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 SEPTEMBER 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 SEPTEMBER 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): $ 10
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: December 7, 2006 /s/ Timothy J. Spihlman
-----------------------
Timothy J. Spihlman
Vice President and Controller
Indicate if this is an amended statement by checking here: X
-----
This statement is being amended to correct a clerical error on page 3,
"Monthly Disbursements by Debtor" for Solutia Inc. There are no other changes
to the originally filed Monthly Report.
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 September 2006
- --------------------------------------------------------------------------------
Solutia Inc. $ 319,243,906.88
- --------------------------------------------------------------------------------
Solutia Business Enterprises, Inc.* $ --
- --------------------------------------------------------------------------------
Solutia Systems, Inc. $ 21,000.00
- --------------------------------------------------------------------------------
Solutia Overseas, Inc. * $ --
- --------------------------------------------------------------------------------
CPFilms Inc. $ 9,351,691.62
- --------------------------------------------------------------------------------
Solutia Management Company, Inc. * $ --
- --------------------------------------------------------------------------------
Monchem International, Inc. * $ --
- --------------------------------------------------------------------------------
Axio Research Corporation $ 102.89
- --------------------------------------------------------------------------------
Solutia Investments, LLC * $ --
- --------------------------------------------------------------------------------
Beamer Road Management Company * $ --
- --------------------------------------------------------------------------------
Monchem, Inc. * $ --
- --------------------------------------------------------------------------------
Solutia Inter-America, Inc. $ 362,841.00
- --------------------------------------------------------------------------------
Solutia International Holding, LLC * $ --
- --------------------------------------------------------------------------------
Solutia Taiwan, Inc. $ 19,925.25
- --------------------------------------------------------------------------------
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 September 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*
CONSOLIDATED STATEMENT OF OPERATIONS (UNAUDITED)
(DOLLARS IN MILLIONS)
MONTH ENDED NINE MONTHS ENDED
SEPTEMBER 30, 2006 SEPTEMBER 30, 2006
-------------------- --------------------
TOTAL NET SALES $ 245 $ 2,181
TOTAL COST OF GOODS SOLD 215 1,874
-------------------- --------------------
GROSS PROFIT 30 307
TOTAL MAT EXPENSE 23 204
AMORTIZATION EXPENSE - 1
-------------------- --------------------
OPERATING INCOME 7 102
EQUITY EARNINGS FROM AFFILIATES 3 28
INTEREST EXPENSE (8) (79)
OTHER INCOME, NET 1 11
LOSS ON DEBT MODIFICATION - (8)
REORGANIZATION ITEMS:
Professional fees (4) (41)
Employee severance and retention costs - (4)
Adjustment to allowed claim amounts - 2
Other (3) (8)
-------------------- --------------------
(7) (51)
-------------------- --------------------
INCOME (LOSS) BEFORE TAXES (4) 3
Income tax expense 3 11
-------------------- --------------------
LOSS FROM CONTINUING OPERATIONS (7) (8)
Income from discontinued operations, net of tax - 58
-------------------- --------------------
NET INCOME (LOSS) $ (7) $ 50
==================== ====================
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*
CONSOLIDATED STATEMENT OF FINANCIAL POSITION (UNAUDITED)
AS OF SEPTEMBER 30, 2006
(Dollars in
ASSETS millions)
------ -------------
Cash 154
Trade Receivables, net 325
Inventories 302
Other Current Assets 109
Assets of Discontinued Operations -
-------------
TOTAL CURRENT ASSETS 890
Property, Plant and Equipment, net 781
Investments in Affiliates 198
Intangible Assets, net 120
Other Assets 109
-------------
TOTAL ASSETS $ 2,098
=============
LIABILITIES AND SHAREHOLDERS' DEFICIT
-------------------------------------
Accounts Payable $ 221
Short Term Debt 650
Other Current Liabilities 233
Liabilities of Discontinued Operations 2
-------------
TOTAL CURRENT LIABILITIES 1,106
Long-Term Debt 203
Other Long-Term Liabilities 263
-------------
TOTAL LIABILITIES NOT SUBJECT TO COMPROMISE 1,572
LIABILITIES SUBJECT TO COMPROMISE 1,954
SHAREHOLDERS' DEFICIT (1,428)
-------------
TOTAL LIABILITIES & SHAREHOLDERS' DEFICIT $ 2,098
=============
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*
CONSOLIDATED STATEMENT OF CASH FLOWS (UNAUDITED)
(DOLLARS IN MILLIONS)
MONTH ENDED NINE MONTHS ENDED
SEPTEMBER 30, 2006 SEPTEMBER 30, 2006
-------------------- --------------------
OPERATING ACTIVITIES:
Net income (loss) $ (7) $ 50
Income from discontinued operations, net of tax - (58)
Depreciation and amortization 8 83
Restructuring expenses and other unusual items 1 3
Changes in assets and liabilities:
Trade receivables - (80)
Inventories (7) (43)
Accounts payable 12 12
Other assets and liabilities (44) (134)
-------------------- --------------------
NET CASH USED BEFORE REORGANIZATION ITEMS-CONTINUING OPERATIONS (37) (167)
NET CASH PROVIDED BY BEFORE REORGANIZATION ITEMS-DISCONTINUED OPERATIONS 1 2
-------------------- --------------------
NET CASH USED BEFORE REORGANIZATION ITEMS (36) (165)
OPERATING CASH FLOWS - REORGANIZATION ITEMS-CONTINUING OPERATIONS:
Professional services fees (8) (40)
Employee severance and retention payments - (3)
Other - (3)
-------------------- --------------------
NET CASH USED IN REORGANIZATION ITEMS-CONTINUING OPERATIONS (8) (46)
NET CASH USED IN OPERATING ACTIVITIES-CONTINUING OPERATIONS (45) (213)
NET CASH PROVIDED BY OPERATING ACTIVITIES-DISCONTINUED OPERATIONS 1 2
-------------------- --------------------
NET CASH USED IN OPERATING ACTIVITIES-TOTAL (44) (211)
==================== ====================
INVESTING ACTIVITIES:
Property, plant and equipment purchases (13) (75)
Acquisition and investment payments - (16)
Other investing activities 4 5
NET CASH USED IN INVESTING ACTIVITIES-CONTINUING OPERATIONS (9) (86)
NET CASH PROVIDED BY (USED IN) INVESTING ACTIVITIES-DISCONTINUED
OPERATIONS (4) 69
-------------------- --------------------
NET CASH USED IN INVESTING ACTIVITIES-TOTAL (13) (17)
==================== ====================
FINANCING ACTIVITIES:
Net change in short-term debt obligations - 350
Payments on long-term debt obligations - (51)
Net change in restricted cash for debt repayment - -
Deferred debt issuance costs - (17)
Other Financing - Early extinguishment of Euro Bonds - (7)
-------------------- --------------------
NET CASH PROVIDED BY FINANCING ACTIVITIES - 275
==================== ====================
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS (57) 47
CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD 211 107
-------------------- --------------------
CASH AND CASH EQUIVALENTS, END OF PERIOD $ 154 $ 154
==================== ====================
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
CONSOLIDATED STATEMENT OF OPERATIONS (UNAUDITED)
(DOLLARS IN MILLIONS)
MONTH ENDED NINE MONTHS ENDED
SEPTEMBER 30, 2006 SEPTEMBER 30, 2006
-------------------- --------------------
TOTAL NET SALES $ 199 $ 1,804
TOTAL COST OF GOODS SOLD 182 1,613
-------------------- --------------------
GROSS PROFIT 17 191
TOTAL MAT EXPENSE 18 161
-------------------- --------------------
OPERATING INCOME (LOSS) (1) 30
EQUITY EARNINGS FROM AFFILIATES 4 32
INTEREST EXPENSE, NET (7) (60)
OTHER INCOME, NET 3 30
REORGANIZATION ITEMS:
Professional fees (4) (41)
Employee severance and retention costs - (4)
Other (3) (8)
-------------------- --------------------
(7) (51)
-------------------- --------------------
LOSS BEFORE TAXES (8) (27)
Income tax expense 2 3
-------------------- --------------------
NET LOSS $ (10) $ (30)
==================== ====================
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
CONSOLIDATED STATEMENT OF FINANCIAL POSITION (UNAUDITED)
AS OF SEPTEMBER 30, 2006
(Dollars in
ASSETS millions)
------ -------------
Cash $ 39
Trade Receivables, net 190
Account Receivables-Unconsolidated Subsidiaries 46
Inventories 203
Other Current Assets 70
Assets of Discontinued Operations -
-------------
TOTAL CURRENT ASSETS 548
Property, Plant and Equipment, net 661
Investments in Subsidiaries and Affiliates 566
Intangible Assets, net 100
Other Assets 59
-------------
TOTAL ASSETS $ 1,934
=============
LIABILITIES AND SHAREHOLDERS' DEFICIT
-------------------------------------
Accounts Payable $ 176
Short Term Debt 650
Other Current Liabilities 182
Liabilities of Discontinued Operations -
-------------
TOTAL CURRENT LIABILITIES 1,008
Other Long-Term Liabilities 193
-------------
TOTAL LIABILITIES NOT SUBJECT TO COMPROMISE 1,201
LIABILITIES SUBJECT TO COMPROMISE 2,064
SHAREHOLDERS' DEFICIT (1,331)
-------------
TOTAL LIABILITIES & SHAREHOLDERS' DEFICIT $ 1,934
=============
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 high, volatile energy
and crude oil costs were 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, June 1, 2005, and 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. The DIP
credit facility, as amended, currently consists of: (a) a $650 million
fully-drawn term loan; and (b) a $175 million borrowing-based revolving credit
facility, which includes a $150 million letter of credit subfacility.
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 the 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
11
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 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 was most recently adjourned to November
16, 2006 and Solutia anticipates further adjournment of the hearing date.
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
12
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 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, to make certain changes, including the elimination of company-provided
medical benefits for certain groups of retirees that also are eligible for
Medicare coverage. In accordance with such rights, on October 18, 2006,
Solutia and the Retirees' Committee submitted a joint stipulation to the
Bankruptcy Court seeking its approval authorizing the Debtors to terminate
medical benefits for such retirees effective January 1, 2007 and for those
retirees who are not eligible for Medicare Coverage on January 1, 2007,
effective on the earlier of the date upon which the retiree becomes Medicare
eligible or October 19, 2016. On October 30, 2006, an objection to this was
filed. If the objection is not withdrawn, Solutia would expect that this
matter will be set by the Bankruptcy Court for hearing at a future date.
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
13
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 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. Most recently, on October 4, 2006, the Bankruptcy Court
entered a Bridge Order extending the exclusivity period to the date upon which
the Bankruptcy Court makes a final determination on the Debtors' Motion to
extend such period. The motion is currently set for hearing on November 16,
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 consolidated statement of 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
14
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 September 30, 2006, total liquidity for the Solutia Group was
approximately $259 million, consisting of $154 million of cash and DIP
facility availability of $105 million. At September 30, 2006, total liquidity
for the Solutia Chapter 11 Debtors was approximately $144 million, consisting
of $39 million of cash and DIP facility availability of $105 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 September 30, 2006
- ------------------------------
Restructuring expenses and other unusual items included in the
consolidated statement of operations and the consolidated statement of cash
flows were approximately $1 million of net loss for the month ended
September 30, 2006 related to severance and retraining costs incurred from
headcount reductions throughout the organization.
Nine Months Ended September 30, 2006
- ------------------------------------
Restructuring expenses and other unusual items included in the
consolidated statement of operations and the consolidated statement of cash
flows were approximately $3 million of net loss for the nine months ended
September 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; (iv) a charge of $3 million related to
the early extinguishment of debt; (v) $2 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 nine months ended September
30, 2006 were unfavorably impacted by unfavorable manufacturing variances and
higher overall raw material and energy costs of approximately $110 million.
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 nine months ended September 30, 2006
15
increased $76 million, or 4 percent, as compared to the nine months ended
September 30, 2006 consisting of higher average selling prices of
approximately 7 percent, partially offset by lower sales volumes of
approximately 3 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
Pharmaceuticals Divestiture
- ---------------------------
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") pursuant to a Stock and
Asset Purchase Agreement dated as of May 23, 2006 between SESA and Dishman.
Closing of the sale occurred on August 22, 2006 and included the transfer of
all economic benefits and liabilities of the pharmaceutical services business
from August 1, 2006 through the closing date. Under the terms of the
agreement, Dishman purchased 100 percent of the stock of the pharmaceutical
services business, as well as certain other assets used in the pharmaceutical
services business, for $77 million. Solutia recorded a gain on the sale of the
pharmaceutical services business of $49 million. Further, Solutia used
approximately $51 million of the proceeds from the sale to pay down SESA's
(euro) 200 million credit facility.
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 SEPTEMBER 30, 2006
PRE-PETITION POST-PETITION TOTAL
AMOUNT AMOUNT AMOUNT
-------------------- --------------------- ---------------------
1. GROSS SALARIES AND WAGES - 19,725,703.02 19,725,703.02
2. PAYROLL TAXES WITHHELD - 5,048,952.75 5,048,952.75
3. EMPLOYER PAYROLL TAX CONTRIBUTED - 1,535,892.22 1,535,892.22
4. GROSS TAXABLE SALES - 710,167.01 710,167.01
5. SALES TAXES COLLECTED / USE TAX PAID - 462,363.34 462,363.34
6. PROPERTY TAXES PAID - 117,693.82 117,693.82
7. OTHER TAXES PAID - 244,500.00 244,500.00
17
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 SEPTEMBER 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. 09/01/06 0.00 188,139.51 188,139.51 Employee Payroll Taxes 2
Solutia Inc. 09/06/06 0.00 83,769.34 83,769.34 Employee Payroll Taxes 2
Solutia Inc. 09/07/06 0.00 74,433.95 74,433.95 Employee Payroll Taxes 2
Solutia Inc. 09/08/06 0.00 154,544.49 154,544.49 Employee Payroll Taxes 2
Solutia Inc. 09/13/06 0.00 95,829.45 95,829.45 Employee Payroll Taxes 2
Solutia Inc. 09/14/06 0.00 181,339.32 181,339.32 Employee Payroll Taxes 2
Solutia Inc. 09/15/06 0.00 1,823,870.15 1,823,870.15 Employee Payroll Taxes 2
Solutia Inc. 09/20/06 0.00 86,448.22 86,448.22 Employee Payroll Taxes 2
Solutia Inc. 09/21/06 0.00 89,983.61 89,983.61 Employee Payroll Taxes 2
Solutia Inc. 09/22/06 0.00 212,637.96 212,637.96 Employee Payroll Taxes 2
Solutia Inc. 09/27/06 0.00 84,621.91 84,621.91 Employee Payroll Taxes 2
Solutia Inc. 09/28/06 0.00 202,075.77 202,075.77 Employee Payroll Taxes 2
Solutia Inc. 09/29/06 0.00 1,750,531.01 1,750,531.01 Employee Payroll Taxes 2
Solutia Inc. 09/01/06 0.00 37,395.04 37,395.04 Employer Payroll Taxes 3
Solutia Inc. 09/06/06 0.00 25,052.99 25,052.99 Employer Payroll Taxes 3
Solutia Inc. 09/07/06 0.00 22,271.85 22,274.84 Employer Payroll Taxes 3
Solutia Inc. 09/08/06 0.00 34,748.64 34,748.64 Employer Payroll Taxes 3
Solutia Inc. 09/13/06 0.00 27,933.39 27,933.39 Employer Payroll Taxes 3
Solutia Inc. 09/14/06 0.00 59,818.90 59,818.90 Employer Payroll Taxes 3
Solutia Inc. 09/15/06 0.00 572,335.69 572,335.69 Employer Payroll Taxes 3
Solutia Inc. 09/20/06 0.00 25,746.79 25,746.79 Employer Payroll Taxes 3
Solutia Inc. 09/21/06 0.00 25,693.86 25,693.86 Employer Payroll Taxes 3
Solutia Inc. 09/22/06 0.00 44,751.35 44,751.35 Employer Payroll Taxes 3
Solutia Inc. 09/27/06 0.00 25,428.76 25,428.76 Employer Payroll Taxes 3
Solutia Inc. 09/28/06 0.00 66,064.68 66,064.68 Employer Payroll Taxes 3
Solutia Inc. 09/29/06 0.00 550,283.30 550,283.30 Employer Payroll Taxes 3
Solutia Inc. 09/19/06 0.00 401,355.20 401,355.20 Sales/Use Tax 5
CPFilms Inc. 09/30/06 0.00 48,776.22 48,776.22 Sales/Use Tax 5
CPFilms Inc. 09/30/06 0.00 12,231.92 12,231.92 Sales/Use Tax 5
Solutia Inc. 09/08/06 0.00 68,721.55 68,721.55 Property Tax 6
Solutia Inc. 09/18/06 0.00 11,814.04 11,814.04 Property Tax 6
CPFilms Inc. 09/30/06 0.00 37,158.23 37,158.23 Property Tax 6
Solutia Inc. 09/01/06 0.00 50,000.00 50,000.00 Consultant's Fee 7
Solutia Inc. 09/19/06 0.00 83,500.00 83,500.00 IRS Form 720 7
CPFilms Inc. 09/15/06 0.00 32,000.00 32,000.00 Other - Income 7
CPFilms Inc. 09/30/06 0.00 58,000.00 58,000.00 Other - Income 7
Solutia Systems, Inc. 09/15/06 0.00 21,000.00 21,000.00 Other - Income 7
18