Exhibit 99
[Solutia Letterhead]
FOR IMMEDIATE RELEASE
- ----------------------------------------------------------------------------
Contact: Investor Relations - Marleen Judge 314-674-7777
Media - Liesl Livingston 314-674-5555
SOLUTIA REPORTS SECOND QUARTER
LOSS OF 20 CENTS PER SHARE
AND PROVIDES LITIGATION UPDATE
SALES SUMMARY
FROM CONTINUING OPERATIONS ($M)
SALES CHANGE FROM CHANGE FROM
2Q 2003 2Q 2002 1Q 2003
------- ------- -------
Performance Products and Services $261 +7% +7%
Integrated Nylon $350 +3% -1%
Total Net Sales $611 +4% +3%
ST. LOUIS, July 29, 2003/PRNewswire-FirstCall/ -- Solutia Inc.
(NYSE: SOI) today reported a second quarter loss of $21 million, or 20 cents
per share, on net sales of $611 million. This compares to income from
continuing operations for the second quarter of 2002 of $11 million, or
10 cents per share, on net sales of $585 million.
Solutia's operations for the second quarter versus the year-ago
period were negatively impacted by elevated raw material and energy costs,
increased interest expense and severance costs associated with workforce
reductions, offset to some extent by higher sales prices, favorable currency
exchange rate fluctuations and improved manufacturing operations.
The second quarter net loss included charges of approximately
$7 million after tax resulting from several events. The Company eliminated
approximately 280 positions during the quarter, incurring severance charges
of $5 million after tax. In addition, the Flexsys and Astaris joint
ventures, in which
-2-
the Company has a fifty percent ownership stake, incurred restructuring
charges during the quarter. Solutia's share of these charges was
approximately $2 million after tax.
"Notwithstanding quarterly sales revenue of $611 million, our
earnings continued to be adversely impacted by persistently elevated raw
material and energy costs and significant over capacity in the market place.
The pace of the economic recovery in North America has yet to spark
increased demand," said Chairman and Chief Executive Officer John Hunter.
"We continue to take necessary actions to offset these circumstances, such
as streamlining our Acrilan acrylic fibers product line to focus on
specialty products, reducing headcount, managing discretionary spending and
passing along cost increases when possible," Hunter said.
LITIGATION AND LEGACY LIABILITIES UPDATE
"The second quarter proved to be very difficult for Solutia as our
financial performance continues to be also adversely influenced by the
ongoing cash drain from the legacy issues we assumed as part of the spin off
from what is now Pharmacia," stated Hunter. "Most notable of the legacy
liabilities is the PCB litigation in Alabama. The verdicts in the property
damage phase of the Abernathy case continued to mount in the second quarter.
The situation will not improve in the third quarter as the personal injury
phase of Abernathy will begin and then the Tolbert case will go to trial
early in the fourth quarter."
"In the last few weeks, the defendants have made significant
efforts to obtain a comprehensive resolution of the Anniston PCB litigation,
but to no avail. Our hope of reaching a fair and equitable resolution of the
PCB issues in Anniston in the near term has been significantly diminished
due to the unrealistic demand of the plaintiffs' attorneys and by the
continued adverse results in the courtroom," Hunter noted.
"Without a dramatic change in circumstances, the overhang of this
legacy litigation will significantly restrict the alternatives we have to
address our future liquidity requirements with respect to bond maturities in
late 2004 and early 2005 and the projected contributions to our pension
plans beginning in 2005. We are currently considering all available
alternatives to address our legacy issues and our future liquidity needs,"
Hunter stated.
-3-
YEAR-TO-DATE RESULTS FROM CONTINUING OPERATIONS
For the first half of 2003, Solutia's net loss from continuing
operations was $38 million, or 36 cents per share, on net sales of
$1,207 million. Continuing operations for the first half of 2003 included net
charges of $16 million after tax for several items, such as restructuring
charges primarily related to workforce reductions of approximately
450 positions, and restructuring charges at the Flexsys and Astaris joint
ventures. These charges were partially offset by a gain from the recovery of a
previously written off uncollectible Russian customer account. This compares
to income from continuing operations for the first half of 2002 of
$15 million, or 14 cents per share, on net sales of $1,105 million. Earnings
from continuing operations for the first half of 2002 included a gain of
$3 million after tax from the sale of Solutia's interest in the Advanced
Elastomer Systems joint venture.
The decline in earnings for the first half of 2003 was due to
elevated raw material and energy costs, increased interest expense and
severance costs associated with workforce reductions, offset to some extent
by higher sales prices, favorable currency exchange rate fluctuations and
improved manufacturing operations.
SEGMENT DATA
Performance Products and Services net sales for the second quarter
of 2003 increased $16 million compared to the same period of 2002 primarily
due to strengthened foreign currencies and slightly higher volumes. Net
sales increased in the Performance Films product lines on a
quarter-over-quarter basis due to strengthened foreign currencies and higher
volumes. Net sales also increased in Industrial Products versus second
quarter 2002 primarily due to stronger foreign currencies and higher average
selling prices. Pharmaceutical Services had a quarterly revenue decline due
to volume decrease.
Performance Products and Services profitability in the quarter
increased $3 million versus the prior-year quarter. This increase was
primarily due to higher net sales and favorable manufacturing variances,
partially offset by higher raw material costs and severance charges.
For the first half of 2003, Performance Products and Services net
sales increased $35 million over the comparable prior year period primarily
due to favorable currency exchange rate fluctuations. Segment profitability
declined by $1 million primarily because of severance charges associated
with
-4-
workforce reductions and increased raw material costs, partially offset by
increased sales.
Integrated Nylon's net sales for the second quarter of 2003
increased $10 million compared to the second quarter of 2002 driven by
improved sales prices, which more than offset volume declines. Price
increases occurred principally in nylon intermediate chemicals. In addition,
carpet fibers recorded improvements in average selling prices following an
April 1 price increase. Sales volumes were down considerably in the acrylic
fiber business reflecting weakness in the U.S. textiles industry. Carpet
volumes were down modestly in line with industry trends.
Integrated Nylon's segment profitability decreased $30 million over
the prior year quarter. This was primarily due to higher raw material and
energy costs of approximately $50 million and severance charges driven by
cost reduction initiatives incurred in the quarter, partially offset by
higher net sales.
For the first half of 2003, Integrated Nylon's net sales increased
$67 million over the comparable prior year period because of higher average
selling prices. Segment profitability declined by $48 million primarily
because of higher raw material and energy costs of approximately $110
million and severance charges associated with cost reduction initiatives,
partially offset by increased sales.
LIQUIDITY
Cash used in continuing operations was $6 million in the second
quarter of 2003, compared to cash provided by continuing operations of
$53 million in the second quarter of 2002. Solutia reported negative free
cash flow (cash flow from continuing operations less capital expenditures as
presented on the statement of cash flows) of $12 million for the second
quarter, after funding $6 million of capital expenditures. This compares to
free cash flow of $37 million in the second quarter of 2002, after funding
$16 million of capital expenditures. The decrease in free cash flow was
principally due to lower earnings, lower dividends from equity affiliates
and timing of certain accounts payable disbursements.
Solutia reported negative free cash flow of $87 million from
continuing operations for the first half of 2003, after funding $46 million
of capital expenditures. Capital expenditures in the first half of 2003
included a $32 million purchase of the cogeneration facility at the
Pensacola manufacturing site,
-5-
as required by Solutia's credit facility. This compares to free cash flow of
$12 million for the comparable 2002 period, after funding $27 million of
capital expenditures. The decrease in free cash flow was principally due to
a $60 million income tax refund received in 2002, lower dividends from
equity affiliates, higher capital expenditures and lower earnings. At June
30, the Company had borrowing capacity, cash and cash equivalents totaling
$146 million.
In anticipation of weaker-than-expected second quarter results, the
Company sought and received an amendment granting relief from certain
financial covenants in its $300 million revolving credit facility for the
period June 30, 2003 through September 29, 2003. The Company has initiated
discussions concerning the refinancing of this credit facility.
OUTLOOK
While there has been some recent evidence of a domestic recovery
as noted in recently published economic data, the Company anticipates that
uncertain economic conditions will remain for the foreseeable future.
Early in the third quarter, we have seen a modest decline in feedstock and
energy costs but it is unclear whether this will be a sustainable trend for
the quarter, given the significant volatility in these markets.
-6-
FORWARD LOOKING STATEMENTS
This press release contains forward-looking statements including
statements regarding litigation matters, future cost of raw materials and
energy, earnings, and free cash flow. These statements are based on current
expectations, but results may differ materially, depending on such important
factors as world economic conditions, competitive pressures, gain or loss of
significant customers, inability to consummate sale of business, labor
relations and disruption of operations, raw material and energy costs,
currency fluctuations, success in implementing pricing actions and managing
spending, operating rates, exposure to product liability and other
litigation costs, environmental remediation, cost of debt, and other factors
identified in Solutia's Annual Report on Form 10-K for the year ended
December 31, 2002 and Quarterly Report on Form 10-Q for the period ended
March 31, 2003. These reports are filed with the U.S. Securities and
Exchange Commission and can be accessed through Solutia's investor Internet
site at www.Solutia.com.
CORPORATE PROFILE
Solutia (http://www.Solutia.com) uses world-class skills in applied
chemistry to create value-added solutions for customers, whose products
improve the lives of consumers every day. Solutia is a world leader in
performance films for laminated safety glass and after-market applications;
process development and scale-up services for pharmaceutical fine chemicals;
specialties such as water treatment chemicals, heat transfer fluids and
aviation hydraulic fluid and an integrated family of nylon products
including high-performance polymers and fibers.
Solutia...Solutions For A Better Life.
CONFERENCE CALL
Solutia will host a conference call on Wed., July 30, 2003 at
9 a.m. CDT to discuss its performance. The call will be simulcast on Solutia's
homepage at,
http://www.solutia.com/pages/corporate/investors/investor_relations.asp
under the teleconferences and presentations tab. The call will be available
to investors on the Internet site for approximately five days following the
call.
-oOo-
Source: Solutia Inc.
St. Louis
Date 7/29/03
-7-
Solutia Inc.
Statement of Consolidated Income (Loss)
(Dollars in millions, except per share amounts)
(Unaudited)
Three Months Ended Six Months Ended
June 30, June 30,
----------------------- -----------------------
2003 2002 2003 2002
---------- ---------- ---------- ----------
Net Sales $ 611 $ 585 $ 1,207 $ 1,105
Cost of Goods Sold 535 489 1,062 922
---------- ---------- ---------- ----------
Gross Profit 76 96 145 183
Marketing Expenses 40 36 79 71
Administrative Expenses 33 31 63 63
Technological Expenses 11 12 23 23
Amortization Expense - - 1 1
---------- ---------- ---------- ----------
Operating Income (Loss) (8) 17 (21) 25
Equity Earnings (Loss) from
Affiliates - Net of Tax - 4 (2) 12
Interest Expense (25) (16) (48) (35)
Other Income - Net 1 2 8 9
---------- ---------- ---------- ----------
Income (Loss) Before Income Taxes (32) 7 (63) 11
Income Taxes (Benefit) (11) (4) (25) (4)
---------- ----------- ---------- ----------
Income (Loss) from Continuing Operations
Before Discontinued Operations and Cumulative
Effect of Change in Accounting Principle (21) 11 (38) 15
Income (Loss) from Discontinued Operations,
Net of Tax - 12 (2) 22
Cumulative Effect of Change in Accounting
Principle, net of tax - - - (167)
---------- ---------- ---------- ----------
Net Income (Loss) $ (21) $ 23 $ (40) $ (130)
---------- ---------- ---------- ----------
Diluted Earnings (Loss) Per Share $ (0.20) $ 0.22 $ (0.38) $ (1.24)
---------- ---------- ---------- ----------
Weighted Average Equivalent Shares 104.6 105.1 104.6 105.1
---------- ---------- ---------- ----------
-8-
Solutia Inc.
Segment Data
(Dollars in millions)
(Unaudited)
Three Months Ended Six Months Ended
June 30, June 30,
----------------------- -----------------------
2003 2002 2003 2002
---------- ---------- ---------- ----------
Net Net Net Net
Sales Sales Sales Sales
---------- ---------- ---------- ----------
Segment:
Performance Products and Services $ 261 $ 245 $ 504 $ 469
Integrated Nylon 350 340 703 636
---------- ---------- ---------- ----------
Consolidated Totals 611 585 1,207 1,105
---------- ---------- ---------- ----------
Profit Profit Profit Profit
---------- ---------- ---------- ----------
Segment:
Performance Products and Services (a) $ 26 $ 23 $ 43 $ 44
Integrated Nylon (b) (20) 10 (31) 17
---------- ---------- ---------- ----------
Segment Totals 6 33 12 61
Corporate Expenses (c) (14) (15) (29) (32)
Equity Earnings (Loss) from
Affiliates - Net of Tax (d) - 3 (3) 11
Interest Expense (25) (16) (48) (35)
Other Income - Net (e), (f) 1 2 5 6
---------- ---------- ---------- ----------
Income Before Income Taxes $ (32) $ 7 $ (63) $ 11
---------- ---------- ---------- ----------
<FN>
(a) Performance Products and Services profit for three and six months ended
June 30, 2003, includes severance charges of $5 million and $11 million,
respectively, related to workforce reductions.
(b) Integrated Nylon loss for the three and six months ended June 30, 2003,
includes severance charges of $2 million and $5 million, respectively,
related to workforce reductions.
(c) For the three and six months ended June 30, 2003, corporate expenses
include severance charges of $2 million and $4 million, respectively,
related to workforce reductions.
(d) For the three and six months ended June 30, 2003, amounts include
severance and other restructuring charges related to workforce
reductions at Flexsys and Astaris of $2 million and $7 million,
respectively.
(e) For the six months ended June 30, 2003, amount includes a gain of
$4 million related to the recovery of certain receivables, established
prior to 1997, which had previously been written off.
(f) For the six months ended June 30, 2002, amount includes a gain of
$5 million from the sale of Solutia's 50 percent interest in the Advanced
Elastomer Systems joint venture.
-9-
Solutia Inc.
Statement of Consolidated Financial Position
(Dollars in millions)
June 30, Dec. 31,
2003 2002
----------- ----------
(Unaudited)
ASSETS
Current Assets:
Cash and cash equivalents $ 84 $ 17
Receivables and prepaids 424 384
Deferred income tax benefit 133 108
Inventories 269 262
Assets of Discontinued Operations - 636
---------- ----------
Total Current Assets 910 1,407
---------- ----------
Net Property, Plant and Equipment 924 930
Investments in Affiliates 254 232
Net Goodwill 146 144
Net Identified Intangible Assets 67 66
Long-term Deferred Income Tax Benefit 304 290
Other Assets 335 273
---------- ----------
Total Assets $ 2,940 $ 3,342
---------- ----------
LIABILITIES AND SHAREHOLDERS' DEFICIT
Current Liabilities:
Accounts payable $ 212 $ 234
Accrued liabilities 445 449
Short-term debt 120 358
Liabilities of Discontinued Operations - 165
---------- ----------
Total Current Liabilities 777 1,206
---------- ----------
Long-Term Debt 863 839
Postretirement Liabilities 1,162 1,164
Other Liabilities 384 382
Shareholders' Deficit:
Common stock 1 1
Additional Contributed Capital 19 19
Treasury stock (251) (251)
Net deficiency of assets at spinoff (113) (113)
Accumulated other comprehensive loss (103) (146)
Reinvested earnings 201 241
---------- ----------
Total Shareholders' Deficit (246) (249)
---------- ----------
Total Liabilities and Shareholders' Deficit $ 2,940 $ 3,342
---------- ----------
-10-
Solutia Inc.
Statement of Consolidated Cash Flows
(Dollars in millions)
(Unaudited)
Six Months Ended
June 30,
-----------------------
2003 2002
---------- ----------
Increase (Decrease) in Cash and Cash Equivalents
Operating Activities:
Net loss $ (40) $ (130)
Adjustments to reconcile to Cash From Operations:
Cumulative effect of change in accounting principle - 167
Depreciation and amortization 68 67
(Income) loss from discontinued operations, net of tax 2 (22)
Amortization of deferred credits (7) (7)
Amortization of deferred debt issuance costs and debt discount 8 4
Restructuring expenses and other special items 23 -
Net pretax gains from asset disposals - (6)
Changes in assets and liabilities:
Income and deferred taxes (29) 64
Trade receivables (34) (56)
Inventories (7) (15)
Accounts payable (22) 24
Other assets and liabilities (3) (51)
---------- ----------
Cash Provided by (Used in) Continuing Operations (41) 39
Cash Provided by (Used in) Discontinued Operations (11) 10
---------- ----------
Cash Provided by (Used in) Operations (52) 49
---------- ----------
Investing Activities:
Property, plant and equipment purchases (46) (27)
Acquisition and investment payments, net of cash acquired (27) (17)
Property disposals and investment proceeds (1) 102
---------- ----------
Cash Provided by (Used in) Investing Activities - Continuing Operations (74) 58
Cash Provided by (Used in) Investing Activities - Discontinued Operations 477 (6)
---------- ----------
Cash Provided by Investing Activities 403 52
---------- ----------
Financing Activities:
Net change in short-term debt obligations (239) (109)
Deferred debt issuance cost - (1)
Common stock issued under employee stock plans - 2
Other financing activities (40) (3)
---------- ----------
Cash Used in Financing Activities - Continuing Operations (279) (111)
Cash Used in Financing Activities - Discontinued Operations (5) -
---------- ----------
Cash Used in Financing Activities (284) (111)
---------- ----------
Increase (Decrease) in Cash and Cash Equivalents 67 (10)
Cash and Cash Equivalents:
Beginning of Year 17 23
---------- ----------
End of Period $ 84 $ 13
---------- ----------
Three Months Ended Six Months Ended
June 30, June 30,
----------------------- -----------------------
2003 2002 2003 2002
---------- ---------- ---------- ----------
Free Cash Flow Reconciliation:
Cash Provided by (Used in) Continuing Operations (6) 53 (41) 39
Less: Property, plant and equipment purchases 6 16 46 27
---------- ---------- ---------- ----------
Free Cash Flow $ (12) $ 37 $ (87) $ 12
---------- ---------- ---------- ----------