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 :
:
SOLUTIA INC., ET AL., : Chapter 11
:
Debtors. : Case No. 03-17949 (PCB)
:
- ----------------------------------------x (Jointly Administered)
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 JUNE 2006 (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 JUNE 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 INCOME ($M): $ 25
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: July 31, 2006 /s/ Timothy J. Spihlman
------------------------
Timothy J. Spihlman
Vice President and Controller
Indicate if this is an amended statement by checking here: X
---
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 June 2006
- -------------------------------------------------------------------
Solutia Inc. $ 240,020,733.94
- -------------------------------------------------------------------
Solutia Business Enterprises, Inc.* $ --
- -------------------------------------------------------------------
Solutia Systems, Inc. $ 22,000.00
- -------------------------------------------------------------------
Solutia Overseas, Inc. * $ --
- -------------------------------------------------------------------
CPFilms Inc. $ 10,909,984.64
- -------------------------------------------------------------------
Solutia Management Company, Inc. * $ --
- -------------------------------------------------------------------
Monchem International, Inc. * $ --
- -------------------------------------------------------------------
Axio Research Corporation * $ --
- -------------------------------------------------------------------
Solutia Investments, LLC * $ --
- -------------------------------------------------------------------
Beamer Road Management Company * $ --
- -------------------------------------------------------------------
Monchem, Inc. * $ --
- -------------------------------------------------------------------
Solutia Inter-America, Inc. $ 350.00
- -------------------------------------------------------------------
Solutia International Holding, LLC * $--
- -------------------------------------------------------------------
Solutia Taiwan, Inc. $ 19,783.61
- -------------------------------------------------------------------
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 June 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 SIX MONTHS ENDED
JUNE 30, 2006 JUNE 30, 2006
--------------- ----------------
TOTAL NET SALES $ 275 $ 1,443
TOTAL COST OF GOODS SOLD 213 1,239
-------- --------
GROSS PROFIT 62 204
TOTAL MAT EXPENSE 24 136
AMORTIZATION EXPENSE -- 1
-------- --------
OPERATING INCOME 38 67
EQUITY EARNINGS FROM AFFILIATES 4 21
INTEREST EXPENSE (9) (50)
OTHER INCOME (EXPENSE), NET (1) 7
LOSS ON DEBT MODIFICATION -- (8)
REORGANIZATION ITEMS:
Professional fees (5) (27)
Employee severance and retention costs -- (3)
Adjustment to allowed claim amounts 1 2
Other (1) (4)
-------- --------
(5) (32)
-------- --------
INCOME BEFORE TAXES 27 5
Income tax expense -- 7
-------- --------
INCOME (LOSS) FROM CONTINUING OPERATIONS 27 (2)
Income from discontinued operations, net of tax 5 8
-------- --------
NET INCOME $ 32 $ 6
======== ========
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 JUNE 30, 2006
(Dollars in
ASSETS millions)
------ -----------
Cash 265
Trade Receivables, net 347
Inventories 263
Other Current Assets 119
Assets of Discontinued Operations 84
---------
TOTAL CURRENT ASSETS 1,078
Property, Plant and Equipment, net 772
Investments in Affiliates 213
Intangible Assets, net 121
Other Assets 105
---------
TOTAL ASSETS $ 2,289
=========
LIABILITIES AND SHAREHOLDERS' DEFICIT
-------------------------------------
Accounts Payable $ 197
Short Term Debt 700
Other Current Liabilities 245
Liabilities of Discontinued Operations 30
---------
TOTAL CURRENT LIABILITIES 1,172
Long-Term Debt 210
Other Long-Term Liabilities 260
---------
TOTAL LIABILITIES NOT SUBJECT TO COMPROMISE 1,642
LIABILITIES SUBJECT TO COMPROMISE 2,084
SHAREHOLDERS' DEFICIT (1,437)
---------
TOTAL LIABILITIES & SHAREHOLDERS' DEFICIT $ 2,289
=========
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 SIX MONTHS ENDED
JUNE 30, 2006 JUNE 30, 2006
--------------- ----------------
NET CASH PROVIDED BY (USED IN) OPERATING ACTIVITIES:
Net income $ 32 $ 6
Income from discontinued operations, net of tax (5) (8)
Depreciation and amortization 10 57
Restructuring expenses and other unusual items (19) (1)
Changes in assets and liabilities:
Trade receivables (26) (102)
Inventories 16 (3)
Accounts payable (1) (14)
Other assets and liabilities 1 (30)
-------- --------
NET CASH PROVIDED BY (USED IN) BEFORE REORGANIZATION ITEMS-CONTINUING OPERATIONS 8 (95)
NET CASH PROVIDED BY (USED IN) BEFORE REORGANIZATION ITEMS-DISCONTINUED OPERATIONS (2) 2
-------- --------
NET CASH PROVIDED BY (USED IN) BEFORE REORGANIZATION ITEMS 6 (93)
OPERATING CASH FLOWS - REORGANIZATION ITEMS - CONTINUING OPERATIONS:
Professional services fees (6) (27)
Employee severance and retention payments -- (2)
Other -- (2)
-------- --------
NET CASH USED IN REORGANIZATION ITEMS-CONTINUING OPERATIONS (6) (31)
NET CASH PROVIDED BY (USED IN) OPERATING ACTIVITIES-CONTINUING OPERATIONS 2 (126)
NET CASH PROVIDED BY (USED IN) OPERATING ACTIVITIES-DISCONTUNUED OPERATIONS (2) 2
-------- --------
NET CASH PROVIDED BY (USED IN) OPERATING ACTIVITIES -- (124)
======== ========
NET CASH USED IN INVESTING ACTIVITIES:
Property, plant and equipment purchases (5) (41)
Acquisition and Investment Payments -- (16)
-------- --------
NET CASH USED IN INVESTING ACTIVITIES-CONTINUING OPERATIONS (5) (57)
NET CASH USED IN INVESTING ACTIVITIES-DISCONTINUED OPERATIONS -- (2)
-------- --------
NET CASH USED IN INVESTING ACTIVITIES-TOTAL (5) (59)
======== ========
NET CASH PROVIDED BY FINANCING ACTIVITIES:
Net change in short-term debt obligations -- 350
Deferred debt issuance costs -- (9)
-------- --------
NET CASH PROVIDED BY FINANCING ACTIVITIES -- 341
======== ========
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS (5) 158
CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD 270 107
-------- --------
CASH AND CASH EQUIVALENTS, END OF PERIOD $ 265 $ 265
======== ========
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 SIX MONTHS ENDED
JUNE 30, 2006 JUNE 30, 2006
--------------- ----------------
TOTAL NET SALES $ 229 $ 1,190
TOTAL COST OF GOODS SOLD 182 1,063
-------- --------
GROSS PROFIT 47 127
TOTAL MAT EXPENSE 19 109
-------- --------
OPERATING INCOME 28 18
EQUITY EARNINGS FROM AFFILIATES 4 23
INTEREST EXPENSE, NET (8) (39)
OTHER INCOME, NET 5 20
LOSS ON DEBT MODIFICATION -- (8)
REORGANIZATION ITEMS:
Professional fees (5) (27)
Employee severance and retention costs -- (3)
Adjustment to allowed claim amounts 1 2
Other (1) (4)
-------- --------
(5) (32)
-------- --------
INCOME (LOSS) BEFORE TAXES 24 (18)
Income tax expense (benefit) (1) 1
-------- --------
NET INCOME (LOSS) $ 25 $ (19)
======== ========
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 JUNE 30, 2006
(Dollars in
ASSETS millions)
------ -----------
Cash $ 156
Trade Receivables, net 201
Account Receivables-Unconsolidated Subsidiaries 55
Inventories 167
Other Current Assets 77
Assets of Discontinued Operations --
--------
TOTAL CURRENT ASSETS 656
Property, Plant and Equipment, net 658
Investments in Subsidaries and Affiliates 580
Intangible Assets, net 100
Other Assets 59
--------
TOTAL ASSETS $ 2,053
========
LIABILITIES AND SHAREHOLDERS' DEFICIT
-------------------------------------
Accounts Payable $ 156
Short Term Debt 650
Other Current Liabilities 184
Liabilities of Discontinued Operations 1
--------
TOTAL CURRENT LIABILITIES 991
Other Long-Term Liabilities 193
--------
TOTAL LIABILITIES NOT SUBJECT TO COMPROMISE 1,184
LIABILITIES SUBJECT TO COMPROMISE 2,191
SHAREHOLDERS' DEFICIT (1,322)
--------
TOTAL LIABILITIES & SHAREHOLDERS' DEFICIT $ 2,053
========
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 consisted of (i) a $50 million multiple draw term loan;
10
(ii) a $300 million single draw term loan, which was drawn in full on the
effective date of the facility; and (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, all 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 Company ("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 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 filed 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.
11
The Plan, which incorporates the Relationship Agreement and Retiree
Settlement, is subject to approval by the Bankruptcy Court in accordance with
the 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. The previously
scheduled Disclosure Statement hearing has been cancelled and based on
comments from the Bankruptcy Court, Solutia anticipates that a hearing on the
Disclosure Statement will not take place until after the Bankruptcy Court
makes a ruling in the JPM Proceeding.
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
12
later date. The Plan and Relationship 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 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 also provides for the assumption and extension of certain
commercial and operating agreements between Solutia and Monsanto. The Plan
seeks a release for Monsanto and Pharmacia from certain pre-Solutia Spinoff
liabilities, including those related to Retiree Welfare Benefits.
In the Disclosure Statement, Solutia estimated that the amount of
allowed general unsecured claims in its Chapter 11 case will be approximately
$800 million to $1 billion, the enterprise value of reorganized Solutia will
be approximately $2 billion to $2.3 billion and the reorganization equity
value of reorganized Solutia will be approximately $700 million to $1.1
billion. However, these amounts are estimates and it is possible that the
actual general unsecured claims pool, enterprise value and equity value of
reorganized Solutia will be outside of these estimated ranges.
The Plan contains details regarding how the claims of each class of
creditors and interest holders will be treated. The Plan provides for
repayment 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. In consideration for its contributions
under the Plan, resolution of its claim in the Chapter 11 Cases and the
settlement of ongoing and potential litigation, among other things, Monsanto
would receive common stock in reorganized Solutia. If Monsanto is required to
make the full new money investment under the rights offering, Monsanto's
equity interest in reorganized Solutia is expected to range from approximately
45 percent to 49 percent, depending on the actual amount of allowed general
unsecured claims. The holders of allowed general unsecured claims would
receive the remainder of the common stock in reorganized Solutia, as described
below.
Based on the mid-point of the equity value of reorganized Solutia
described above, the Plan provides for distributions of common stock in
reorganized Solutia to holders of allowed unsecured claims in an amount
estimated at between 48 percent and 56 percent of their allowed claims.
However, this is only an estimated range of recoveries. Solutia is unable to
predict precisely what recovery the Plan will
13
provide to these holders of unsecured claims or how any potential
modifications to the Plan will impact these recoveries. Therefore, actual
recoveries may be materially different from these estimates. Furthermore, the
equity interests received by holders of allowed unsecured claims will be
subject to dilution as a result of the incentive stock option plan that is
expected to be adopted by Solutia pursuant to the Plan. The ultimate ownership
interests in 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.
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
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.
14
Liquidity
At June 30, 2006, total liquidity for the Solutia Group was
approximately $350 million, consisting of $265 million of cash and DIP
facility availability of $85 million. At June 30, 2006, total liquidity for
the Solutia Chapter 11 Debtors was approximately $241 million, consisting of
$156 million of cash and DIP facility availability of $85 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
Month Ended June 30, 2006
- -------------------------
Restructuring expenses and other unusual items included in the
consolidated statement of operations and the statement of consolidated cash
flows were approximately $19 million of net gain for the month ended June 30,
2006. These restructuring expenses and other unusual items consisted of a $20
million gain from the reversal of previously established litigation reserves,
partially offset by $1 million of severance and retraining costs incurred from
headcount reductions throughout the organization.
Six Months Ended June 30, 2006
- ------------------------------
Restructuring expenses and other unusual items included in the
consolidated statement of operations and the statement of consolidated cash
flows were approximately $1 million of net gain for the six months ended June
30, 2006. These restructuring expenses and other unusual items consisted of
(i) a $20 million gain from the reversal of previously established litigation
reserves; (ii) 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; (iii) 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; and (iv) $1 million of severance and retraining costs incurred
from headcount reductions throughout the organization.
4. SUPPLEMENTAL INFORMATION - YEAR-TO-DATE RESULTS OF OPERATIONS
Solutia's results of operations for the six months ended June 30, 2006
were unfavorably impacted by unfavorable manufacturing variances and higher
overall raw material and energy costs. The unfavorable manufacturing costs were
precipitated by a manufacturing interruption incurred at the Alvin, Texas
facility, resulting in a significant turnaround being accelerated in its timing,
as well as extended in its duration. Net sales in the six months ended June 30,
2006 remained consistent with the comparable period in 2005 consisting of higher
average selling prices of approximately 6 percent offset by lower sales volumes
of approximately 5 percent and unfavorable currency exchange rate fluctuations
of approximately 1 percent. The lower sales volumes were largely precipitated by
portfolio changes made in 2005 when Solutia exited certain unprofitable
businesses.
5. SUPPLEMENTAL INFORMATION - DISCONTINUED OPERATIONS
Income from discontinued operations consists of the results of Solutia's
pharmaceutical services business. On May 23, 2006, Solutia's wholly-owned
subsidiary, Solutia Europe S.A./N.V. ("SESA") agreed to sell its
pharmaceutical services business to Dishman Pharmaceuticals & Chemicals Ltd.
("Dishman"). The transaction is anticipated to close in the third quarter
2006. Included in the results of discontinued operations in the one month and
six month periods ended June 30, 2006 was a tax gain of $5 million for the
reversal of a valuation allowance previously established for the potential
inability to fully utilize net operating losses from the CarboGen subsidiary
of the pharmaceutical services business. However, independent of the
aforementioned sales transaction, the CarboGen and AMCIS subsidiaries of the
pharmaceutical services business were merged into one legal entity in the
second quarter 2006 with the current assumption of the net operating losses
from CarboGen being able to be fully utilized in the future as part of the
combined entity.
15
As the transaction is expected to close in the third quarter 2006, the
assets and liabilities of the discontinued operations have been classified as
current in the Statement of Consolidated Financial Position at June 30, 2006.
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 JUNE 30, 2006
PRE-PETITION POST-PETITION TOTAL
AMOUNT AMOUNT AMOUNT
---------------- ---------------- ---------------
1. GROSS SALARIES AND WAGES -- 20,248,125.79 20,248,125.79
2. PAYROLL TAXES WITHHELD -- 4,943,442.15 4,943,442.15
3. EMPLOYER PAYROLL TAX CONTRIBUTED -- 1,555,225.36 1,555,225.36
4. GROSS TAXABLE SALES -- 2,566,542.95 2,566,542.95
5. SALES TAXES COLLECTED / USE TAX PAID -- 433,279.23 433,279.23
6. PROPERTY TAXES PAID -- 1,899,827.98 1,899,827.98
7. OTHER TAXES PAID -- 194,460.89 194,460.89
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 JUNE 30, 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. 06/02/06 -- 134,971.80 134,971.80 Employee Payroll Taxes 2
Solutia Inc. 06/06/06 -- 957.45 957.45 Employee Payroll Taxes 2
Solutia Inc. 06/07/06 -- 95,973.94 95,973.94 Employee Payroll Taxes 2
Solutia Inc. 06/08/06 -- 218,849.47 218,849.47 Employee Payroll Taxes 2
Solutia Inc. 06/09/06 -- 290,807.61 290,807.61 Employee Payroll Taxes 2
Solutia Inc. 06/14/06 -- 88,559.92 88,559.92 Employee Payroll Taxes 2
Solutia Inc. 06/15/06 -- 1,605,641.92 1,605,641.92 Employee Payroll Taxes 2
Solutia Inc. 06/21/06 -- 82,028.10 82,028.10 Employee Payroll Taxes 2
Solutia Inc. 06/22/06 -- 208,227.13 208,227.13 Employee Payroll Taxes 2
Solutia Inc. 06/23/06 -- 155,866.19 155,866.19 Employee Payroll Taxes 2
Solutia Inc. 06/28/06 -- 89,055.31 89,055.31 Employee Payroll Taxes 2
Solutia Inc. 06/29/06 -- 80,242.74 80,242.74 Employee Payroll Taxes 2
Solutia Inc. 06/30/06 -- 1,669,940.22 1,669,940.22 Employee Payroll Taxes 2
Solutia Inc. 06/02/06 -- 32,580.55 32,580.55 Employer Payroll Taxes 3
Solutia Inc. 06/06/06 -- 224.33 224.33 Employer Payroll Taxes 3
Solutia Inc. 06/07/06 -- 27,937.61 27,937.61 Employer Payroll Taxes 3
Solutia Inc. 06/08/06 -- 70,328.42 70,328.42 Employer Payroll Taxes 3
Solutia Inc. 06/09/06 -- 61,132.90 61,132.90 Employer Payroll Taxes 3
Solutia Inc. 06/14/06 -- 26,126.41 26,126.41 Employer Payroll Taxes 3
Solutia Inc. 06/15/06 -- 547,681.84 547,681.84 Employer Payroll Taxes 3
Solutia Inc. 06/21/06 -- 24,712.20 24,712.20 Employer Payroll Taxes 3
Solutia Inc. 06/22/06 -- 67,674.55 67,674.55 Employer Payroll Taxes 3
Solutia Inc. 06/23/06 -- 35,409.53 35,409.53 Employer Payroll Taxes 3
Solutia Inc. 06/28/06 -- 26,398.91 26,398.91 Employer Payroll Taxes 3
Solutia Inc. 06/29/06 -- 23,740.36 23,740.36 Employer Payroll Taxes 3
Solutia Inc. 06/30/06 -- 556,731.41 556,731.41 Employer Payroll Taxes 3
Solutia Inc. 06/19/06 -- 364,558.00 364,558.00 Sale/Use Tax 5
CPFilms Inc. 06/30/06 -- 63,805.93 63,805.93 Sales 5
CPFilms Inc. 06/30/06 -- 4,915.30 4,915.30 Use 5
Solutia Inc. 06/29/06 -- 1,899,827.98 1,899,827.98 Property Tax 6
Solutia Inc. 06/26/06 -- 59,500.00 59,500.00 Business License 7
Solutia Inc. 06/30/06 -- 275.00 275.00 Annual Report 7
Solutia Inc. 06/20/06 -- 3,685.89 3,685.89 Annual Report 7
Solutia Systems, Inc. 06/15/06 -- 22,000.00 22,000.00 Other - Income 7
CPFilms Inc. 06/15/06 -- 47,000.00 47,000.00 Other - Income 7
CPFilms Inc. 06/30/06 -- 62,000.00 62,000.00 Other - Income 7