHELD - 5,367,704.66 5,367,704.66 3. EMPLOYER PAYROLL TAX CONTRIBUTED - 1,461,913.39 1,461,913.39 4. GROSS TAXABLE SALES - 802,578.47 802,578.47 5. SALES TAXES COLLECTED / USE TAX PAID - 279,192.79 279,192.79 6. PROPERTY TAXES PAID - 3,935,824.26 3,935,824.26 7. OTHER TAXES PAID - 408,565.80 408,565.80
14 SOLUTIA INC., ET. AL., Case Nos. 03-17948 (PCB) through 03-17962 (PCB) (Debtors in Possession) SOLUTIA CHAPTER 11 DEBTORS SCHEDULE OF FEDERAL, STATE AND LOCAL TAXES COLLECTED, WITHHELD OR PAID MONTH ENDED DECEMBER 31, 2005
DATES AND AMOUNTS PAID TO TAXING AGENCIES (ITEMS 2, 3, 5, 6, 7) PRE-PETITION POST-PETITION TOTAL ITEM DEBTOR ENTITY DATE AMOUNT AMOUNT AMOUNT TYPE OF TAX NUMBER - ------------------------------------------------------------------------------------------------------------------------------------ Solutia Inc. 12/01/05 - 124,925.58 124,925.58 Employee Payroll Taxes 2 Solutia Inc. 12/02/05 - 292,579.71 292,579.71 Employee Payroll Taxes 2 Solutia Inc. 12/07/05 - 93,335.57 93,335.57 Employee Payroll Taxes 2 Solutia Inc. 12/08/05 - 219,296.78 219,296.78 Employee Payroll Taxes 2 Solutia Inc. 12/09/05 - 190,250.10 190,250.10 Employee Payroll Taxes 2 Solutia Inc. 12/13/05 - 88.02 88.02 Employee Payroll Taxes 2 Solutia Inc. 12/14/05 - 94,017.09 94,017.09 Employee Payroll Taxes 2 Solutia Inc. 12/15/05 - 1,549,878.88 1,549,878.88 Employee Payroll Taxes 2 Solutia Inc. 12/16/05 - 185,208.80 185,208.80 Employee Payroll Taxes 2 Solutia Inc. 12/21/05 - 97,773.54 97,773.54 Employee Payroll Taxes 2 Solutia Inc. 12/22/05 - 195,580.64 195,580.64 Employee Payroll Taxes 2 Solutia Inc. 12/23/05 - 297,436.51 297,436.51 Employee Payroll Taxes 2 Solutia Inc. 12/28/05 - 102,391.38 102,391.38 Employee Payroll Taxes 2 Solutia Inc. 12/29/05 - 84,989.64 84,989.64 Employee Payroll Taxes 2 Solutia Inc. 12/30/05 - 1,814,265.13 1,814,265.13 Employee Payroll Taxes 2 Solutia Inc. 12/01/05 - 26,712.49 26,712.49 Employer Payroll Taxes 3 Solutia Inc. 12/02/05 - 67,173.23 67,173.23 Employer Payroll Taxes 3 Solutia Inc. 12/07/05 - 25,882.87 25,882.87 Employer Payroll Taxes 3 Solutia Inc. 12/08/05 - 71,542.14 71,542.14 Employer Payroll Taxes 3 Solutia Inc. 12/09/05 - 40,080.98 40,080.98 Employer Payroll Taxes 3 Solutia Inc. 12/13/05 - 83.84 83.84 Employer Payroll Taxes 3 Solutia Inc. 12/14/05 - 25,819.76 25,819.76 Employer Payroll Taxes 3 Solutia Inc. 12/15/05 - 452,438.72 452,438.72 Employer Payroll Taxes 3 Solutia Inc. 12/16/05 - 37,665.70 37,665.70 Employer Payroll Taxes 3 Solutia Inc. 12/21/05 - 26,241.77 26,241.77 Employer Payroll Taxes 3 Solutia Inc. 12/22/05 - 62,823.13 62,823.13 Employer Payroll Taxes 3 Solutia Inc. 12/23/05 - 49,895.11 49,895.11 Employer Payroll Taxes 3 Solutia Inc. 12/28/05 - 25,868.31 25,868.31 Employer Payroll Taxes 3 Solutia Inc. 12/29/05 - 23,590.39 23,590.39 Employer Payroll Taxes 3 Solutia Inc. 12/30/05 - 473,520.22 473,520.22 Employer Payroll Taxes 3 CPFilms, Inc 12/31/05 - 35,056.40 35,056.40 Sales 5 Solutia Inc. 12/20/05 - 235,530.04 235,530.04 Sales & Use Tax 5 Solutia Inc. 12/15/05 - 4,798.60 4,798.60 Sales & Use Tax 5 CPFilms, Inc 12/31/05 - 3,807.75 3,807.75 Use 5 Solutia Inc. 12/27/05 - 3,935,824.26 3,935,824.26 Property Tax 6 Solutia Inc. 12/01/05 - 115.00 115.00 Annual Report 7 Solutia Inc. 12/20/05 - 45.00 45.00 Annual Report 7 Solutia Inc. 12/20/05 - 50.00 50.00 Business License 7 Solutia Inc. 12/27/05 - 75.00 75.00 Business License 7 Solutia Inc. 12/28/05 - 20.00 20.00 Business License 7 Solutia Inc. 12/15/06 - 12,500.00 12,500.00 Other - Income (Minimum) Tax 7 CP Films, Inc. 12/15/06 - 126,100.00 126,100.00 Other - Income Tax 7 Solutia Systems, Inc. 12/15/06 - 3,000.00 3,000.00 Other - Income Tax 7 Solutia Inc. 12/22/05 - 247,783.21 247,783.21 Property Tax Consultant Commissions 7 Solutia Inc. 12/28/05 - 18,544.73 18,544.73 Property Tax Consultant Commissions 7 Solutia Inc. 12/27/05 - 332.86 332.86 Railcar Tax 7
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