EX-99.1 2 ex99p1.txt Exhibit 99.1 2007 BUDGET/LRP PRESENTATION TO AD HOC BONDHOLDERS - DECEMBER 8, 2006 TOPICS: o Key Premises and Assumptions o Sources and Uses o Consolidated Financials o Business Financials EMERGENCE ASSUMPTIONS o Assume emergence from Chapter 11 on December 31, 2006 o Each quarter delay in emergence accounts for an additional cash outlay of $25 million for lack of OPEB funding and reorganization professional fees o Total cash paid at emergence is assumed to be $301 million o $152 million for exit related costs o $149 million to fund the 2007 domestic pension plan RAW MATERIALS AND FOREIGN CURRENCIES o Solutia utilized external industry sources such as CMAI and ChemData to develop the projected raw material and energy cost inputs o Raw material profile by business: Cost Increase / (Decrease) per year 2006 vs. 2007 2008-2010 ------------- --------- Nylon (2.8%) (3.2%) Saflex/Specialties 2% (2.5%) CPFilms 3.5% 2.5% o Assumptions for the major currencies for all years as follows: Actual Actual Budget 2005 2006 YTD 2007-2011 ---- -------- --------- $ / (euro) 1.24 1.25 1.27 $ / (pound) 1.81 1.82 1.91 $ / (yen) .0091 .0086 .0092 BUSINESS RESTRUCTURING ACTIONS o Shutdown of the LaSalle plant assumed to occur in February 2008 following expiration of the Ineos contract o No changes to commercial and operating agreements assumed at Chocolate Bayou, Antwerp or San Jose Dos Campos locations o Asset set as of the end of 2006 is held constant throughout the period SUMMARY WORKING CAPITAL ASSUMPTIONS Enterprise 2006 2007 2008 2009 2010 2011 ---- ---- ---- ---- ---- ---- DSO 39.7 39.7 41.3 42.8 42.6 42.4 Change in A/R ($M) (49) (55) (12) (43) 2 (7) DOH 35.7 34.3 34.2 33.4 34.6 35.2 Change in Inv ($M) 9 (9) 5 (3) (2) (5) DPO 28.3 34.1 36.4 36.0 36.1 35.9 Change in A/P ($M) (13) 51 11 8 (7) 1 Key Trends o Modest increase in DSO primarily due to transition of mix of Nylon business from Fiber to Plastics offset by improvements in other businesses o DPO improves approximately 8 days over Planning Period as a result of exit from Chapter 11 and improved performance over Planning Period CAPITAL EXPENDITURES ($M) 2006 2007 2008 2009 2010 2011 ---- ---- ---- ---- ---- ---- Integrated Nylon $49 $45 $46 $45 $45 $45 Maintenance 49% 61% 62% 43% 67% 58% Cost Improvement/Growth 51% 39% 38% 57% 33% 42% Saflex $39 $47 $51 $53 $47 $14 Maintenance 20% 20% 17% 29% 27% 39% Cost Improvement/Growth 80% 80% 83% 71% 73% 61% CPFilms $7 $10 $14 $7 $12 $11 Maintenance 55% 34% 68% 38% 38% Cost Improvement/Growth 45% 66% 32% 62% 62% CATEGORY A SITES - SOLUTIA SPEND ($M) Provision Payment --------- ------- 2006 18 8 2007 7 11 2008 16 15 2009 8 25 2010 4 18 2011 17 14 CATEGORY C SITES - SHARED RESPONSIBILITY ($M) Gross $50M $25M Net SOI Cash Funding Funding Cash Provision Flows Allocated Discretionary Flow --------- ----- --------- ------------- ---- 2006 -- 3 -- -- 3 2007 206 14 (14) -- -- 2008 3 24 (24) -- -- 2009 3 26 (14) (12) -- 2010 3 19 -- (4) 15 2011 3 22 -- -- 22 o Category C Sites include Anniston and Sauget Offsite o Spend at Category C Sites projected to be in the $23 - $29 million range per year for 2012-2015 and expected to decline thereafter PENSION, OPEB AND LITIGATION PENSION o Assuming prefunding pension of $149 million at emergence (2007), required minimum pension contributions, are as follows: ($M) Contributions Funding Level Pension Expense (Income) ------------- ------------- ------------------------ 2006 179 61% 24 2007 149 71% 5 2008 -- 83% (6) 2009 32 84% (6) 2010 29 87% (6) 2011 27 90% (7) OPEB Payments ($M) Gross $175M Net Pre-Spin Funding Pre-Spin Post-Spin Total -------- ------- -------- --------- ----- 2006 46 -- 46 42 72 2007 39 (39) -- 29 29 2008 28 (28) -- 27 27 2009 25 (25) -- 25 25 2010 23 (23) -- 23 23 2011 22 (22) -- 23 23 Expense ($M) Pre-Spin Post-Spin Total -------- --------- ----- 2006 12 16 28 2007 7 12 19 2008 2 12 14 2009 2 11 13 2010 2 11 13 2011 2 11 13 LITIGATION o Assumes all pre-petition, debtor litigation except for Anniston Settlement litigation is discharged as part of the bankruptcy proceedings OTHER MISCELLANEOUS ASSUMPTIONS o No cash flow impacts are assumed throughout the projection period for other litigation matters o Miscellaneous surplus property asset sales are assumed to generate cash of $7.5 million in both 2007 and 2008, and $5 million per year thereafter o US NOL carry-forward as of 12/31/2005 is approximately $817 million. Additional US tax losses expected to arise in 2006 and 2007 are $443 million. NOL carry-forward is expected to be reduced by CODI of $382 million. US NOL carry-forward expected to be subjected to the limitations of IRC Sec 382 is $878 million. These limitations are not expected to result in a US cash tax obligation during the LRP years. At the end of the LRP period, NOL carry-forward of $759 million is expected to still be available of which $511 would then be free of limitation o Outside the US, tax payments total approximately $150 million over the 5 years of the LRP. Effective tax rate on ex-US earnings is approximately 28%
PROFORMA SOURCES AND USES ($M) SOURCES: USES: (1) Surplus Cash $115 DIP (Drawn) $657 (2) Exit Revolver 65 2009 Bonds 223 Exit Term Loan B - USD Tranche 700 Pension Pre-Funding 149 Exit Term Loan B - Euro Tranche 254 Euro Loan 203 Exit Subordinated Bonds 250 Fees/Misc.-Other 152 Maryville Note 20 Maryville Note 20 TOTAL SOURCE $1,404 TOTAL USES $1,404 Notes: Assumes Emergence 12/31/06 (1) Cash balance reduced from $130 million to $15 million at Emergence with no restrictions (2) Total Revolver $400 million, after LC's/drawings pro-forma liquidity on 12/31/06 would be ~$280 million
CONSOLIDATED INCOME STATEMENT ($M)
============ ============ ============ ============ ============ 2003 2004 2005 2006 2007 ACTUAL ACTUAL ACTUAL FORECAST BUDGET ---------------------------------------------------------------------------------------------------- INCOME STATEMENT NET SALES 2,379 2,636 2,759 2,936 3,162 COGS 2,094 2,364 2,426 2,564 2,686 ------------ ------------ ------------ ------------ ------------ GROSS PROFIT 285 273 334 372 476 MARKETING 149 136 135 135 150 ADMINISTRATION 101 92 91 94 95 TECHNOLOGY 43 41 44 48 42 ------------ ------------ ------------ ------------ ------------ TOTAL MAT 293 269 270 277 288 AMORTIZATION 1 1 1 1 1 ------------ ------------ ------------ ------------ ------------ OPERATING INCOME (9) 3 63 94 187 EQUITY INCOME 1 23 44 39 29 OTHER INCOME/(EXPENSE) 6 2 6 10 3 CURRENCY (1) (3) (1) (3) REORGANIZATION ITEMS (23) (51) (54) (57) 0 INTEREST INCOME 0 2 2 8 5 ------------ ------------ ------------ ------------ ------------ EBIT (25) (24) 61 90 225 ============ ============ ============ ============ ============ INTEREST EXPENSE 105 88 84 101 116 ------------ ------------ ------------ ------------ ------------ INCOME BEFORE TAXES (130) (112) (23) (11) 109 TAXES (32) 4 11 25 30 ------------ ------------ ------------ ------------ ------------ INCOME FROM CONT OPS (98) (116) (35) (36) 79 ============ ============ ============ ============ ============ EBITDA 102 96 172 201 334 EBITDAR 125 147 226 258 334 % RELATIONSHIP TO SALES: GROSS PROFIT 12.0% 10.3% 12.1% 12.7% 15.1% MAT 12.3% 10.2% 9.8% 9.4% 9.1% EBIT -1.1% -0.9% 2.2% 3.1% 7.1% EBITDA 4.3% 3.6% 6.2% 6.8% 10.5% ---------------------------------------------------------------------------------------------------- ============ ============ ============ =========== 2008 2009 2010 2011 LRP LRP LRP LRP ------------------------------------------------------------------------------------ INCOME STATEMENT NET SALES 3,222 3,382 3,354 3,409 COGS 2,673 2,768 2,694 2,705 ------------ ------------ ------------ ----------- GROSS PROFIT 549 614 660 704 MARKETING 158 169 175 186 ADMINISTRATION 96 95 94 95 TECHNOLOGY 45 46 48 49 ------------ ------------ ------------ ----------- TOTAL MAT 299 310 317 330 AMORTIZATION 1 1 1 0 ------------ ------------ ------------ ----------- OPERATING INCOME 249 303 341 374 EQUITY INCOME 27 27 27 27 OTHER INCOME/(EXPENSE) 2 2 2 2 CURRENCY 0 0 0 0 REORGANIZATION ITEMS 0 0 0 0 INTEREST INCOME 4 2 1 1 ------------ ------------ ------------ ----------- EBIT 283 334 371 404 ============ ============ ============ =========== INTEREST EXPENSE 109 98 88 73 ------------ ------------ ------------ ----------- INCOME BEFORE TAXES 173 237 283 331 TAXES 50 71 86 103 ------------ ------------ ------------ ----------- INCOME FROM CONT OPS 124 166 197 228 ============ ============ ============ =========== EBITDA 380 435 470 503 EBITDAR 380 435 470 503 % RELATIONSHIP TO SALES: GROSS PROFIT 17.0% 18.2% 19.7% 20.7% MAT 9.3% 9.2% 9.5% 9.7% EBIT 8.8% 9.9% 11.1% 11.9% EBITDA 11.8% 12.9% 14.0% 14.8% --------------------------------------------------------------------------------------
CONSOLIDATED BALANCE SHEET ($M)
============== ============== ============== ============= 2004 2005 2006 2007 ACTUAL ACTUAL FORECAST BUDGET --------------------------------------------------------------------------------------------------------- Assets ------ CASH 115 107 130 15 TRADE RECEIVABLES 279 246 301 343 OTHER CURRENT ASSETS 135 196 128 121 TOTAL LIFO INVENTORIES 222 254 255 256 -------------- -------------- -------------- ------------- TOTAL CURRENT ASSETS 751 803 814 736 GROSS PROPERTY 3,243 3,253 3,350 3,422 ACCUMULATED DEPRECIATION (2,442) (2,482) (2,558) (2,616) -------------- -------------- -------------- ------------- NET PROPERTY 801 770 792 806 INVESTMENT IN EQUITY AFFILIATES 177 205 198 207 OTHER LONG TERM ASSETS 331 192 208 1,959 FUNDING COMPANY 0 0 0 204 -------------- -------------- -------------- ------------- NON-CURRENT DEFERRED TAXES 16 12 16 16 -------------- -------------- -------------- ------------- TOTAL ASSETS 2,076 1,982 2,029 3,927 ============== ============== ============== ============= LIABILITIES ----------- ACCOUNTS PAYABLE 192 216 209 258 ACCRUALS 266 249 233 234 SHORT TERM DEBT 300 300 657 17 -------------- -------------- -------------- ------------- TOTAL CURRENT LIABILITIES 758 765 1,099 509 LONG TERM DEBT 286 247 205 1,224 LIABILITIES SUBJECT TO COMPROMISE 2,187 2,176 1,934 0 OTHER LIABILITIES 247 215 225 521 POST RETIREMENT 42 33 35 559 -------------- -------------- -------------- ------------- TOTAL LIABILITIES 3,520 3,436 3,498 2,812 -------------- -------------- -------------- ------------- TOTAL STOCKHOLDER'S EQUITY (DEFICIT) (1,444) (1,455) (1,470) 1,115 -------------- -------------- -------------- ------------- TOTAL LIABILITIES AND EQUITY 2,076 1,982 2,029 3,927 ============== ============== ============== ============= ----------------------------------------- -------------- -------------- -------------- ------------- BALANCE SHEET STATISTICS: DSO 39.7 35.1 39.7 39.7 DOH 33.5 39.5 35.7 34.3 DPO 28.4 33.4 28.3 34.1 --------------------------------------------------------------------------------------------------------- ============ ============ ============ ============ 2008 2009 2010 2011 LRP LRP LRP LRP ------------------------------------------------------------------------------------------------ ASSETS ------ CASH 15 15 15 15 TRADE RECEIVABLES 355 399 397 404 OTHER CURRENT ASSETS 121 121 121 121 TOTAL LIFO INVENTORIES 251 255 256 262 ------------ ------------ ------------ ------------ TOTAL CURRENT ASSETS 743 789 789 802 GROSS PROPERTY 3,443 3,555 3,664 3,739 ACCUMULATED DEPRECIATION (2,613) (2,709) (2,806) (2,904) ------------ ------------ ------------ ------------ NET PROPERTY 830 846 858 835 INVESTMENT IN EQUITY AFFILIATES 214 221 228 235 OTHER LONG TERM ASSETS 1,953 1,928 1,928 1,925 FUNDING COMPANY 156 107 86 67 ------------ ------------ ------------ ------------ NON-CURRENT DEFERRED TAXES 16 16 16 16 ------------ ------------ ------------ ------------ TOTAL ASSETS 3,912 3,908 3,905 3,881 ============ ============ ============ ============ LIABILITIES ----------- ACCOUNTS PAYABLE 269 277 270 271 ACCRUALS 254 293 340 408 SHORT TERM DEBT 0 0 0 0 ------------ ------------ ------------ ------------ TOTAL CURRENT LIABILITIES 523 570 610 680 LONG TERM DEBT 1,147 1,057 921 687 LIABILITIES SUBJECT TO COMPROMISE 0 0 0 0 OTHER LIABILITIES 487 443 404 379 POST RETIREMENT 516 445 380 317 ------------ ------------ ------------ ------------ TOTAL LIABILITIES 2,673 2,514 2,315 2,063 ------------ ------------ ------------ ------------ TOTAL STOCKHOLDER'S EQUITY (DEFICIT) 1,239 1,394 1,590 1,818 ------------ ------------ ------------ ------------ TOTAL LIABILITIES AND EQUITY 3,912 3,908 3,905 3,881 ============ ============ ============ ============ ----------------------------------------- ------------ ------------ ------------ ------------ BALANCE SHEET STATISTICS: DSO 41.3 42.8 42.6 42.4 DOH 34.2 33.4 34.6 35.2 DPO 36.4 36.0 36.1 35.9 ---------------------------------------------------------------------------------------------------
CONSOLIDATED CASH FLOW STATEMENT ($M)
=========== =========== =========== =========== =========== =========== 2006 2007 2008 2009 2010 2011 FORECAST BUDGET LRP LRP LRP LRP ------------------------------------------------------------------------------------------------------------------------------------ FREE CASH FLOW ACTIVITIES: ------------------------- EBIT 90 225 283 334 371 404 DEPRECIATION & AMORTIZATION, GROSS 111 109 98 101 99 99 ----------- ----------- ----------- ----------- ----------- ----------- EBITDA 201 334 380 435 470 503 INTEREST PAYMENTS (104) (122) (104) (92) (83) (68) TAX PAYMENTS (11) (17) (23) (34) (38) (41) LEGACY PAYMENTS: LITIGATION (5) (5) (5) (5) (5) (5) OPEB (57) (39) (28) (25) (23) (22) ENVIRONMENTAL (3) (14) (24) (26) (19) (22) FUNDING CO 0 58 57 56 26 22 PENSION CONTRIBUTION (179) 0 0 (32) (29) (27) NON LEGACY ENVIRONMENTAL (4) (11) (15) (25) (18) (14) NON LEGACY OPEB (34) (29) (27) (25) (23) (23) CHANGES IN BALANCE SHEET ACCOUNTS: NET WORKING CAPITAL (53) (13) 4 (39) (7) (12) ACCOUNTS RECEIVABLE (49) (55) (12) (43) 2 (7) INVENTORY 9 (9) 5 (3) (2) (5) ACCOUNTS PAYABLE (13) 51 11 8 (7) 1 TOTAL OTHER BALANCE SHEET CHANGES 14 28 (1) 18 (2) 22 ----------- ----------- ----------- ----------- ----------- ----------- CASH PROVIDED BY (USED IN) OPERATIONS (234) 169 216 207 250 314 CAPITAL EXPENDITURES (99) (121) (121) (117) (114) (80) ----------- ----------- ----------- ----------- ----------- ----------- FREE CASH FLOW (333) 48 95 90 136 233 =========== =========== =========== =========== =========== =========== ------------------------------------------------------------------------------------------------------------------------------------
INTEGRATED NYLON ($M)
============ ============ ============ ============ ============ 2003 2004 2005 2006 2007 ACTUAL ACTUAL ACTUAL FORECAST BUDGET ------------------------------------------------------------------------------------------------------ INCOME STATEMENT NET SALES 1,392 1,588 1,642 1,770 1,922 COGS 1,337 1,552 1,574 1,671 1,755 ------------ ------------ ------------ ------------ ------------ GROSS PROFIT 55 35 68 100 167 MARKETING 70 54 47 46 52 ADMINISTRATION 23 16 13 14 14 TECHNOLOGY 21 20 20 21 15 ------------ ------------ ------------ ------------ ------------ TOTAL MAT 113 90 80 81 82 AMORTIZATION 0 0 0 0 0 ------------ ------------ ------------ ------------ ------------ OPERATING INCOME (58) (55) (13) 18 85 EQUITY INCOME 0 0 0 0 0 OTHER INCOME/(EXPENSE) 4 2 1 1 1 INTEREST INCOME 0 0 1 1 1 ------------ ------------ ------------ ------------ ------------ EBIT (54) (53) (11) 20 87 ============ ============ ============ ============ ============ EBITDA 26 23 58 83 147 % RELATIONSHIP TO SALES: GROSS PROFIT 4.0% 2.2% 4.1% 5.6% 8.7% MAT 8.1% 5.6% 4.9% 4.6% 4.3% EBIT -3.9% -3.4% -0.7% 1.1% 4.5% EBITDA 1.8% 1.4% 3.5% 4.7% 7.6% ------------------------------------------------------------------------------------------------------ ============ ============ ============ ============ 2008 2009 2010 2011 LRP LRP LRP LRP --------------------------------------------------------------------------------------- INCOME STATEMENT NET SALES 1,920 1,991 1,878 1,854 COGS 1,719 1,787 1,675 1,652 ------------ ------------ ------------ ------------ GROSS PROFIT 201 204 203 202 MARKETING 54 56 57 58 ADMINISTRATION 13 12 10 10 TECHNOLOGY 15 16 17 17 ------------ ------------ ------------ ------------ TOTAL MAT 83 84 84 85 AMORTIZATION 0 0 0 0 ------------ ------------ ------------ ------------ OPERATING INCOME 118 119 119 117 EQUITY INCOME 0 0 0 0 OTHER INCOME/(EXPENSE) 1 1 1 1 INTEREST INCOME 1 1 1 1 ------------ ------------ ------------ ------------ EBIT 120 121 121 119 ============ ============ ============ ============ EBITDA 175 175 175 175 % RELATIONSHIP TO SALES: GROSS PROFIT 10.5% 10.2% 10.8% 10.9% MAT 4.3% 4.2% 4.5% 4.6% EBIT 6.3% 6.1% 6.4% 6.4% EBITDA 9.1% 8.8% 9.3% 9.4% -----------------------------------------------------------------------------------------
PERFORMANCE PRODUCTS ($M)
============ ============ ============ ============ ============ 2003 2004 2005 2006 2007 ACTUAL ACTUAL ACTUAL FORECAST BUDGET ------------------------------------------------------------------------------------------------------ INCOME STATEMENT NET SALES 975 1,041 1,115 1,165 1,239 COGS 728 786 843 877 916 ------------ ------------ ------------ ------------ ------------ GROSS PROFIT 247 256 273 288 323 MARKETING 77 81 88 88 98 ADMINISTRATION 35 37 33 38 40 TECHNOLOGY 21 22 23 26 27 ------------ ------------ ------------ ------------ ------------ TOTAL MAT 134 139 145 152 164 AMORTIZATION 0 0 0 1 1 ------------ ------------ ------------ ------------ ------------ OPERATING INCOME 113 116 128 135 158 EQUITY INCOME 1 1 2 1 0 OTHER INCOME/(EXPENSE) (0) 0 4 7 1 INTEREST INCOME 0 0 0 0 0 ------------ ------------ ------------ ------------ ------------ EBIT 115 118 134 142 160 ============ ============ ============ ============ ============ EBITDA 156 156 172 185 202 % RELATIONSHIP TO SALES: GROSS PROFIT 25.3% 24.6% 24.5% 24.7% 26.1% MAT 13.7% 13.4% 13.0% 13.1% 13.2% EBIT 11.8% 11.3% 12.0% 12.2% 12.9% EBITDA 16.0% 15.0% 15.5% 15.9% 16.3% ------------------------------------------------------------------------------------------------------ ============ ============ ============ ============ 2008 2009 2010 2011 LRP LRP LRP LRP --------------------------------------------------------------------------------------- INCOME STATEMENT NET SALES 1,302 1,392 1,476 1,554 COGS 936 973 1,015 1,036 ------------ ------------ ------------ ------------ GROSS PROFIT 366 419 461 519 MARKETING 103 112 118 128 ADMINISTRATION 41 42 43 44 TECHNOLOGY 30 30 31 32 ------------ ------------ ------------ ------------ TOTAL MAT 174 184 191 203 AMORTIZATION 1 1 1 0 ------------ ------------ ------------ ------------ OPERATING INCOME 191 234 269 315 EQUITY INCOME 0 0 0 0 OTHER INCOME/(EXPENSE) 1 0 0 0 INTEREST INCOME 0 0 0 0 ------------ ------------ ------------ ------------ EBIT 192 235 269 316 ============ ============ ============ ============ EBITDA 232 278 310 355 % RELATIONSHIP TO SALES: GROSS PROFIT 28.1% 30.1% 31.2% 33.4% MAT 13.4% 13.2% 13.0% 13.1% EBIT 14.7% 16.9% 18.2% 20.3% EBITDA 17.8% 20.0% 21.0% 22.8% -----------------------------------------------------------------------------------------
CORE ($M)
============ ============ ============ ============ ============ 2003 2004 2005 2006 2007 ACTUAL ACTUAL ACTUAL FORECAST BUDGET ------------------------------------------------------------------------------------------------------- INCOME STATEMENT NET SALES 11 7 1 1 0 COGS 29 26 9 17 14 ------------ ------------ ------------ ------------ ------------ GROSS PROFIT (18) (18) (7) (16) (14) MARKETING 2 1 0 1 0 ADMINISTRATION 43 40 44 42 41 TECHNOLOGY 2 (0) 1 1 0 ------------ ------------ ------------ ------------ ------------ TOTAL MAT 46 41 45 44 42 AMORTIZATION 0 0 0 0 0 ------------ ------------ ------------ ------------ ------------ OPERATING INCOME (64) (59) (52) (59) (56) EQUITY INCOME (0) 22 42 38 29 OTHER INCOME/(EXPENSE) 2 1 1 2 0 CURRENCY (1) (3) (1) (3) 0 REORGANIZATION ITEMS (23) (51) (54) (57) 0 INTEREST INCOME 0 2 2 7 5 ------------ ------------ ------------ ------------ ------------ EBIT (86) (89) (63) (72) (22) ============ ============ ============ ============ ============ EBITDA (80) (83) (58) (68) (16) EBITDAR (57) (31) (5) (11) (16) ------------------------------------------------------------------------------------------------------- ============ ============ ============ ============ 2008 2009 2010 2011 LRP LRP LRP LRP --------------------------------------------------------------------------------------- INCOME STATEMENT NET SALES 0 0 0 0 COGS 18 8 4 16 ------------ ------------ ------------ ------------ GROSS PROFIT (18) (8) (4) (16) MARKETING 0 0 0 0 ADMINISTRATION 41 41 41 41 TECHNOLOGY 0 0 0 0 ------------ ------------ ------------ ------------ TOTAL MAT 42 42 42 42 AMORTIZATION 0 0 0 0 ------------ ------------ ------------ ------------ OPERATING INCOME (60) (50) (46) (58) EQUITY INCOME 27 27 27 27 OTHER INCOME/(EXPENSE) 0 0 0 0 CURRENCY 0 0 0 0 REORGANIZATION ITEMS 0 0 0 0 INTEREST INCOME 4 2 1 1 ------------ ------------ ------------ ------------ EBIT (29) (21) (18) (30) ============ ============ ============ ============ EBITDA (26) (18) (14) (26) EBITDAR (26) (18) (14) (26) ------------------------------------------------------------------------------------------
Reconciliation of Non-GAAP Financial Measures to GAAP Measures of Performance(1) Management believes that measures of income excluding non-recurring, non-operational items are meaningful because they provide insight with respect to ongoing operating results of the Company. Such measurements are not recognized in accordance with generally accepted accounting principles (GAAP) and should not be viewed as an alternative to GAAP measures of performance. Reconciliations of non-GAAP measures to GAAP are detailed below for the fiscal years of 2005, 2004 and 2003. The below tables include the identification of non-recurring, non-operational items which have been excluded from the income statement used by management for internal evaluation purposes (consolidated income statement included in Exhibit A). EBITDAR, which is earnings before interest, taxes, depreciation, amortization and reorganization items, is a non-GAAP measure that is a typical financial measure for Companies during the restructuring process. Management uses this measure as a way to identify operating results of the Company had it not been in the reorganization process during the time period being reported upon.
INCREASE/(DECREASE) 2006 2005 2004 2003 ------------------- ---- ---- ---- ---- IMPACT ON: Net Sales -- (66) (61) (51)(e) Cost of goods sold.......................... $ 1 $ 1 $ 18 $ 29 (a) -- 9 26 26 (d) -- 51 57 75 (e) -- -- 8 -- (f) -- -- 1 -- (g) 9 -- -- -- (t) (20) -- -- -- (u) -- -- -- 27 (i) -- -- -- 99 (j) -- -- -- 20 (k) -------------------------------------- Total cost of goods sold ................... (10) 61 110 276 Marketing .................................. 1 -- -- 2 (a) -- 1 2 2 (d) -- 6 5 3 (e) Administrative ............................. -- -- -- 6 (a) -- 2 4 4 (d) -- -- -- 22 (l) -- 5 6 9 (e) Technological .............................. -- -- -- 6 (a) -- 1 3 3 (d) -- -- -- 1 (e) Amortization ............................... -- -- 1 2 (e) Impairment of Intangible Assets ............ -- -- 28 75 (e) -- -- -- 3 (m) -------------------------------------- Operating Income (Loss) Impact.............. 9 (10) (98) (363) Equity income (loss) from affiliates........ (2) 52 (49) (134)(n) ------------------------------------------------------------------------------------------ -------- (1) This Reconciliation was not part of the Draft Business Plan provided to the Noteholders on December 8, 2006.
Loss on debt Modification................... -- -- (15) -- (o) (8) -- -- -- (v) Other Income................................ -- -- -- 4 (p) -------------------------------------- 3 -- 2 (e) EBITDAR Impact.............................. (1) 45 (162) (491) Interest Expense............................ -- -- -- (14)(q) -- -- (25) -- (c) (1) -- -- -- (w) (3) -- -- -- (x) -- -- -- (1)(e) Reorganization Items, net................... (12) 5 (22) -- (r) -- -- -- 22 (l) -------------------------------------- Pre-tax Income Statement Impact............. (17) 50 (209) (484) Income tax expense (benefit) impact......... (3) -- (6) 430 (s) -- 3 (4) (33)(e) -------------------------------------- After-tax Income Statement Impact from (14) 47 (199) (881) Continuing Operations....................... Income (Loss) from Discontinued 58 -- -- (2)(b) Operations, net of tax...................... Cumulative Effect of Change in -- (3) -- (5)(h) Accounting Principle, net of tax............ -------------------------------------- Net Income (Loss) Impact $ 44 $ 44 $(199) $(888) ----------------------------------------------======================================----- FOOTNOTES --------- a) Restructuring costs related principally to the closure of certain non-strategic operations including costs for decommissioning and dismantling activities, asset impairments, future costs for non-cancelable operating leases and severance and retraining costs. b) Discontinued operations for the UCB business is excluded from continuing operations in the internal financial statements. c) Write-off of unamortized debt issuance costs related to the retirement of the October 2003 and interim DIP credit facilities. d) Net pension and other postretirement benefit plan curtailments and settlements. e) Results of the Pharmaceutical Services Business which was sold during 2006. The amounts have been excluded from continuing operations in the internal financial statements. f) Losses incurred directly related to the hurricanes experienced in the U.S. in 2004 resulting in the disruption of operations and property damage at Solutia's operations in the Integrated Nylon chain located principally in the Southeastern part of the U.S., and the Performance Products and Services location in Martinsville, Virginia. These costs included primarily asset write-offs and repairs and maintenance costs. g) Loss on the sale of the assets of Axio Research Corporation. h) Cumulative effect of change in accounting principle is excluded from continuing operations in the internal financial statements. i) Charge for environmental remediation and funding for an educational trust related to the partial consent decree in Anniston, Alabama j) Charge related to Solutia's share of the Anniston litigation settlement and to increase certain other litigation accruals. k) Increase to environmental reserves related to exiting the Nitro, West Virginia facility. l) Prior to the filing for bankruptcy in December, the Company incurred significant professional services expense related to the attempted out-of-court restructuring initiative. The amount had been re-classed from administrative expense to reorganization items, net in the internal financial statements. m) Write-down of non-deductible goodwill in accordance with SFAS No. 142 for Axio Research Corporation within the Performance Products segment. n) Net one-time gains (losses) related to Solutia's Flexsys and Astaris joint ventures, in each of which Solutia has a fifty percent interest. o) Loss due to the modification of Solutia's Euronotes in January 2004. p) Recovery of certain receivables, established prior to 1997, which had previously been written off. q) Write-off of unamortized debt issuance cost related to retired credit facilities. r) Includes expenses related to asset write-offs associated with contract rejections and terminations, employee severance costs, adjustments to record certain pre-petition claims at estimated amounts of the allowed claims and differences between the settlement amount of certain pre-petition obligations and the corresponding amounts previously recorded. Only professional fees for services provided by debtor and creditor professionals directly related to Solutia's reorganization proceedings and costs associated with a retention plan for certain Solutia employees are included in reorganization items, net in the internal financial statements. s) With the exception of those items that relate to ex-U.S. operations, the above items are considered to have like pre-tax and after-tax impact as the tax benefit or expense realized from these events is offset by the change in valuation allowance for U.S. deferred tax assets resulting from uncertainty as to their recovery due to Solutia's Chapter 11 bankruptcy filing. t) Environmental charge precipitated by the notification by a third-party of its intent to terminate a tolling agreement at one of Solutia's facilities outside the U.S. that will likely result in the cessation of operations at the site. u) Gain resulting from the reversal of a litigation reserve with respect to a litigation matter that was decided favorably during 2006. v) Write-off of debt issuance costs and to record the DIP facility as modified at its fair value. w) Write off of unamortized debt issuance costs associated with the DIP facility at time of modification. x) Solutia refinanced its Euronotes and recorded early extinguishment costs at the time of refinancing.