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 MARCH 2006 (1)
-----------------------
<FN>
(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 MARCH 2006
-------------------
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): $ 22
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: April 28, 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 March 2006
- -------------------------------------------------------------------------------
Solutia Inc. $ 269,927,338.07
- -------------------------------------------------------------------------------
Solutia Business Enterprises, Inc. $ 100.00
- -------------------------------------------------------------------------------
Solutia Systems, Inc. * $ --
- -------------------------------------------------------------------------------
Solutia Overseas, Inc. * $ --
- -------------------------------------------------------------------------------
CPFilms Inc. $ 12,272,765.84
- -------------------------------------------------------------------------------
Solutia Management Company, Inc. * $ --
- -------------------------------------------------------------------------------
Monchem International, Inc. * $ --
- -------------------------------------------------------------------------------
Axio Research Corporation * $ --
- -------------------------------------------------------------------------------
Solutia Investments, LLC * $ --
- -------------------------------------------------------------------------------
Beamer Road Management Company * $ --
- -------------------------------------------------------------------------------
Monchem, Inc. * $ --
- -------------------------------------------------------------------------------
Solutia Inter-America, Inc. $ 5,649.32
- -------------------------------------------------------------------------------
Solutia International Holding, LLC * $ --
- -------------------------------------------------------------------------------
Solutia Taiwan, Inc. $ 29,218.53
- -------------------------------------------------------------------------------
Solutia Greater China, Inc. * $ --
- -------------------------------------------------------------------------------
<FN>
* 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 March 2006
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 THREE MONTHS ENDED
MARCH 31, 2006 MARCH 31, 2006
----------------- ------------------
TOTAL NET SALES $ 249 $ 700
TOTAL COST OF GOODS SOLD 229 619
----------------- -----------------
GROSS PROFIT 20 81
TOTAL MAT EXPENSE 23 69
----------------- -----------------
OPERATING INCOME (LOSS) (3) 12
EQUITY EARNINGS FROM AFFILIATES 4 10
INTEREST EXPENSE (10) (23)
OTHER EXPENSE, NET 2 3
LOSS ON DEBT MODIFICATION (8) (8)
REORGANIZATION ITEMS:
Professional fees (4) (12)
Employee severance and retention costs (1) (2)
Adjustment to allowed claim amounts 1 2
Other - (2)
----------------- -----------------
(4) (14)
----------------- -----------------
LOSS BEFORE TAXES (19) (20)
Income tax expense (benefit) (4) 2
----------------- -----------------
NET LOSS $ (15) $ (22)
================= =================
See Accompanying Notes to Consolidated Financial Statements.
<FN>
* 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 MARCH 31, 2006
(DOLLARS IN
ASSETS MILLIONS)
------ ---------------
Cash $ 342
Trade Receivables, net 291
Inventories 302
Other Current Assets 114
---------------
TOTAL CURRENT ASSETS 1,049
Property, Plant and Equipment, net 809
Investments in Affiliates 200
Intangible Assets, net 128
Other Assets 108
---------------
TOTAL ASSETS $ 2,294
===============
LIABILITIES AND SHAREHOLDERS' DEFICIT
-------------------------------------
Accounts Payable $ 209
Short Term Debt 650
Other Current Liabilities 236
---------------
TOTAL CURRENT LIABILITIES 1,095
Long-Term Debt 251
Other Long-Term Liabilities 269
---------------
TOTAL LIABILITIES NOT SUBJECT TO COMPROMISE 1,615
LIABILITIES SUBJECT TO COMPROMISE 2,154
SHAREHOLDERS' DEFICIT (1,475)
---------------
TOTAL LIABILITIES & SHAREHOLDERS' DEFICIT $ 2,294
===============
See Accompanying Notes to Consolidated Financial Statements.
<FN>
* 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 THREE MONTHS ENDED
MARCH 31, 2006 MARCH 31, 2006
NET CASH USED IN OPERATING ACTIVITIES: ----------------- ------------------
Net loss $ (15) $ (22)
Depreciation and amortization 10 29
Restructuring expenses and other unusual items 18 18
Changes in assets and liabilities:
Trade receivables 10 (38)
Inventories (11) (29)
Accounts payable 12 (1)
Other assets and liabilities (36) (8)
----------------- -----------------
NET CASH USED BEFORE REORGANIZATION ITEMS (12) (51)
OPERATING CASH FLOWS - REORGANIZATION ITEMS:
Professional services fees (3) (10)
Employee severance and retention payments (1) (2)
Other (1) (2)
----------------- -----------------
NET CASH USED IN REORGANIZATION ITEMS (5) (14)
----------------- -----------------
NET CASH USED IN OPERATING ACTIVITIES (17) (65)
================= =================
NET CASH USED IN INVESTING ACTIVITIES:
Property, plant and equipment purchases (7) (25)
Acquisition, net of cash acquired (16) (16)
----------------- -----------------
NET CASH USED IN INVESTING ACTIVITIES (23) (41)
================= =================
NET CASH PROVIDED BY FINANCING ACTIVITIES:
Net change in short-term debt obligations 293 350
Deferred debt issuance costs (9) (9)
----------------- -----------------
NET CASH PROVIDED BY FINANCING ACTIVITIES 284 341
================= =================
NET INCREASE IN CASH AND CASH EQUIVALENTS 244 235
CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD 98 107
----------------- -----------------
CASH AND CASH EQUIVALENTS, END OF PERIOD $ 342 $ 342
================= =================
See Accompanying Notes to Consolidated Financial Statements.
<FN>
* 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 THREE MONTHS ENDED
MARCH 31, 2006 MARCH 31, 2006
----------------- ------------------
TOTAL NET SALES $ 192 $ 557
TOTAL COST OF GOODS SOLD 182 517
----------------- ------------------
GROSS PROFIT 10 40
TOTAL MAT EXPENSE 17 52
----------------- ------------------
OPERATING LOSS (7) (12)
EQUITY EARNINGS FROM AFFILIATES 5 12
INTEREST EXPENSE, NET (8) (18)
OTHER INCOME, NET 2 8
LOSS ON DEBT MODIFICATION (8) (8)
REORGANIZATION ITEMS:
Professional fees (4) (12)
Employee severance and retention costs (1) (2)
Adjustment to allowed claim amounts 1 2
Other - (2)
----------------- ------------------
(4) (14)
----------------- ------------------
LOSS BEFORE TAXES (20) (32)
Income tax expense 2 2
----------------- ------------------
NET LOSS $ (22) $ (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 MARCH 31, 2006
ASSETS (DOLLARS IN
------ MILLIONS)
---------------
Cash $ 233
Trade Receivables, net 151
Account Receivables-Unconsolidated Subsidiaries 54
Inventories 196
Other Current Assets 75
---------------
TOTAL CURRENT ASSETS 709
Property, Plant and Equipment, net 665
Investments in Subsidiaries and Affiliates 567
Intangible Assets, net 100
Other Assets 61
---------------
TOTAL ASSETS $ 2,102
===============
LIABILITIES AND SHAREHOLDERS' DEFICIT
-------------------------------------
Accounts Payable $ 167
Short Term Debt 650
Other Current Liabilities 165
---------------
TOTAL CURRENT LIABILITIES 982
Other Long-Term Liabilities 200
---------------
TOTAL LIABILITIES NOT SUBJECT TO COMPROMISE 1,182
LIABILITIES SUBJECT TO COMPROMISE 2,258
SHAREHOLDERS' DEFICIT (1,338)
---------------
TOTAL LIABILITIES & SHAREHOLDERS' DEFICIT $ 2,102
===============
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., "Pharmacia"). On September 1, 1997,
Pharmacia distributed all of the outstanding shares of common stock of
Solutia as a dividend to Pharmacia stockholders (the "Solutia Spinoff"). As
a result of the Solutia 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
(the "Debtors") filed voluntary petitions for reorganization under Chapter
11 of the U.S. Bankruptcy Code (the "Chapter 11 Cases") 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.
The filing was made to restructure Solutia's balance sheet by
reducing indebtedness to appropriate levels, to streamline operations and to
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
post-retirement benefits (the "Legacy Liabilities") and liabilities under
operating contracts, all of which were assumed at the time of the Solutia
Spinoff. 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 court protection from creditors and
claimants. Since the Chapter 11 filing, 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.
On January 16, 2004, pursuant to authorization from the Bankruptcy
Court, Solutia entered into a $525 million DIP credit facility. This DIP
facility consists of (i) a $50 million multiple draw term loan; (ii) a $300
million single draw term loan, which was drawn in full on the effective date
of the facility; and
10
(iii) a $175 million borrowing-based revolving credit facility,
which includes a $150 million letter of credit subfacility. The DIP credit
facility was subsequently amended on March 1, 2004, July 20, 2004 and June
1, 2005. A fourth amendment was entered into on March 17, 2006, with
Bankruptcy Court approval. The fourth amendment, among other things, (i)
increased the DIP facility from $525 million to $825 million; (ii) extended
the term of the DIP facility from June 19, 2006 to March 31, 2007; (iii)
decreased the interest rate on the term loan component of the DIP facility
from LIBOR plus 425 basis points to LIBOR plus 350 basis points; (iv)
increased certain thresholds allowing the Debtors to retain more of the
proceeds from certain dispositions and other extraordinary receipts; (v)
approved the disposition of certain assets of the Debtors; (vi) allowed
refinancing of, and certain amendments to, Solutia Europe S.A./N.V.'s
outstanding Euronotes; and (vii) amended certain financial and other
covenants. The fourth amendment also contains a number of other
modifications required to make the remaining terms of the DIP facility
consistent with the amendments set forth above.
As a consequence of the Chapter 11 filing, pending litigation
against Solutia is generally stayed, and no party may take any action to
collect its pre-petition claims except pursuant to order of the Bankruptcy
Court. November 30, 2004 was the last date by which holders of pre-filing
date claims against the Debtors could file such claims. Any holder of a
claim that was required to file such 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 on account
of such claim. Differences between claim amounts identified by the Debtors
and claims 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. Since 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 February 14, 2006, the Debtors filed with the Bankruptcy Court
their Joint Plan of Reorganization (the "Plan") and Disclosure Statement
(the "Disclosure Statement"). The Plan and Disclosure Statement along with
the Relationship Agreement (as defined below) and the Retiree Settlement
Agreement, entered into among Solutia, the Official Committee of Unsecured
Creditors (the "Unsecured Creditors' Committee") and Official Committee of
Retirees appointed in the Debtors' Chapter 11 Cases (the "Retirees'
Committee"), Monsanto, certain retirees and the other parties thereto (the
"Retiree Settlement"), set forth the terms of a global settlement (the
"Global Settlement") between Solutia, the Unsecured Creditors' Committee,
the Retirees' Committee, Monsanto Company ("Monsanto") and Pharmacia. The
Global Settlement provides for, among other things, the reallocation of
certain Legacy Liabilities among Solutia, Monsanto and Pharmacia and the
treatment various constituencies in the Chapter 11 Cases will receive under
the Plan. The Disclosure Statement contains a description of the events that
led up to the Debtors' bankruptcy filings, the actions the Debtors' have
taken to improve their financial situation while in bankruptcy and a current
description of the Debtors' businesses. The reallocation of liabilities
between Solutia and Monsanto is set forth in a Relationship Agreement (the
"Relationship Agreement") to be entered into between Solutia and Monsanto
upon confirmation of the Plan. The Relationship Agreement was filed with the
Bankruptcy Court on February 14, 2006 as an exhibit to the Plan.
Solutia also issued a press release on February 14, 2006 announcing
the filing of the Plan and Disclosure Statement with the Bankruptcy Court.
The press release was furnished to the Securities and Exchange Commission in
a Form 8-K filing on February 14, 2006. The Plan, including the Relationship
Agreement and Retiree Settlement Agreement, and the Disclosure Statement
were furnished as exhibits to a Form 8-K filed on February 21, 2006.
The Plan, which incorporates the Relationship Agreement and Retiree
Settlement, is subject to approval by the Bankruptcy Court in accordance with
the
11
Bankruptcy Code as well as various other conditions and contingencies, some
of which are not within the control of Solutia, and therefore are subject to
change and are not binding upon any party. The Disclosure Statement remains
subject to change pending a hearing in the Bankruptcy Court to consider the
legal adequacy of the Disclosure Statement. Once the Disclosure Statement is
approved by the Bankruptcy Court, it will be distributed to all
constituencies entitled to vote on the Plan. Solutia cannot provide any
assurance that any plan of reorganization ultimately confirmed by the
Bankruptcy Court, or any disclosure statement ultimately approved by the
Bankruptcy Court, will be consistent with the terms of the Plan and
Disclosure Statement. A hearing to approve the Disclosure Statement is
expected to be held before the Honorable Prudence Carter Beatty, United States
Bankruptcy Judge, in Room 701 of the Bankruptcy Court, Alexander Hamilton
Custom House, One Bowling Green, New York, New York, 10004-1408, on June 7,
2006, or as soon thereafter as the Debtors may be heard.
If confirmed, the Plan will provide Solutia with significant relief
from the Legacy Liabilities Solutia was required to assume in the Solutia
Spinoff. These Legacy Liabilities included: (1) retiree medical, retiree
life insurance and retiree disability benefits ("Retiree Welfare Benefits")
for those individuals who retired or became disabled prior to the Solutia
Spinoff ("Pre-Spin Retirees"); (2) environmental remediation costs related
to activities of the chemicals business of Pharmacia that occurred prior to
the Solutia Spinoff; and (3) toxic tort litigation costs relating to
chemical exposure associated with the activities of Pharmacia that occurred
prior to the Solutia Spinoff.
Under the Plan, Solutia would emerge from bankruptcy as an
independent publicly held company ("reorganized Solutia"). The Plan provides
for $250 million of new investment in reorganized Solutia. This new
investment will be in the form of a rights offering to certain unsecured
creditors, who will be given the opportunity to purchase 22.7 percent of the
common stock in reorganized Solutia. Monsanto will backstop the rights
offering, meaning it will commit to purchase up to the entire $250 million
of stock, to the extent the stock is not purchased by eligible unsecured
creditors in the rights offering.
Of this $250 million new investment, $175 million would be set
aside in a Voluntary Employees' Beneficiary Association ("VEBA") Retiree
Trust to fund the Retiree Welfare Benefits for those Pre-Spin Retirees who
receive these benefits from Solutia, and $50 million would be used to fund
reorganized Solutia's environmental remediation commitments in Anniston,
Alabama and Sauget, Illinois, as described below. The remaining $25 million
would be available for reorganized Solutia to pay any of the Legacy
Liabilities that it is retaining.
Under the Plan and Relationship Agreement, as between Monsanto and
Solutia, Monsanto would be responsible, with certain exceptions, for all
current and future tort litigation costs arising from the conduct of
Pharmacia's chemical business prior to the Solutia Spinoff, including
litigation arising from exposure to polychlorinated biphenyls ("PCBs") and
other chemicals. In addition, Monsanto would accept financial responsibility
for environmental remediation obligations at all sites for which Solutia was
required to assume responsibility as part of the Solutia Spinoff but which
were never owned or operated by Solutia. These include more than 50 sites
with active remediation projects and approximately 200 additional known
sites and off-site disposal facilities, as well as sites that have not yet
been identified. Finally, Monsanto would share financial responsibility with
Solutia for off-site remediation costs in Anniston, Alabama and Sauget,
Illinois. Under this cost-sharing mechanism, the first $50 million would be
paid from the proceeds of the rights offering (as described above), Monsanto
would pay the next $50 million (less amounts it has paid for remediation at
these sites during the Chapter 11 Cases, which totaled over $30 million as
of January 31, 2006), Solutia would be responsible for the next $325 million
in costs, and any further costs would be shared equally between Solutia and
Monsanto. Under certain circumstances, Solutia would be able to defer paying
a portion of its shared responsibility with respect to the Anniston and
Sauget sites in excess of $30 million in any calendar year, up to $25
million in the aggregate. Any deferred amounts would be paid by Monsanto,
but subject to repayment by Solutia at a later date. The Plan and
Relationship
12
Agreement provide that Solutia will continue to pay its annual installment
and education fund obligations relating to the August 2003 Anniston PCBs
settlement and education fund obligations relating to the Anniston Partial
Consent Decree.
The Plan incorporates the terms of the Retiree Settlement
Agreement, which was negotiated with the Retirees' Committee, which
represents more than 23,000 former employees of Pharmacia and Solutia and
their dependents. Although the Retiree Settlement Agreement includes benefit
modifications, the Plan, through the $175 million from the rights offering
that will be allocated to the VEBA Trust, provides significant current
funding which will greatly improve Solutia's ability to meet these benefit
obligations going forward. Under the Retiree Settlement Agreement, retirees
will retain certain company-provided medical benefits, although the cost to
retirees for such benefits will increase. Many retirees will retain their
company-provided life insurance benefits, although some will experience a
reduction in the benefit provided. The Retiree Settlement Agreement also
maintains Solutia's rights according to a separate 2001 settlement and a
post-settlement retiree medical plan, under which Solutia intends to make
certain changes on or after the effective date of the Plan, including the
elimination of company-provided medical benefits for certain groups of
retirees that also are eligible for Medicare coverage.
In consideration of the benefit modifications being accepted by
retirees pursuant to the Retiree Settlement Agreement, the Plan contemplates
that the retirees would receive an allowed unsecured claim in the aggregate
amount of $35 million in Solutia's bankruptcy case. The common stock in the
reorganized Solutia received on account of this claim would be deposited in
the VEBA Trust and used to pay Retiree Welfare Benefits. This deposit would
be in addition to the $175 million that would be contributed to the VEBA
Trust from the proceeds of the rights offering. The VEBA Trust would be a
bankruptcy-remote entity and would be managed by an independent trustee.
The Plan does not provide for distributions to the holders of
Solutia's existing equity. Under the Plan, 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
Plan 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 distribution on the basis of several legal theories.
In order to exit Chapter 11, Solutia must propose and 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 October 10, 2006. Although Solutia expects to receive
further extensions of the exclusivity period, no assurance can be given that
any such future extension
13
requests will be granted by the Bankruptcy Court. Moreover, although Solutia
has filed the Plan which provides for Solutia's emergence from bankruptcy as
a going concern, there can be no assurance that the Plan, or any other plan
of reorganization, will be confirmed by the Bankruptcy Court or that any
such plan will 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 March 31, 2006, total liquidity for the Solutia Group was
approximately $426 million, consisting of $342 million of cash and DIP
facility availability of $84 million. At March 31, 2006, total liquidity for
the Solutia Chapter 11 Debtors was approximately $317 million, consisting of
$233 million of cash and DIP facility availability of $84 million.
2. SIGNIFICANT ACCOUNTING POLICIES
The significant accounting policies are consistent with those
listed in the Company's 2005 Annual Report on Form 10-K filed with the
Securities and Exchange Commission on March 15, 2006.
3. SUPPLEMENTAL INFORMATION - RESTRUCTURING EXPENSES AND OTHER UNUSUAL ITEMS
Restructuring expenses and other unusual items included in the
consolidated statement of operations and the statement of consolidated cash
flows were approximately $18 million for the month and year-to-date periods
ended March 31, 2006. These restructuring expenses and other unusual items
consisted of (i) an environmental charge of approximately $9 million that
was 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 that site;
and (ii) a charge of $9 million associated with the March 2006 DIP amendment
that resulted from the write-off of debt issuance costs and to record the
DIP facility as modified at its fair value.
14
4. SUPPLEMENTAL INFORMATION - YEAR-TO-DATE RESULTS OF OPERATIONS
Solutia's results of operations for the three months ended March
31, 2006 were unfavorably impacted by lower net sales, higher charges (as
further described in Note 3 above) and higher overall raw material and
energy costs. Lower net sales resulted from lower sales volumes and
unfavorable currency exchange rate fluctuations, partially offset by higher
average selling prices. Also impacting results of operations for the three
months ended March 31, 2006 was higher than expected manufacturing costs
experienced as part of a significant turnaround at the manufacturing
facility in Alvin, Texas. These higher costs were precipitated by a
manufacturing upset incurred at the Alvin, Texas facility in the first
quarter 2006, resulting in a significant turnaround being accelerated in its
timing, as well as extended in its duration.
15
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 MARCH 31, 2006
PRE-PETITION POST-PETITION TOTAL
AMOUNT AMOUNT AMOUNT
--------------------- ---------------------- ----------------------
1. GROSS SALARIES AND WAGES - 39,196,977.06 39,196,977.06
2. PAYROLL TAXES WITHHELD - 12,363,003.34 12,363,003.34
3. EMPLOYER PAYROLL TAX CONTRIBUTED - 3,054,816.40 3,054,816.40
4. GROSS TAXABLE SALES - 759,407.72 759,407.72
5. SALES TAXES COLLECTED / USE TAX PAID - 464,057.89 464,057.89
6. PROPERTY TAXES PAID - 1,676.07 1,676.07
7. OTHER TAXES PAID - 208,848.13 208,848.13
16
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 MARCH 31, 2006
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. 03/01/06 - 128,489.58 128,489.58 Employee Payroll Taxes 2
Solutia Inc. 03/02/06 - 203,644.48 203,644.48 Employee Payroll Taxes 2
Solutia Inc. 03/03/06 - 219,321.69 219,321.69 Employee Payroll Taxes 2
Solutia Inc. 03/08/06 - 87,218.70 87,218.70 Employee Payroll Taxes 2
Solutia Inc. 03/09/06 - 97,948.96 97,948.96 Employee Payroll Taxes 2
Solutia Inc. 03/10/06 - 274,911.60 274,911.60 Employee Payroll Taxes 2
Solutia Inc. 03/15/06 - 8,888,701.96 8,888,701.96 Employee Payroll Taxes 2
Solutia Inc. 03/16/06 - 199,241.89 199,241.89 Employee Payroll Taxes 2
Solutia Inc. 03/17/06 - 195,312.83 195,312.83 Employee Payroll Taxes 2
Solutia Inc. 03/22/06 - 85,924.90 85,924.90 Employee Payroll Taxes 2
Solutia Inc. 03/23/06 - 78,990.20 78,990.20 Employee Payroll Taxes 2
Solutia Inc. 03/24/06 - 193,640.92 193,640.92 Employee Payroll Taxes 2
Solutia Inc. 03/29/06 - 89,319.23 89,319.23 Employee Payroll Taxes 2
Solutia Inc. 03/30/06 - 187,145.68 187,145.68 Employee Payroll Taxes 2
Solutia Inc. 03/31/06 - 1,744,121.32 1,744,121.32 Employee Payroll Taxes 2
Solutia Inc. 03/01/06 - 29,262.39 29,262.39 Employer Payroll Taxes 3
Solutia Inc. 03/02/06 - 67,060.12 67,060.12 Employer Payroll Taxes 3
Solutia Inc. 03/03/06 - 52,344.50 52,344.50 Employer Payroll Taxes 3
Solutia Inc. 03/08/06 - 26,069.74 26,069.74 Employer Payroll Taxes 3
Solutia Inc. 03/09/06 - 28,682.85 28,682.85 Employer Payroll Taxes 3
Solutia Inc. 03/10/06 - 56,784.39 56,784.39 Employer Payroll Taxes 3
Solutia Inc. 03/15/06 - 1,917,278.46 1,917,278.46 Employer Payroll Taxes 3
Solutia Inc. 03/16/06 - 65,404.94 65,404.94 Employer Payroll Taxes 3
Solutia Inc. 03/17/06 - 46,420.80 46,420.80 Employer Payroll Taxes 3
Solutia Inc. 03/22/06 - 25,849.48 25,849.48 Employer Payroll Taxes 3
Solutia Inc. 03/23/06 - 23,350.41 23,350.41 Employer Payroll Taxes 3
Solutia Inc. 03/24/06 - 45,702.71 45,702.71 Employer Payroll Taxes 3
Solutia Inc. 03/29/06 - 25,706.31 25,706.31 Employer Payroll Taxes 3
Solutia Inc. 03/30/06 - 67,371.45 67,371.45 Employer Payroll Taxes 3
Solutia Inc. 03/31/06 - 585,409.85 585,409.85 Employer Payroll Taxes 3
Solutia Inc. 03/15/06 - 4,599.03 4,599.03 Sales/Use Tax 5
Solutia Inc. 03/17/06 - 52,994.49 52,994.49 Sales/Use Tax 5
Solutia Inc. 03/20/06 - 369,979.17 369,979.17 Sales/Use Tax 5
CP Films Inc. 03/31/06 - 32,704.69 32,704.69 Sales 5
CP Films Inc. 03/31/06 - 3,780.51 3,780.51 Use 5
Solutia Inc. 03/23/06 - 522.44 522.44 Property Tax 6
Solutia Inc. 03/27/06 - 1,153.63 1,153.63 Property Tax 6
Solutia Inc. 03/06/06 - 135,571.13 135,571.13 Sales/Use Tax Audit Commission 7
Solutia Inc. 03/13/06 - 275.00 275.00 Annual Reports 7
Solutia Inc. 03/15/06 - 610.00 610.00 Other - Franchise 7
Solutia Business Enterprises 03/15/06 - 100.00 100.00 Other - Franchise 7
Solutia Inc. 03/15/06 - 8,500.00 8,500.00 Other - Income 7
CP Films, Inc. 03/15/06 - 38,250.00 38,250.00 Other - Income 7
Solutia Inc. 03/29/06 - 95.00 95.00 Annual Reports 7
Solutia Inc. 03/31/06 - 197.00 197.00 Annual Reports 7
CP Films, Inc. 03/31/06 - 25,250.00 25,250.00 Other - Income 7
17