UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
(Mark One)
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ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the fiscal year ended December 31, 2009
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TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the transition period from to
Commission file number 001-13255
SOLUTIA INC.
(Exact name of registrant as specified in its charter)
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Delaware
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43-1781797 |
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(State or other jurisdiction of
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(I.R.S. Employer |
incorporation or organization)
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Identification No.) |
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575 Maryville Centre Drive, P.O. Box 66760, St. Louis, Missouri
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63166-6760 |
(Address of principal executive offices)
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(Zip Code) |
Registrants telephone number, including area code: (314) 674-1000
Securities registered pursuant to Section 12(b) of the Act:
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Title of each class
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Name of each exchange on which registered |
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$.01 par value Common Stock
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New York Stock Exchange |
Securities registered pursuant to section 12(g) of the Act:
Title of each class
None
Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of
the Securities Act. o Yes þ No
Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or
15(d) of the Act. o Yes þ No
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by
Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for
such shorter period that the registrant was required to file such reports), and (2) has been
subject to such filing requirements for the past 90 days. þ Yes o No
Indicate by check mark whether the registrant has submitted electronically and posted on its
corporate Web site, if any, every Interactive Data File required to be submitted and posted
pursuant to Rule 405 of Regulation S-T (§ 232.405 of this chapter) during the preceding 12 months
(or for such shorter period that the registrant was required to submit and post such files).
o Yes þ No
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K (§
229.405 of this chapter) is not contained herein, and will not be contained, to the best of
registrants knowledge, in definitive proxy or information statements incorporated by reference in
Part III of this Form 10-K or any amendment to this Form 10-K. þ
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a
non-accelerated filer, or a smaller reporting company. See the definitions of large accelerated
filer, accelerated filer and smaller reporting company in Rule 12b-2 of the Exchange Act.
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Large accelerated filer þ
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Accelerated filer o
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Non-accelerated filer o
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Smaller Reporting Company o |
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(Do not check if smaller reporting company) |
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Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the
Act). o Yes þ No
Indicate by check mark whether the registrant has filed all documents and reports required to be
filed by Section 12, 13 or 15(d) of the Securities Exchange Act of 1934 subsequent to the
distribution of securities under a plan confirmed by Court. þ Yes o No
State the aggregate market value of the voting and non-voting common equity held by non-affiliates
computed by reference to the price at which the common equity was last sold, or the average bid and
asked price of such common equity, as of the last business day of the registrants most recently
completed second fiscal quarter (June 30, 2009): approximately $583.7 million.
Indicate the number of shares outstanding of each of the registrants classes of common stock, as
of the latest practicable date: 121,432,308 shares of common stock, $.01 par value, outstanding
as of the close of business on January 31, 2009.
DOCUMENTS INCORPORATED BY REFERENCE
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Portion of Definitive Proxy Statement for Annual Meeting of Stockholders on April 21, 2010
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Part III |
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CAUTIONARY STATEMENT ABOUT FORWARD-LOOKING STATEMENTS
This report contains forward-looking statements which can be identified by the use of words
such as believes, expects, may, will, intends, plans, estimates, estimated, or
anticipates, or other comparable terminology, or by discussions of strategy, plans or intentions.
These statements are based on managements current beliefs, expectations, and assumptions about
the industries in which we operate. Forward-looking statements are not guarantees of future
performance and are subject to significant risks and uncertainties that may cause actual results or
achievements to be materially different from the future results or achievements expressed or
implied by the forward-looking statements. These risks and uncertainties include, but are not
limited to, those risks and uncertainties described in the Item 1A. Risk Factors section of this
report. We disclaim any intent or obligation to update or revise any forward-looking statements in
response to new information, unforeseen events, changed circumstances or any other occurrence.
TABLE OF CONTENTS
PART I
Company Overview
We are a global manufacturer and marketer of a variety of high-performance chemical and
engineered materials that are used in a broad range of consumer and industrial applications. We
maintain a global infrastructure consisting of 25 manufacturing facilities, 6 technical centers and
over 26 sales offices globally, including 12 facilities in the United States. We employ
approximately 3,400 individuals around the world.
We were formed in April 1997 by Pharmacia Corporation (Pharmacia), which was then known as
Monsanto Company (Old Monsanto) to hold and operate substantially all of the assets, and assume
all of the liabilities of Old Monsantos historical chemicals business. Pharmacia spun us off to
Pharmacias shareholders and we became an independent company in September 1997 (the Solutia
Spinoff).
On December 17, 2003, we and our 14 U.S. subsidiaries filed voluntary petitions for Chapter 11
to obtain relief from the negative financial impact of liabilities for litigation, environmental
remediation and certain postretirement benefits (the Legacy Liabilities) and liabilities under
operating contracts, all of which were assumed at the time of the Solutia Spinoff. On February 28,
2008 (the Effective Date), we consummated our reorganization and emerged from bankruptcy pursuant
to our Fifth Amended Joint Plan of Reorganization (the Plan). See the accompanying consolidated
financial statements for additional discussion of our changes in capitalization relating to this
event.
On June 1, 2009, we sold substantially all the assets and certain liabilities, including
environmental remediation and pension liabilities of active employees, of our Integrated Nylon
business to an affiliate of S.K. Capital Partners II, L.P. (Buyer), a New York-based private
equity firm. We used the proceeds from the sale to pay down debt under our $350 million senior
secured asset-based revolving credit facility (Revolver). Completion of the sale of the
Integrated Nylon business completes the transformation of Solutia into a pure-play performance
materials and specialty chemicals company.
Segments; Principal Products
Our reportable segments are:
The tabular and narrative information contained in Note 19 Segment and Geographic Data to
the accompanying consolidated financial statements is incorporated by reference into this section.
Saflex
Saflex is the worlds largest producer of PVB (Polyvinyl Butyral) sheet, a plastic
interlayer used in the manufacture of laminated glass for automotive, architectural and energy
applications. In addition to PVB sheet, which is mostly marketed under the SAFLEX® brand, we
manufacture specialty intermediate PVB resin products sold under the BUTVAR® brand, optical grade
PVB resin and plasticizer.
PVB is a specialty resin used in the production of laminated safety glass sheet, an adhesive
interlayer with high tensile strength, impact resistance, transparency and elasticity that makes it
particularly useful in the production of safety glass. Laminated safety glass is predominately
produced with PVB sheet and is legislated in all industrialized countries for automobile
windshields. Developing countries also use laminated safety glass in automotive windshields
although it is not formally legislated. Approximately 40 percent of sales to the automotive sector
are for aftermarket replacement windows. Architectural laminated safety glass is widely used in
the construction of modern office buildings, airports and residential homes. PVB sheet is also
used as an encapsulant in the growing thin film solar cell market. Other applications for PVB
resin include non-sheet applications such as wash primers and other surface coatings, specialty
adhesive formulations and inks.
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Principal Products
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Major End-Use |
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Major Products |
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Major |
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Major Raw |
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Major |
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Major End-Use |
Markets |
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Brand |
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Description |
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Competitors |
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Materials |
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Plants(1) |
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Applications |
CONSTRUCTION AND HOME FURNISHINGS
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SAFLEX®
BUTVAR®
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Laminated window
glass Specialty intermediate PVB resin
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DuPont
Kuraray
Sekisui
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Butyraldehyde
Ethanol
Polyvinyl alcohol
Vinyl acetate
monomer
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Ghent, Belgium
Springfield, MA
Santo Toribio, Mexico Suzhou, China Sao
Jose dos Campos, Brazil
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Products to
increase the
safety, security,
sound attenuation,
energy efficiency
and ultraviolet
protection of architectural glass
for residential and
commercial
structures |
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VEHICLES
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SAFLEX®
BUTVAR®
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Laminated window glass Specialty intermediate PVB resin
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DuPont
Sekisui
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Butyraldehyde
Ethanol
Polyvinyl alcohol
Vinyl acetate monomer
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Ghent, Belgium
Santo Toribio, Mexico
Springfield, MA
Suzhou, China Sao Jose dos Campos, Brazil
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Products to
increase the
safety, security,
sound attenuation
and ultraviolet
protection of
automotive glass |
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(1) |
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Major plants are comprised of those facilities at which each of the identified major
products conclude their respective manufacturing processes. The major products may pass
through other of our plants prior to the final sale to customers. |
CPFilms
CPFilms is one of the worlds largest manufacturers of solar control, decorative, safety and
security window films for aftermarket automotive and architectural applications marketed
predominantly under the trademarks of LLUMAR®; VISTA®; GILA®; and FORMULA ONE PERFORMANCE
AUTOMOTIVE FILMS®. CPFilms also manufactures precision coated films providing performance film
enhancement such as vacuum metalizing, sputter coating, deep dyeing and coating and laminating
which are used in a wide variety of products including those within the growing industries of
electronics and energy.
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Principal Products
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Major End-Use |
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Major Products |
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Major |
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Major Raw |
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Major |
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Major End-Use |
Markets |
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Brand |
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Description |
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Competitors |
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Materials |
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Plants(1) |
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Applications |
CONSTRUCTION AND HOME FURNISHINGS
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LLUMAR®
VISTA®
GILA®
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Professional window films
Retail window films
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3M
Madico Bekaert
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Polyester film
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Martinsville, VA
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After-market films for solar control, security and safety |
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VEHICLES
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LLUMAR®
FORMULA ONE®
GILA®
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Professional window films
Retail window films
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Johnson Laminating
Garware
Commonwealth Laminating
NovoMatrix
Hanita Coatings
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Polyester film
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Martinsville, VA
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Products to increase the safety, security, sound
attenuation and ultraviolet protection of automotive
glass and give vehicles a custom appearance |
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INDUSTRIAL APPLICATIONS & ELECTRONICS
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Metalized films
Sputtered films
Deep-dyed films
Release liners
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Components
Enhanced polymer films
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3M
Intellicoat
Mitsubishi
Southwall
VDI
Technimet
Nitto Denko
Toppan
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Polyester film
Indium tin
Precious metals
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Martinsville, VA
Canoga Park, CA
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Window films tapes, automotive badging, optical and
colored filters, shades, reprographics, and packaging
uses, computer touch-screens, electroluminescent
displays for hand-held electronics and watches, and
cathode ray tube and LCD monitors |
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Major plants are comprised of those facilities at which each of the identified major
products conclude their respective manufacturing processes. The major products may pass
through other of our plants prior to the final sale to customers. |
Technical Specialties
Technical Specialties is our specialty chemicals segment which includes the manufacture and
sale of chemicals for the rubber, solar energy, process manufacturing and aviation industries.
Chemicals for the rubber industry help cure and protect rubber, impart desirable properties to
cured rubber, increase durability and lengthen product life. These products play an important
role in the manufacture of tires and other rubber products such as belts, hoses, seals and
footwear.
We manufacture approximately 50 different products for the rubber chemicals industry which are
classified into two main product groups: vulcanizing agents, principally insoluble sulfur, and
rubber chemicals. Insoluble sulfur is a key vulcanizing agent manufactured predominantly for the
tire industry. We are the worlds leading supplier of insoluble sulfur and market under the trade
name of CRYSTEX®. We have three product groups within rubber chemicals: antidegradants,
accelerators, and other rubber chemicals.
THERMINOL® heat transfer fluids are used for indirect heating or cooling of chemical processes
in various types of industrial equipment and in solar energy power systems. The fluids provide
enhanced pumping characteristics because they remain thermally stable at high and low temperatures.
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SKYDROL® brand aviation hydraulic fluids and SKYKLEEN® brand of aviation solvents are supplied
across the aviation industry. The SKYDROL® line includes fire-resistant hydraulic fluids, which
are used in more than half of the worlds commercial aircraft.
Principal Products
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Major End-Use |
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Major Products |
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Major Raw |
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Major End-Use |
Markets |
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Brand |
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Description |
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Competitors |
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Materials |
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Plants(1) |
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Applications |
RUBBER CHEMICALS
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CRYSTEX®
SANTOFLEX®
SANTOCURE®
PERKACIT®
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Insoluble sulfur
Antidegradant
Primary and ultra accelerators
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Lanxess
Chemtura
Shikoku
Oriental Carbon
Chemicals
Limited (India)
NCC
Sinorgchem
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Benzene derivatives
Ketones
Sulfur
CS2
Napthenic processing oil
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Antwerp, Belgium
Itupeva, Brazil
Kashima, Japan
Monongahela, PA
Lemoyne, AL
Nienburg, Germany
Kuantan, Malaysia
Sauget, IL
Sete, France
Termoli, Italy
Sao Jose dos
Campos, Brazil
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Products critical
to the manufacture
of finished rubber
as they increase
the productivity of
the manufacturing
process and the
quality of the end
product with
improved
resilience,
strength and
resistance to wear
and tear. Primary
application is in
the production of
tires. |
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CAPITAL EQUIPMENT
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THERMINOL®
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Heat transfer fluids
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Dow
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Benzene
Phenol
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Anniston, AL
Newport, U.K.
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Heat transfer
fluids for a wide
variety of
manufacturing and
refining uses |
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AVIATION & TRANSPORTATION
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SKYDROL®
SKYKLEEN®
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Aviation hydraulic fluids
Aviation solvents
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ExxonMobil
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Phosphate esters
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Anniston, AL
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Hydraulic fluids
for commercial
aircraft, and
environmentally
friendly solvents
for aviation
maintenance |
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Major plants are comprised of those facilities at which each of the identified major
products conclude their respective manufacturing processes. The major products may pass
through other of our plants prior to the final sale to customers. |
Sale of Products
We sell our products directly to end users in various industries, principally by using our own
sales force, and, to a lesser extent, by using distributors.
We maintain inventories of finished goods, goods in process and raw materials to meet customer
requirements and our scheduled production. In general, we do not manufacture our products against a
backlog of firm orders; we schedule production to meet the level of incoming orders and the
projections of future demand. However, in the Saflex segment, a large portion of sales for 2009
were pursuant to volume commitments. We do not have material contracts with the government of the
United States or any state, local or foreign government. In 2009, no single customer or customer
group accounted for 10 percent or more of our net sales.
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Our second and third quarters are typically stronger than our first and fourth quarters
because sales of window films are stronger in the spring and summer.
Competition
The global markets in which our businesses operate are highly competitive. We expect
competition from other manufacturers of the same products and from manufacturers of different
products designed for the same uses as our products to continue in both U.S. and international
markets. Depending on the product involved, we encounter various types of competition, including
price, delivery, service, performance, product innovation, product recognition and quality.
Overall, we regard our principal product groups as competitive with many other products of other
producers and believe that we are an important producer of many of these product groups. For
additional information regarding competition in specific markets, see the charts under Segments:
Principal Products above.
Raw Materials and Energy Resources
We buy large amounts of commodity raw materials and energy resources, including benzene, vinyl
acetate, sulfur, polyvinyl alcohol, 2-ethyl hexanol and natural gas. We typically buy major
requirements for key raw materials pursuant to contracts with average contractual periods of one to
four years. We obtain certain important raw materials from a few major suppliers. In general, in
those cases where we have limited sources of raw materials, we have developed contingency plans to
the extent practicable to minimize the effect of any interruption or reduction in supply. However,
we also purchase raw materials from some single source suppliers in the industry and in the event
of an interruption or reduction in supply, might not be able to mitigate any negative effects.
While temporary shortages of raw materials and energy resources may occasionally occur, these
items are generally sufficiently available to cover our current and projected requirements.
However, their continuing availability and price may be affected by unscheduled plant interruptions
and domestic and world market conditions, political conditions and governmental regulatory actions.
Due to the significant quantity of some of these raw materials and energy resources that we use, a
minor shift in the underlying prices for these items can result in a significant impact on our cost
profile and, potentially, our consolidated financial position and results of operations.
Intellectual Property
We own a large number of patents that relate to a wide variety of products and processes and
have pending a substantial number of patent applications. We also own and utilize across our
business segments a significant amount of valuable technical and commercial information that is
highly proprietary and maintained as a trade secret. In addition, we are licensed under a small
number of patents owned by others. We own a considerable number of established trademarks in many
countries as well as related internet domain names under which we market our products. This
intellectual property in the aggregate is of material importance to our operations and to our
various business segments.
Research and Development
Research and development constitute an important part of our activities. Our expenses for
research and development amounted to $14 million in 2009, $19 million in 2008 and $26 million in
2007, or about 1.1 percent of net sales on average. We focus our expenditures for research and
development on process improvements and selected product development.
Our research and development programs in the Saflex segment include new products and processes
for the window glazing and photovoltaic markets. Several new products for the photovoltaic market
have achieved International Electrotechnical Commission (IEC) qualification and are in various
stages of commercialization. New products are designed to help customers reduce encapsulation
cost, address quality issues or increase efficiency of thin film photovoltaic cells. Acoustic
safety interlayers have been successfully introduced to the automotive and architectural markets.
An Absolute Black super-wide privacy interlayer has been introduced in the architectural market.
New process technology for super-wide acoustic interlayers is being installed in our Ghent, Belgium
facility.
Our research and development programs in the CPFilms segment include new products for the
glass treatment, display and electronics markets. Window films and technical coatings that meet
the challenges of energy efficiency and energy harvesting continue to be developed. New products
using advances in exterior coatings, silicone release formulations, transparent conductive
coatings and signal enabling technologies are being commercialized.
7
Our research and development programs in the Technical Specialties segment include new
products for the specialty chemicals markets and emphasize the balance between manufacturing cost
reduction and capacity expansion in our rubber chemical business. A new heat transfer fluid has
been commercialized and a new aviation fluid continues to perform well in the industry flight
service evaluations and approval is expected in 2010. We have made significant progress in cost
reduction through process optimization and energy reduction across most of our rubber chemical
product lines.
Environmental Matters
The narrative appearing under Environmental Matters in Item 7 below is incorporated by
reference.
Employee Relations
On December 31, 2009, we had approximately 3,400 employees worldwide: with U.S. employees
constituting 52 percent of the total number of employees. Approximately 1,000 of the European
employees are represented by either a union delegation, works council or employee forum.
Approximately 29 percent of our U.S. workforce is currently represented by various labor unions at
the following sites: Anniston, Alabama; Sauget, Illinois; Monongahela, Pennsylvania; Springfield,
Massachusetts; and Trenton, Michigan.
Each of our U.S. labor unions (except at the Monongahela, Pennsylvania site) individually
ratified a five-year agreement in 2005, which is set to expire December 31, 2010, that established
retirement and health and welfare benefits for our employees at the above sites. Local collective
bargaining agreements that cover wages and working conditions at the above sites expire between
March 2010 and January 2013. The collective bargaining agreement for the Monongahela, Pennsylvania
site includes wages, working conditions, retirement and health & welfare benefits.
International Operations
We are engaged in manufacturing, sales and research and development in areas outside the
United States. Approximately 75 percent of our consolidated sales from continuing operations for
the year ended December 31, 2009 were made into markets outside the United States, including
Europe, Canada, Latin America and Asia. Of our consolidated sales from continuing operations, 12
percent were made into China for the year ended December 31, 2009.
Operations outside the United States are potentially subject to a number of risks and
limitations that are not present in domestic operations, including trade restrictions, investment
regulations, governmental instability and other potentially detrimental governmental practices or
policies affecting companies doing business abroad. Operations outside the United States are also
subject to fluctuations in currency values. The functional currency of each of our non-U.S.
operations is generally the local currency. Exchange rates between these currencies and U.S.
dollars have fluctuated significantly in recent years and may continue to do so. In addition, we
generate revenue from export sales and operations conducted outside the United States that may be
denominated in currencies other than the relevant functional currency.
8
Executive Officers
The following table shows information about our executive officers as of February 17, 2010:
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Year First Became an |
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Name, Age and Position |
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Executive Officer of |
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Other Business Experience Since |
with Solutia |
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Solutia |
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At Least January 1, 2005 |
Jeffry
N. Quinn, 51
President, Chief
Executive Officer and
Chairman of the Board
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2003 |
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President, Chief Executive
Officer and Director since May
2004. Named Chairman of the
Board on February 22, 2006.
Mr. Quinn previously served as
Solutias Senior Vice
President, General Counsel and
Chief Restructuring Officer
from 2003 to 2004. Prior to
joining Solutia, Mr. Quinn
served from 2000 to 2002 as
Executive Vice President,
Chief Administrative Officer
and General Counsel of Premcor
Inc., an independent petroleum
refiner and supplier of
unbranded transportation
fuels, heating oil,
petrochemical feedstocks,
petroleum coke and other
petroleum products. Premcor
Inc. is now owned by Valero
Energy Corp. |
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James M. Sullivan, 49
Executive Vice
President, Chief
Financial Officer and
Treasurer
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2004 |
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Executive Vice President,
Chief Financial Officer and
Treasurer since 2009. Mr.
Sullivan served as Senior Vice
President, Chief Financial
Officer and Treasurer from
2004 through 2009 and as Vice
President and Controller from
1999 through 2004. |
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James R. Voss, 43
Executive Vice
President, Global
Operations
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2005 |
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Executive Vice President,
Global Operations since 2009.
Mr. Voss served as Senior Vice
President and President,
Flexsys from 2007 through 2009
and as Senior Vice President,
Business Operations from 2005
through 2007. Mr. Voss served
as Senior Vice President and
Chief Administrative Officer
of Premcor Inc., now owned by
Valero Energy Corp. |
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Robert T. DeBolt, 49
Senior Vice President,
Business Operations
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2007 |
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Senior Vice President,
Business Operations since
2007. Mr. DeBolt served as
Vice President of Corporate
Strategy from 2005 to 2007 and
as the Controller for
Integrated Nylon from 2003
through 2004. Prior thereto,
Mr. DeBolt was responsible for
accounting at all of our
manufacturing facilities. |
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Paul J. Berra, III, 41
Senior Vice President,
General Counsel, Legal
and Governmental
Affairs
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2008 |
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Senior Vice President, General
Counsel, Legal and
Governmental Affairs since
December 2009. Mr. Berra
served as Senior Vice
President, General Counsel and
Chief Administrative Officer
from 2008. Mr. Berra served
as Vice President, Government
Affairs and Communications
from 2006-2008. Mr. Berra
joined Solutia in 2003 as
Assistant General Counsel,
Human Resources, and added
government affairs
responsibilities the following
year. Prior to joining
Solutia, Mr. Berra served as
Corporate Counsel at Premcor
Inc., now owned by Valero
Energy Corp. |
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Timothy J. Spihlman, 38
Vice President and
Corporate Controller
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2004 |
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Vice President and Corporate
Controller since 2004 and
Director, Corporate Analysis
and Financial Reporting from
2002 through 2004.
Previously, Mr. Spihlman
served as Vice President of
Finance at CoreExpress, Inc.
from 2000 until 2002 and was a
public accountant with Ernst &
Young from 1993 until 2000. |
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Andrew B. Stroud, Jr., 51
Vice President, Human
Resources
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2010 |
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Mr. Stroud was Executive Vice
President, DHR International,
a privately held provider of
executive search solutions
from August 2008 until
December 2009, when he joined
Solutia. He was Vice
President, Human Resources for
Insituform Technologies, a
leading worldwide provider of
cured-in place pipe (CIPP) and
other technologies and
services for the
rehabilitation of pipeline
systems. Previously, he
served as Vice President,
Human Resources of Aramark
Corporation, a food services,
facilities management, and
uniform and career apparel
provider from 2004.
Mr. Stroud has over twenty
years of experience in Human
Resources. |
The above listed individuals are elected to the offices set opposite their names to hold
office until their successors are duly elected and have qualified, or until their earlier death,
resignation or removal.
Internet Access to Information
Our Internet address is www.solutia.com. We make available free of charge through our
Internet website our annual report on Form 10-K, our quarterly reports on Form 10-Q, current
reports on Form 8-K, and any amendments to these reports as soon as reasonably practicable after
they are electronically filed with, or furnished to, the Securities and Exchange Commission
(SEC). All of these materials may be accessed from the Investors section of our website,
www.solutia.com. These materials may also be accessed through the SECs website
(www.sec.gov) or in the SECs Public Reference Room at 100 F Street, NE, Washington, D.C.
20549. Information on the operation of the Public Reference Room may be obtained by calling
1-800-SEC-0330.
9
IN EVALUATING US, CAREFUL CONSIDERATION SHOULD BE GIVEN TO THE RISK FACTORS SET FORTH BELOW, AS
WELL AS THE OTHER INFORMATION SET FORTH IN THIS ANNUAL REPORT ON FORM 10-K. ALTHOUGH THESE RISK
FACTORS ARE MANY, THESE FACTORS SHOULD NOT BE REGARDED AS CONSTITUTING THE ONLY RISKS ASSOCIATED
WITH OUR BUSINESSES. EACH OF THESE RISK FACTORS COULD ADVERSELY AFFECT OUR BUSINESS, OPERATING
RESULTS AND/OR FINANCIAL CONDITION. IN ADDITION TO THE FOLLOWING DISCLOSURES, PLEASE REFER TO THE
OTHER INFORMATION CONTAINED IN THIS REPORT INCLUDING THE CONSOLIDATED FINANCIAL STATEMENTS AND THE
RELATED NOTES. UNLESS OTHERWISE NOTED, ALL RISK FACTORS LISTED BELOW SHOULD BE CONSIDERED
ATTRIBUTABLE TO ALL OUR OPERATIONS INCLUDING ALL OPERATIONS CLASSIFIED AS DISCONTINUED.
RISK RELATED TO OUR EMERGENCE FROM BANKRUPTCY
Because our consolidated financial statements reflect fresh-start accounting adjustments made upon
emergence from bankruptcy, and because of the effects of the transactions that became effective
pursuant to the Plan of Reorganization, financial information in our future financial statements
will not be comparable to our financial information from prior periods.
Upon our emergence from Chapter 11 in February 2008, we adopted fresh-start accounting in
accordance with Accounting Standards Codification (ASC) 852, Reorganizations, pursuant to which
our reorganization value, which represents the fair value of the entity before considering
liabilities and approximates the amount a willing buyer would pay for the assets of the entity
immediately after the reorganization, has been allocated to the fair value of assets in conformity
with ASC 805, Business Combinations, using the purchase method of accounting for business
combinations. We stated liabilities, other than deferred taxes, at a present value of amounts
expected to be paid. The amount remaining after allocation of the reorganization value to the fair
value of identified tangible and intangible assets is reflected as goodwill, which is subject to
periodic evaluation for impairment. In addition, under fresh-start accounting the accumulated
deficit has been eliminated. In addition to fresh-start accounting, our consolidated financial
statements reflect all effects of the transactions contemplated by the Plan of Reorganization.
Thus, our future statements of financial position and statements of operations data will not be
comparable in many respects to our consolidated statements of financial position and consolidated
statements of operations data for periods prior to our adoption of fresh-start accounting and prior
to accounting for the effects of the reorganization.
RISKS RELATED TO OUR BUSINESS AND INDUSTRY
Continued extreme disruption in global financial markets and sustained weakening in our markets
could significantly impact our results of operations, liquidity and long term anticipated growth
rate.
Our operations and performance are materially affected by worldwide economic conditions, which
started deteriorating significantly during 2008 and continued into 2009. Market turmoil and
tightened credit availability, downgrades of certain investments and declining valuations of others
generally reduced consumer confidence, increased pricing pressure on products and services and led
to widespread reduction of global business activity. Uncertainty about current global economic
conditions has resulted in decreased consumer spending and a significant decline in sales in
automotive, aviation, construction and industrial industries worldwide. The continued tightening
of credit in financial markets adversely affects the ability of customers and suppliers to obtain
financing for significant purchases and operations and could result in a decrease in or
cancellation of orders for our products, our ability to procure necessary raw materials from
suppliers, our ability to secure credit from our suppliers at terms granted to us historically and
our ability to collect from our customers amounts due on trade receivables at terms previously
experienced by us. The continued weakening of these markets, if prolonged, could significantly
impact our results of operations, our liquidity, and our long-term anticipated growth rate.
Further, stemming from our emergence from Chapter 11, the carrying amount of our goodwill and
intangible assets was established at fair value as of February 28, 2008 and therefore is more
susceptible to impairment if business operation results and/or macroeconomic conditions
deteriorate. Impairment charges, if any, could be material to our results of operations. While we
have seen signs of recovery and increased demand in most businesses, continued weakness in
worldwide economic conditions could result in a decline in our future profitability and cash from
operating activities.
10
Our operations are restricted by our credit facilities and could be impacted by the failure of our
lenders to perform.
Our credit facilities and our indenture governing the 2017 senior unsecured notes include a
number of significant restrictive covenants. These covenants could impair our financing and
operational flexibility and make it difficult for us to react to market conditions and satisfy our
ongoing capital needs and unanticipated cash requirements. Specifically, such covenants restrict
our ability and, if applicable, the ability of our subsidiaries to, among other things:
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incur additional debt; |
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make certain investments and acquisitions; |
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enter into certain types of transactions with affiliates; |
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limit dividends or other payments by us and certain of our subsidiaries; |
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use assets as security in other transactions; |
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pay dividends on our common stock or repurchase our equity interests; |
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sell certain assets or merge with or into other companies; |
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guarantee the debts of others; |
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enter into new lines of business; |
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make capital expenditures; |
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prepay, redeem or exchange our debt; |
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form any joint ventures or subsidiary investments. |
In addition, our current credit facilities require us to satisfy certain financial
covenants. These financial covenants and tests could limit our ability to react to market
conditions or satisfy extraordinary capital needs and could otherwise restrict our financing and
operations.
Our ability to comply with the covenants and other terms of our debt obligations will depend
on our future operating performance. If we fail to comply with such covenants and terms, we would
be required to obtain waivers from our lenders to maintain compliance with our debt
obligations. If we are unable to obtain any necessary waivers and the debt is accelerated, a
material adverse effect on our financial condition and future operating performance would result.
Our current revolving credit facility is a syndicated credit agreement in which each lender is
severally liable for only its agreed part of the loan commitments. Although all lenders have
performed their individual obligations under the terms of the revolving credit agreement to date,
there can be no assurance that this will continue given the current turmoil in the financial
services industry. One or more lenders failure to perform on their obligations could have a
material adverse effect on the Companys ability to fund its ongoing operations and other
commitments.
Volatility in the prices of raw materials and energy or their reduced availability could
significantly impact our operating margins.
Our manufacturing processes consume significant amounts of energy and large amounts of
commodity raw materials, including benzene, vinyl acetate, sulfur, polyvinyl alcohol, 2-ethyl
hexanol and natural gas, the cost of which are subject to worldwide supply and demand as well as
other factors beyond our control. Also, temporary shortages or over supply of these raw materials
and energy sources may occasionally occur. We typically purchase major requirements for key raw
materials under medium-term contracts. Pricing under these contracts may fluctuate as a result of
unscheduled plant interruptions, worldwide market conditions and government regulation. Volatile
raw material and energy costs could impact our operating margins in the future. See also Business
Raw Materials and Energy Resources.
11
Problems encountered in operating our production facilities could adversely impact our business.
Our production facilities are subject to hazards associated with the manufacture, handling,
storage and transportation of chemical materials and products, including leaks and ruptures,
explosions, fires, inclement weather and natural disasters, unscheduled down time and environmental
hazards. From time to time in the past, we have had incidents that have temporarily shut down or
otherwise disrupted our manufacturing, causing production delays and resulting in liability for
workplace injuries and fatalities. We are dependent upon the continued safe operation of our
production facilities.
In addition, some of our products involve the manufacture or handling of a variety of
reactive, explosive and flammable materials. Use of these products by our employees, customers and
contractors could result in liability to us if an explosion, fire, spill or other accident were to
occur.
We have and will continue to have significant indebtedness.
We have and will continue to have a significant amount of indebtedness. Our significant
indebtedness could have important consequences, including the following:
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We will have to dedicate a significant portion of our cash flow to making interest
and principal payments on our indebtedness, thereby reducing the availability of our
cash flow to fund working capital, capital expenditures, acquisitions or other general
corporate purposes. |
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Certain levels of indebtedness may make us less attractive to potential acquirers or
acquisition targets. |
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Certain levels of indebtedness may limit our flexibility to adjust to changing
business and market conditions, and make us more vulnerable to downturns in general
economic conditions as compared to competitors that may be less leveraged. |
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As described in more detail above, the documents providing for our indebtedness
contain restrictive covenants that may limit our financing and operational flexibility. |
Furthermore, our ability to satisfy our debt service obligations will depend, among other
things, upon fluctuations in interest rates, our future operating performance and ability to
refinance indebtedness when necessary. These factors depend partly on economic, financial,
competitive and other factors beyond our control. We have hedged a significant portion of our
variable rate debt with derivative instruments. We may not be able to generate sufficient cash
from operations to meet our debt service obligations as well as fund necessary capital
expenditures, pension funding obligations and investments in research and development. In
addition, if we need to refinance our debt, obtain additional financing or sell assets or equity,
we may not be able to do so on commercially reasonable terms, if at all. Finally, counterparties
to our derivative instruments may not be able to honor their contractual obligations.
The utilization of our net deferred tax assets could be substantially limited if we experienced an
ownership change as defined by the Internal Revenue Code.
As of December 31, 2009, we have net deferred tax assets of $555 million related to our U.S.
net operating loss (NOL) carryforward and $125 million related to our U.S. foreign tax credit
(FTC) carryforward. We have recorded a valuation allowance of equal amount against each of these
assets. Section 382 of the Internal Revenue Code contains rules that limit the ability of a
company that undergoes an ownership change to utilize its NOL and FTC carryforwards. Under the
rules, such an ownership change is generally any change in ownership of more than 50% of its stock
within a rolling three-year period, as calculated in accordance with the rules. The rules
generally operate by focusing on changes in ownership among stockholders considered by the rules as
owning directly or indirectly 5% or more of the stock of the company and any change in ownership
arising from new issuances of stock by the company.
If we undergo an ownership change for purposes of Section 382 as a result of future
transactions involving our common stock, our ability to use any of our NOL and FTC carryforwards,
at the time of the ownership change would be subject to the limitations of Section 382. The
limitation could operate to cause the benefit of the assets to expire before they are utilized.
Our inability to use the full benefits of our NOL and FTC carryforwards could have a material
effect on our financial position, results of operations and cash flow.
12
We believe we have not experienced a subsequent ownership change since we experienced an
initial ownership change on February 28, 2008, the date we emerged from Chapter 11 bankruptcy.
However, the amount by which our ownership may change in the future could be affected by purchases
and sales of common stock by 5% stockholders over which we have no control, and new issuances of
common stock by us, should we choose to do so. In July 2009, our Board of Directors adopted a
Section 382 rights agreement as a measure intended to deter such an ownership change in order to
preserve our deferred tax assets. The Section 382 rights agreement, however, may not prevent an
ownership change. In addition, while the Section 382 rights agreement is in effect, it could
discourage or prevent a merger, tender offer, proxy contest or accumulations of substantial blocks
of shares for which some stockholders might receive a premium above market value. It could also
adversely affect the liquidity of the market for our shares.
Turnover in the senior management team and losses of other key personnel could have a significant
adverse effect on our results of operations.
The services of our senior management team, as well as other key personnel, will be critical
to the successful implementation of our business strategies going forward. If the terms of
incentive compensation programs are not adequate, we may have difficulty retaining current senior
management and other key personnel and be unable to hire qualified personnel to fill any resulting
vacancies, which could have a significant adverse effect on our results of operations.
We operate in a highly competitive industry that includes competitors with greater resources than
ours.
The markets in which we compete are highly competitive. Competition in these markets is based
on a number of factors, such as price, product, quality and service. Some of our competitors may
have greater financial, technological and other resources and may be better able to withstand
changes in market conditions. In addition, some of our competitors may be able to respond more
quickly to new or emerging technologies and changes in customer requirements than us.
Consolidation of our competitors or customers may also adversely affect our businesses.
Furthermore, global competition and customer demands for efficiency will continue to make price
increases difficult.
We operate in cyclical business segments and our financial results are likely to fluctuate
accordingly.
We operate in cyclical business segments. Specifically, a substantial portion of our sales
are to customers involved, directly or indirectly, in the housing and automotive industries, both
of which are, by their nature, cyclical industries. A downturn in either or both of these
industries would and has resulted in lower demand for our products among customers involved in
those industries and a reduced ability to pass on cost increases to these customers.
If we are unable to protect our intellectual property rights, our sales and financial performance
could be adversely affected.
We own a large number of patents that relate to a wide variety of products and processes and
have a substantial number of patent applications pending. We own a considerable number of
established trademarks in many countries under which we market our products. These patents and
trademarks in the aggregate are of material importance to the operations of our businesses. Our
performance may depend in part on our ability to establish, protect and enforce such intellectual
property and to defend against any claims of infringement, which could involve complex legal,
scientific and factual questions and uncertainties.
In the future, we may have to rely on litigation to enforce our intellectual property rights
and contractual rights. In addition, we may face claims of infringement that could interfere with
our ability to use technology or other intellectual property rights that are material to our
business operations. If litigation that we initiate is unsuccessful, we may not be able to protect
the value of some of our intellectual property. In the event a claim of infringement against us is
successful, we may be required to pay royalties or license fees to continue to use technology or
other intellectual property rights that we had been using or we may be unable to obtain necessary
licenses from third parties at a reasonable cost or within a reasonable period of time. If we are
unable to obtain licenses on reasonable terms, we may be forced to cease selling or using any of
our products that incorporate the challenged intellectual property, or to redesign or, in the case
of trademark claims, rename our products to avoid infringing the intellectual property rights of
third parties, which may not be possible and may be time-consuming. Any litigation of this type,
whether successful or unsuccessful, could result in substantial costs to us and diversions of some
of our resources. Our intellectual property rights may not have the value that we believe them to
have, which could result in a competitive disadvantage or adversely affect our business and
financial performance. See also Business Intellectual Property.
13
Legal proceedings including proceedings related to environmental and other regulatory obligations
may have a materially negative impact on our future results of operations.
We have been, and may in the future be, subject to various lawsuits and other legal
proceedings, including proceedings related to our environmental and other regulatory obligations.
As a manufacturer of chemical-based materials, we may become subject to litigation alleging
personal injury, or product liability associated with our products and businesses. Adverse
judgments or rulings against us in these legal proceedings, or the filing of additional
environmental or other damage claims against us, may have a materially negative impact on our
future results of operations, cash flows and financial condition. Additionally, we may incur
significant administrative and legal costs associated with defending or settling litigation.
The applicability of numerous environmental laws to our manufacturing facilities and other
locations could cause us to incur material costs and liabilities.
We are subject to extensive federal, state, local and foreign environmental, safety and health
laws and regulations concerning, among other things, emissions to the air, discharges to land and
water and the generation, handling, treatment and disposal of hazardous waste and the distribution
of chemical substances. We are also required to maintain various environmental permits and
licenses, many of which require periodic modification and renewal and related governmental
approvals. Our operations entail the risk of violations of these laws and regulations, many of
which provide for substantial fines and criminal sanctions for violations.
In addition, these requirements and their enforcement may become more stringent in the future.
Non-compliance with such future requirements could subject us to material liabilities, such as
government fines, third-party lawsuits or the suspension of non-compliant operations. Future
requirements may also result in our making significant site or operational modifications at
substantial cost. Future regulatory and enforcement developments could also restrict or eliminate
our ability to continue to manufacture certain products or could require us to make modifications
to our products.
At any given time, we are involved in litigation, administrative proceedings and
investigations of various types in a number of jurisdictions involving potential environmental
liabilities, including clean-up costs associated with contaminated sites, natural resource damages,
property damages and personal injury. For example, during our Chapter 11 case, natural resource
trustees asserted certain natural resource damage claims against us principally relating to our
Anniston and Sauget facilities, the liability for which we share with the Monsanto Company
(Monsanto) pursuant to our Plan. We may be required to spend substantial sums to defend or
settle these and other actions, to pay any fines levied against us or satisfy any judgments or
other rulings rendered against us and such sums may be material.
Under certain environmental laws, we can be held strictly liable for hazardous substance
contamination at real property we have owned, operated or used as a disposal site or for natural
resource damages associated with such contamination. Liability under environmental laws relating
to contaminated sites can be imposed retroactively and on a joint and several basis. One liable
party can be held responsible for all costs at a site, regardless of fault, percentage of
contribution to the site or the legality of the original disposal. As described in more detail
above and in the following paragraph, we could incur significant costs, including cleanup costs,
natural resources damages, civil or criminal fines and sanctions and third-party claims as a result
of hazardous substance contamination.
We have made and will continue to make substantial expenditures for environmental and
regulatory compliance and remediation projects. The substantial amounts that we may be required to
spend on environmental capital projects and programs could cause substantial cash outlays and,
accordingly, could have a material effect on our consolidated financial position, liquidity and
profitability or limit our financial and operating flexibility. In addition, although we believe
that we have correctly budgeted and, to the extent appropriate under applicable accounting
principles, reserved for these amounts, factors beyond our control may render these budgeted and
reserved amounts inadequate. These factors include changing governmental policies and regulations;
the commencement of new governmental proceedings or third party litigation regarding environmental
remediation; new releases of hazardous substances that result in personal injury, property damage
or harm to the environment; and the discovery of unknown conditions of contamination or unforeseen
problems encountered in the environmental remediation programs.
14
Our Chapter 11 case was caused, in significant part, by an accumulation of legacy liabilities,
including, among others, legacy environmental liability arising from historical operations of
Pharmacia prior to the Solutia Spinoff. In the course of the Chapter 11 case we achieved a
substantial reallocation of the risk from these legacy liabilities. In particular, pursuant to the
settlement agreement entered into between Monsanto and us, Monsanto agreed to be financially
responsible for remediation costs and other environmental liabilities for sites owned, operated or
used by Pharmacia but never owned, operated or used by us after the Solutia Spinoff; to share
liabilities with respect to offsite areas at the Sauget and Anniston plant sites; and to be
financially responsible for personal injury and property damage claims associated with exposures to
hazardous substances arising from legacy Pharmacia operations (so-called Legacy Toxic Tort
Claims). If Monsanto and/or Pharmacia fail to honor their respective obligation with respect to
such remediation costs or Legacy Toxic Tort Claims, we could become responsible for some or all of
such liabilities except for the remediation costs and other environmental liabilities for sites
owned, operated or used by Pharmacia but never owned, operated or used by us for which Solutia
received a discharge under the Plan which liabilities could be material. See also Managements
Discussion and Analysis Environmental Matters.
We face currency and other risks associated with international sales.
Sales and operations outside the United States constituted a majority of our revenues in
fiscal 2009. Our operations outside the United States expose us to risks including fluctuations in
currency values, trade restrictions, tariff and trade regulations, U.S. export controls, reduced
protection of intellectual property rights; foreign tax laws, shipping delays, economic and
political instability; the effect of global health, safety and environmental matters on economic
conditions and market opportunities and changes in financial policy.
The functional currency of each of our non-U.S. operations is generally the local currency.
Exchange rates between some of these currencies and U.S. dollars have fluctuated significantly in
recent years and may do so in the future. It is possible that fluctuations in foreign exchange
rates will have a negative effect on our results of operations.
Many of our products and manufacturing processes are subject to technological change and our
business will suffer if we fail to keep pace.
Many of the markets in which our products (and their corresponding manufacturing processes)
compete are subject to technological change and new product introductions and enhancements. We
must continue to enhance our existing products and to develop and manufacture new products with
improved capabilities to continue to be a market leader. We must also continue to make
improvements in our manufacturing processes and productivity to maintain our competitive position.
When we invest in new technologies, processes or production facilities, we will face risks related
to construction delays, cost over-runs and unanticipated technical difficulties related to
start-up. Our inability to anticipate, respond to, capitalize on or utilize changing technologies
could have an adverse effect on our consolidated results of operations, financial condition and
cash flows in any given period.
Significant payments may be required to maintain the funding of our domestic qualified pension
plans.
We maintain qualified pension plans under which certain of our domestic employees and retirees
are entitled to receive benefits. Although we have frozen future benefit accruals under our U.S.
pension plans, significant liabilities still remain. In order to fund these pension plans, we made
significant contributions in 2009 amounting to approximately $65 million and will have to fund more
going forward. We may be unable to obtain financing to make these pension plan contributions. In
addition, even if financing for these contributions is obtained, the funding obligations and the
carrying costs of debt incurred to fund the obligations could have a significant adverse effect on
our results of operations.
Labor disruptions with the unionized portion of our workforce could have a negative effect.
While we believe that our relations with our employees are good, we may not be able to
negotiate these or other collective bargaining agreements on the same or more favorable terms as
the current agreements, or at all, and without production interruptions, including labor stoppages.
A prolonged labor dispute, which could include a work stoppage, could impact our ability to
satisfy our customers requirements and negatively affect our financial condition.
15
We may engage in acquisitions that could disrupt our business and harm our operating results or
financial condition.
We expect to make selective domestic and international acquisitions of and investments in
businesses that represent synergistic bolt-ons to our existing businesses or represent one or more
businesses in the performance material and specialty chemical sector that would be new platforms
for the Company. We may not be able to identify suitable acquisition, investment, alliance, or
joint venture opportunities or consummate any such transactions or relationships on terms and
conditions acceptable to us. Further, notwithstanding thorough pre-acquisition due diligence and
careful analysis performed by the Company, we may not have identified all possible issues that
might arise with respect to such acquired assets and such transaction that we enter into may not be
as successful as the Companys premises as of the acquisition date.
These transactions or any other acquisitions or dispositions involve risks and uncertainties,
which may have a material adverse effect on our business. A critical component of the success of
certain acquisitions is the Companys ability to quickly and effectively integrate the acquired
business or businesses into Solutia. Notwithstanding the fact that the Companys integration of
the 2007 acquisition of Flexsys was successful in terms of timeliness of the integration and
resulting cost savings realized, the integration of future acquired businesses may not be as
successful given the complexities involved in such activities. Also, these integration efforts
could result in disruption to other parts of our business and the diversion of managements
attention from daily operations.
Any acquisition may also cause us to assume liabilities, record goodwill and indefinite-lived
intangible assets that will be subject to impairment testing and potential impairment charges,
incur significant restructuring charges and increased working capital and capital expenditure
requirements, which would reduce our return on invested capital.
Changes in supply-demand balance in the regions and the industries in which we operate may
adversely affect our financial results.
Our key markets are shifting from mature markets such as North America and Western Europe to
emerging regions such as Asia, in particular China and India. Although we are responding to meet
these market demand conditions, we cannot be certain that we will be successful in expanding
capacity in emerging regions (which depends in part on economic and political conditions in these
regions and, in some cases, on our ability to acquire or form strategic business alliances) or in
reducing capacity in mature regions commensurate with industry demand.
Failure to make continued improvements in our technology and productivity could hurt our
competitive position.
We believe that we must continue to enhance our existing products and to develop and
manufacture new products with improved capabilities in order to continue to be a market leader. We
also believe that we must continue to make improvements in our productivity in order to maintain
our competitive position. When we invest in new technologies, processes or production facilities,
we face risks related to construction delays, cost over-runs and unanticipated technical
difficulties. Our inability to anticipate, respond to or utilize changing technologies could have
a material adverse effect on our business and our consolidated results of operations.
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ITEM 1B. |
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UNRESOLVED STAFF COMMENTS |
None.
We lease the property on which our headquarters is located in St. Louis County, Missouri. Our
principal European offices are located in Louvain-la-Neuve, Belgium, on land leased from the
University of Louvain. For our Asia Pacific operations, we lease offices in Shanghai, China and
other locations in the region. Information about our major manufacturing locations worldwide and
segments that used these locations as of February 1, 2010, appears under Segments; Principal
Products in Item 1 of this report and is incorporated herein by reference.
Our principal plants are suitable and adequate for their use. Utilization of these facilities
varies with seasonal, economic and other business conditions. None of our principal plants are
substantially idle. Our facilities generally have sufficient capacity for existing needs and
expected near-term growth.
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We own most of our principal plants. However, at Antwerp, Belgium and Sao Jose dos Campos,
Brazil, both of which belong to Monsanto, we own certain buildings and production
equipment and lease the underlying land. We operate as a guest at these facilities with Monsanto as
the operator under terms of master operating agreements. For facilities used in the
manufacture of Saflex products, the master operating agreement has 9 years remaining on its initial
term. For facilities used to manufacture rubber chemical products, the master operating agreement
has 15 years remaining on its initial term. After the initial terms, the master operating
agreements for both manufacturing facilities and each of the product lines provide that they
continue indefinitely unless either party terminates on at least 24 months prior written notice.
The master operating agreements also provides that, under certain circumstances, either the
operator or the guest may terminate the operating agreement before the expiration of the applicable
term, subject to early termination penalties.
In addition, we lease and operate as a guest at manufacturing facilities in Lemoyne, Alabama
and Itupeva, Brazil, under master operating agreements with Akzo Nobel as the operator where we
manufacture certain rubber chemical products. The initial term of these master operating
agreements run until 2027. The master operating agreements may be terminated by either party upon
24 months notice, which notice shall not be effective before the expiration of the initial term.
We operate several facilities for other third parties on our sites, principally within the
Nienburg, Germany; Sauget, Illinois; Newport, Wales (U.K.); and Springfield, Massachusetts sites
under long-term lease and operating agreements.
Mortgages on our plants at the following locations constitute a portion of the collateral
securing our Term Loan and Revolver credit facilities: Springfield, Massachusetts; Trenton,
Michigan; and Martinsville, Virginia.
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ITEM 3. |
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LEGAL PROCEEDINGS |
Litigation
We are a party to legal proceedings, which have arisen in the ordinary course of business and
involve claims for money damages.
Except for the potential effect of an unfavorable outcome with respect to our Legacy Tort
Claims Litigation, it is our opinion that the aggregate of all claims and lawsuits will not have a
material adverse impact on our consolidated financial statements.
Legacy Tort Claims Litigation
Pursuant to the Amended and Restated Settlement Agreement effective February 28, 2008, entered
into by Solutia and Monsanto in connection with our emergence from Chapter 11 (the Monsanto
Settlement Agreement), Monsanto is responsible to defend and indemnify Solutia for any Legacy Tort
Claims as that term is defined in the agreement, while Solutia retains responsibility for tort
claims arising out of exposure occurring after the Solutia Spinoff. Solutia or Flexsys have been
named as defendants in the following actions, and have submitted the matters to Monsanto as Legacy
Tort Claims. However, to the extent these matters relate to post Solutia Spinoff exposure or such
matters are not within the meaning of Legacy Tort Claims within the Monsanto Settlement
Agreement, we would potentially be liable. All claims in the Flexsys tort litigation matters
described below concern alleged conduct occurring while Flexsys was a joint venture of Solutia and
Akzo Nobel, and any potential damages in these cases would be evenly apportioned between Solutia
and Akzo Nobel. In addition to the below actions, Monsanto has sought indemnity from us for
certain tort and workers compensation claims in which Monsanto has been named a defendant. We
have rejected such demand pursuant to the Monsanto Settlement Agreement. There are no pending
legal actions regarding these alleged indemnification rights.
Putnam County, West Virginia Litigation. In December 2004, a purported class action lawsuit
was filed in the Circuit Court of Putnam County, West Virginia against Flexsys, Pharmacia, Monsanto
and Akzo Nobel (Solutia is not a named defendant) alleging exposure to dioxin from Flexsys Nitro,
West Virginia facility, which is now closed. The relevant production activities at the facility
occurred during Pharmacias ownership and operation of the facility and well prior to the creation
of the Flexsys joint venture between Pharmacia (whose interest was subsequently transferred to us
in the Solutia Spinoff) and Akzo Nobel. The plaintiffs are seeking damages for loss of property
value, medical monitoring and other equitable relief.
Beginning in February 2008, Flexsys, Monsanto, Pharmacia, Akzo Nobel and another third party
were named as defendants in approximately seventy-five individual lawsuits, and Solutia was named
in two individual lawsuits, filed in various state court jurisdictions by residents or former
residents of Putnam County, West Virginia. The largely identical complaints allege that the
residents were exposed to potentially harmful levels of dioxin particles from the Nitro facility.
Plaintiffs did not specify the amount of their alleged damages in their complaints. In 2009, over
fifty additional nearly identical complaints were filed by individual plaintiffs in the Putnam
County area, which named Solutia, Flexsys, Monsanto and Pharmacia as defendants.
17
Escambia County, Florida Litigation. In June 2008, a group of approximately fifty property
owners and business owners in the Pensacola, Florida area filed a lawsuit in the Circuit Court for
Escambia County, Florida against Monsanto, Pharmacia, Solutia, and the plant manager at Solutias
former Pensacola plant, which was included in the sale of our Integrated Nylon business. The
lawsuit, entitled John Allen, et al. v. Monsanto Company, et al., alleges that the defendants are
responsible for elevated levels of PCBs in the Escambia River and Escambia Bay due to past and
allegedly continuing releases of PCBs from the Pensacola plant. The plaintiffs seek: (1) damages
associated with alleged decreased property values caused by the alleged contamination, and
(2) remediation of the alleged contamination in the waterways. Plaintiffs did not specify the
amount of their alleged damages in their complaint.
St. Clair County, Illinois Litigation. In February 2009, a purported class action lawsuit was
filed in the Circuit Court of St. Clair County, Illinois against Solutia, Pharmacia, Monsanto and
two other unrelated defendants alleging the contamination of their property from PCBs, dioxins,
furans, and other alleged hazardous substances emanating from the defendants facilities in Sauget,
Illinois (including our W.G. Krummrich site in Sauget, Illinois). The proposed class is comprised
of residents who live within a two-mile radius of the Sauget facilities. The plaintiffs are
seeking damages for medical monitoring and the costs associated with remediation and removal of
alleged contaminants from their property.
In addition to the purported class action lawsuit, twenty additional individual lawsuits have
been filed since February 2009 against the same defendants (including Solutia) comprised of claims
from over one thousand individual residents of Illinois who claim they suffered illnesses and/or
injuries as well as property damages as a result of the same PCBs, dioxins, furans, and other
alleged hazardous substances allegedly emanating from the defendants facilities in Sauget.
Upon assessment of the terms of the Monsanto Settlement Agreement and other defenses available
to us, we believe the probability of an unfavorable outcome to us on the Putnam County, West
Virginia, Escambia County, Florida, and St. Clair County, Illinois litigation against us is remote
and, accordingly, we have not recorded a loss contingency. Nonetheless, if it were subsequently
determined these matters are not within the meaning of Legacy Tort Claims, as defined in the
Monsanto Settlement Agreement, or other defenses to us were unsuccessful, it is reasonably possible
we would be liable for an amount which cannot be estimated but which could have a material adverse
effect on our consolidated financial statements.
Solutia Inc. Employees Pension Plan Litigation
Starting in October 2005, separate purported class action lawsuits were filed by current or
former participants in our U.S. Pension Plan (the U.S. Plan), which were ultimately consolidated
in September 2006 into a single case. The Consolidated Class Action Complaint alleged three
separate causes of action against the U.S. Plan: (1) the U.S. Plan violates ERISA by terminating
interest credits on prior plan accounts at the age of 55; (2) the U.S. Plan is improperly
backloaded in violation of ERISA; and (3) the U.S. Plan is discriminatory on the basis of age. In
September 2007, the court dismissed the plaintiffs second and third claims, and by consent of the
parties, certified a class action against the U.S. Plan only with respect to plaintiffs claim that
the U.S. Plan violates ERISA by allegedly terminating interest credits on prior plan accounts at
the age of 55. On June 11, 2009, the United States District Court for the Southern District of
Illinois entered a summary judgment in favor of the U.S. Plan on the sole remaining claim against
the U.S. Plan. The District Court entered its final appealable judgment in the case on September
29, 2009.
18
Medicare Reimbursement Litigation
In December 2009, the Department of Justice (DOJ), on behalf of the United States
government, filed suit in the United States District Court, Northern District of Alabama (in a case
captioned United States of America v. Stricker, et al.), against Solutia, Monsanto, Pharmacia, and
the attorneys and law firms who represented the plaintiffs in Abernathy v. Solutia Inc., et al.
(Abernathy) lawsuit arising out of PCB contamination in Anniston, Alabama. The DOJ alleges the
defendants failed to reimburse Medicare for medical expenses paid to Abernathy settlement
recipients who were Medicare beneficiaries. Specifically, the DOJ claims that approximately 907
claimants who received payments for medical treatment under the Abernathy settlement were Medicare
beneficiaries who received conditional payments from Medicare for the same treatment. The DOJ
alleges that the conditional payments were subject to reimbursement if a primary payer had
responsibility to cover the treatment at issue, but no reimbursement was made to the government by
any of the Abernathy participants. The DOJ is seeking recovery of these allegedly unpaid
reimbursements from the defendants who paid into the Abernathy settlement fund, as well as the
plaintiffs counsel who represented the Medicare recipients and were responsible for the
distribution of the settlement funds. The DOJ did not specify the amount of damages either
generally from the defendants or specifically from Solutia which the government seeks in this
case.
Solutia denies the allegations, and asserts that liability for such reimbursements should be
the responsibility of the plaintiffs counsel who were actually responsible for the distribution of
the settlement funds to the plaintiffs. Defendants initial responses to the claim are due in
February 2010, and no trial is expected until at least 2011.
Flexsys
Patent and Related Litigation
Flexsys holds various patents covering inventions in the manufacture of rubber chemicals, including patents describing and
claiming a manufacturing process for 4-aminodiphenylamine ("4-ADPA"), a key building block for the manufacture of 6PPD and IPPD,
as well as a manufacturing process for 6PPD and IPPD, which function as anti-degradants and are used primarily in the manufacture
of rubber tires. Flexsys is engaged in litigation in several jurisdictions to protect and enforce its patents.
United States Civil Patent Infringement Litigation.
In January 2005, Flexsys filed suit in United States District Court for
the Northern District of Ohio for patent infringement against Sinorgchem Co. Shangdong, a Chinese entity ("Sinorgchem"), Korea Kumho
Petrochemical Company, a Korean company ("KKPC"), Kumho Tire Korea and Kumho Tire USA. Flexsys claims the process Sinorgchem uses to make
4-ADPA and 6PPD infringes Flexsys' patented process, and that Sinorgchem's importation of 6PPD, KKPC's importation of 6PPD (which is made from
Sinorgchem's 4-ADPA), and Kumho Tire's importation of tires (which include KKPC's 6PPD) infringe upon Flexsys' patents. The lawsuit was stayed
for an extended period of time while Flexsys pursued parallel infringement proceedings against Sinorgchem and KKPC before the United States International
Trade Commission. Although Flexsys initially had success in the ITC action, the underlying decision was overturned by the Federal Circuit Court of Appeals
which held that Sinorgchem and KKPC did not literally infringe Flexsys' patents. Flexsys did not pursue further appeals in the ITC matter, and, instead, decided
to continue its pursuit of its civil patent infringement action in Ohio. In February 2009, the district court lifted the stay on the civil case and allowed the
case to go forward. Flexsys is seeking monetary damages as well as injunctive relief in the civil case. In October 2009, the court held a hearing to determine the
interpretation of the patent claims at issue in the case. In its subsequent ruling, the court limited the claims Flexsys could bring with respect to its base patent.
Sinorgchem and KKPC have recently filed summary judgment motions asking the court to dismiss the case as a matter of law. If summary judgment is denied, trial on this
matter is scheduled for the second quarter of 2011.
Rubber Chemicals Antitrust Litigation. In April 2006, KKPC filed suit against Flexsys in the
United States District Court for the Central District of California for alleged
violations of the Sherman Act, breach of contract, breach of the implied covenant of good faith and fair dealing, declaratory relief, intentional
interference with prospective economic advantage, disparagement and
violations of the California Business & Professions Code. This matter was subsequently
transferred to the United States District Court, Northern District of California. In its complaint, KKPC primarily claimed Flexsys' alleged statements to
customers regarding Flexsys' belief that KKPC's products infringed upon Flexsys' patents were in violation of antitrust laws. The court dismissed KKPC's initial
complaint, but granted KKPC the right to refile an amended complaint, which KKPC filed in September 2007. Flexsys filed a motion to dismiss the amended complaint,
which was granted in part, and denied in part. Specifically, the court dismissed all pending antitrust claims against Flexsys and dismissed the two state law claims
for unfair competition and tortious interference without prejudice. The court granted KKPC the right to refile another amended complaint, which KKPC filed in April 2008
(which did not include the state law claims). Flexsys moved to dismiss the latest amended complaint, and its motion was granted in December 2008, thereby fully dismissing the case.
KKPC has appealed the decision to the Ninth Circuit Court of Appeals, and a hearing was held in February 2010. A decision is expected in mid-2010.
Legal proceedings outside the United States. Various parties, including Sinorgchem and other competitors of Flexsys,
have filed other separate actions in patent courts in Europe
and Asia seeking to invalidate certain of Flexsys' patents issued in those jurisdictions. However, Flexsys has had substantial success in upholding the validity of its patents throughout the world.
Specifically, on October 28, 2009, the Korean Patent Court rendered a decision finding an important group of claims within Flexsys' patents were valid, subverting attempts by Sinorgchem to invalidate the Korean patent. On January 25, 2010, the German Patent Court decided to maintain Flexsys' patent in Germany and to reject Sinorgchem's attempt to invalidate this patent. Additionally, on January 31, 2010, the Beijing Number 1 Intermediate People's Court rejected Sinorgchem's efforts to invalidate Flexsys' patent in China. Further, Sinorgchem has recently filed an action to invalidate Flexsys' patent in Japan. Flexsys will continue to defend its patent wherever it is challenged.
|
|
|
ITEM 4. |
|
SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS |
We did not submit any matters to our security holders during the fourth quarter of 2009.
19
PART II
|
|
|
ITEM 5. |
|
MARKET FOR REGISTRANTS COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUERS PURCHASES
OF EQUITY SECURITIES |
Market for Registrants Common Equity and Related Stockholder Matters
Our common stock trades on the New York Stock Exchange (NYSE) under the symbol SOA. Our
new common stock traded on a when-issued basis on the NYSE from December 20, 2007 until shortly
after our emergence from Chapter 11 on February 28, 2008, at which time our new common stock began
trading on a regular way basis. Upon emergence, all of our old common stock was cancelled in
accordance with the Plan.
Because the value of one share of our old common stock bears no relation to the value of
one share of our new common stock, only the trading prices of our new common stock following our
listing on the NYSE are set forth below.
The following table sets forth the high and low sales prices per share of our new common stock
for the period from February 28, 2008 through December 31, 2009.
|
|
|
|
|
|
|
|
|
2008 |
|
High |
|
|
Low |
|
First Quarter |
|
$ |
15.97 |
|
|
$ |
10.06 |
|
Second Quarter |
|
$ |
15.49 |
|
|
$ |
11.09 |
|
Third Quarter |
|
$ |
17.29 |
|
|
$ |
12.38 |
|
Fourth Quarter |
|
$ |
13.61 |
|
|
$ |
3.64 |
|
|
|
|
|
|
|
|
|
|
2009 |
|
High |
|
|
Low |
|
First Quarter |
|
$ |
6.86 |
|
|
$ |
1.18 |
|
Second Quarter |
|
$ |
6.49 |
|
|
$ |
2.02 |
|
Third Quarter |
|
$ |
13.76 |
|
|
$ |
5.64 |
|
Fourth Quarter |
|
$ |
13.05 |
|
|
$ |
10.68 |
|
On January 31, 2010, we had 5,278 shareholders of record.
No dividends were paid by us in the two months ended February 29, 2008 since we were
prohibited by both the U.S. Bankruptcy Code and the debtor-in-possession (DIP) credit facility
from paying dividends to shareholders. No dividends were paid by us in the ten months ended
December 31, 2008 or twelve months ended December 31, 2009 and we have no current plans to do so.
Equity Compensation Plan Information
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Number of securities |
|
|
|
(a) |
|
|
|
|
|
|
remaining available for |
|
|
|
Number of securities to be |
|
|
Weighted-average |
|
|
future issuance under |
|
|
|
issued upon exercise of |
|
|
exercise price of |
|
|
equity compensation |
|
|
|
outstanding options, |
|
|
outstanding options, |
|
|
plans (excluding |
|
Plan Category |
|
warrants, and rights |
|
|
warrants, and rights |
|
|
securities reflected by (a)) |
|
Equity compensation plans approved by
security holders |
|
|
|
|
|
|
|
|
|
|
|
|
Equity compensation plans not approved
by security holders |
|
|
1,901,959 |
|
|
|
17.21 |
|
|
|
1,713,528 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total |
|
|
1,901,959 |
|
|
|
17.21 |
|
|
|
1,713,528 |
|
20
Purchases of Equity Securities by the Issuer
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Number of |
|
|
Approximate Dollar |
|
|
|
|
|
|
|
|
|
|
|
Shares Purchased as |
|
|
Value (in millions) |
|
|
|
Total Number of |
|
|
|
|
|
|
Part of Publicly |
|
|
that May Yet Be |
|
|
|
Shares |
|
|
Average Price Paid |
|
|
Announced Plans or |
|
|
Purchased Under the |
|
Period |
|
Purchased (1) |
|
|
Per Share (2) |
|
|
Programs |
|
|
Plans or Programs |
|
October 1-31, 2009 |
|
|
0 |
|
|
$ |
0.00 |
|
|
|
0 |
|
|
$ |
0 |
|
November 1-30, 2009 |
|
|
89 |
|
|
$ |
11.02 |
|
|
|
0 |
|
|
$ |
0 |
|
December 1-31, 2009 |
|
|
0 |
|
|
$ |
0.00 |
|
|
|
0 |
|
|
$ |
0 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total |
|
|
89 |
|
|
$ |
11.02 |
|
|
|
0 |
|
|
$ |
0 |
|
|
|
|
(1) |
|
Shares surrendered to the Company by an employee to satisfy individual tax withholding
obligations upon vesting of previously issued shares of restricted common stock. |
|
(2) |
|
Average price paid per share reflects the closing price of Solutia common stock on the
business date the shares were surrendered by the employee stockholder to satisfy individual
tax withholding obligations upon vesting of restricted common stock. |
Stock Performance Graph
The following graph shows the cumulative total stockholder returns (assuming reinvestment of
dividends) following assumed investment of $100 in shares of new common stock that were outstanding
on February 28, 2008, the date of our emergence from Chapter 11 bankruptcy. The indices shown
below are included for comparative purposes only and do not necessarily reflect our opinion that
such indices are an appropriate measure of the relative performance of our new common stock. Data
for periods prior to February 28, 2008 is not shown because the period we were in Chapter 11
bankruptcy and the financial results of the Successor are not comparable with the results of the
Predecessor.
Cumulative Total Returns
21
|
|
|
ITEM 6. |
|
SELECTED FINANCIAL DATA |
Financial
Summary
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Twelve Months |
|
|
Ten Months |
|
|
Two Months |
|
|
|
|
|
|
Ended |
|
|
Ended |
|
|
Ended |
|
|
Twelve Months Ended |
|
(Dollars and shares in millions, |
|
December 31, |
|
|
December 31, |
|
|
February 29, |
|
|
December 31, |
|
except per share amounts) |
|
2009 |
|
|
2008 |
|
|
2008 |
|
|
2007 |
|
|
2006 |
|
|
2005 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating Results: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net Sales |
|
$ |
1,667 |
|
|
$ |
1,775 |
|
|
$ |
335 |
|
|
$ |
1,643 |
|
|
$ |
1,064 |
|
|
$ |
1,003 |
|
Gross Profit |
|
$ |
470 |
|
|
$ |
367 |
|
|
$ |
94 |
|
|
$ |
383 |
|
|
$ |
271 |
|
|
$ |
219 |
|
As percent of net sales |
|
|
28 |
% |
|
|
21 |
% |
|
|
28 |
% |
|
|
23 |
% |
|
|
25 |
% |
|
|
22 |
% |
Operating Income (1) |
|
$ |
233 |
|
|
$ |
115 |
|
|
$ |
49 |
|
|
$ |
141 |
|
|
$ |
69 |
|
|
$ |
19 |
|
As percent of net sales |
|
|
14 |
% |
|
|
6 |
% |
|
|
15 |
% |
|
|
9 |
% |
|
|
6 |
% |
|
|
2 |
% |
Income (Loss) from Continuing Operations Before Taxes |
|
$ |
74 |
|
|
$ |
(2 |
) |
|
$ |
1,464 |
|
|
$ |
(252 |
) |
|
$ |
(58 |
) |
|
$ |
(5 |
) |
Income (Loss) from Continuing
Operations (2) |
|
$ |
60 |
|
|
$ |
(15 |
) |
|
$ |
1,250 |
|
|
$ |
(269 |
) |
|
$ |
(76 |
) |
|
$ |
(14 |
) |
Income (Loss) from Discontinued Operations, net of tax |
|
$ |
(169 |
) |
|
$ |
(648 |
) |
|
$ |
204 |
|
|
$ |
64 |
|
|
$ |
80 |
|
|
$ |
26 |
|
Cumulative Effect of Change in Accounting Principle, net of tax (3) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(3 |
) |
Net Income attributable to noncontrolling interest |
|
$ |
4 |
|
|
$ |
5 |
|
|
|
|
|
|
$ |
3 |
|
|
$ |
2 |
|
|
$ |
1 |
|
Net Income (Loss) attributable to Solutia |
|
$ |
(113 |
) |
|
$ |
(668 |
) |
|
$ |
1.454 |
|
|
$ |
(208 |
) |
|
$ |
2 |
|
|
$ |
8 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Per
Share Data: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic and Diluted Earnings (Loss) per Share from Continuing Operations
attributable to Solutia (2) |
|
$ |
0.53 |
|
|
$ |
(0.27 |
) |
|
$ |
11.96 |
|
|
$ |
(2.60 |
) |
|
$ |
(0.75 |
) |
|
$ |
(0.14 |
) |
Basic Weighted Average Shares Outstanding |
|
|
106.5 |
|
|
|
74.7 |
|
|
|
104.5 |
|
|
|
104.5 |
|
|
|
104.5 |
|
|
|
104.5 |
|
Diluted Weighted Average Shares Outstanding |
|
|
106.7 |
|
|
|
74.7 |
|
|
|
104.5 |
|
|
|
104.5 |
|
|
|
104.5 |
|
|
|
104.5 |
|
Dividends per Share |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Financial Position Continuing Operations: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Assets |
|
$ |
3,256 |
|
|
$ |
3,244 |
|
|
$ |
3,663 |
|
|
$ |
1,832 |
|
|
$ |
1,298 |
|
|
$ |
1,217 |
|
Liabilities not Subject to Compromise |
|
$ |
2,616 |
|
|
$ |
2,903 |
|
|
$ |
3,315 |
|
|
$ |
2,013 |
|
|
$ |
1,350 |
|
|
$ |
926 |
|
Liabilities Subject to Compromise |
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
$ |
1,922 |
|
|
$ |
1,849 |
|
|
$ |
2,176 |
|
Long-Term Debt (4) |
|
$ |
1,264 |
|
|
$ |
1,359 |
|
|
$ |
1,796 |
|
|
$ |
359 |
|
|
$ |
210 |
|
|
$ |
247 |
|
Shareholders Equity (Deficit) |
|
$ |
600 |
|
|
$ |
529 |
|
|
$ |
1,043 |
|
|
$ |
(1,589 |
) |
|
$ |
(1,399 |
) |
|
$ |
(1,429 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other
Data from Continuing Operations: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Working Capital (5) |
|
$ |
484 |
|
|
$ |
329 |
|
|
$ |
492 |
|
|
$ |
(510 |
) |
|
$ |
(393 |
) |
|
$ |
(31 |
) |
Interest Expense (6) |
|
$ |
159 |
|
|
$ |
141 |
|
|
$ |
21 |
|
|
$ |
134 |
|
|
$ |
100 |
|
|
$ |
79 |
|
Income Tax Expense (7) |
|
$ |
14 |
|
|
$ |
13 |
|
|
$ |
214 |
|
|
$ |
17 |
|
|
$ |
18 |
|
|
$ |
9 |
|
Depreciation and Amortization |
|
$ |
107 |
|
|
$ |
89 |
|
|
$ |
11 |
|
|
$ |
59 |
|
|
$ |
46 |
|
|
$ |
40 |
|
Capital Expenditures |
|
$ |
44 |
|
|
$ |
84 |
|
|
$ |
15 |
|
|
$ |
99 |
|
|
$ |
55 |
|
|
$ |
49 |
|
Employees (Year-End) |
|
|
3,400 |
|
|
|
3,700 |
|
|
|
3,700 |
|
|
|
3,700 |
|
|
|
2,900 |
|
|
|
3,400 |
|
|
|
|
(1) |
|
Operating income includes net restructuring (gains)/charges and other
items of $32 million in 2009, $102 million in the ten months ended December 31, 2008 and ($2)
million in the two months ended February 29, 2008, $41 million in 2007, ($7) million in 2006, and
$14 million in 2005. |
|
(2) |
|
Income (loss) from continuing operations includes net restructuring charges and
other (gains)/charges of $70 million, or $0.66 per share in 2009, $79 million, or $1.06 per share
in the ten months ended December 31, 2008, ($2) million, or ($0.02) per share in the two months
ended February 29, 2008, $28 million, or $0.27 per share in 2007, $4 million, or $0.04 per share in
2006, and ($37) million, or ($0.35) per share in 2005. |
|
(3) |
|
Change in accounting
principle relates to the adoption of FASB Interpretation No. 47
Accounting for Conditional Asset Retirement Obligations an interpretation of FASB Statement No.
143, guidance currently referenced in ASC 410 Asset Retirement and Environmental Obligations. |
|
(4) |
|
Long-term debt excludes $659 million as of December 31, 2007 and $668 million as of
December 31, 2006 and 2005 of debt classified as subject to compromise in accordance with ASC 852
Reorganizations, as a result of our Chapter 11 bankruptcy filing in 2003. |
|
(5) |
|
Working capital is defined as total current assets less total current liabilities. |
|
(6) |
|
Interest expense includes the recognition of interest on allowed secured claims as
approved by the Bankruptcy Court of $8 million in 2007 and the write-off of debt issuance costs and
debt discount of $38 million in 2009, $1 million in the ten months ended December 31, 2008 and $6
million in 2006 due to either the early repayment or early refinancing of the underlying debt
facilities. In addition, interest expense in all periods is affected by interest expense allocated
to discontinued operations and in all Predecessor periods for unrecorded contractual interest
expense on unsecured debt subject to compromise. |
|
(7) |
|
Income tax expense includes an increase (decrease) in valuation allowances of $23
million in 2009, $8 million in the ten months ended December 31, 2008, $(259) million in the two
months ended February 29, 2008, $82 million in 2007, $35 million in 2006, and $18 million in 2005. |
See Managements Discussion and Analysis of Financial Condition and Results of Operations
under Item 7 for more information.
22
|
|
|
ITEM 7. |
|
MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS |
Overview
We are a leading global manufacturer and marketer of high-performance chemical-based materials
that are used across automotive, construction, industrial and consumer applications. We
report our operations in three segments: Saflex, CPFilms and Technical Specialties. Through our
Saflex segment, we produce Polyvinyl Butyral (PVB) sheet used in the manufacture of laminated
glass for automotive, architectural and solar applications in addition to the manufacture of
specialized technical films for use in a wide variety of industrial applications. Our CPFilms
segment manufactures, markets and distributes custom-coated window films for aftermarket automotive
and architectural applications. Technical Specialties is our specialty chemicals segment, which
includes the manufacture and sale of chemicals for the rubber, solar energy, process manufacturing
and aviation industries. The major products by reportable segment are as follows:
|
|
|
Reportable Segment |
|
Products |
Saflex
|
|
SAFLEX® plastic interlayer |
|
|
Specialty intermediate Polyvinyl Butyral resin and plasticizer |
CPFilms
|
|
LLUMAR®, VISTA®, GILA® and FORMULA ONE PERFORMANCE AUTOMOTIVE
FILMS® professional and retail window films |
|
|
Other enhanced polymer films for industrial customers |
Technical Specialties
|
|
CRYSTEX® insoluble sulphur |
|
|
SANTOFLEX® antidegradants |
|
|
SANTOCURE® and PERKACIT® primary and ultra accelerators |
|
|
THERMINOL® heat transfer fluids |
|
|
SKYDROL® aviation hydraulic fluids |
|
|
SKYKLEEN® brand of aviation solvents |
See Note 19 Segment and Geographic Data to the accompanying consolidated financial
statements for further information regarding our reportable segments.
Non-U.S. GAAP Financial Measures
Our emergence from bankruptcy required our adoption of fresh-start accounting on February 29,
2008. This resulted in our becoming a new reporting entity on March 1, 2008, which has a new
capital structure and a new basis in the assets and liabilities assumed. Accordingly, the
financial information set forth in this report, unless otherwise expressly set forth or as the
context otherwise indicates, reflects the consolidated results of operations and financial
condition of Solutia Inc. and its subsidiaries for the periods following March 1, 2008
(Successor), and of Solutia Inc. and its subsidiaries for the periods through February 29, 2008
(Predecessor). One impact resulting from the adoption of fresh-start accounting is the
significant change in interest expense, taxes, depreciation and amortization as triggered by our
requirement to institute a new capital structure and fully re-measure our tangible and identifiable
intangible assets.
This discussion and analysis includes financial information prepared in accordance with U.S.
generally accepted accounting principles (U.S. GAAP) along with certain non-U.S. GAAP measures
and presentation. These non-U.S. GAAP measures and presentation include the use of the financial
measure EBITDA and the combined presentation of the Predecessor and Successor for the twelve months
ended December 31, 2008. EBITDA is defined as earnings from continuing operations before interest
expense, income taxes, depreciation and amortization less net income attributable to noncontrolling
interest and reorganization items, net. The use of EBITDA by management, which is used to measure
segment profit, enhances comparability between Successor and Predecessor periods, along with
comparability with the performance of our peers. Likewise, we have combined the results of
operations and the sources and uses of cash for the two months ended February 29, 2008 of the
Predecessor and the ten months ended December 31, 2008 of the Successor, and compared these
combined results with the corresponding periods in 2009 and 2007 to provide a more meaningful
perspective on our financial and operational performance and trends than if we did not combine the
results of operations and sources and uses of cash of the Predecessor and the Successor in this
manner.
23
The presentation of EBITDA and the combined results for the twelve months ended December 31,
2008 are intended to supplement investors understanding of our operating performance and
liquidity. However, the use of EBITDA and the combined presentation of the twelve months ended
December 31, 2008 are not intended to replace net income (loss), cash flows, financial position or
comprehensive income (loss), as determined in accordance with U.S. GAAP for the Predecessor and
Successor periods. The Consolidated Financial Statements on or after March 1, 2008 are not
comparable to the Consolidated Financial Statements prior to that date.
Summary of Significant 2009 Events
Restructuring and Portfolio Realignment: The sharp decline in demand across the global
construction, automotive and industrial markets realized in the fourth quarter 2008 continued into
2009. In order to mitigate the impact of a recessionary macroeconomic environment and the
resulting weakened demand profile, we implemented immediate actions in early 2009 including the
freezing of all salary and wages to the extent allowable, significantly reducing the payment of our
2008 annual incentive plan, suspension of our 2009 annual incentive plan and suspension of the
employer 401(k) match to the extent allowable, reduction of capital expenditures to maintenance
levels, temporary idling of certain lines and strict management of working capital. Further, a
global restructuring initiative, which was targeted to increase the cost effectiveness of our
support operations and reduce the operational personnel in alignment with near term production
levels, was implemented throughout 2009 resulting in $35 million in restructuring charges necessary
for severance and retraining costs for impacted employees along with future contractual payments
related to the relocation of certain regional support operations from Singapore to Shanghai, China.
In an effort to balance our North America production with customer demand, we closed our
SAFLEXÒ plastic interlayer manufacturing line at our facility in Trenton, Michigan (Trenton
Facility) in the first quarter 2009 and transferred the required production volume to our facility
in Ghent, Belgium. In association with this action, we incurred an additional $5 million in
restructuring charges in 2009, predominantly in the form of severance and retraining costs for
impacted employees. The reduction of both salaried and union personnel from these actions resulted
in a significant amount of lump sum distributions from our U.S. and Belgium pension plans requiring
us to record a noncash settlement charge of $11 million in 2009.
As
discussed in Note 4 Acquisitions and Divestitures to the accompanying consolidated financial statements, in the second quarter 2009, we
completed the sale of substantially all the assets and certain liabilities, including environmental
remediation and pension liabilities of active employees of our Integrated Nylon business. We used
the proceeds from the sale to pay down debt under our Revolver. Completion of the sale of the Integrated Nylon business
completes the transformation of Solutia into a pure-play performance materials and specialty
chemicals company.
Long-term Capital Structure: Subsequent to the sale of the Integrated Nylon business, we
significantly adjusted our long-term capital structure, including the underlying debt agreements
and maturities, in an effort to better align our capital structure with our business portfolio and
growth expectations. In the second quarter 2009, we completed a public offering of 24.7 million
shares of common stock for $5.00 per share. Net proceeds, after deducting underwriting discounts
and commissions, of $119 million were used to fully repay $74 million of long term debt and for
general corporate purposes. In the fourth quarter 2009, we issued $400 million of senior unsecured
notes, due 2017 (2017 Notes) at par bearing interest at 8.75 percent. Net proceeds were
partially used to pay down $300 million of principal on our $1.2 billion senior secured term loan
facility (Term Loan) which matures in 2014. Finally, we amended our Revolver and Term Loan
credit agreements in order to provide greater operational and strategic flexibility in addition to
increasing our liquidity and covenant cushion.
In the third quarter 2009, our Board of Directors adopted a shareholder rights plan designed
to preserve the value of our significant United States federal and state NOL carryforwards and
other related tax assets under Section 382 of the Internal Revenue Code (Code). Section 382 of
the Code would limit the value of those tax assets upon an ownership change. An ownership
change is generally defined as a more than 50 percentage point increase in stock ownership, during
a rolling three-year testing period, by 5% shareholders as defined in Section 382 of the Code.
The shareholder rights plan was adopted to reduce the likelihood of this occurring by deterring the acquisition
of stock by persons or groups that would create such 5% shareholders.
Throughout the course of 2009, Harbinger Capital Partners Master Fund I, Ltd. and Harbinger
Capital Partners Special Situations Fund, L.P. (collectively, the Harbinger Funds) have steadily
decreased their ownership interest in the Company. At the beginning of 2009, the Harbinger Funds
held 32,210,720 shares of our stock or approximately 34.1 percent of the Company. Based on the
Harbinger Funds amended Schedule 13D dated December 3, 2009, as of December 1, 2009 the Harbinger
Funds ceased to be the beneficial owner of more than five percent of our common stock.
24
Summary Results of Operations: For the full year 2009, we reported $1,667 million in net
sales, a 21 percent decrease as compared to the same period in 2008. The decrease is due to the
sharp decline in demand across the global construction, automotive and industrial markets
precipitated by volatility in global capital and credit markets. As the macroeconomic environment
improved in 2009, we experienced a steady return of volumes resulting in sequentially increasing
net sales in each quarter of 2009. Gross profit for the full year 2009 increased $9 million or 2
percent as compared to the same period in 2008 due to the positive impacts of certain cost
reduction programs, lower restructuring charges and the absence of fresh-start accounting expenses
caused by our emergence from bankruptcy in February 2008. Furthermore, with the exception of the
fourth quarter 2009, which traditionally is our weakest quarter due to seasonal impacts, our gross
profit percentage for each of the quarters steadily improved throughout the year and were
significantly higher than the gross profit percentages reported in each of the quarters of 2008.
Selling, general and administrative expenses decreased $58 million or 20 percent in 2009 as
compared to the full year 2008, as we significantly reduced our support organizations in reaction
to the challenging economic conditions coupled with a global restructuring program initiated in
early 2009 in anticipation of the divestiture of our Integrated Nylon business. In summary,
operating income for 2009 was $233 million or 14 percent of net sales as compared to $164 million
or 8 percent of net sales for the full year 2008.
Summary of Financial Condition and Liquidity: Preservation and enhancement of our liquidity
position, along with optimization of our long-term capital structure, were each a significant focus
in 2009. To this end, net proceeds from the issuance of 24.7 million shares of common stock and
the 2017 Notes, in conjunction with $230 million in net cash provided after operations and
investing activities, which already incorporates a voluntary
contribution to our domestic pension plans of $39 million, were predominantly used to reduce our debt by $106 million, increase our cash
position by $211 million and extend the maturity of $400 million of long-term debt into 2017.
Payment of the above noted voluntary contribution in 2009 will reduce
our required contributions in 2010 by approximately the same amount. Furthermore, we amended our Revolver and Term Loan credit agreements in the fourth quarter 2009 in
order to provide us with greater operational and strategic flexibility. Among other things, the
amendment holds our Leverage Ratio constant at 4.50 from September 30, 2009 through December 31,
2010. In summary, cash flow provided by operations of $251 million, along with the impacts from
the changes in our long-term capital structure noted above, as partially offset by certain
investments in capital infrastructure, resulted in liquidity of $363 million as of December 31,
2009 or $138 million higher than December 31, 2008.
Outlook
As noted previously, throughout 2009, we experienced a modest but steady improvement in sales
volumes as demand for our products increased as global markets, particularly markets in Asia
Pacific, experienced growth in comparison to late 2008. Our current operating premise is that
automotive markets will grow globally in 2010, with the most significant growth in China and other
emerging markets. Growth in the U.S. and Western Europe will be modest. We are not premising
growth in the global architectural market, except for the Chinese market, in which we have a lower
share in comparison with our architectural market position in other major world areas. Coupled
with this volume assumption, we are premising modest price reduction in certain product lines, due
to the overall low utilization rates currently being experienced in many of our industries.
In addition, as a result of the completion of the Integrated Nylon divestiture and the
continued global investment and focus on alternative energy and energy efficiency initiatives
and activities, approximately 5 percent of our 2009 revenue was generated from this market. Management believes
that global investment by governments and private industry into these initiatives and activities will continue,
and potentially increase, in future years for many reasons, including the continued escalation in the price of
oil and energy, a trend we believe will likely continue. We believe that our products and services will benefit
significantly from this trend. We, therefore, expect our revenues into this market to grow in future years at
rates significantly higher than our other products and services.
In
aggregating these premises, our expectation for 2010 is an increase in net sales in the range of 5
percent 10 percent.
With respect to profitability, the actions we have taken in 2009, including the divestiture of
our Integrated Nylon business and the implementation of significant restructuring actions, position
us well to benefit from a continued recovery. Generally, our manufacturing facilities are
operating at low utilization rates, and the incremental volume premised in 2010 will carry very
high incremental profitability. Offsetting these benefits will be the costs associated with the
return of certain employee incentive plans, which were suspended in 2009, along with higher raw
material costs for certain of our product lines. Overall, therefore, we expect operating margins
from continuing operations to remain consistent or modestly higher as compared to the results
delivered in 2009.
Our incremental earnings premised in 2010 versus 2009 will generate additional operating cash,
which will be offset by higher tax payments, higher environmental remediation payments due to the
exhaustion of a restricted fund dedicated for this purpose, new product and growth related capital
spending, as well as modest investments into inventory related to the revenue growth. In 2010, we
are currently anticipating generating cash from operations less capital spending in the range of
$100 million $150 million from continuing operations.
25
Critical Accounting Policies and Estimates
The preparation of financial statements in conformity with U.S. GAAP requires management to
make estimates and assumptions in certain circumstances that affect amounts reported in the
accompanying consolidated financial statements and related footnotes. In preparing these
consolidated financial statements, we have made our best estimate of certain amounts included in
these consolidated financial statements. However, application of these accounting policies
involves the exercise of judgment and use of assumptions as to future uncertainties and, as a
result, actual results could differ materially from these estimates. Management has discussed the
development, selection and disclosure of these critical accounting policies and estimates with the
Audit Committee of our Board of Directors.
We believe that the estimates, assumptions and judgments involved in the accounting policies
described below have the greatest potential impact on the consolidated financial statements and
require assumptions that can be highly uncertain at the time the estimate is made. We consider the
following items to be our critical accounting policies:
|
|
|
Environmental Remediation |
|
|
|
Litigation and Other Contingencies |
|
|
|
Impairment of Long-Lived Assets |
|
|
|
Impairment of Goodwill and Indefinite-Lived Intangible Assets |
|
|
|
Pension and Other Postretirement Benefits |
We have other significant accounting policies but we believe that, compared to the critical
accounting policies listed above, the other policies either do not generally require estimates and
judgments that are as difficult or as subjective, or are less likely to have a material impact on
the reported results of operations for a given period.
Environmental Remediation
With respect to environmental remediation obligations, our policy is to accrue costs for
remediation of contaminated sites in the accounting period in which the obligation becomes probable
and the cost is reasonably estimable. Cost estimates for remediation are developed by assessing,
among other items, (i) the extent of our contribution to the environmental matter; (ii) the number
and financial viability of other potentially responsible parties; (iii) the scope of the
anticipated remediation and monitoring plan; (iv) settlements reached with governmental or private
parties; and (v) our past experience with similar matters. Our estimate of the environmental
remediation reserve requirements typically fall within a range. If we believe no better estimate
exists within a range of possible outcomes, the minimum loss is accrued. Environmental liabilities
are not discounted, and they have not been reduced for any claims for recoveries from third
parties.
These estimates are critical because we must forecast environmental remediation activity into
the future, which is highly uncertain and requires a large degree of judgment. These reserves
include liabilities expected to be paid out over the next fifteen years. Therefore, the
environmental reserves may materially differ from the actual liabilities if our estimates prove to
be inaccurate, which could materially affect results of operations in a given period.
Uncertainties related to recorded environmental liabilities include changing governmental policy
and regulations, judicial proceedings, the number and financial viability of other potentially
responsible parties, the method and extent of remediation and future changes in technology.
Because of these uncertainties, the potential liability for existing environmental remediation
reserves may range up to two times the amounts recorded.
Litigation and Other Contingencies
We are a party to legal proceedings involving intellectual property, tort, contract,
antitrust, employee benefit, environmental, government investigations and other litigation, claims
and legal proceedings. We routinely assess the likelihood of adverse judgments or outcomes to
those matters, as well as ranges of probable losses, to the extent losses are reasonably estimable.
To the extent that we conclude their occurrence is probable and the financial impact, should an
adverse outcome occur, is reasonably estimable, an accrual for such a contingency is recorded.
When a single amount cannot be reasonably estimated but the cost can be estimated within a range,
we accrue the low end of the range. In addition, we accrue for legal costs expected to be incurred
with a loss contingency.
26
Pursuant to the Monsanto Settlement Agreement, Monsanto is responsible to defend and indemnify
Solutia for any Legacy Tort Claims as that term is defined in the agreement, while Solutia retains
responsibility for tort claims arising out of exposure occurring after the Solutia Spinoff. To the
extent Solutia has been named as defendants in certain actions and have submitted the matters to
Monsanto as Legacy Tort Claims and such matters are not within the meaning of Legacy Tort Claims
within the Monsanto Settlement Agreement, we would potentially be liable.
Disclosure for specific legal contingencies is provided if the likelihood of occurrence is at
least reasonably possible and the exposure is considered material to the consolidated financial
statements. In making determinations of likely outcomes of litigation matters, we consider many
factors. These factors include, but are not limited to, past experience, scientific and other
evidence, interpretation of relevant laws or regulations and the specifics and status of each
matter. If the assessment of the various factors changes, the estimates may change and could
result in the recording of an accrual or a change in a previously recorded accrual. Predicting the
outcome of claims and litigation and estimating related costs and exposure involves substantial
uncertainties that could cause actual costs to vary materially from estimates and accruals.
Income Taxes
As a multinational corporation, we are subject to taxation in many jurisdictions, and the
calculation of our tax liabilities involves dealing with inherent uncertainties in the application
of complex tax laws and regulations in various taxing jurisdictions. We assess the income tax
positions and record tax liabilities for all years subject to examination based upon managements
evaluation of the facts, circumstances and information available at the reporting date. We account
for income taxes using the asset and liability method. Under this method, deferred tax assets and
liabilities are recognized for the future tax consequences of temporary differences between the
carrying amounts and tax basis of assets and liabilities at enacted rates. We base our estimate of
deferred tax assets and liabilities on current tax laws and rates and, in certain cases, business
plans and other expectations about future outcomes. We record a valuation allowance to reduce our
deferred tax assets to the amount that is more likely than not to be realized. While we have
considered future taxable income and ongoing prudent and feasible tax planning strategies in
assessing the need for the valuation allowance, in the event we were to determine that we would be
able to realize our deferred tax assets in the future in excess of our net recorded amount, an
adjustment to the deferred tax asset would increase income in the period such determination was
made. Likewise, should we determine that we would not be able to realize all or part of our net
deferred tax asset in the future, an adjustment to the deferred tax asset would be charged to
income in the period such determination was made. The consolidated financial statements include
increases in valuation allowances as a result of uncertainty regarding our ability to realize
deferred tax assets in the future.
Our accounting for deferred tax consequences represents managements best estimate of future
events that can be appropriately reflected in the accounting estimates. Changes in existing tax
laws, regulations, rates and future operating results may affect the amount of deferred tax
liabilities or the valuation of deferred tax assets over time.
The application of tax laws and regulations is subject to legal and factual interpretation,
judgment and uncertainty. Tax laws and regulations themselves are also subject to change as a
result of changes in fiscal policy, changes in legislation, the evolution of regulations and court
rulings. Although we believe the measurement of liabilities for uncertain tax positions is
reasonable, no assurance can be given that the final outcome of these matters will not be different
than what is reflected in the historical income tax provisions and accruals. If we ultimately
determine that the payment of these liabilities will be unnecessary, the liability is reversed and
a tax benefit is recognized during the period in which it is determined the liability no longer
applies. Conversely, additional tax charges are recorded in a period in which it is determined
that a recorded tax liability is less than the ultimate assessment is expected to be. If
additional taxes are assessed as a result of an audit or litigation, it could have a material
effect on our income tax provision and net income in the period or periods for which that
determination is made.
Impairment of Long-Lived Assets
Impairment tests of long-lived assets, including finite-lived intangible assets, are made when
conditions indicate the carrying value may not be recoverable under the provisions of U.S. GAAP.
The carrying value of a long-lived asset is considered impaired when the total projected
undiscounted cash flows from such asset are separately identifiable and are less than its carrying
value. Our estimate of the cash flows is based on information available at that time including
these and other factors: sales forecasts, customer trends, operating rates, raw material and energy
prices and other global economic indicators and factors. If an impairment is indicated, the asset
value is written down to its fair value based upon market prices or, if not available, upon
discounted cash value, at an appropriate discount rate determined by us to be commensurate with the
risk inherent in the business model. These estimates are critical because changes to our
assumptions used in the development of the impairment analyses can materially affect earnings in a
given period and we must forecast cash flows into the future which is highly uncertain and requires
a significant degree of judgment.
27
Impairment of Goodwill and Indefinite-Lived Intangible Assets
As of December 31, 2009 and 2008, we had goodwill and indefinite-lived intangible asset
balances of $658 million and $656 million, respectively, which relate to our emergence from
bankruptcy and adoption of fresh-start accounting. We perform goodwill and indefinite-lived
intangible asset impairment tests during the fourth quarter of each year but on a more frequent
basis if changes in circumstances indicate the carrying value may not be recoverable during the
intervening period. A significant amount of judgment is involved in determining if an indicator of
impairment has occurred. Such indicators may include, among others: a significant decline in our
expected future cash flows; a sustained, significant decline in our stock price and market
capitalization; a significant adverse change in legal factors or in the business climate;
unanticipated competition; and the testing for recoverability of a significant asset group within a
reporting unit. Any adverse change in these factors could have a significant impact on the
recoverability of these assets and could have a material impact on our consolidated financial
statements.
We perform the review for goodwill impairment at the reporting unit level and the test
involves a two-step process. The first step is a comparison of each reporting units fair value to
its carrying value. We estimate fair value using the best information available using both a
market approach and an income approach. The market approach estimates fair value by applying
multiples to the reporting units operating performance. The multiples are derived from comparable
publicly traded companies with similar operating and investment characteristics of the reporting
units. The income approach uses a reporting units projection of estimated operating results and
cash flows that is discounted using a weighted-average cost of capital that reflects current market
conditions. The projection uses managements best estimates of economic and market conditions over
the projected period including growth rates in sales, costs, estimates of future expected changes
in operating margins and cash expenditures. Other significant estimates and assumptions include
terminal value growth rates, future estimates of capital expenditures and changes in future working
capital requirements.
If the fair value of a reporting unit is less than its carrying value, there is an indication
that impairment may exist and the second step must be performed to measure the amount of impairment
loss. The amount of impairment is determined by comparing the implied fair value of reporting unit
goodwill to the carrying value of the goodwill in the same manner as if the reporting unit was
being acquired in a business combination. Specifically, we would allocate the fair value to all of
the assets and liabilities of the reporting unit, including any unrecognized intangible assets, in
a hypothetical analysis that would calculate the implied fair value of goodwill. If the implied
fair value of goodwill is less than the recorded goodwill, we would record an impairment charge for
the difference.
Other indefinite-lived intangible assets are the Companys trademarks. Fair values used in
testing for potential impairment of our trademarks are calculated by applying an estimated market
value royalty rate to the forecasted revenues of the reporting unit that utilize those assets. The
assumed cash flows from this calculation are discounted using a weighted-average cost of capital
that reflects current market conditions. The shortfall of the fair value below carrying value
represents the amount of impairment.
Our
fourth quarter reviews concluded that there was no goodwill or indefinite-lived intangible
asset impairment in 2009 due to the substantial excess of fair value over the respective carrying
value.
Pension and Other Postretirement Benefits
Measurement of the obligations under our defined benefit pension plans and our other
postretirement benefit (OPEB) plans are subject to several significant estimates. These
estimates include the rate of return on plan assets, the rate at which the future obligations are
discounted to value the liability and health care cost trend rates. Additionally, the cost of
providing benefits depends on demographic assumptions including retirements, mortality, turnover
and plan participation. We typically use actuaries to assist us in preparing these calculations
and determining these assumptions. Our annual measurement date is December 31 for our defined
benefit pension plans and our OPEB plans. The below sensitivity analysis solely relates to our
U.S. defined benefit pension and OPEB plans since they both comprise approximately 75 percent of
our consolidated funded status on our defined benefit pension plans and OPEB plans.
The expected long-term rate of return on pension plan assets assumption was 8.50 percent in
both 2009 and 2008. The expected long-term rate of return on pension plan assets assumption is
based on the target asset allocation policy and the expected future rates of return on these
assets. A hypothetical 25 basis point change in the assumed long-term rate of return would result
in a change of approximately $1 million to pension expense.
28
The discount rates used to re-measure the pension plans were 5.25 percent and 6.25 percent at
December 31, 2009 and 2008, respectively. The discount rates to re-measure the OPEB plans were
4.75 percent and 6.25 percent at December 31, 2009 and 2008. We establish our discount rate based
upon the internal rate of return for a portfolio of high quality bonds with maturities consistent
with the nature and timing of future cash flows for each specific plan. A hypothetical 25 basis
point change in the discount rate for our pension plans results in a change of approximately $11
million in the projected benefit obligation and no change in pension expense. A hypothetical 25
basis point change in the discount rate for our OPEB plans results in a change of approximately $3
million in the accumulated benefit obligation and no impact to OPEB expense.
We estimated the five-year assumed trend rate for healthcare costs in 2009 to be 8.5 percent
with the ultimate trend rate for healthcare costs grading by 0.5 percent each year to 5 percent by
2016 and remaining at that level thereafter. A 1 percent change in the assumed health care cost
trend rate would have changed the postretirement benefit obligation by $1 million as of December
31, 2009 and would have no impact to OPEB expense in 2009. Our costs for postretirement medical
benefits are capped for many current retirees and active employees; therefore, the impact of this
hypothetical change in the assumed health care cost trend rate is limited.
Results of Operations
Consolidated Solutia
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|
Increase |
|
|
|
Successor |
|
|
Combined |
|
|
Predecessor |
|
|
(Decrease) |
|
|
(Decrease) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2009 vs. |
|
|
2008 vs. |
|
|
2009 vs. |
|
|
2008 vs. |
|
(dollars in millions) |
|
2009 |
|
|
2008 |
|
|
2007 |
|
|
2008 |
|
|
2007 |
|
|
2008 |
|
|
2007 |
|
Net Sales |
|
$ |
1,667 |
|
|
$ |
2,110 |
|
|
$ |
1,643 |
|
|
$ |
(443 |
) |
|
$ |
467 |
|
|
|
(21 |
)% |
|
|
28 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating Income: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Reportable Segment Profit (a) |
|
$ |
432 |
|
|
$ |
328 |
|
|
$ |
263 |
|
|
$ |
104 |
|
|
$ |
65 |
|
|
|
32 |
% |
|
|
25 |
% |
Unallocated and Other |
|
|
(96 |
) |
|
|
(42 |
) |
|
|
(27 |
) |
|
$ |
(54 |
) |
|
$ |
(15 |
) |
|
|
(129 |
)% |
|
|
(56 |
)% |
Less: Depreciation and Amortization |
|
|
(107 |
) |
|
|
(100 |
) |
|
|
(59 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Less: Equity Earnings from
Affiliates, Other Income, Loss on
Debt Modification and Net Income
Attributable to Noncontrolling
Interest included in Segment Profit
and Unallocated and Other |
|
|
4 |
|
|
|
(22 |
) |
|
|
(36 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating Income |
|
$ |
233 |
|
|
$ |
164 |
|
|
$ |
141 |
|
|
$ |
69 |
|
|
$ |
23 |
|
|
|
42 |
% |
|
|
16 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net Charges included in Operating Income |
|
$ |
(32 |
) |
|
$ |
(100 |
) |
|
$ |
(41 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(a) |
|
See Note 19 Segment and Geographic Data to the accompanying
consolidated financial statements for description of the computation of reportable segment profit. |
The decrease in 2009 net sales as compared to 2008 resulted from decreased sales volumes
of $412 million or 20 percent and the effect of unfavorable exchange rate fluctuations of $31
million or 1 percent, while overall selling prices were flat year over year. Lower sales volumes
were realized by all of our reporting segments due to continued weakness in demand across the
global construction, automotive and industrial markets related to the deterioration in the
macroeconomic environment which began in the fourth quarter of 2008. The unfavorable currency
impact was driven most notably by the increased strength of the U.S. dollar versus the Euro, in
comparison to the prior year, due to our strong market positions in Europe by the Saflex and
Technical Specialties reporting segments. Higher selling prices experienced in our Technical
Specialties and CPFilms reporting segments were offset by price decreases in our Saflex reporting
segment.
29
The increase in 2008 net sales as compared to 2007 resulted from our acquisition of Akzo
Nobels 50 percent interest in the Flexsys joint venture, which was completed on May 1, 2007 (the
Flexsys Acquisition), increased selling prices and the effect of favorable currency exchange rate
fluctuations, partially offset by lower sales volumes. Prior to our acquisition on May 1, 2007,
the results of Flexsys were accounted for using the equity method and recorded as equity earnings
from affiliates on the Consolidated Statement of Operations. Net sales increased $281 million or
17 percent in 2008 as a result of the Flexsys Acquisition. The remaining $186 million or 11
percent increase in net sales was a result of higher average selling prices of $164 million or 10
percent and favorable currency exchange rate fluctuations of $53 million or 3 percent, partially
offset by lower sales volumes of $31 million or 2 percent. Higher average selling prices were
experienced across all reporting segments in response to an escalating raw material profile and,
with respect to Technical Specialties and Saflex, in conjunction with generally favorable
supply/demand profile in these markets. The favorable currency benefit was driven most notably by
the continued weakening of the U.S. dollar versus the Euro, in comparison to the prior year. Other
currency movements against the U.S. dollar also benefited our net sales, however, given the strong
market positions in Europe within Saflex and Technical Specialties, movements in the Euro versus
the U.S. dollar had the most significant impact on our revenues. The lower sales volumes were
experienced most notably in our Technical Specialties reporting segment, partially offset by
increased volumes in Saflex. The decline in Technical Specialties is due to the shutdown of our
product lines at our manufacturing facility in Ruabon, United Kingdom (Ruabon Facility) and
significant demand decline within the tire industry during the fourth quarter 2008. The volumes in
Saflex increased due to growth in international demand.
The increase in 2009 operating income as compared to 2008 resulted primarily from lower net charges as
further described below in the Summary of Events Affecting Comparability section, lower raw
material and energy costs of approximately $84 million, favorable exchange rate fluctuations,
effective implementation of cost containment initiatives which resulted in better plant cost
performance and lower selling, general and administrative expenses, significantly offset by lower
net sales, lower fixed cost absorption, higher depreciation and amortization due to fresh-start
accounting of $7 million and higher share-based compensation expense of $6 million.
The increase in 2008 operating income as compared to 2007 resulted primarily from the Flexsys
Acquisition, increased net sales and higher asset utilization and lower manufacturing costs in our
Saflex and Technical Specialties reporting segments, partially offset by higher raw material and
energy costs of approximately $105 million, higher net charges, increased amortization related to
intangible assets as a result of fresh-start accounting of $23 million and increased share-based
compensation expense of $11 million. As indicated in the preceding table, operating results were
affected by various charges which are described in detail in the Summary of Events Affecting
Comparability section. The raw material increases were most impactful within the Technical
Specialties and Saflex reporting segments, with the most significant increase experienced in sulfur
cost. The increases in raw materials are primarily driven by continued tight supply of these
materials, as well as the substantial increases in average oil prices during the year when compared
with the prior year.
Saflex
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$ |
|
|
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Increase |
|
|
Increase |
|
|
|
Successor |
|
|
Combined |
|
|
Predecessor |
|
|
(Decrease) |
|
|
(Decrease) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2009 vs. |
|
|
2008 vs. |
|
|
2009 vs. |
|
|
2008 vs. |
|
(dollars in millions) |
|
2009 |
|
|
2008 |
|
|
2007 |
|
|
2008 |
|
|
2007 |
|
|
2008 |
|
|
2007 |
|
Net Sales |
|
$ |
690 |
|
|
$ |
822 |
|
|
$ |
727 |
|
|
$ |
(132 |
) |
|
$ |
95 |
|
|
|
(16 |
)% |
|
|
13 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Segment Profit |
|
$ |
145 |
|
|
$ |
94 |
|
|
$ |
111 |
|
|
$ |
51 |
|
|
$ |
(17 |
) |
|
|
54 |
% |
|
|
(15 |
)% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net Charges included in Segment Profit |
|
$ |
(14 |
) |
|
$ |
(47 |
) |
|
$ |
(2 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The decrease in 2009 net sales as compared to 2008 was a result of lower sales volumes of $97
million or 12 percent, lower average selling prices of $18 million or 2 percent, and unfavorable
currency exchange rate fluctuations of $17 million or 2 percent. Lower sales volumes were due to
weakness in demand across the global automotive and, to a lesser extent, construction markets,
which negatively impacted sales volumes of SAFLEX® plastic interlayer and Polyvinyl Butyral resin,
partially offset by higher volumes experienced in the solar energy market. The lower average
selling prices are predominantly due to the weaker demand environment in 2009. The unfavorable
exchange rate fluctuations occurred primarily as a result of the strengthening of the U.S. dollar
in relation to the Euro in comparison to the comparable period in 2008.
30
The increase in 2008 net sales as compared to 2007 was a result of higher average selling
prices of $38 million or 5 percent, higher sales volumes of $25 million or 4 percent, and favorable
currency exchange rate fluctuations of $32 million or 4 percent. The increase in selling prices is
related to our global price increase on SAFLEX® plastic interlayer, Polyvinyl Butyral resin and
plasticizer in response to higher raw material costs and favorable supply/demand profile. Higher
sales volumes were experienced in targeted growth markets of Europe and Asia Pacific, as sales
volumes into the domestic market were lower than the prior year. The increased sales in Asia
Pacific were a result of the continued expanding demand for laminated glass in that market, which
was partially supported by our plant in Suzhou, China which opened in the third quarter 2007. The
favorable currency exchange rate fluctuations occurred primarily as a result of the weakening U.S.
dollar in relation to the Euro in comparison to 2007.
The increase in 2009 segment profit in comparison to 2008 resulted primarily from lower net charges,
which are described in detail in the Summary of Events Affecting Comparability section, lower raw
material costs of $30 million, and effective implementation of cost containment initiatives and
plant shutdown activities, which resulted in improved plant cost performance and lower selling,
general and administrative expenses, partially offset by lower net sales as described above and
lower fixed cost absorption.
The decrease in 2008 segment profit in comparison to 2007 resulted primarily from higher net
charges as described in detail in the Summary of Events Affecting Comparability section, partially
offset by increased net sales as described above, improved asset utilization, lower manufacturing
costs and a flat cost profile for selling, general and administrative expenses. The segment
experienced approximately $31 million of higher raw material costs in comparison to the prior year,
which was recovered through increased selling prices.
CPFilms
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$ |
|
|
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Increase |
|
|
Increase |
|
|
|
Successor |
|
|
Combined |
|
|
Predecessor |
|
|
(Decrease) |
|
|
(Decrease) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2009 vs. |
|
|
2008 vs. |
|
|
2009 vs. |
|
|
2008 vs. |
|
(dollars in millions) |
|
2009 |
|
|
2008 |
|
|
2007 |
|
|
2008 |
|
|
2007 |
|
|
2008 |
|
|
2007 |
|
Net Sales |
|
$ |
185 |
|
|
$ |
236 |
|
|
$ |
234 |
|
|
$ |
(51 |
) |
|
$ |
2 |
|
|
|
(22 |
)% |
|
|
1 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Segment Profit |
|
$ |
26 |
|
|
$ |
42 |
|
|
$ |
58 |
|
|
$ |
(16 |
) |
|
$ |
(16 |
) |
|
|
(38 |
)% |
|
|
(28 |
)% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net Charges included in Segment Profit |
|
$ |
(7 |
) |
|
$ |
(13 |
) |
|
$ |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The decrease in 2009 net sales as compared to 2008 resulted primarily from lower sales volumes
of $53 million or 22 percent, and, to a lesser extent, unfavorable currency exchange rate
fluctuations of $3 million or 1 percent, partially offset by higher average selling prices of $5
million or 1 percent. With the exception of Asia Pacific, where sales volumes increased modestly
in 2009, sales volumes decreased in all major geographic markets due to the severe global economic
downturn and its effect on the automotive, residential housing, and commercial construction
markets, but the decrease was more pronounced in Russia due to credit issues in the region.
The increase in 2008 net sales compared to 2007 resulted from higher selling prices of $7
million or 3 percent, partially offset by decreased sales volumes of $5 million or 2 percent.
Higher average selling prices and lower volumes were experienced in LLUMARâ and VISTAâ
professional film products. The lower volumes were primarily experienced in the domestic market
throughout 2008 and in the fourth quarter 2008 across all major geographic markets in conjunction
with the severe global economic downturn.
The decrease in 2009 segment profit in comparison to 2008 resulted primarily from decreased
net sales as described above and lower fixed cost absorption, partially offset by effective
implementation of cost containment initiatives, which resulted in lower selling, general and
administrative expenses, lower raw material costs of $5 million and lower net charges, which are
described in detail in the Summary of Events Affecting Comparability section.
The decrease in 2008 segment profit in comparison to 2007 resulted primarily from higher
charges in 2008, as described in detail in the Summary of Events Affecting Comparability section,
higher manufacturing, raw material and energy costs, increased investment in sales and marketing
infrastructure and in market development programs globally.
31
Technical Specialties
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$ |
|
|
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Increase |
|
|
Increase |
|
|
|
Successor |
|
|
Combined |
|
|
Predecessor |
|
|
(Decrease) |
|
|
(Decrease) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2009 vs. |
|
|
2008 vs. |
|
|
2009 vs. |
|
|
2008 vs. |
|
(dollars in millions) |
|
2009 |
|
|
2008 |
|
|
2007 |
|
|
2008 |
|
|
2007 |
|
|
2008 |
|
|
2007 |
|
Net Sales |
|
$ |
774 |
|
|
$ |
1,015 |
|
|
$ |
646 |
|
|
$ |
(241 |
) |
|
$ |
369 |
|
|
|
(24 |
)% |
|
|
57 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Segment Profit |
|
$ |
261 |
|
|
$ |
192 |
|
|
$ |
94 |
|
|
$ |
69 |
|
|
$ |
98 |
|
|
|
36 |
% |
|
|
104 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net Gains
(Charges) included
in Segment Profit |
|
$ |
14 |
|
|
$ |
(43 |
) |
|
$ |
(30 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The decrease in 2009 net sales as compared to 2008 resulted from lower sales volumes of $246
million or 24 percent and unfavorable currency exchange rate fluctuations of $9 million or 1
percent, partially offset by higher average selling prices of $14 million or 1 percent. Sales
volumes decreased in all products within Technical Specialties due to the global economic downturn
but this decrease, on a rate of decline basis, was more pronounced within SANTOFLEX®
antidegradants, SANTOCURE® and PERKACIT® primary and ultra accelerators and other rubber chemicals
products. The decline in sales volumes for SANTOFLEX® antidegradants and SANTOCURE® primary
accelerators were significantly affected by increasing pressure from Far Eastern producers. The
unfavorable exchange rate fluctuations occurred primarily as a result of the strengthening U.S.
dollar in relation to the Euro in comparison to the comparable period in 2008. Higher average
selling prices were experienced primarily within CRYSTEX® insoluble sulphur, THERMINOL® heat
transfer fluids and SKYDROL® aviation hydraulic fluids. The increase in selling prices is related
to our global price increases initiated in the third quarter 2008.
The increase in 2008 net sales as compared to 2007 resulted primarily from the Flexsys
Acquisition. Prior to our acquisition on May 1, 2007, the results of Flexsys were accounted for
using the equity method and were not recorded within the Technical Specialties reportable segment.
The Flexsys Acquisition resulted in an increase in net sales of $281 million or 43 percent. The
remaining increase in net sales of $88 million or 14 percent was a result of higher average selling
prices of $119 million or 19 percent and favorable currency exchange rate fluctuations of $19
million or 3 percent, partially offset by lower sales volumes of $50 million or 8 percent. Higher
average selling prices were experienced primarily in CRYSTEX® insoluble sulphur, SANTOFLEX®
antidegradants and THERMINOL® heat transfer fluids. The higher average selling prices are in
response to higher raw material costs across all products within Technical Specialties in addition
to a favorable supply/demand profile in certain specialty chemical markets. The lower sales
volumes were primarily experienced in the fourth quarter 2008 in conjunction with the severe global
economic downturn and the closure of our product lines at our Ruabon Facility. The economic
downturn primarily impacted CRYSTEX® insoluble sulphur, partially offset by increased volumes in
THERMINOL® heat transfer fluids. The favorable currency exchange rate fluctuations occurred
primarily as a result of the weakening U.S. dollar in relation to the Euro in comparison to the
same period in 2007.
The increase in 2009 segment profit in comparison to 2008 resulted primarily from higher net
gains, which are described in detail in the Summary of Events Affecting Comparability section,
favorable exchange rate fluctuations, effective implementation of cost containment initiatives,
which resulted in improved plant cost performance and lower selling, general and administrative
expenses, and lower raw material costs of $48 million, partially offset by lower net sales and
lower fixed cost absorption. The favorable exchange rate fluctuation on segment profit is due to a
higher percentage of our operating costs transacted in Euros than net sales in the same currency.
The increase in 2008 segment profit in comparison to 2007 resulted primarily from the Flexsys
Acquisition, increased net sales as described above and improved manufacturing costs, partially
offset by increased raw material costs, higher charges, which are described in detail in
the Summary of Events Affecting Comparability section and unfavorable currency exchange rate
fluctuations. The increased selling prices more than offset the increase of $48 million in raw
material costs primarily related to sulphur. Improved manufacturing cost was a result of
controlled spending. The unfavorable currency exchange rate fluctuation is a result of a
significant portion of Technical Specialties manufacturing capacity being located in Europe and the
weakening of the U.S. Dollar versus the Euro.
32
Unallocated and Other
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$ |
|
|
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Increase |
|
|
Increase |
|
|
|
Successor |
|
|
Combined |
|
|
Predecessor |
|
|
(Decrease) |
|
|
(Decrease) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2009 vs. |
|
|
2008 vs. |
|
|
2009 vs. |
|
|
2008 vs. |
|
(dollars in millions) |
|
2009 |
|
|
2008 |
|
|
2007 |
|
|
2008 |
|
|
2007 |
|
|
2008 |
|
|
2007 |
|
Components of Unallocated and Other |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other Operations Segment Profit (Loss) |
|
$ |
(12 |
) |
|
$ |
(2 |
) |
|
$ |
1 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Corporate Expenses |
|
|
(46 |
) |
|
|
(55 |
) |
|
|
(53 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Share-Based Compensation Expense |
|
|
(17 |
) |
|
|
(11 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Equity Earnings from Affiliates |
|
|
|
|
|
|
|
|
|
|
12 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other Unallocated Income (Expense), net |
|
|
(21 |
) |
|
|
26 |
|
|
|
13 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Unallocated and Other results |
|
$ |
(96 |
) |
|
$ |
(42 |
) |
|
$ |
(27 |
) |
|
$ |
(54 |
) |
|
$ |
(15 |
) |
|
|
(129 |
)% |
|
|
(55 |
)% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gains (Charges) included in Unallocated
and Other |
|
$ |
(25 |
) |
|
$ |
10 |
|
|
$ |
5 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Unallocated
and Other results in 2009 decreased as compared to 2008 primarily due to higher net charges,
losses on foreign currency exposure, higher charges for environmental remediation projects, higher
share-based compensation expense, lower interest income and lower segment profit from other
operations, partially offset by lower corporate expenses. Included in the results of Unallocated
and Other in 2009 is (i) a charge of $12 million related to the general corporate restructuring
with $10 million recorded in corporate expenses and $2 million recorded in other operations segment
profit (loss); (ii) an $11 million net pension plan settlement charge recorded in other unallocated
income (expense), net; (iii) a $6 million loss resulting from the sale of the North America plastic
products business (Plastic Products Sale) recorded in other operations segment profit (loss); and
(iv) a $4 million gain related to the reduction in the 2008 annual incentive plan recorded in
corporate expenses. In 2008, we recorded (i) a $7 million gain resulting from the settlement of
emergence related incentive accruals recorded in other unallocated income (expense), net; (ii) a $6
million gain resulting from surplus land sales with $3 million recorded in both other unallocated
income (expense), net and other operations segment profit (loss); (iii) a $3 million gain related
to joint settlements with Monsanto of legacy insurance policies with insolvent insurance carriers
recorded in other unallocated income (expense), net; (iv) a $3 million charge resulting from
general corporate restructuring involving headcount reductions recorded in corporate expenses; (v)
a $2 million charge resulting from the relocation of our plastic products business from our
manufacturing facility in Ghent, Belgium to Oradea, Romania recorded in other operations segment
profit (loss); and (vi) a $1 million charge resulting from the expensing of the step-up in basis of
inventory in accordance with fresh-start accounting recorded in other operations segment profit
(loss).
After consideration of the aforementioned items in 2009 and 2008, corporate expenses decreased
$12 million primarily due to lower discretionary expenses resulting from the implementation of
certain cost reduction programs. Share-based compensation expense increased $6 million due to
management incentive and director stock compensation plans adopted upon our emergence from
bankruptcy and an additional award granted early in the third quarter of 2009. After consideration
of the aforementioned items in 2009 and 2008, other unallocated income (expense), net decreased by
$23 million primarily due to losses on foreign currency exposure and higher charges for
environmental remediation projects. The higher charges for environmental remediation projects is
due to a full year in 2009 of operations and maintenance costs on projects classified as
liabilities subject to compromise prior to our emergence from bankruptcy in February 2008 in
addition to increased legal spending on remediation projects in Anniston, Alabama as we seek
recovery from other parties. After consideration of the aforementioned items recorded in 2009 and
2008, other operations segment loss decreased by $2 million as compared to the comparable period in
2008 due to the global economic downturn.
Unallocated and other results in 2008 decreased in comparison to 2007 primarily due to lower equity
earnings from affiliates, higher corporate expenses, lower gains from adjustments to the LIFO
reserve, lower interest income and decreased profit from our other operations, partially offset by
higher gains on foreign currency and higher net gains. In 2007, we recorded the following net
gains in other unallocated income (expense), net: (i) a gain on a litigation matter of $21 million;
(ii) a charge of $7 million recorded to write-off debt issuance costs and to record the DIP credit
facility as modified at its fair value as of the amendment date; (iii) $5 million of net pension
plan settlement charges; and (iv) a $4 million restructuring charge due to the termination of a
third-party agreement at one of our facilities.
33
After consideration of the aforementioned items recorded in 2008, corporate expenses decreased
$1 million primarily due to lower functional expense. Share-based compensation increased due to
the adoption of management incentive and director stock compensation plans upon our emergence from
bankruptcy. The decrease in equity earnings from affiliates of $12 million is a result of the
Flexsys Acquisition completed on May 1, 2007. After consideration of the aforementioned items
recorded in 2008 and 2007, other unallocated income (expense), net increased by $5 million due to
gains on foreign currency, partially offset by lower interest income. After consideration of the
aforementioned items recorded in 2008, other operations segment profit (loss) decreased by $3
million due to other costs associated with the relocation of our plastic products business.
Interest Expense
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$ |
|
|
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Increase |
|
|
Increase |
|
|
|
Successor |
|
|
Combined |
|
|
Predecessor |
|
|
(Decrease) |
|
|
(Decrease) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2009 vs. |
|
|
2008 vs. |
|
|
2009 vs. |
|
|
2008 vs. |
|
(dollars in millions) |
|
2009 |
|
|
2008 |
|
|
2007 |
|
|
2008 |
|
|
2007 |
|
|
2008 |
|
|
2007 |
|
Interest Expense |
|
$ |
159 |
|
|
$ |
162 |
|
|
$ |
134 |
|
|
$ |
(3 |
) |
|
$ |
28 |
|
|
|
(2 |
)% |
|
|
21 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Charges included in Interest Expense |
|
$ |
(38 |
) |
|
$ |
(1 |
) |
|
$ |
(8 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest expense decreased in 2009 compared to 2008 due to decreased cash interest expense
from lower debt outstanding with lower interest rates in 2009 than in 2008, substantially offset by
higher charges. Included in our debt to fund our emergence from Chapter 11 was a $400 million
senior unsecured bridge facility (Bridge), which was subsequently repaid in August 2008. In
October 2009, we issued the 2017 Notes and a portion of the net proceeds were used to pay down $300
million of principal on our Term Loan. The repayment of the Bridge and significantly lower
borrowings outstanding on our Revolver during 2009, partially offset by the net increase in debt
related to the issuance of the 2017 Notes resulted in overall lower average debt outstanding in
2009 of approximately $350 million. In addition, the interest rate on the Bridge was 15.5 percent
and the repayment allowed our weighted average interest rate during 2009 to be approximately 100
basis points lower than in 2008. In February 2009, we discontinued hedge accounting on our
interest rate swap agreements related to our Term Loan. As interest rates fluctuate,
mark-to-market gains or losses on our interest rate swap agreements, which do not affect cash flow,
are recognized in interest expense. These gains or losses may create volatility in our
Consolidated Statement of Operations.
Interest expense in 2009 includes (i) a charge of $30 million related to the $300 million pay
down on the Term Loan to write-off unamortized debt issuance costs and (ii) a charge of $8 million
to write-off unamortized debt issuance costs and debt discount related to the repayment of the
German term loan. Interest expense in 2008 included a charge of $1 million to write-off
unamortized debt issuance costs related to the repayment of the Bridge.
The increase in interest expense in 2008 in comparison to 2007 resulted principally from
higher debt outstanding with higher interest rates in 2008 than in 2007. Average debt outstanding
increased $513 million or 47 percent to fund the Flexsys Acquisition, as only a portion of debt
utilized to acquire Flexsys was incurred prior to the end of the first quarter of 2007, and our
emergence from Chapter 11 on the Effective Date. Included in our debt to fund our emergence from
Chapter 11 is the Bridge, which was subsequently repaid in August 2008. The
higher interest rates are a result of a changed interest rate profile of our debt structure due to
the replacement of the DIP credit facility with the Term Loan and Revolver (Financing
Agreements). The 2008 results include a $1 million charge related to the repayment of the Bridge
compared to an $8 million interest expense charge related to claims recognized as allowed secured
claims through settlements approved by the Bankruptcy Court
Reorganization Items, net
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$ |
|
|
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Increase |
|
|
Increase |
|
|
|
Successor |
|
|
Combined |
|
|
Predecessor |
|
|
(Decrease) |
|
|
(Decrease) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2009 vs. |
|
|
2008 vs. |
|
|
2009 vs. |
|
|
2008 vs. |
|
(dollars in millions) |
|
2009 |
|
|
2008 |
|
|
2007 |
|
|
2008 |
|
|
2007 |
|
|
2008 |
|
|
2007 |
|
Reorganization Items, net |
|
$ |
|
|
|
$ |
1,433 |
|
|
$ |
(298 |
) |
|
$ |
(1,433 |
) |
|
|
1,731 |
|
|
|
N.M. |
|
|
|
N.M. |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
34
Reorganization items, net are presented separately in the Consolidated Statement of Operations
and represent items of income, expense, gain, or loss that are realized or incurred by us because
we were in reorganization under Chapter 11 of the U.S. Bankruptcy Code. We did not record any
charges in reorganization items in 2009 due to our emergence from Chapter 11 on February 28, 2008.
Reorganization items incurred in 2008 included a $104 million charge on the settlement of
liabilities subject to compromise, $1,589 million gain from fresh-start accounting adjustments,
which excludes the gain allocated to discontinued operations of $212 million, and $52 million of
professional fees for services provided by debtor and creditor professionals directly related to
our reorganization proceedings. The increase in reorganization items, net as compared to 2007 is
due to the aforementioned effects of settling the liabilities subject to compromise and adopting
fresh-start accounting.
Income Tax Expense
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$ |
|
|
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Increase |
|
|
Increase |
|
|
|
Successor |
|
|
Combined |
|
|
Predecessor |
|
|
(Decrease) |
|
|
(Decrease) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2009 vs. |
|
|
2008 vs. |
|
|
2009 vs. |
|
|
2008 vs. |
|
(dollars in millions) |
|
2009 |
|
|
2008 |
|
|
2007 |
|
|
2008 |
|
|
2007 |
|
|
2008 |
|
|
2007 |
|
Income Tax Expense |
|
$ |
14 |
|
|
$ |
227 |
|
|
$ |
17 |
|
|
$ |
(213 |
) |
|
$ |
210 |
|
|
|
N.M. |
|
|
|
N.M. |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Increase (Decrease) in Valuation
Allowance included in Income Tax
Expense |
|
$ |
23 |
|
|
$ |
(251 |
) |
|
$ |
82 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Our income tax expense is affected by the mix of income and losses in the tax jurisdictions in
which we operate. The decrease in income tax expense in 2009 as compared to 2008 is primarily due
to $202 million of income tax expense recognized in 2008 resulting from our emergence from
bankruptcy and the effect of our adoption of fresh-start accounting. After consideration of these
items, the remaining income tax expense recognized is almost entirely attributable to operations
outside the U.S. resulting in an effective tax rate on operations outside the U.S. in 2009 and 2008
of 11 percent and 38 percent, respectively. The decrease in the ex-U.S. effective rate in 2009
compared to 2008 is due to an improved mix of earnings and implementation of tax strategies as well
as a decrease in contingency reserves of $8 million in 2009 related to uncertain tax positions, as
compared to an increase in contingency reserves of $4 million in 2008.
The increase in income tax expense in 2008 as compared to 2007 is primarily attributable to
the income tax expense related to our emergence from bankruptcy and the effect of our adoption of
fresh-start accounting, as discussed above. After consideration of these items, the remaining
income tax expense recognized is almost entirely attributable to operations outside the U.S
resulting in an effective tax rate on operations outside the U.S. in 2008 and 2007 of 38 percent
and 49 percent, respectively. The decrease in the ex-U.S. effective rate in 2008 compared to 2007
is due to an increase in contingency reserves of $4 million in 2008 compared to an increase of $10
million in 2007.
As a result of the issuance of new common stock upon emergence from bankruptcy, we realized a
change of ownership for purposes of Section 382 of the Code. We do not currently
expect this change to significantly limit our ability to utilize our NOL in the carryforward
period, which we estimate to be approximately $1.6 billion at December 31, 2009, of which
approximately $600 million was available without limitation.
Discontinued Operations
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$ |
|
|
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Increase |
|
|
Increase |
|
|
|
Successor |
|
|
Combined |
|
|
Predecessor |
|
|
(Decrease) |
|
|
(Decrease) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2009 vs. |
|
|
2008 vs. |
|
|
2009 vs. |
|
|
2008 vs. |
|
(dollars in millions) |
|
2009 |
|
|
2008 |
|
|
2007 |
|
|
2008 |
|
|
2007 |
|
|
2008 |
|
|
2007 |
|
Integrated Nylon business |
|
$ |
(170 |
) |
|
$ |
(445 |
) |
|
$ |
50 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Dequest business |
|
|
|
|
|
|
|
|
|
|
19 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other |
|
|
1 |
|
|
|
1 |
|
|
|
(5 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income (Loss) from Discontinued
Operations, net of tax |
|
$ |
(169 |
) |
|
$ |
(444 |
) |
|
$ |
64 |
|
|
$ |
275 |
|
|
$ |
(508 |
) |
|
|
62 |
% |
|
|
N.M. |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Reorganization items
included in income (loss) from
discontinued operations |
|
$ |
|
|
|
$ |
212 |
|
|
$ |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
35
Income (loss) from discontinued operations consists of the results of our Integrated Nylon business, our
water treatment phosphonates business (DEQUEST®) and other previously divested businesses.
As described in Note 4 Acquisitions and Divestitures to the accompanying consolidated
financial statements, we sold our Integrated Nylon business on June 1, 2009 and recorded a loss on
the sale in 2009 of $76 million. After consideration of this loss, the operating results of the
Integrated Nylon business for the 2009 period through the date of sale resulted in losses of $94
million, net of tax, including a $31 million charge, net of tax, to write down the carrying value
of long-lived assets to zero. For 2008, losses of $445 million related to Integrated Nylon include
an impairment charge of long-lived assets of $461 million as partially offset by reorganization
items primarily related to the elimination of the LIFO reserve of $204 million and the expensing of
the step-up in basis of the inventory of $7 million.
Included in the results of discontinued operations in 2007 is a gain on the sale of the
DEQUEST® business of $34 million, partially offset by income taxes of $15 million.
36
Summary of Events Affecting Comparability
Charges and gains recorded in 2009, 2008 and 2007 and other events affecting comparability
have been summarized and described in the table and accompanying footnotes below (dollars in
millions):
2009 Events
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Technical |
|
|
|
|
|
|
|
|
Increase/(Decrease) |
|
Saflex |
|
|
CPFilms |
|
|
Specialties |
|
|
Unallocated/Other |
|
|
Consolidated |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Impact on: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cost of goods sold |
|
$ |
(2 |
) |
|
$ |
|
|
|
$ |
(3 |
) |
|
$ |
(1 |
) |
|
$ |
(6 |
) |
(a) |
|
|
|
3 |
|
|
|
1 |
|
|
|
1 |
|
|
|
1 |
|
|
|
6 |
|
(b) |
|
|
|
5 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
5 |
|
(c) |
|
|
|
|
|
|
|
|
|
|
|
(2 |
) |
|
|
|
|
|
|
(2 |
) |
(d) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
7 |
|
|
|
7 |
|
(e) |
|
|
|
|
|
|
|
4 |
|
|
|
|
|
|
|
|
|
|
|
4 |
|
(f) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1 |
|
|
|
1 |
|
(g) |
Selling, general and
administrative
expenses |
|
|
(4 |
) |
|
|
|
|
|
|
(9 |
) |
|
|
(3 |
) |
|
|
(16 |
) |
(a) |
|
|
|
12 |
|
|
|
3 |
|
|
|
2 |
|
|
|
11 |
|
|
|
28 |
|
(b) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
4 |
|
|
|
4 |
|
(e) |
|
|
|
|
|
|
|
|
|
|
|
1 |
|
|
|
|
|
|
|
1 |
|
(h) |
Research, development
and other operating
expenses |
|
|
(1 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1 |
) |
(a) |
|
|
|
1 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1 |
|
(b) |
|
|
|
|
|
|
|
|
|
|
|
(4 |
) |
|
|
|
|
|
|
(4 |
) |
(i) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
5 |
|
|
|
5 |
|
(j) |
|
|
|
|
|
|
|
(1 |
) |
|
|
|
|
|
|
|
|
|
|
(1 |
) |
(f) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating Income Impact |
|
|
(14 |
) |
|
|
(7 |
) |
|
|
14 |
|
|
|
(25 |
) |
|
|
(32 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest expense |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(30 |
) |
|
|
(30 |
) |
(k) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(8 |
) |
|
|
(8 |
) |
(l) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Pre-tax Income
Statement Impact |
|
$ |
(14 |
) |
|
$ |
(7 |
) |
|
$ |
14 |
|
|
$ |
(63 |
) |
|
|
(70 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income tax impact |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(3 |
) |
(m) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
After-tax Income
Statement Impact |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$ |
(67 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(a) |
|
Gain related to the reduction in the 2008 annual incentive plan ($23 million pre-tax and $20 million after-tax). |
|
(b) |
|
Severance and retraining costs related to the general corporate restructuring ($35 million pre-tax and $29 million after-tax). |
|
(c) |
|
Charges related to the closure of the SAFLEX® plastic interlayer production line at the Trenton Facility ($5 million pre-tax
and after-tax). |
|
(d) |
|
Net gains related to the closure of the Ruabon Facility ($2 million pre-tax and after-tax). |
|
(e) |
|
Net pension plan settlements, as more fully described in Note 13 to the accompanying consolidated financial statements ($11
million pre-tax and after-tax). |
|
(f) |
|
Net charges of $3 million related to consolidation of certain European manufacturing and distribution sites ($3 million
pre-tax and after-tax). |
|
(g) |
|
Impairment of intangible assets related to the Plastic Products Sale ($1 million pre-tax and after-tax). |
|
(h) |
|
Impairment of intangible assets related to the sale of our Thiurams business (Thiurams Sale) ($1 million pre-tax and
after-tax). |
|
(i) |
|
Gain on the Thiurams Sale ($4 million pre-tax and $3 million after-tax). |
|
(j) |
|
Loss on the Plastic Products Sale ($5 million pre-tax and after-tax). |
|
(k) |
|
Charges related to the $300 million pay down on the Term Loan to write-off unamortized debt issuance costs ($30 million
pre-tax and after-tax). |
|
(l) |
|
Charges related to the repayment of the German term loan to write-off unamortized debt issuance costs and debt discount ($8
million pre-tax and after-tax). |
|
(m) |
|
Income tax expense has been provided on gains and charges at the tax rate in the jurisdiction in which they have been or will
be realized. |
37
2008 Events
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Technical |
|
|
|
|
|
|
|
|
Increase/(Decrease) |
|
Saflex |
|
|
CPFilms |
|
|
Specialties |
|
|
Unallocated/Other |
|
|
Consolidated |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Impact on: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cost of goods sold |
|
$ |
36 |
|
|
$ |
10 |
|
|
$ |
20 |
|
|
$ |
1 |
|
|
$ |
67 |
|
(a) |
|
|
|
|
|
|
|
|
|
|
|
25 |
|
|
|
|
|
|
|
25 |
|
(b) |
|
|
|
10 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
10 |
|
(c) |
|
|
|
|
|
|
|
|
|
|
|
(5 |
) |
|
|
|
|
|
|
(5 |
) |
(d) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(3 |
) |
|
|
(3 |
) |
(e) |
|
|
|
|
|
|
|
|
|
|
|
3 |
|
|
|
|
|
|
|
3 |
|
(f) |
|
|
|
1 |
|
|
|
|
|
|
|
|
|
|
|
2 |
|
|
|
3 |
|
(g) |
Selling, general and
administrative expenses |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
3 |
|
|
|
3 |
|
(g) |
|
|
|
|
|
|
|
3 |
|
|
|
|
|
|
|
|
|
|
|
3 |
|
(h) |
Research, development and
other operating expenses |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(6 |
) |
|
|
(6 |
) |
(i) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating Income Impact |
|
|
(47 |
) |
|
|
(13 |
) |
|
|
(43 |
) |
|
|
3 |
|
|
|
(100 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest expense |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1 |
) |
|
|
(1 |
) |
(j) |
Other income, net |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
7 |
|
|
|
7 |
|
(k) |
Reorganization Items, net |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1,433 |
|
|
|
1,433 |
|
(l) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Pre-tax Income Statement Impact |
|
$ |
(47 |
) |
|
$ |
(13 |
) |
|
$ |
(43 |
) |
|
$ |
1,442 |
|
|
|
1,339 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income tax impact |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
185 |
|
(m) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
After-tax Income Statement
Impact |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$ |
1,154 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(a) |
|
Charges resulting from the step-up in basis of our inventory in accordance with fresh-start accounting ($67 million pre-tax and $52
million after-tax). |
|
(b) |
|
Charges related to the announced closure of the Ruabon Facility ($25 million pre-tax and after-tax). |
|
(c) |
|
Impairment and charges related to the announced closure of the SAFLEX® plastic interlayer production line at the Trenton Facility
($10 million pre-tax and after-tax). |
|
(d) |
|
Gain related to the termination of a natural gas purchase contract related to the announced closure of the Ruabon Facility ($5
million pre-tax and after-tax). |
|
(e) |
|
Gain resulting from settlements of legacy insurance policies with insolvent insurance carriers ($3 million pre-tax and after-tax). |
|
(f) |
|
Impairment of fixed assets in the Rubber Chemicals business ($3 million pre-tax and $2 million after-tax). |
|
(g) |
|
Restructuring costs related principally to severance and retraining costs ($6 million pre-tax and after-tax). |
|
(h) |
|
Write-down of indefinite-lived intangible assets ($3 million pre-tax and $2 million after-tax). |
|
(i) |
|
Gain resulting from surplus land sales ($6 million pre-tax and after-tax). |
|
(j) |
|
Unamortized debt issuance costs associated with the repayment of the Bridge ($1 million pre-tax and after-tax). |
|
(k) |
|
Gain resulting from the settlement of emergence related incentive and professional fees accruals ($7 million pre-tax and after-tax). |
|
(l) |
|
Reorganization items, net consist of the following: $104 million charge on the settlement of liabilities subject to compromise,
$1,589 million gain from fresh-start accounting adjustments, and $52 million of professional fees for services provided by debtor
and creditor professionals directly related to our reorganization proceedings ($1,433 million pre-tax and $1,231 million
after-tax). |
|
(m) |
|
Income tax expense has been provided on gains and charges at the tax rate in the jurisdiction in which they have been or will be
realized. |
38
2007 Events
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Technical |
|
|
|
|
|
|
|
|
Increase/(Decrease) |
|
Saflex |
|
|
CPFilms |
|
|
Specialties |
|
|
Unallocated/Other |
|
|
Consolidated |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Impact on: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cost of goods sold |
|
$ |
|
|
|
$ |
|
|
|
$ |
25 |
|
|
$ |
|
|
|
$ |
25 |
|
(a) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
4 |
|
|
|
4 |
|
(b) |
|
|
|
|
|
|
|
|
|
|
|
3 |
|
|
|
|
|
|
|
3 |
|
(c) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
3 |
|
|
|
3 |
|
(d) |
|
|
|
1 |
|
|
|
|
|
|
|
1 |
|
|
|
|
|
|
|
2 |
|
(e) |
Selling, general and
administrative expenses |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2 |
|
|
|
2 |
|
(d) |
|
|
|
1 |
|
|
|
|
|
|
|
1 |
|
|
|
|
|
|
|
2 |
|
(e) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating Income Impact |
|
|
(2 |
) |
|
|
|
|
|
|
(30 |
) |
|
|
(9 |
) |
|
|
(41 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest expense |
|
|
|
|
|
|
(2 |
) |
|
|
|
|
|
|
(6 |
) |
|
|
(8 |
) |
(f) |
Other income, net |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
21 |
|
|
|
21 |
|
(g) |
Loss on debt modification |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(7 |
) |
|
|
(7 |
) |
(h) |
Reorganization items, net |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(298 |
) |
|
|
(298 |
) |
(i) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Pre-tax Income Statement Impact |
|
$ |
(2 |
) |
|
$ |
(2 |
) |
|
$ |
(30 |
) |
|
$ |
(299 |
) |
|
|
(333 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income tax impact |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(7 |
) |
(j) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
After-tax Income Statement Impact |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$ |
(326 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(a) |
|
Impairment of fixed assets in the Rubber Chemicals business ($25 million pre-tax and $20 million after-tax). |
|
(b) |
|
Restructuring charge resulting from the termination of a third-party agreement at one of our facilities ($4 million
pre-tax and $3 million after-tax). |
|
(c) |
|
Charge resulting from the step-up in basis of Rubber Chemicals inventory in accordance with purchase accounting ($3
million pre-tax and after-tax). |
|
(d) |
|
Net pension plan settlements, as more fully described in Note 13 to the accompanying consolidated financial statements
($5 million pre-tax and after-tax see note (j) below). |
|
(e) |
|
Restructuring costs related principally to severance and retraining costs ($4 million pre-tax and $3 million after-tax). |
|
(f) |
|
Charge resulting from recognition of interest expense on claims recognized as allowed secured claims through
settlements approved by the Bankruptcy Court ($8 million pre-tax and after-tax see note (j) below). |
|
(g) |
|
Settlement gain, net of legal expenses ($21 million pre-tax and after-tax see note (j) below). |
|
(h) |
|
We recorded a charge of approximately $7 million (pre-tax and after-tax see note (j) below) to record the write-off
of debt issuance costs and to record the DIP facility as modified at its fair value as of the amendment date. |
|
(i) |
|
Reorganization items, net consist of the following: a $224 million net charge from adjustments to record certain
pre-petition claims at estimated amounts of the allowed claims; $67 million of professional fees for services provided
by debtor and creditor professionals directly related to our reorganization proceedings; $9 million of expense
provisions for (i) employee severance costs incurred directly as part of the Chapter 11 reorganization process and (ii)
a retention plan for certain of our employees approved by the Bankruptcy Court; and a $2 million net gain realized from
claim settlements ($298 million pre-tax and after-tax see note (j) below). |
|
(j) |
|
With the exception of items (a), (b), (c) and (e) above, which relate to operations not in reorganization, the above
items are considered to have like pre-tax and after-tax impact as the tax benefit or expense realized from these events
is offset by the change in valuation allowance for U.S. deferred tax assets resulting from uncertainty as to their
recovery due to our Chapter 11 bankruptcy filing. |
Environmental Matters
We operate global manufacturing facilities that are subject to numerous laws and government
regulations concerning environmental, safety and health matters. U.S. environmental legislation
that has a particular impact on us includes the Hazardous Materials Transportation Act; the
Emergency Planning and Community Right to Know Act; Toxic Substances Control Act; the Resource
Conservation and Recovery Act; the Clean Air Act; the Clean Water Act; and the Comprehensive
Environmental Response, Compensation and Liability Act (commonly known as Superfund). We are also
subject to the Occupational Safety and Health Act and regulations of the Occupational Safety and
Health Administration (OSHA) concerning employee safety and health matters. The EPA, OSHA and
other federal agencies have the authority to promulgate regulations that have an impact on our
operations. In addition to these federal activities, various states have been delegated certain
authority under several of these federal statutes and have adopted environmental, safety and health
laws and regulations. State or federal agencies having lead enforcement authority may seek fines
and penalties for violation of these laws and regulations. Also, private parties have rights to
seek recovery, under the above statutes or the common law, for civil damages arising from
environmental conditions, including damages for personal injury and property damage. Company
policy requires that all operations fully meet or exceed legal and regulatory requirements.
39
Emissions of greenhouse gases due to human activities and their potential impact on climate
change currently are subjects of global debate. We monitor existing and proposed legislative
developments to control greenhouse gas emissions which may affect the cost and supply of energy
derived from coal and other fossil fuels for our operations. Concurrently, we voluntarily work to
reduce our own greenhouse gas emissions through various energy reduction projects such as the
installation in 2009 of wind turbines which supply the electrical needs of our Newport, Wales
(U.K.) plant.
Due to the nature of our business, we make substantial expenditures for environmental
remediation activities. In almost all cases, our liability arising from historical contamination
is a result of operations and other events that occurred at our facilities or as a result of their
operation prior to the Solutia Spinoff. For example, we have agreed to share responsibility with
Monsanto for the environmental remediation at certain locations outside our plant boundaries in
Anniston, Alabama, and Sauget, Illinois, which were incurred prior to the Solutia Spinoff (the
Shared Sites). Under this cost sharing arrangement, we are responsible for the funding of
environmental liabilities at the Shared Sites from the Effective Date up to a total of $325 million
after the exhaustion of funds from the special purpose entity dedicated to the Shared Sites.
Thereafter, if needed, we and Monsanto will share responsibility equally. From the Effective Date
through December 31, 2009, we have made cash payments of $11 million toward remediation of Shared
Sites after exhaustion of the of special purpose entity funds and
have accrued an additional $173
million to be paid over the life of the Shared Sites remediation activity.
At December 31, 2009, our Consolidated Statement of Financial Position included an accrual of
$291 million compared to $309 million at December 31, 2008 for all environmental remediation
activities that we believe to be probable and estimable. Total cash expenditures for environmental
remediation activities related to recorded environmental liabilities were $29 million, $23 million
and $10 million in 2009, 2008 and 2007, respectively. Of these amounts, in 2009 and 2008, $28 million and $18
million, respectively, were reimbursed to us by a special purpose entity established upon our
emergence from bankruptcy, which was fully exhausted in the fourth quarter 2009. Charges taken for
environmental remediation activities in 2009, 2008 and 2007 were $10 million, $264 million (of
which $257 million related to a charge resulting from our emergence from bankruptcy and the
adoption of fresh-start accounting), and $8 million, respectively. In 2010, we anticipate our cash
expenditures and charges for environmental remediation activities to be similar to the gross cash
expenditures and amounts expensed, respective, in 2009.
Derivative Financial Instruments
Our business operations give rise to market risk exposures that result from changes in
currency exchange rates, interest rates and certain commodity prices. To manage the volatility
relating to these exposures, we enter into various hedging transactions that enable us to alleviate
the adverse effects of financial market risk. Our approved policies and procedures do not permit
the purchase or holding of any derivative financial instruments for trading purposes. We are
exposed to credit-related losses in the event of nonperformance by counterparties to derivative
financial instruments, but we do not expect any counterparties to fail to meet their obligations.
Note 3 Significant Accounting Policies and Note 11 Derivatives and Risk Management to the
accompanying consolidated financial statements include further discussion of our accounting
policies for derivative financial instruments.
Foreign Currency Exchange Rate Risk
We manufacture and sell our products in a number of countries throughout the world and, as a
result, are exposed to movements in foreign currency exchange rates. We use foreign currency
hedging instruments to manage the volatility associated with foreign currency purchases of
materials and other assets and liabilities created in the normal course of business. We primarily
use forward exchange contracts and purchase options with maturities of less than 18 months to hedge
these risks. We also enter into certain foreign currency derivative instruments primarily to
protect against exposure related to intercompany financing transactions. Our policy prescribes the
range of allowable hedging activity and what hedging instruments we are permitted to use. Because
the counterparties to these contracts are major international financing institutions, credit risk
arising from these contracts is not significant, and we do not anticipate any counterparty losses.
Currency restrictions are not expected to have a significant effect on our cash flows, liquidity or
capital resources. Major currencies affecting our business are the U.S. dollar, British pound
sterling, Euro, Canadian dollar, Swiss franc, Brazilian real, Malaysian ringgit, Singapore dollar,
Chinese yuan and the Japanese yen.
40
At December 31, 2009, we have currency forward contracts to purchase and sell $167 million of
currencies, principally the Euro, British pound sterling, U.S. dollar and Malaysian ringgit, with
average remaining maturities of five months. Based on our overall currency rate exposure at
December 31, 2009, including derivatives and other foreign currency sensitive instruments, a 10
percent adverse change in quoted foreign currency rates of these instruments would result in a
change in fair value of these instruments of $3 million.
Interest Rate Risk
Interest rate risk is primarily related to changes in interest expense from floating rate
debt. During 2009, our floating rate debt consisted of our Revolver and Term Loan. In order to
limit our exposure to changes in interest expense from floating rate debt, we entered into interest
rate cap and swap agreements related to the Term Loan during 2008. The interest rate cap
agreements have a notional amount of $900 million and a strike rate of 4.25% on 1-month LIBOR that
are effective through April 2010. The interest rate swap agreements have declining total notional
amounts of $800 million to $150 million and are effective from April 2010 through February 2014.
Under the Term Loan, we have the option to choose LIBOR, subject to a 3.50 percent floor, or prime
rate plus an applicable margin. After the expiration of a LIBOR contract in the second quarter
2009, we chose the prime rate due to the cash interest savings. During the year, a hypothetical
increase of 1 percent in the prime rate would have increased interest expense during the year by $7
million. Due to the historically low LIBOR rates during the year, our LIBOR floor of 3.50 percent
was in excess of any 1 percent increase in LIBOR rates. An analysis of the impact of a
hypothetical increase in interest rates in relation to our Revolver has not been performed since
there were no borrowings outstanding on the Revolver after the sale of our Integrated Nylon
business.
Commodity Price Risk
Certain raw materials and energy resources used by us are subject to price volatility caused
by weather, crude oil prices, supply conditions, political and economic variables and other
unpredictable factors. We use forward and option contracts to manage a portion of the volatility
related to anticipated energy purchases, primarily natural gas used as part of domestic operations.
Forward and option contracts were used by us during 2009 prior to the sale of our Integrated Nylon
business; however, we did not have any commodity forward contracts at December 31, 2009 due to our
decreased exposure to natural gas upon the divestiture of our Integrated Nylon business.
Financial Condition and Liquidity
As of December 31, 2009, our total liquidity was $363 million, which was comprised of $243
million in cash and $120 million in availability under our Revolver. Our Revolver is limited to
the lesser of the amount of our borrowing base, as defined, but generally calculated as a
percentage of allowable inventory and trade receivables or $350 million. As of December 31,
2009, our borrowing base was $164 million with availability reduced by required letters of credit
of $44 million and no borrowings outstanding. With the divestiture of our Integrated Nylon
business in the second quarter 2009, along with this business inventory and trade receivables, the
calculated borrowing base under our Revolver was reduced to amounts significantly below our
original $450 million maximum. Therefore, we voluntarily reduced the maximum availability under
our Revolver by $50 million in both the third and fourth quarters 2009 to a maximum availability of
$350 million.
Preservation and enhancement of our liquidity position, along with optimization of our
long-term capital structure, were each a significant focus in 2009. To this end, net proceeds from
the issuance of 24.7 million shares of common stock and the 2017 Notes, in conjunction with $230
million in net cash provided after operations and investing activities, were predominantly used to
reduce our debt by $106 million, increase our cash position by $211 million and extend the maturity
of $400 million of long-term debt into 2017. We amended our Financing Agreements in the fourth
quarter 2009 in order to provide us with greater operational and strategic flexibility. Among
other things, the amendment holds our Leverage Ratio constant at 4.50 from September 30, 2009
through December 31, 2010.
For 2010, our anticipated use of cash includes fulfillment of our interest, pension,
environmental, restructuring and tax obligations, in addition to capital expenditures for new
products, expansion and productivity projects and for maintenance and safety requirements. To the
extent required to fund certain seasonal demands of our operations, an additional use of cash may
be to fund working capital although management has instituted significant monitoring procedures
and, as a result, expects this use of cash to be closely managed. Other sources of liquidity may
include additional lines of credit, financing other assets, customer receivables and/or asset
sales, all of which are allowable, with certain limitations, under our existing credit agreements.
41
In summary, we expect that our cash on hand, coupled with future cash flows from operations
and other sources of liquidity, including our Revolver, will provide sufficient liquidity to allow
us to meet our projected cash requirements. However, common with other companies with similar
exposure to global economic and financial events, one or more financial institutions may cease to
be able to fulfill their funding obligations and we may not be able to access substitute capital.
Also, we may experience a decline in the demand for our products, which could impact our ability to
generate cash from operations.
Cash Flows Continuing Operations
Our cash flows from continuing operations attributable to operating, investing and financing
activities, as reflected in the Consolidated Statement of Cash Flows, are summarized in the
following table:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Successor |
|
|
Combined |
|
|
Predecessor |
|
|
|
|
|
|
Twelve Months |
|
|
Twelve Months |
|
|
Twelve Months |
|
|
|
|
|
|
Ended |
|
|
Ended |
|
|
Ended |
|
|
Increase |
|
Cash Flow Summary Continuing Operations |
|
December 31, |
|
|
December 31, |
|
|
December 31, |
|
|
(Decrease) |
|
(dollars in millions) |
|
2009 |
|
|
2008 |
|
|
2007 |
|
|
2009 vs. 2008 |
|
|
2008 vs. 2007 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash provided by (used in) operating
activities before reorganization items |
|
$ |
199 |
|
|
$ |
139 |
|
|
$ |
(38 |
) |
|
$ |
60 |
|
|
$ |
177 |
|
Cash used in reorganization activities |
|
|
|
|
|
|
(380 |
) |
|
|
(80 |
) |
|
|
380 |
|
|
|
(300 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash provided by (used in) operating activities |
|
|
199 |
|
|
|
(241 |
) |
|
|
(118 |
) |
|
|
440 |
|
|
|
(123 |
) |
Cash used in investing activities |
|
|
(28 |
) |
|
|
(50 |
) |
|
|
(218 |
) |
|
|
22 |
|
|
|
168 |
|
Cash provided by (used in) financing activities |
|
|
(19 |
) |
|
|
353 |
|
|
|
279 |
|
|
|
(372 |
) |
|
|
74 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net change in cash for period attributable
to continuing operations |
|
$ |
152 |
|
|
$ |
62 |
|
|
$ |
(57 |
) |
|
$ |
90 |
|
|
$ |
119 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating activities: Cash provided by operating activities in 2009 increased as
compared to 2008 due to lower payments on interest expense, taxes, our annual incentive plan and
our other postretirement obligations in addition to significantly reduced working capital
requirements and a lack of reorganization activities in 2009 as partially offset by higher cash
payments on restructuring activities and pension contributions. As discussed previously, our
average debt outstanding and weighted average interest rate in 2009 declined approximately $350
million and 100 basis points, respectively, as compared to 2008 which resulted in lower interest
payments. Tax payments were lower in 2009 predominately due to the receipt of an income tax refund
of $8 million related to prior year operations in Germany. In response to the global economic
slowdown that began in the fourth quarter of 2008, we significantly reduced our 2008 annual
incentive plan payout which was targeted for payment in the first quarter of 2009 and aggressively
reduced our working capital requirements in order to enhance liquidity. With the return of our
annual incentive plan in 2010, we expect payments on this plan to resume in 2011 while lean
manufacturing practices and minimal working capital requirements will continue to be a focus of
management. The lower payments on other postretirement obligations resulted from the
implementation of a plan amendment upon our emergence from bankruptcy resulting in lower company
requirements along with the establishment of a fund restricted to pay certain liabilities assumed
by us upon the Solutia Spinoff (Legacy Liabilities). Lower payments in other postretirement
obligation payments are expected to continue indefinitely, in part, because the balance remaining
in this restricted fund at December 31, 2009, attributable substantially to pre-spin other post
retirement obligations, is $174 million, which effectively defeases the corresponding Legacy
Liability. We will, however, continue to remain liable for payments on other postretirement
obligations which are not included within the definition of Legacy Liabilities. Contributions to
our U.S. pension plans increased $19 million in 2009 despite lower minimum funding requirements as
we made a $39 million voluntary contribution in the fourth quarter 2009.
Cash used in operating activities in 2008 increased as compared to 2007 due to higher cash
used in reorganization activities, primarily due to cash outflows required to facilitate our
emergence from bankruptcy, as partially offset by improvement in cash provided by operating
activities before reorganization items. The improvement in cash provided by operating activities
before reorganization items is primarily due to higher earnings, after adjusting for noncash items,
and lower payments on our pension and other postretirement obligations, partially offset by higher
tax payments as driven by higher ex-US earnings. Required contributions to our pension plans
decreased $86 million in 2008 and payments on other postretirement obligations were reduced $15
million via reimbursement by the restricted fund discussed above.
42
Investing activities: Cash used in investing activities decreased in 2009 as compared to 2008
due to lower capital expenditures of $55 million as partially offset by lower proceeds from the
sale of certain assets. In 2009, the majority of growth related capital projects were suspended
in reaction to the global economic slowdown. In 2008, we received proceeds of $43 million from the
sale of our corporate headquarters building while in 2009, we received proceeds of $4 million from
the Thiurams Sale and $2 million from the Plastic Products Sale.
Cash used in investing activities decreased in 2008 as compared to the prior year due to the
receipt of $43 million in 2008 from the sale of our corporate headquarters coupled with acquisition
payments in 2007 of $127 million. The acquisition payments in 2007 are primarily attributable to
the payment of $115 million for the Flexsys Acquisition, $7 million to purchase certain assets of
Acquired Technology, Inc., a window film components business, and $4 million to purchase a
specialty rubber chemicals business from Chemetall GmbH. Capital spending remained flat at $99
million as higher spending on growth initiatives was offset by lower spending on maintenance
projects. Specific growth projects in 2008 included the completion of a third SAFLEX® plastic
interlayer line at our Ghent, Belgium plant; expansion of our PVB resin manufacturing operations at
our Springfield, Massachusetts plant; and construction of a new CPFilms coating and lamination line
at our Martinsville, Virginia plant. Spending on maintenance and safety initiatives for 2008 and
2007 were $32 million and $42 million, respectively.
Financing activities: Cash used in financing activities increased in 2009 as compared to 2008
primarily due to our emergence from bankruptcy in 2008. This event required a complete
recapitalization of our debt and equity structure and, after repayment of all debt obligations
outstanding, resulted in net proceeds of $351 million. Of this amount, $250 million was used to
establish certain funds restricted for future payments related to Legacy Liabilities and the
remainder was used to pay certain secured and administrative claims and to provide additional
liquidity for operations. In 2009, we completed a stock offering of 24.7 million shares of our
common stock at $5 per share which resulted in net proceeds of $119 million. The proceeds from
this offering, along with proceeds received on the sale of our Integrated Nylon business and cash
provided by operations, were utilized to fully repay our Revolver and $12 million on our Term Loan.
Also in 2009, we completed the issuance of the 2017 Notes in exchange for net proceeds, after
incorporating all transaction fees, of $379 million. From these proceeds, $300 million was used to
repay a portion of our Term Loan.
Cash provided by financing activities increased in 2008 compared to 2007 as a result of our
emergence from bankruptcy. This event required a complete recapitalization of our debt and equity
structure as discussed above. Subsequent to our emergence from bankruptcy, we completed a sale and
leaseback on our corporate headquarters and two common stock offerings comprised of 22.3 million
shares of common stock at $13 per share and 10.7 million shares of common stock at $14 per share,
respectively (2008 Offerings). Proceeds from the sale of our corporate headquarters were used to
repay $19 million in debt outstanding on the building. Net proceeds of $422 million from the 2008
Offerings were used to repay our Bridge, which was issued at emergence, and to provide additional
liquidity for operations.
Working Capital Continuing Operations
Working capital used for continuing operations is summarized as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Successor |
|
|
|
|
Working Capital Continuing Operations |
|
December 31, |
|
|
December 31, |
|
|
Increase |
|
(dollars in millions) |
|
2009 |
|
|
2008 |
|
|
(Decrease) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents |
|
$ |
243 |
|
|
$ |
32 |
|
|
|
|
|
Trade receivables, net |
|
|
268 |
|
|
|
227 |
|
|
|
|
|
Inventories |
|
|
257 |
|
|
|
341 |
|
|
|
|
|
Other current assets |
|
|
119 |
|
|
|
195 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total current assets |
|
$ |
887 |
|
|
$ |
795 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accounts payable |
|
$ |
169 |
|
|
$ |
170 |
|
|
|
|
|
Accrued liabilities |
|
|
206 |
|
|
|
259 |
|
|
|
|
|
Short-term debt, including current portion of long-term debt |
|
|
28 |
|
|
|
37 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total current liabilities |
|
$ |
403 |
|
|
$ |
466 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Working Capital |
|
$ |
484 |
|
|
$ |
329 |
|
|
$ |
155 |
|
|
|
|
|
|
|
|
|
|
|
43
Reflecting our 2009 focus of enhancing our liquidity position, working capital used for
continuing operations increased $155 million predominantly due to higher cash and cash equivalents
and lower short-term debt. Further contributing to the higher working capital balance in 2009 is a
higher accounts receivable balance which is due to the significant increase in net sales
experienced in the fourth quarter of 2009 as compared to the same period in 2008. These increases
are partially offset by lower inventories, reflecting certain lean manufacturing initiatives, and
lower current assets due to the receipt of $28 million from a restricted cash account funded at
emergence to reimburse us for environmental remediation activities. Further contributing to the
higher working capital in 2009 is a decrease in accrued liabilities due to lower liabilities on
foreign currency forward contracts of $35 million and a $23 million reduction in the annual
incentive plan liability.
Beginning subsequent to our emergence from bankruptcy, from time to time we sell trade
receivables without recourse to third parties. These trade receivables are removed from our
Consolidated Statement of Financial Position and reflected as cash provided by operating activities
in the Consolidated Statement of Cash Flows at the time of sale to the third party. Uncollected
trade receivables sold under these arrangements and removed from the Consolidated Statement of
Financial Position were $8 million and $20 million at December 31, 2009 and 2008, respectively.
The average monthly amounts of trade receivables sold were $9 million for the twelve months ended
December 31, 2009.
Cash Flows Discontinued Operations
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Successor |
|
|
Combined |
|
|
Predecessor |
|
|
|
|
|
|
Twelve Months |
|
|
Twelve Months |
|
|
Twelve Months |
|
|
|
|
|
|
Ended |
|
|
Ended |
|
|
Ended |
|
|
Increase |
|
Cash Flow Summary Discontinued Operations |
|
December 31, |
|
|
December 31, |
|
|
December 31, |
|
|
(Decrease) |
|
(dollars in millions) |
|
2009 |
|
|
2008 |
|
|
2007 |
|
|
2009 vs. 2008 |
|
|
2008 vs. 2007 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash provided by (used in) operating activities |
|
$ |
52 |
|
|
$ |
(152 |
) |
|
$ |
67 |
|
|
$ |
204 |
|
|
$ |
(219 |
) |
Cash provided by (used in) investing activities |
|
|
7 |
|
|
|
(51 |
) |
|
|
13 |
|
|
|
58 |
|
|
|
(64 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net change in cash for period attributable
to discontinued operations |
|
$ |
59 |
|
|
$ |
(203 |
) |
|
$ |
80 |
|
|
$ |
262 |
|
|
$ |
(283 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
On June 1, 2009, we sold our Integrated Nylon business for $50 million in cash, subject
to adjustment for changes in working capital, a two percent equity stake in the new company and $4
million in deferred cash. Throughout 2009, including the period from the point we entered into the
sale agreement and up to the date the sale closed, we aggressively worked to monetize the working
capital balances historically required by this business, which resulted in increased cash provided
by operating activities for discontinued operations compared to 2008. Because the working capital
balances of the business at close were less than anticipated, a final working capital adjustment of
$25 million was offset against the sales price resulting in our receipt of $25 million of net
proceeds. A reduction in cash used for capital expenditures accounts for the remaining increase in
cash provided by investing activities.
Cash used in operating activities for discontinued operations increased in 2008 compared to
2007 due to lower earnings from our Integrated Nylon business and restructuring payments associated
with the idling of certain manufacturing lines as partially offset by a decrease in working capital
balances. Cash provided by investing activities decreased in 2008 compared to 2007 due to the sale
of DEQUEST® and sales of surplus land adjacent to our Integrated Nylon plants for $56 million and
$10 million, respectively.
44
Debt Covenants
Our Financing Agreements include a number of customary covenants and events of default,
including the maintenance of certain financial covenants that restrict our ability to, among other
things, incur additional debt; make certain investments; pay dividends, repurchase stock, sell
certain assets or merge with or into other companies; enter into new lines of business; make
capital expenditures; and prepay, redeem or exchange our debt. The financial covenants for the
measurement period ended December 31, 2009 are (i) Leverage Ratio: limitation of maximum
leverage ratio comprised of gross debt to trailing twelve-month continuing operations Adjusted
EBITDA or earnings from continuing operations before interest, income taxes, depreciation and
amortization, reorganization items, non-cash stock compensation expense and unusual gains and
charges (as that term is defined in the Financing Agreements); (ii) Fixed Charge Ratio:
maintenance of a minimum fixed charge coverage ratio comprised of trailing twelve-month continuing
operations Adjusted EBITDA, as reduced by trailing twelve-month continuing operations capital
expenditures, to Fixed Charges (as defined in the Financing Agreements, as the sum of annualized
cash interest expense, net, trailing twelve months cash income taxes and annualized debt
amortization under our Term Loan) ratio; and (iii) Maximum Capital Expenditures. Below is a
summary of our actual performance under these financial covenants as of December 31, 2009 along
with a summary of the contractually agreed to financial covenants for 2010.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, |
|
|
March 31, |
|
|
June 30, |
|
|
September 30, |
|
|
December 31, |
|
|
|
2009 |
|
|
2010 |
|
|
2010 |
|
|
2010 |
|
|
2010 |
|
|
|
Actual |
|
|
Covenant |
|
|
Covenant |
|
|
Covenant |
|
|
Covenant |
|
|
Covenant |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Max Leverage Ratio |
|
|
3.23 |
|
|
|
4.50 |
|
|
|
4.50 |
|
|
|
4.50 |
|
|
|
4.50 |
|
|
|
4.50 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Min Fixed Charge Ratio |
|
|
2.70 |
|
|
|
1.15 |
|
|
|
1.35 |
|
|
|
1.35 |
|
|
|
1.35 |
|
|
|
1.35 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Max Capital Expenditures |
|
$ |
44 |
|
|
$ |
252 |
|
|
|
n.a. |
|
|
|
n.a. |
|
|
|
n.a. |
|
|
$ |
306 |
|
Capital
Expenditures
Capital expenditures are projected to be in the range of $50 million to $60 million during
2010 of which $30 million to $35 million of the projected range is attributable to new products and
expansion and productivity projects while the remainder is attributable to maintenance and
right-to-operate projects.
Pension Contributions
We sponsor several defined benefit pension plans whereby we made cash contributions of $76
million and $54 million to the plans during 2009 and 2008, respectively. We expect to contribute
approximately $50 million in cash to these pension plans during 2010 but actual contributions to
the plans may differ as a result of a variety of factors, including changes in laws that impact
funding. Our ultimate cash flow impact required to satisfy these outstanding liabilities will
depend on numerous variables, including future changes in actuarial assumptions, legislative
changes to pension funding laws, market conditions and if we choose to satisfy these requirements
in the form of stock contributions.
Off-Balance Sheet Arrangements
See Note 17 Commitments and Contingencies to the accompanying consolidated financial
statements for a summary of off-balance sheet arrangements as of December 31, 2009.
Contingencies
See Note 17 Commitments and Contingencies to the accompanying consolidated financial
statements for a summary of our contingencies as of December 31, 2009.
Commitments
Our current subsidiaries CPFilms Inc., Flexsys America L.P., Flexsys America Co., Monchem
International, Inc., Solutia Inter-America, Inc., Solutia Overseas, Inc., S E Investment LLC and
future subsidiaries as defined by the Financing Agreements, subject to certain exceptions (the
Guarantors) are guarantors of our obligations under the Financing Agreements and the 2017 Notes.
The Financing Agreements and the related guarantees are secured by liens on substantially all of
our and the Guarantors present and future assets.
45
The following table summarizes our contractual obligations and commercial commitments as of
December 31, 2009.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Obligations Due by Period (Dollars in Millions) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2013- |
|
|
2015 and |
|
Contractual Obligations |
|
Total |
|
|
2010 |
|
|
2011 |
|
|
2012 |
|
|
2014 |
|
|
thereafter |
|
Short-Term Debt |
|
$ |
16 |
|
|
$ |
16 |
|
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
Long-Term Debt, including current portion |
|
|
1,276 |
|
|
|
12 |
|
|
|
12 |
|
|
|
12 |
|
|
|
840 |
|
|
|
400 |
|
Interest Payments Related to Long-Term Debt |
|
|
538 |
|
|
|
98 |
|
|
|
97 |
|
|
|
97 |
|
|
|
141 |
|
|
|
105 |
|
Operating Leases |
|
|
52 |
|
|
|
11 |
|
|
|
9 |
|
|
|
8 |
|
|
|
11 |
|
|
|
13 |
|
Unconditional Purchase Obligations(a) |
|
|
133 |
|
|
|
92 |
|
|
|
29 |
|
|
|
8 |
|
|
|
4 |
|
|
|
|
|
Standby Letters of Credit(b) |
|
|
49 |
|
|
|
43 |
|
|
|
5 |
|
|
|
1 |
|
|
|
|
|
|
|
|
|
Postretirement Obligations(c) |
|
|
414 |
|
|
|
68 |
|
|
|
96 |
|
|
|
78 |
|
|
|
128 |
|
|
|
44 |
|
Environmental Remediation |
|
|
291 |
|
|
|
31 |
|
|
|
31 |
|
|
|
35 |
|
|
|
53 |
|
|
|
141 |
|
Uncertain Tax Positions(d) |
|
|
2 |
|
|
|
2 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Contractual Obligations |
|
$ |
2,771 |
|
|
$ |
373 |
|
|
$ |
279 |
|
|
$ |
239 |
|
|
$ |
1,177 |
|
|
$ |
703 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(a) |
|
Unconditional purchase obligations primarily represent minimum non-cancelable future commitments to purchase raw materials and energy.
|
|
(b) |
|
Standby letters of credit contractually expiring in 2009 are generally anticipated to
be renewed or extended by extensions with existing standby letters of credit providers. |
|
(c) |
|
Represents estimated future minimum funding requirements for funded pension plans and
other postretirement plans and estimated future benefit payments for unfunded pension and
other postretirement plans. |
|
(d) |
|
In addition to the $2 million reported in the 2010 column and classified as a
current liability, we have $34 million recorded in other liabilities on the Consolidated
Statement of Financial Position for which it is not reasonably possible to predict when it
may be paid. |
Recently Issued Accounting Standards
See Note 3 Significant Accounting Policies to the accompanying consolidated financial
statements for a summary of recently issued accounting standards.
|
|
|
ITEM 7A. |
|
QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK |
The information appearing under Derivative Financial Instruments on pages 40 and 41 is
incorporated by reference.
46
|
|
|
ITEM 8. |
|
FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA |
FINANCIAL SECTION TABLE OF CONTENTS
|
|
|
|
|
|
|
Page Number |
|
|
|
|
|
|
|
|
|
48 |
|
|
|
|
|
|
|
|
|
50 |
|
|
|
|
|
|
|
|
|
50 |
|
|
|
|
|
|
|
|
|
51 |
|
|
|
|
|
|
|
|
|
52 |
|
|
|
|
|
|
|
|
|
53 |
|
|
|
|
|
|
|
|
|
54 |
|
|
|
|
|
|
47
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the Board of Directors and Shareholders of Solutia Inc.:
We have audited the accompanying consolidated statement of financial position of Solutia Inc. and
subsidiaries (the Company) as of December 31, 2009 and 2008 (Successor Company statements of
financial position), and the related consolidated statements of operations, shareholders equity
(deficit), comprehensive income (loss) and cash flows for the twelve months ended December 31, 2009
(Successor Company operations), the ten months ended December 31, 2008 (Successor Company
operations), the two months ended February 29, 2008 (Predecessor Company operations) and for the
twelve months ended December 31, 2007 (Predecessor Company operations). Our audits also included
the financial statement schedule listed in the Index at Item 15. We also have audited the Companys
internal control over financial reporting as of December 31, 2009, based on criteria established in
Internal Control Integrated Framework issued by the Committee of Sponsoring Organizations of the
Treadway Commission. The Companys management is responsible for these financial statements and
financial statement schedule, for maintaining effective internal control over financial reporting,
and for its assessment of the effectiveness of internal control over financial reporting, included
in the accompanying Managements Report on Internal Control over Financial Reporting. Our
responsibility is to express an opinion on these financial statements and financial statement
schedule and an opinion on the Companys internal control over financial reporting based on our
audits.
We conducted our audits in accordance with the standards of the Public Company Accounting Oversight
Board (United States). Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material misstatement and
whether effective internal control over financial reporting was maintained in all material
respects. Our audits of the financial statements included examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements, assessing the accounting
principles used and significant estimates made by management, and evaluating the overall financial
statement presentation. Our audit of internal control over financial reporting included obtaining
an understanding of internal control over financial reporting, assessing the risk that a material
weakness exists, testing and evaluating the design and operating effectiveness of internal control
based on the assessed risk. Our audits also include performing such other procedures as we
considered necessary in the circumstances. We believe that our audits provide a reasonable basis
for our opinions.
A companys internal control over financial reporting is a process designed by, or under the
supervision of, the companys principal executive and principal financial officers, or persons
performing similar functions, and effected by the companys board of directors, management, and
other personnel to provide reasonable assurance regarding the reliability of financial reporting
and the preparation of financial statements for external purposes in accordance with generally
accepted accounting principles. A companys internal control over financial reporting includes
those policies and procedures that (1) pertain to the maintenance of records that, in reasonable
detail, accurately and fairly reflect the transactions and dispositions of the assets of the
company; (2) provide reasonable assurance that transactions are recorded as necessary to permit
preparation of financial statements in accordance with generally accepted accounting principles and
that receipts and expenditures of the company are being made only in accordance with authorizations
of management and directors of the company; and (3) provide reasonable assurance regarding
prevention or timely detection of unauthorized acquisition, use, or disposition of the companys
assets that could have a material effect on the financial statements.
Because of the inherent limitations of internal control over financial reporting, including the
possibility of collusion or improper management override of controls, material misstatements due to
error or fraud may not be prevented or detected on a timely basis. Also, projections of any
evaluation of the effectiveness of the internal control over financial reporting to future periods
are subject to the risk that the controls may become inadequate because of changes in conditions,
or that the degree of compliance with the policies or procedures may deteriorate.
As discussed in Note 1 to the consolidated financial statements, on November 29, 2007, the
Bankruptcy Court entered an order confirming the plan of reorganization, which became effective on
February 28,
2008. Accordingly, the accompanying consolidated financial statements have been prepared for the
Successor Company as a new entity with assets, liabilities and a capital structure having carrying
values not comparable with prior periods as described in Note 1 to the consolidated financial
statements.
48
In our opinion, the Successor Company consolidated financial statements referred to above present
fairly, in all material respects, the financial position of Solutia Inc. and subsidiaries as of
December 31, 2009 and 2008 and the results of its operations and its cash flows for the twelve
months ended December 31, 2009 and the ten months ended December, 31, 2008, in conformity with
accounting principles generally accepted in the United States of America. Further, in our opinion,
the Predecessor Company consolidated financial statements referred to above present fairly, in all
material respects, the results of its operations and its cash flows for the two months ended
February 29, 2008, and for the twelve months ended December 31, 2007, in conformity with accounting
principles generally accepted in the United States of America. Also, in our opinion, such financial
statement schedule, when considered in relation to the basic consolidated financial statements
taken as a whole, presents fairly, in all material respects, the information set forth therein.
Also, in our opinion, the Company maintained, in all material respects, effective internal control
over financial reporting as of December 31, 2009, based on the criteria established in Internal
Control Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway
Commission.
As discussed in Note 4 to the consolidated financial statements, the Company sold its integrated
nylon business on June 1, 2009. The assets and liabilities, results of operations, loss on sale and
cash flows of the integrated nylon business are presented as discontinued operations in the
consolidated financial statements.
/s/ Deloitte & Touche LLP
St. Louis, Missouri
February 17, 2010
49
SOLUTIA INC.
CONSOLIDATED STATEMENT OF OPERATIONS
(Dollars and shares in millions, except per share amounts)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Successor |
|
|
|
Predecessor |
|
|
|
Twelve Months |
|
|
Ten Months |
|
|
|
Two Months |
|
|
Twelve Months |
|
|
|
Ended |
|
|
Ended |
|
|
|
Ended |
|
|
Ended |
|
|
|
December 31, |
|
|
December 31, |
|
|
|
February 29, |
|
|
December 31, |
|
|
|
2009 |
|
|
2008 |
|
|
|
2008 |
|
|
2007 |
|
Net Sales |
|
$ |
1,667 |
|
|
$ |
1,775 |
|
|
|
$ |
335 |
|
|
$ |
1,643 |
|
Cost of goods sold |
|
|
1,197 |
|
|
|
1,408 |
|
|
|
|
241 |
|
|
|
1,260 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross Profit |
|
|
470 |
|
|
|
367 |
|
|
|
|
94 |
|
|
|
383 |
|
Selling, general and administrative expenses |
|
|
227 |
|
|
|
243 |
|
|
|
|
42 |
|
|
|
218 |
|
Research, development and other operating expenses, net |
|
|
10 |
|
|
|
9 |
|
|
|
|
3 |
|
|
|
24 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating Income |
|
|
233 |
|
|
|
115 |
|
|
|
|
49 |
|
|
|
141 |
|
Equity earnings from affiliates |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
12 |
|
Interest expense (a) |
|
|
(159 |
) |
|
|
(141 |
) |
|
|
|
(21 |
) |
|
|
(134 |
) |
Other income, net |
|
|
|
|
|
|
24 |
|
|
|
|
3 |
|
|
|
34 |
|
Loss on debt modification |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(7 |
) |
Reorganization items, net |
|
|
|
|
|
|
|
|
|
|
|
1,433 |
|
|
|
(298 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income (Loss) from Continuing Operations Before Income Tax
Expense |
|
|
74 |
|
|
|
(2 |
) |
|
|
|
1,464 |
|
|
|
(252 |
) |
Income tax expense |
|
|
14 |
|
|
|
13 |
|
|
|
|
214 |
|
|
|
17 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income (Loss) from Continuing Operations |
|
|
60 |
|
|
|
(15 |
) |
|
|
|
1,250 |
|
|
|
(269 |
) |
Income (Loss) from Discontinued Operations, net of tax |
|
|
(169 |
) |
|
|
(648 |
) |
|
|
|
204 |
|
|
|
64 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net Income (Loss) |
|
|
(109 |
) |
|
|
(663 |
) |
|
|
|
1,454 |
|
|
|
(205 |
) |
Net Income attributable to noncontrolling interest |
|
|
4 |
|
|
|
5 |
|
|
|
|
|
|
|
|
3 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net Income (Loss) attributable to Solutia |
|
$ |
(113 |
) |
|
$ |
(668 |
) |
|
|
$ |
1,454 |
|
|
$ |
(208 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic and Diluted Income (Loss) per Share attributable to Solutia: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income (Loss) from Continuing Operations attributable to Solutia |
|
$ |
0.53 |
|
|
$ |
(0.27 |
) |
|
|
$ |
11.96 |
|
|
$ |
(2.60 |
) |
Income (Loss) from Discontinued Operations |
|
|
(1.59 |
) |
|
|
(8.67 |
) |
|
|
|
1.95 |
|
|
|
0.61 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net Income (Loss) attributable to Solutia |
|
$ |
(1.06 |
) |
|
$ |
(8.94 |
) |
|
|
$ |
13.91 |
|
|
$ |
(1.99 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(a) |
|
Predecessor excludes unrecorded contractual interest expense of $5 in the two months ended
February 29, 2008 and $32 in the year ended December 31, 2007. |
CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME (LOSS)
(Dollars in millions)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Successor |
|
|
|
Predecessor |
|
|
|
Twelve Months |
|
|
Ten Months |
|
|
|
Two Months |
|
|
Twelve Months |
|
|
|
Ended |
|
|
Ended |
|
|
|
Ended |
|
|
Ended |
|
|
|
December 31, |
|
|
December 31, |
|
|
|
February 29, |
|
|
December 31, |
|
|
|
2009 |
|
|
2008 |
|
|
|
2008 |
|
|
2007 |
|
Net Income (Loss) |
|
$ |
(109 |
) |
|
$ |
(663 |
) |
|
|
$ |
1,454 |
|
|
$ |
(205 |
) |
Other Comprehensive Income (Loss): |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Currency translation adjustments |
|
|
42 |
|
|
|
(97 |
) |
|
|
|
32 |
|
|
|
31 |
|
Net unrealized gain (loss) on derivative instruments |
|
|
4 |
|
|
|
(26 |
) |
|
|
|
|
|
|
|
|
|
Realized loss on derivative instruments |
|
|
1 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Pension settlement charge |
|
|
31 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Amortization of prior service gain |
|
|
|
|
|
|
|
|
|
|
|
(3 |
) |
|
|
(17 |
) |
Amortization of net actuarial (gain) loss |
|
|
(4 |
) |
|
|
|
|
|
|
|
2 |
|
|
|
16 |
|
Actuarial loss arising during the period |
|
|
(25 |
) |
|
|
(162 |
) |
|
|
|
(64 |
) |
|
|
(8 |
) |
Prior service gain arising during the period |
|
|
|
|
|
|
|
|
|
|
|
109 |
|
|
|
|
|
Fresh-start accounting adjustment |
|
|
|
|
|
|
|
|
|
|
|
(30 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Comprehensive Income (Loss) |
|
|
(60 |
) |
|
|
(948 |
) |
|
|
|
1,500 |
|
|
|
(183 |
) |
Comprehensive Income attributable to noncontrolling interest |
|
|
4 |
|
|
|
6 |
|
|
|
|
|
|
|
|
4 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Comprehensive Income (Loss) attributable to Solutia |
|
$ |
(64 |
) |
|
$ |
(954 |
) |
|
|
$ |
1,500 |
|
|
$ |
(187 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
See accompanying Notes to Consolidated Financial Statements.
50
SOLUTIA INC.
CONSOLIDATED STATEMENT OF FINANCIAL POSITION
(Dollars in millions, except per share amounts)
|
|
|
|
|
|
|
|
|
|
|
Successor |
|
|
|
December 31, |
|
|
December 31, |
|
|
|
2009 |
|
|
2008 |
|
ASSETS |
|
|
|
|
|
|
|
|
Current Assets: |
|
|
|
|
|
|
|
|
Cash and cash equivalents |
|
$ |
243 |
|
|
$ |
32 |
|
Trade receivables, net of allowances of $2 in 2009 and $0 in 2008 |
|
|
268 |
|
|
|
227 |
|
Miscellaneous receivables |
|
|
82 |
|
|
|
110 |
|
Inventories |
|
|
257 |
|
|
|
341 |
|
Prepaid expenses and other assets |
|
|
37 |
|
|
|
85 |
|
Assets of discontinued operations |
|
|
10 |
|
|
|
490 |
|
|
|
|
|
|
|
|
Total Current Assets |
|
|
897 |
|
|
|
1,285 |
|
Property, Plant and Equipment, net of accumulated depreciation of
$128 in 2009 and $56 in 2008 |
|
|
919 |
|
|
|
952 |
|
Goodwill |
|
|
511 |
|
|
|
511 |
|
Identified Intangible Assets, net |
|
|
803 |
|
|
|
823 |
|
Other Assets |
|
|
136 |
|
|
|
163 |
|
|
|
|
|
|
|
|
Total Assets |
|
$ |
3,266 |
|
|
$ |
3,734 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
LIABILITIES AND SHAREHOLDERS EQUITY |
|
|
|
|
|
|
|
|
Current Liabilities: |
|
|
|
|
|
|
|
|
Accounts payable |
|
$ |
169 |
|
|
$ |
170 |
|
Accrued liabilities |
|
|
206 |
|
|
|
259 |
|
Short-term debt, including current portion of long-term debt |
|
|
28 |
|
|
|
37 |
|
Liabilities of discontinued operations |
|
|
50 |
|
|
|
302 |
|
|
|
|
|
|
|
|
Total Current Liabilities |
|
|
453 |
|
|
|
768 |
|
Long-Term Debt |
|
|
1,264 |
|
|
|
1,359 |
|
Postretirement Liabilities |
|
|
411 |
|
|
|
465 |
|
Environmental Remediation Liabilities |
|
|
260 |
|
|
|
279 |
|
Deferred Tax Liabilities |
|
|
179 |
|
|
|
202 |
|
Other Liabilities |
|
|
99 |
|
|
|
132 |
|
|
|
|
|
|
|
|
|
|
Commitments and Contingencies (Note 17) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Shareholders Equity: |
|
|
|
|
|
|
|
|
Common stock at $0.01 par value; (500,000,000 shares authorized,
121,869,293 and 94,392,772 shares issued in 2009 and 2008, respectively) |
|
|
1 |
|
|
|
1 |
|
Additional contributed capital |
|
|
1,612 |
|
|
|
1,474 |
|
Treasury shares, at cost (430,203 and 77,132 in 2009 and 2008, respectively) |
|
|
(2 |
) |
|
|
|
|
Accumulated other comprehensive loss |
|
|
(237 |
) |
|
|
(286 |
) |
Accumulated deficit |
|
|
(781 |
) |
|
|
(668 |
) |
|
|
|
|
|
|
|
Total Shareholders Equity attributable to Solutia |
|
|
593 |
|
|
|
521 |
|
Equity attributable to noncontrolling interest |
|
|
7 |
|
|
|
8 |
|
|
|
|
|
|
|
|
Total Shareholders Equity |
|
|
600 |
|
|
|
529 |
|
|
|
|
|
|
|
|
Total Liabilities and Shareholders Equity |
|
$ |
3,266 |
|
|
$ |
3,734 |
|
|
|
|
|
|
|
|
See accompanying Notes to Consolidated Financial Statements.
51
SOLUTIA INC.
CONSOLIDATED STATEMENT OF CASH FLOWS
(Dollars in millions)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Successor |
|
|
|
Predecessor |
|
|
|
Twelve Months |
|
|
Ten Months |
|
|
|
Two Months |
|
|
Twelve Months |
|
|
|
Ended |
|
|
Ended |
|
|
|
Ended |
|
|
Ended |
|
|
|
December 31, |
|
|
December 31, |
|
|
|
February 29, |
|
|
December 31, |
|
|
|
2009 |
|
|
2008 |
|
|
|
2008 |
|
|
2007 |
|
INCREASE
(DECREASE) IN CASH AND CASH EQUIVALENTS:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
OPERATING ACTIVITIES: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss) |
|
$ |
(109 |
) |
|
$ |
(663 |
) |
|
|
$ |
1,454 |
|
|
$ |
(205 |
) |
Adjustments to reconcile net income (loss) to net cash provided by (used in) operations: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(Income) Loss from discontinued operations, net of tax |
|
|
169 |
|
|
|
648 |
|
|
|
|
(204 |
) |
|
|
(64 |
) |
Depreciation and amortization |
|
|
107 |
|
|
|
89 |
|
|
|
|
11 |
|
|
|
59 |
|
Revaluation of assets and liabilities, net of tax |
|
|
|
|
|
|
|
|
|
|
|
(1,383 |
) |
|
|
|
|
Discharge of claims and liabilities, net of tax |
|
|
|
|
|
|
|
|
|
|
|
100 |
|
|
|
|
|
Other reorganization items, net |
|
|
|
|
|
|
|
|
|
|
|
52 |
|
|
|
298 |
|
Pension obligation related expense less than contributions |
|
|
(72 |
) |
|
|
(39 |
) |
|
|
|
(18 |
) |
|
|
(143 |
) |
Other postretirement benefit obligation related expense less than contributions |
|
|
(12 |
) |
|
|
(13 |
) |
|
|
|
(6 |
) |
|
|
(39 |
) |
Deferred income taxes |
|
|
1 |
|
|
|
(21 |
) |
|
|
|
5 |
|
|
|
(13 |
) |
Amortization of debt issuance costs |
|
|
20 |
|
|
|
15 |
|
|
|
|
|
|
|
|
3 |
|
Equity earnings from affiliates |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(12 |
) |
(Gain) Loss on sale of other assets |
|
|
2 |
|
|
|
(8 |
) |
|
|
|
|
|
|
|
|
|
Other (gains) charges including restructuring expenses |
|
|
68 |
|
|
|
97 |
|
|
|
|
(2 |
) |
|
|
35 |
|
Other, net |
|
|
2 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Changes in assets and liabilities, net of acquisitions and divestitures: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income taxes payable |
|
|
(7 |
) |
|
|
(7 |
) |
|
|
|
5 |
|
|
|
14 |
|
Trade receivables |
|
|
(43 |
) |
|
|
91 |
|
|
|
|
(24 |
) |
|
|
(34 |
) |
Inventories |
|
|
80 |
|
|
|
(7 |
) |
|
|
|
(34 |
) |
|
|
(5 |
) |
Accounts payable |
|
|
14 |
|
|
|
(31 |
) |
|
|
|
31 |
|
|
|
12 |
|
Restricted cash to fund payment of legacy liabilities |
|
|
28 |
|
|
|
18 |
|
|
|
|
|
|
|
|
|
|
Environmental remediation liabilities |
|
|
(18 |
) |
|
|
(18 |
) |
|
|
|
(1 |
) |
|
|
|
|
Other assets and liabilities |
|
|
(31 |
) |
|
|
4 |
|
|
|
|
(2 |
) |
|
|
56 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash Provided by (Used in) Continuing Operations before Reorganization Activities |
|
|
199 |
|
|
|
155 |
|
|
|
|
(16 |
) |
|
|
(38 |
) |
Reorganization Activities: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Establishment of VEBA retiree trust |
|
|
|
|
|
|
|
|
|
|
|
(175 |
) |
|
|
|
|
Establishment of restricted cash for environmental remediation and other legacy payments |
|
|
|
|
|
|
|
|
|
|
|
(46 |
) |
|
|
|
|
Payment for allowed secured and administrative claims |
|
|
|
|
|
|
|
|
|
|
|
(79 |
) |
|
|
|
|
Professional service fees |
|
|
|
|
|
|
(31 |
) |
|
|
|
(31 |
) |
|
|
(72 |
) |
Other reorganization and emergence related payments |
|
|
|
|
|
|
(1 |
) |
|
|
|
(17 |
) |
|
|
(8 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash Used in Reorganization Activities |
|
|
|
|
|
|
(32 |
) |
|
|
|
(348 |
) |
|
|
(80 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash Provided by (Used in) OperationsContinuing Operations |
|
|
199 |
|
|
|
123 |
|
|
|
|
(364 |
) |
|
|
(118 |
) |
Cash Provided by (Used in) OperationsDiscontinued Operations |
|
|
52 |
|
|
|
(104 |
) |
|
|
|
(48 |
) |
|
|
67 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash Provided by (Used in) Operations |
|
|
251 |
|
|
|
19 |
|
|
|
|
(412 |
) |
|
|
(51 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
INVESTING ACTIVITIES: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Property, plant and equipment purchases |
|
|
(44 |
) |
|
|
(84 |
) |
|
|
|
(15 |
) |
|
|
(99 |
) |
Acquisition and investment payments |
|
|
(2 |
) |
|
|
(4 |
) |
|
|
|
|
|
|
|
(131 |
) |
Restricted cash |
|
|
9 |
|
|
|
|
|
|
|
|
|
|
|
|
4 |
|
Investment proceeds and property disposals |
|
|
9 |
|
|
|
53 |
|
|
|
|
|
|
|
|
8 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash Used in Investing ActivitiesContinuing Operations |
|
|
(28 |
) |
|
|
(35 |
) |
|
|
|
(15 |
) |
|
|
(218 |
) |
Cash Provided by (Used in) Investing ActivitiesDiscontinued Operations |
|
|
7 |
|
|
|
(37 |
) |
|
|
|
(14 |
) |
|
|
13 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash Used in Investing Activities |
|
|
(21 |
) |
|
|
(72 |
) |
|
|
|
(29 |
) |
|
|
(205 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
FINANCING ACTIVITIES: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net change in lines of credit |
|
|
(14 |
) |
|
|
25 |
|
|
|
|
|
|
|
|
14 |
|
Proceeds from long-term debt obligations |
|
|
470 |
|
|
|
|
|
|
|
|
1,600 |
|
|
|
75 |
|
Net change in long-term revolving credit facilities |
|
|
(181 |
) |
|
|
(5 |
) |
|
|
|
190 |
|
|
|
(61 |
) |
Proceeds from stock issuances |
|
|
119 |
|
|
|
422 |
|
|
|
|
250 |
|
|
|
|
|
Proceeds from short-term debt obligations |
|
|
22 |
|
|
|
|
|
|
|
|
|
|
|
|
325 |
|
Payment of short-term debt obligations |
|
|
(17 |
) |
|
|
|
|
|
|
|
(966 |
) |
|
|
(53 |
) |
Payment of long-term debt obligations |
|
|
(386 |
) |
|
|
(437 |
) |
|
|
|
(366 |
) |
|
|
(4 |
) |
Payment of debt obligations subject to compromise |
|
|
|
|
|
|
|
|
|
|
|
(221 |
) |
|
|
|
|
Debt issuance costs |
|
|
(25 |
) |
|
|
(1 |
) |
|
|
|
(136 |
) |
|
|
(11 |
) |
Purchase of treasury shares |
|
|
(2 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
Other, net |
|
|
(5 |
) |
|
|
(2 |
) |
|
|
|
|
|
|
|
(6 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash Provided by (Used in) Financing Activities |
|
|
(19 |
) |
|
|
2 |
|
|
|
|
351 |
|
|
|
279 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS |
|
|
211 |
|
|
|
(51 |
) |
|
|
|
(90 |
) |
|
|
23 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
CASH AND CASH EQUIVALENTS: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Beginning of period |
|
|
32 |
|
|
|
83 |
|
|
|
|
173 |
|
|
|
150 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
End of period |
|
$ |
243 |
|
|
$ |
32 |
|
|
|
$ |
83 |
|
|
$ |
173 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
See accompanying Notes to Consolidated Financial Statements.
52
SOLUTIA INC.
CONSOLIDATED STATEMENT OF SHAREHOLDERS EQUITY (DEFICIT)
(Dollars in millions)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Equity attributable to Solutia |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net |
|
|
|
|
|
|
Accumulated |
|
|
|
|
|
|
Equity |
|
|
|
|
|
|
|
|
|
|
Additional |
|
|
Deficiency |
|
|
|
|
|
|
Other |
|
|
|
|
|
|
Attributable to |
|
|
Total |
|
|
|
Common |
|
|
Contributed |
|
|
of Assets at |
|
|
Treasury |
|
|
Comprehensive |
|
|
Accumulated |
|
|
Noncontrolling |
|
|
Shareholders |
|
|
|
Stock |
|
|
Capital |
|
|
Spinoff |
|
|
Stock |
|
|
Loss |
|
|
Deficit |
|
|
Interest |
|
|
Equity (Deficit) |
|
Predecessor, January 1, 2007 |
|
$ |
1 |
|
|
$ |
56 |
|
|
$ |
(113 |
) |
|
$ |
(251 |
) |
|
$ |
(67 |
) |
|
$ |
(1,031 |
) |
|
$ |
4 |
|
|
$ |
(1,430 |
) |
Comprehensive income: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(208 |
) |
|
|
3 |
|
|
|
(205 |
) |
Accumulated currency adjustments |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
30 |
|
|
|
|
|
|
|
1 |
|
|
|
31 |
|
Amortization of prior service gain |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(17 |
) |
|
|
|
|
|
|
|
|
|
|
(17 |
) |
Actuarial loss arising during the year, net of
tax of $(1) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(8 |
) |
|
|
|
|
|
|
|
|
|
|
(8 |
) |
Amortization of actuarial loss, net of tax of $1 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
16 |
|
|
|
|
|
|
|
|
|
|
|
16 |
|
Dividends attributable to noncontrolling interest |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(2 |
) |
|
|
(2 |
) |
Effect of adopting certain provisions of ASC 740 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(3 |
) |
|
|
|
|
|
|
(3 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Predecessor, December 31, 2007 |
|
|
1 |
|
|
|
56 |
|
|
|
(113 |
) |
|
|
(251 |
) |
|
|
(46 |
) |
|
|
(1,242 |
) |
|
|
6 |
|
|
|
(1,589 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Comprehensive income: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1,454 |
|
|
|
|
|
|
|
1,454 |
|
Accumulated currency adjustments |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
32 |
|
|
|
|
|
|
|
|
|
|
|
32 |
|
Actuarial loss arising during the period |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(64 |
) |
|
|
|
|
|
|
|
|
|
|
(64 |
) |
Amortization of actuarial loss |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2 |
|
|
|
|
|
|
|
|
|
|
|
2 |
|
Prior service gain arising during the period |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
109 |
|
|
|
|
|
|
|
|
|
|
|
109 |
|
Amortization of prior service gain |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(3 |
) |
|
|
|
|
|
|
|
|
|
|
(3 |
) |
Fresh-start elimination |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(30 |
) |
|
|
|
|
|
|
|
|
|
|
(30 |
) |
Fresh-start elimination |
|
|
|
|
|
|
(56 |
) |
|
|
113 |
|
|
|
251 |
|
|
|
|
|
|
|
(212 |
) |
|
|
|
|
|
|
96 |
|
Cancellation of old common stock |
|
|
(1 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Predecessor, February 29, 2008 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
6 |
|
|
|
6 |
|
Issuance of new common stock |
|
|
1 |
|
|
|
1,036 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1,037 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Successor, February 29, 2008 |
|
|
1 |
|
|
|
1,036 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
6 |
|
|
|
1,043 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Comprehensive income: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(668 |
) |
|
|
5 |
|
|
|
(663 |
) |
Accumulated currency adjustments |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(98 |
) |
|
|
|
|
|
|
1 |
|
|
|
(97 |
) |
Actuarial loss arising during the period, net
of tax of $4 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(162 |
) |
|
|
|
|
|
|
|
|
|
|
(162 |
) |
Net unrealized loss on derivative instruments |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(26 |
) |
|
|
|
|
|
|
|
|
|
|
(26 |
) |
Dividends attributable to noncontrolling interest |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(5 |
) |
|
|
(5 |
) |
Investment attributable to noncontrolling interest |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1 |
|
|
|
1 |
|
Issuance of common stock |
|
|
|
|
|
|
425 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
425 |
|
Share-based compensation expense |
|
|
|
|
|
|
13 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
13 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Successor, December 31, 2008 |
|
|
1 |
|
|
|
1,474 |
|
|
|
|
|
|
|
|
|
|
|
(286 |
) |
|
|
(668 |
) |
|
|
8 |
|
|
|
529 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Comprehensive income: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(113 |
) |
|
|
4 |
|
|
|
(109 |
) |
Accumulated currency adjustments |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
42 |
|
|
|
|
|
|
|
|
|
|
|
42 |
|
Net unrealized gain on derivative instruments |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
4 |
|
|
|
|
|
|
|
|
|
|
|
4 |
|
Realized loss on derivative instruments |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1 |
|
|
|
|
|
|
|
|
|
|
|
1 |
|
Pension settlement charge |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
31 |
|
|
|
|
|
|
|
|
|
|
|
31 |
|
Actuarial loss arising during the year, net of
tax of $(6) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(25 |
) |
|
|
|
|
|
|
|
|
|
|
(25 |
) |
Amortization of net actuarial gain |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(4 |
) |
|
|
|
|
|
|
|
|
|
|
(4 |
) |
Dividends attributable to noncontrolling interest |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(5 |
) |
|
|
(5 |
) |
Issuance of common stock |
|
|
|
|
|
|
119 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
119 |
|
Treasury stock purchases |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(2 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(2 |
) |
Share-based compensation expense |
|
|
|
|
|
|
19 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
19 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Successor, December 31, 2009 |
|
$ |
1 |
|
|
$ |
1,612 |
|
|
$ |
|
|
|
$ |
(2 |
) |
|
$ |
(237 |
) |
|
$ |
(781 |
) |
|
$ |
7 |
|
|
$ |
600 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
See accompanying Notes to Consolidated Financial Statements.
53
SOLUTIA
INC.
NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS
(Dollars in millions,
except per share amounts or otherwise noted)
1. Background and Basis for Presentation
Solutia Inc., together with its subsidiaries, is a global manufacturer and marketer of a
variety of high-performance chemical and engineered materials that are used in a broad range of
consumer and industrial applications. Solutia is a world leader in performance films for laminated
safety glass and after-market applications; and specialty products such as chemicals for the rubber
industry, solar energy, process manufacturing and aviation industries.
Unless the context requires otherwise, the terms Solutia, Company, we, and our herein
refer to Solutia Inc. and its subsidiaries.
Prior to September 1, 1997, Solutia was a wholly-owned subsidiary of the former Monsanto
Company (now known as Pharmacia Corporation (Pharmacia), a 100% owned subsidiary of Pfizer,
Inc.). 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, we became an independent publicly held company and our operations ceased to be
owned by Pharmacia.
On December 17, 2003, we and our 14 U.S. subsidiaries filed voluntary petitions for Chapter 11
protection (the Chapter 11 Case) to obtain relief from the negative financial impact of
liabilities for litigation, environmental remediation and certain postretirement benefits (the
Legacy Liabilities) and liabilities under operating contracts, all of which were assumed at the
time of the Solutia Spinoff. Our subsidiaries outside the United States were not included in the
Chapter 11 filing. On February 28, 2008 (the Effective Date), we consummated our reorganization
under Chapter 11 of the U.S. Bankruptcy Code (the Bankruptcy Code) and emerged from bankruptcy
pursuant to our Fifth Amended Joint Plan of Reorganization, which was confirmed by the U.S.
Bankruptcy Court for the Southern District of New York (the Bankruptcy Court) on November 29,
2007 (the Plan).
The consolidated financial statements for the period in which we were in bankruptcy were
prepared in accordance with Financial Accounting Standards Boards (FASB) Accounting Standards
Codification (ASC) 852 Reorganizations (ASC 852). The consolidated financial statements were
also prepared on a going concern basis, which assumes the continuity of operations and reflects the
realization of assets and satisfaction of liabilities in the ordinary course of business. Upon our
emergence from bankruptcy, we adopted fresh-start accounting in accordance with ASC 852. However,
due to the proximity of the Effective Date to the February month end, for accounting convenience
purposes, we have reported the effects of fresh-start accounting as if they occurred on February
29, 2008. This resulted in our becoming a new reporting entity on March 1, 2008, which has a new
capital structure, a new basis in the identifiable assets and liabilities assumed and no retained
earnings or accumulated losses. Accordingly, the Consolidated Financial Statements on or after
March 1, 2008 are not comparable to the Consolidated Financial Statements prior to that date. The
financial information set forth in this report, unless otherwise expressly set forth or as the
context otherwise indicates, reflects the consolidated results of operations and financial
condition of Solutia Inc. and its subsidiaries for the periods following March 1, 2008
(Successor), and of Solutia Inc. and its subsidiaries for the periods through February 29, 2008
(Predecessor).
We have evaluated subsequent events through February 17, 2010, the date which the financial
statements were issued, and have concluded that no material events or transactions took place.
2. Fresh-Start Accounting
Fresh-start accounting reflects our value as determined in the Plan. Under fresh-start
accounting, our asset values were re-measured using fair value and were allocated in accordance
with the ASC 805 Business Combinations. The excess of reorganization value over the fair value of
tangible and identifiable intangible assets was recorded as goodwill. In addition, fresh-start
accounting also requires that all liabilities, other than deferred taxes, should be stated at fair
value or at the present values of the amounts to be paid using appropriate market interest rates.
Deferred taxes are determined in conformity with ASC 740 Income Taxes (ASC 740).
To facilitate the calculation of the enterprise value of the Successor, management developed a
set of financial projections using a number of estimates and assumptions. The enterprise value,
and corresponding equity value, was based on these financial projections in conjunction with
various valuation methods, including (i) a comparison of us and our projected performance to
comparable companies; (ii) a review and analysis of several recent transactions of companies in
similar industries to ours; and (iii) a calculation of the present value of our future cash flows
under our projections. Utilizing these
methodologies, the enterprise value was determined to be within a certain range and, using the
mid-point of the range, the equity value of the Successor was estimated to be $1.0 billion.
54
SOLUTIA
INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(Dollars in millions, except per share amounts or otherwise
noted)
All estimates, assumptions, valuations, appraisals and financial projections, including the fair
value adjustments, the financial projections, the enterprise value and equity value, are inherently
subject to significant uncertainties and the resolution of contingencies beyond our control.
Accordingly, there can be no assurance that the estimates, assumptions, valuations, appraisals and
the financial projections will be realized and actual results could vary materially.
The adjustments set forth in the following Fresh Start Consolidated Statement of Financial
Position in the columns captioned Effect of Plan and Revaluation of Assets and Liabilities
reflect the effect of the consummation of the transactions contemplated by the Plan, including the
settlement of various liabilities, securities issuances, incurrence of new indebtedness and cash
payments, and the revaluation of our assets and liabilities to reflect their fair value under
fresh-start accounting. The adjustments resulted in a pre-tax net effect of discharge of claims
and liabilities of $(104) under the Plan and a gain of $1,801 resulting from the revaluation of our
assets and liabilities, of which $212 was recognized in income (loss) from discontinued operations
on the Consolidated Statement of Operations for the two months ended February 29, 2008.
The effects of the Plan and fresh-start accounting on our Consolidated Statement of Financial
Position at February 29, 2008 are as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Predecessor |
|
|
|
|
|
|
|
|
|
Successor |
|
|
|
|
|
|
|
|
|
|
|
Revaluation of |
|
|
|
|
|
|
|
February 29, |
|
|
Effect of |
|
|
Assets and |
|
|
February 29, |
|
|
|
2008 |
|
|
Plan |
|
|
Liabilities |
|
|
2008 |
|
ASSETS |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Current Assets: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents |
|
$ |
180 |
|
|
$ |
(97 |
)(a) |
|
$ |
|
|
|
$ |
83 |
|
Trade receivables |
|
|
317 |
|
|
|
|
|
|
|
|
|
|
|
317 |
|
Miscellaneous receivables |
|
|
128 |
|
|
|
(3 |
) (a) |
|
|
(1 |
)(d) |
|
|
124 |
|
Inventories |
|
|
302 |
|
|
|
|
|
|
|
98 |
(d) |
|
|
400 |
|
Prepaid expenses and other assets |
|
|
56 |
|
|
|
30 |
(a)(b) |
|
|
(5 |
)(d) |
|
|
81 |
|
Assets of discontinued operations |
|
|
863 |
|
|
|
|
|
|
|
218 |
(d) |
|
|
1,081 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Current Assets |
|
|
1,846 |
|
|
|
(70 |
) |
|
|
310 |
|
|
|
2,086 |
|
Property, Plant and Equipment |
|
|
629 |
|
|
|
|
|
|
|
406 |
(d) |
|
|
1,035 |
|
Goodwill |
|
|
150 |
|
|
|
|
|
|
|
370 |
(e) |
|
|
520 |
|
Identified Intangible Assets |
|
|
56 |
|
|
|
|
|
|
|
825 |
(d) |
|
|
881 |
|
Other Assets |
|
|
113 |
|
|
|
112 |
(a)(b) |
|
|
(3 |
)(d) |
|
|
222 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Assets |
|
$ |
2,794 |
|
|
$ |
42 |
|
|
$ |
1,908 |
|
|
$ |
4,744 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
LIABILITIES AND SHAREHOLDERS EQUITY (DEFICIT) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Current Liabilities: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accounts payable |
|
$ |
234 |
|
|
$ |
|
|
|
$ |
|
|
|
$ |
234 |
|
Accrued liabilities |
|
|
234 |
|
|
|
17 |
(a) |
|
|
15 |
(d) |
|
|
266 |
|
Short-term debt, including current portion of long-term debt |
|
|
1,098 |
|
|
|
(1,085 |
)(b) |
|
|
|
|
|
|
13 |
|
Liabilities of discontinued operations |
|
|
297 |
|
|
|
87 |
|
|
|
2 |
(d) |
|
|
386 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Current Liabilities |
|
|
1,863 |
|
|
|
(981 |
) |
|
|
17 |
|
|
|
899 |
|
Long-Term Debt |
|
|
386 |
|
|
|
1,410 |
(b) |
|
|
|
|
|
|
1,796 |
|
Postretirement Liabilities |
|
|
86 |
|
|
|
282 |
(a) |
|
|
|
|
|
|
368 |
|
Environmental Remediation Liabilities |
|
|
55 |
|
|
|
207 |
(a) |
|
|
29 |
(d) |
|
|
291 |
|
Deferred Tax Liabilities |
|
|
47 |
|
|
|
(12 |
) (a) |
|
|
194 |
(d) |
|
|
229 |
|
Other Liabilities |
|
|
77 |
|
|
|
34 |
(a) |
|
|
7 |
(d) |
|
|
118 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Liabilities not Subject to Compromise |
|
|
2,514 |
|
|
|
940 |
|
|
|
247 |
|
|
|
3,701 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Liabilities Subject to Compromise |
|
|
1,962 |
|
|
|
(1,962 |
)(a) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Shareholders Equity (Deficit): |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Successor common stock at $0.01 par value |
|
|
|
|
|
|
1 |
(c) |
|
|
|
|
|
|
1 |
|
Predecessor common stock at $0.01 par value |
|
|
1 |
|
|
|
|
|
|
|
(1 |
)(c) |
|
|
|
|
Additional contributed capital |
|
|
56 |
|
|
|
1,036 |
(c) |
|
|
(56 |
)(c) |
|
|
1,036 |
|
Predecessor stock held in treasury, at cost |
|
|
(251 |
) |
|
|
|
|
|
|
251 |
(c) |
|
|
|
|
Predecessor net deficiency of assets at spin-off |
|
|
(113 |
) |
|
|
|
|
|
|
113 |
(c) |
|
|
|
|
Accumulated other comprehensive income (loss) |
|
|
(97 |
) |
|
|
127 |
(a) |
|
|
(30 |
)(c) |
|
|
|
|
Accumulated deficit |
|
|
(1,284 |
) |
|
|
(100 |
)(c) |
|
|
1,384 |
(c) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Shareholders Equity (Deficit) attributable to Solutia Inc. |
|
|
(1,688 |
) |
|
|
1,064 |
|
|
|
1,661 |
|
|
|
1,037 |
|
Equity attributable to noncontrolling interest |
|
|
6 |
|
|
|
|
|
|
|
|
|
|
|
6 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Shareholders Equity (Deficit) |
|
|
(1,682 |
) |
|
|
1,064 |
|
|
|
1,661 |
|
|
|
1,043 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Liabilities and Shareholders Equity (Deficit) |
|
$ |
2,794 |
|
|
$ |
42 |
|
|
$ |
1,908 |
|
|
$ |
4,744 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(a) |
|
To record the discharge and payment of liabilities subject to
compromise, payment of accrued post-petition interest, the
re-establishment of liabilities to be retained by Successor, the
defeasance of a substantial amount of our postretirement
liabilities and the establishment of a fund restricted to the
payment of certain Legacy Liabilities. |
|
(b) |
|
To record the extinguishment of Predecessor debt and the write-off
of any related unamortized debt financing costs and the
establishment of Successor debt financing and related financing
costs pursuant to our financing agreements. |
55
SOLUTIA
INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(Dollars in millions, except per share amounts or otherwise
noted)
|
|
|
(c) |
|
To record the net effect of discharge of claims and liabilities
subject to compromise, gain on the revaluation of assets and
liabilities, cancellation of Predecessor common stock, close out
of remaining equity balances of Predecessor in accordance with
fresh-start accounting, and the issuance of Successor common stock
and warrants to purchase common stock. |
|
(d) |
|
To adjust assets and liabilities to fair value. |
|
(e) |
|
The goodwill of Predecessor has been eliminated and the
reorganization value in excess of amounts allocable to identified
tangible and intangible assets has been classified as goodwill. |
Reorganization Items, net
Reorganization items, net are presented separately in the Consolidated Statement of Operations
and represent items of income, expense, gain or loss that we realized or incurred due to our
reorganization under the Bankruptcy Code.
Reorganization items, net consisted of the following items:
|
|
|
|
|
|
|
|
|
|
|
Predecessor |
|
|
|
Two Months |
|
|
Twelve Months |
|
|
|
Ended |
|
|
Ended |
|
|
|
February 29, |
|
|
December 31, |
|
|
|
2008 |
|
|
2007 |
|
|
|
|
|
|
|
|
|
|
Discharge of claims and liabilities (a) |
|
$ |
(104 |
) |
|
$ |
|
|
Revaluation of assets and liabilities (b) |
|
|
1,589 |
|
|
|
|
|
Professional fees (c) |
|
|
(52 |
) |
|
|
(67 |
) |
Severance and employee retention costs (d) |
|
|
|
|
|
|
(9 |
) |
Adjustments to allowed claim amounts (e) |
|
|
|
|
|
|
(224 |
) |
Settlements of pre-petition claims (f) |
|
|
|
|
|
|
2 |
|
|
|
|
|
|
|
|
Total Reorganization Items, net |
|
$ |
1,433 |
|
|
$ |
(298 |
) |
|
|
|
|
|
|
|
|
|
|
(a) |
|
The discharge of claims and liabilities primarily relates to allowed general, unsecured claims in our Chapter 11 Case, such as
(1) claims due to the rejection or modification of certain executory contracts, (2) claims relating to changes in
postretirement healthcare benefits and the rejection of our non-qualified retirement plans, and (3) claims relating to the
restructuring of financing arrangements. |
|
(b) |
|
We revalued our assets and liabilities at estimated fair value as a result of fresh-start accounting. This resulted in a
$1,801 pre-tax gain, of which $212 is recognized in income (loss) from discontinued operations on the Consolidated Statement of
Operations, primarily reflecting the fair value of newly recognized intangible assets, the elimination of our LIFO reserve and
the increase in the fair value of tangible property and equipment. |
|
(c) |
|
Professional fees for services provided by debtor and creditor professionals directly related to our reorganization proceedings. |
|
(d) |
|
Expense provisions related to (i) employee severance costs incurred directly as part of the Chapter 11 reorganization process
and (ii) a retention plan for certain of our employees approved by the Bankruptcy Court. |
|
(e) |
|
Adjustments to record certain pre-petition claims at estimated amounts of the allowed claims. |
|
(f) |
|
Represents the difference between the settlement amount of certain pre-petition obligations and the corresponding amounts
previously recorded. |
We did not incur any reorganization items, net in the twelve months and ten months ended
December 31, 2009 and 2008, respectively.
3. Significant Accounting Policies
Basis of Consolidation
The consolidated financial statements are presented in accordance with accounting principles
generally accepted in the United States (U.S. GAAP). These statements pertain to Solutia and its
majority-owned subsidiaries. All intercompany transactions and balances have been
eliminated in consolidation. Companies in which we have a significant interest but not a
controlling interest are accounted for under the equity method of accounting and included in other
assets in the Consolidated Statement of Financial Position. Our proportionate share of these
companies net earnings or losses is reflected in equity earnings from affiliates in the
Consolidated Statement of Operations.
56
SOLUTIA
INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(Dollars in millions, except per share amounts or otherwise
noted)
Use of Estimates
The preparation of financial statements in conformity with U.S. GAAP requires management to
make estimates and assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial statements which
affect revenues and expenses during the period reported. Estimates are adjusted when necessary to
reflect actual experience. Significant estimates were used to account for restructuring reserves,
environmental reserves, self-insurance reserves, valuations of goodwill and other intangible
assets, employee benefit plans, income tax liabilities and assets and related valuation allowances,
inventory obsolescence, asset impairments, value of share-based compensation, litigation and other
contingencies and the allocation of corporate costs to segments.
Significant estimates and assumptions are also used to establish the useful lives of
depreciable tangible and finite-lived intangible assets.
Cash and Cash Equivalents
Cash and cash equivalents consist of cash and temporary investments with maturities of three
months or less when purchased.
Trade Receivables
The provision for losses on uncollectible trade receivables is determined on the basis of past
collection experience, current economic and market conditions and a review of the current status of
each customers trade receivable.
Inventory Valuation
Inventories are stated at cost or market, whichever is less, with cost being determined using
standards, which approximate actual cost. Variances, exclusive of unusual volume and operating
performance, are capitalized into inventory when material. Standard cost includes direct labor and
raw materials, and manufacturing overhead based on normal capacity.
The cost of all inventories in the United States, excluding supplies, is determined by the
LIFO method (approximately 30 percent and 40 percent of all inventories as of December 31, 2009 and 2008,
respectively). The cost of inventories outside the United States, as well as supplies inventories
in the United States, is determined by the FIFO method.
We record abnormal amounts of idle facility expense, freight, handling costs and wasted
material (spoilage) as current period charges.
Property, Plant and Equipment
Property, plant and equipment are recorded at cost and depreciated on a straight-line method
over their respective estimated useful lives. In connection with our adoption of fresh-start
accounting, we adjusted the net book values of property and equipment to their estimated fair
values and revised the estimated useful life of machinery and equipment. The estimated useful
lives for major asset classifications are as follows:
|
|
|
|
|
|
|
|
|
|
|
Estimated Useful Lives |
|
Asset Classification |
|
Successor |
|
|
Predecessor |
|
|
|
|
|
|
|
|
|
|
Buildings and Improvements |
|
|
5 to 35 years |
|
|
|
5 to 35 years |
|
Machinery and Equipment |
|
|
5 to 20 years |
|
|
|
3 to 15 years |
|
Goodwill and Intangible Assets
Goodwill reflects the excess of the reorganization value of the Successor over the fair value
of tangible and identifiable intangible assets, net of liabilities resulting from our adoption of fresh-start
accounting. Goodwill and other intangible assets with indefinite lives are not amortized but are
tested for impairment as of November 30th of each year or more frequently when an event
occurs or circumstances change such that it is reasonably possible that impairment may exist.
We test goodwill for impairment by first comparing the carrying value of each reporting unit,
including goodwill, to its fair value. The fair value of the reporting unit is determined
considering both the
market and income approaches. Under the market approach, fair value is based on a comparison
of similar publicly traded companies. Under the income approach, fair value is determined using an
estimate of future cash flows of the reporting unit and a risk-adjusted discount rate to compute a
net present value of future cash flows. If the fair value is determined to be less than carrying
value, a second step is performed to compute the amount of impairment, if any. Impairment of
goodwill is measured as the excess of the carrying amount of goodwill over the net fair values of
recognized and unrecognized assets and liabilities of the reporting unit. We test intangible
assets with indefinite lives for impairment through comparison of the fair value of the intangible
asset with its carrying amount. The fair value of intangible assets with indefinite lives is
determined using an estimate of future cash flows attributable to the asset and a risk-adjusted
discount rate to compute a net present value of future cash flows. The shortfall of the fair value
below carrying value represents the amount of impairment. See Note 6 Goodwill and Other
Intangible Assets for further discussion of the annual impairment test.
57
SOLUTIA
INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(Dollars in millions, except per share amounts or otherwise
noted)
Intangible assets that have finite useful lives are amortized over their determinable useful
lives on a straight-line method and assessed for impairment in accordance with our Impairment of
Long-Lived Assets accounting policy. The estimated useful lives are as follows:
|
|
|
|
|
|
|
|
|
|
|
Estimated Useful Lives |
|
|
|
Successor |
|
|
Predecessor |
|
|
|
|
|
|
|
|
|
|
Finite-Lived Intangible Assets |
|
|
5 to 27 years |
|
|
|
5 to 25 years |
|
On a quarterly basis, the useful lives of these assets are evaluated to determine whether
events or circumstances warrant a revision to the remaining period of amortization. If an estimate
of the useful life is changed, the remaining carrying amount of the asset will be amortized
prospectively over the revised remaining useful life.
Impairment of Long-Lived Assets
Impairment tests of long-lived assets are performed when conditions indicate the carrying
amount may not be recoverable. Impairment tests are based on a comparison of undiscounted cash
flows to the recorded value of the asset. If impairment is indicated, the asset value is written
down to its fair value based upon market prices or, if not available, upon discounted cash value,
at an appropriate discount rate.
Environmental Remediation
Costs for remediation of waste disposal sites are accrued in the accounting period in which
the obligation is probable and when the cost is reasonably estimable based on current law and
existing technology. Environmental liabilities are not discounted, and they have not been reduced
for any claims for recoveries from third parties. In those cases where third-party indemnitors
have agreed to pay any amounts and management believes that collection of such amounts is probable,
the amounts are reflected as receivables in the consolidated financial statements.
Litigation and Other Contingencies
We are a party to legal proceedings involving intellectual property, tort, contract,
antitrust, employee benefit, environmental, government investigations and other litigation, claims
and legal proceedings. We routinely assess the likelihood of adverse judgments or outcomes to
those matters, as well as ranges of probable losses, to the extent losses are reasonably estimable.
In accordance with U.S. GAAP, accruals for such contingencies are recorded to the extent that we
conclude their occurrence is probable and the financial impact, should an adverse outcome occur, is
reasonably estimable. When a single amount cannot be reasonably estimated but the cost can be
estimated within a range, we accrue the low end of the range. In addition, we accrue for legal
costs expected to be incurred with a loss contingency.
Disclosure for specific legal contingencies is provided if the likelihood of occurrence is at
least reasonably possible and the exposure is considered material to the consolidated financial
statements. In making determinations of likely outcomes of litigation matters, we consider many
factors. These factors include, but are not limited to, past experience, scientific and other
evidence, interpretation of relevant laws or regulations and the specifics and status of each
matter. If the assessment of the various factors changes, the estimates may change and could
result in the recording of an accrual or a change in a previously recorded accrual. Predicting the
outcome of claims and litigation and estimating related costs and exposure involves substantial
uncertainties that could cause actual costs to vary materially from estimates and accruals.
Self-Insurance and Insurance Recoveries
We maintain self-insurance reserves to reflect our estimate of uninsured losses. Self-insured
losses are accrued based upon estimates of the aggregate liability for claims incurred using
certain actuarial assumptions followed in the insurance industry, our historical experience and
certain case specific reserves as required, including estimated legal costs. The maximum extent of
the self-insurance provided by us is dependent upon a number of factors including the facts and
circumstances of individual cases and the terms and conditions of the commercial policies. We have
purchased commercial insurance in order to reduce our exposure to workers compensation, product,
general, automobile and property liability claims. This insurance has varying policy limits and
deductibles.
58
SOLUTIA
INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(Dollars in millions, except per share amounts or otherwise
noted)
Insurance recoveries are estimated in consideration of expected losses, coverage limits and
policy deductibles. When recovery from an insurance policy is considered probable, a receivable is
recorded.
Foreign Currency Translation
The local currency has been used as the functional currency for nearly all worldwide locations
and is translated into U.S. dollars at current or average exchange rates. Unrealized currency
translation adjustments are included in accumulated other comprehensive loss in the Consolidated
Statement of Financial Position.
Derivative Financial Instruments
All derivatives except those which qualify for exception, whether designated for hedging
relationships or not, are recognized in the Consolidated Statement of Financial Position at their
fair value.
Currency forward and option contracts are used to manage currency exposures for financial
instruments denominated in currencies other than the entitys functional currency. We have chosen
not to designate these instruments as hedges and to allow the gains and losses that arise from
marking the contracts to market to be included in other income, net in the Consolidated Statement
of Operations.
Interest rate caps and swaps are used to manage interest rate exposures on variable rate debt
instruments. To the extent interest rate caps and swaps qualify for hedge accounting, we designate
them as cash flow hedges and the mark-to-market gain or loss on qualifying hedges is included in
accumulated other comprehensive loss in the Consolidated Statement of Financial Position to the
extent effective, and reclassified into interest expense in the Consolidated Statement of
Operations in the period during which the hedged transaction affects earnings. The mark-to-market
gains or losses on ineffective hedges or ineffective portions of hedges are recognized in interest
expense immediately.
Revenue Recognition
Our primary revenue-earning activities involve producing and delivering goods. Revenues are
considered to be earned when we have completed the process by which we are entitled to such
revenues. The following criteria are used for revenue recognition: persuasive evidence that an
arrangement exists, delivery has occurred, selling price is fixed or determinable and collection is
reasonably assured.
Shipping and Handling Costs
Amounts billed for shipping and handling are included in net sales and the costs incurred for
these activities are included in cost of goods sold in the Consolidated Statement of Operations.
Distribution Costs
We include inbound freight charges, purchasing and receiving costs, inspection costs,
warehousing costs, internal transfer costs and the other costs of our distribution network in cost
of goods sold in the Consolidated Statement of Operations.
Income Taxes
We account for income taxes using the asset and liability method. Under this method, deferred
tax assets and liabilities are recognized for the future tax consequences of temporary differences
between the carrying amounts and tax bases of assets and liabilities at enacted rates. We
determine the appropriateness of valuation allowances in accordance with the more likely than not
recognition criteria.
59
SOLUTIA
INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(Dollars in millions, except per share amounts or otherwise
noted)
We recognize tax positions in the Consolidated Statement of Financial Position as the largest
amount of tax benefit that is greater than 50 percent likely of being realized upon ultimate
settlement with tax authorities assuming full knowledge of the position and all relevant facts.
Accrued interest and penalties related to unrecognized tax benefits are included in income tax
expense in the Consolidated Statement of Operations.
Earnings (Loss) per Share
Basic earnings (loss) per share is a measure of operating performance that assumes no dilution
from securities or contracts to issue common stock. Diluted earnings (loss) per share is a measure
of operating performance by giving effect to the dilution that would occur if securities or
contracts to issue common stock were exercised or converted. To the extent that stock options,
non-vested restricted stock and warrants are anti-dilutive, they are excluded from the calculation
of diluted earnings per share.
Share-Based Compensation
We measure compensation cost for all share-based awards at fair value on the date of grant and
recognition of compensation over the service period for awards expected to vest. The fair value of
stock options is determined using the Black-Scholes valuation model. Such value is recognized as
expense over the service period, net of estimated forfeitures, using the straight-line method. The
estimation of stock awards that will ultimately vest requires judgment, and to the extent actual
results or updated estimates differ from our current estimates, such amounts will be recorded as a
cumulative adjustment in the period estimates are revised.
Recently Issued and Adopted Accounting Standards
In January 2010, the FASB issued Accounting Standards Update (ASU) 2010-06 Fair Value
Measurements and Disclosures (Topic 820): Improving Disclosures about Fair Value Measurements (ASU
2010-06). ASU 2010-06 amends ASC 820 Fair Value Measurements and Disclosures (ASC 820) to
require new disclosures related to transfers into and out of Levels 1 and 2 of the fair value
hierarchy and additional disclosure requirements related to Level 3 measurements. The guidance
also clarifies existing fair value measurement disclosures about the level of disaggregation and
about inputs and valuation techniques used to measure fair value. The additional disclosure
requirements are effective for the first reporting period beginning after December 15, 2009, except
for the additional disclosure requirements related to Level 3 measurements which are effective for
fiscal years beginning after December 15, 2010. The adoption of the additional requirements of ASU
2010-06 is not expected to have any financial impact on our consolidated financial statements.
In September 2009, the FASB issued ASU 2009-12 Fair Value Measurements and Disclosures (Topic
820): Investments in Certain Entities that Calculate Net Asset Value per Share (ASU 2009-12),
which amends ASC 820 to provide clarification on the measurement and disclosure of investments in
certain entities that calculate net asset value per share (NAV). The measurement and disclosure
requirements of ASU 2009-12 are effective for the first reporting period ending after December 15,
2009. Accordingly, we adopted the requirements of this guidance effective October 1, 2009. The
adoption of the guidance did not have any financial impact on our consolidated financial statements
and the additional disclosure requirements can be found at Note 13 Pension Plans and Other
Postretirement Benefits.
In June 2009, the FASB issued the ASC to serve as the sole source of authoritative United
States accounting and reporting standards applicable for all non-governmental entities, with the
exception of the Securities and Exchange Commission (SEC) and its staff. The ASC changes the
referencing of financial standards but is not intended to change U.S. GAAP. This standard is
effective for interim or annual financial periods ending after September 15, 2009. Since the ASC
did not alter existing U.S. GAAP, it did not have any impact on our consolidated financial
statements.
In May 2009, the FASB issued guidance referenced in ASC 855 Subsequent Events (ASC 855).
ASC 855 establishes general standards of accounting for and disclosure of events that occur after
the balance sheet date but before financial statements are issued and requires the disclosure of
the date through which these events are evaluated. This statement is effective for interim and
annual periods ending after June 15, 2009 and accordingly, we adopted this guidance effective April
1, 2009.
In April 2009, the FASB issued guidance, referenced in ASC 825 Financial Instruments
(ASC 825), which amends U.S. GAAP to require entities to disclose the fair value of financial
instruments in all interim financial statements. The additional requirements of ASC 825 also
require disclosure of the method(s) and significant assumptions used to estimate the fair value of
those financial instruments. Previously, these disclosures were required only in annual financial
statements. The additional requirements of ASC 825 are effective for interim reporting periods
ending after June 15, 2009. The adoption of the additional requirements of ASC 825 did not have
any financial impact on our consolidated financial statements.
60
SOLUTIA
INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(Dollars in millions, except per share amounts or otherwise
noted)
In March 2008, the FASB issued guidance, referenced in ASC 815 Derivatives and Hedging (ASC
815), which requires enhanced disclosures about a companys derivative instruments and hedging
activities and was effective for fiscal years beginning after November 15, 2008. The adoption of
ASC 815 on January 1, 2009 did not have any financial impact on our consolidated financial
statements and the additional disclosures can be found at Note 11 Derivatives and Risk
Management.
In February 2008, the FASB issued guidance, referenced in ASC 820, which delayed the effective
date of accounting for nonfinancial assets and liabilities to fiscal years beginning after November
15, 2008. Accordingly, on January 1, 2009, we adopted the additional requirements of ASC 820 which
can be found at Note 4 Acquisitions and Divestitures.
In December 2008, the FASB issued guidance, referenced in ASC 715 Compensation Retirement
Benefits (ASC 715), which enhances disclosures required for pension and retirement plan assets.
The guidance includes providing a description of the investment strategies and policies and
providing information to allow the readers an understanding of the risk management practices. ASC
715 also requires the disclosure of the fair value of the major asset categories for the plan
assets and the valuation techniques used to determine the fair values. Disclosures as a result of
the new guidance are required for fiscal years ending after December 15, 2009. Accordingly, we
have adopted the additional requirements of ASC 715 which can be found at Note 13 Pension Plans
and Other Postretirement Benefits.
In December 2007, the FASB issued guidance, referenced in ASC 810 Consolidation, which
established new accounting and reporting standards for the noncontrolling interest in a subsidiary
and for the deconsolidation of a subsidiary through the use of disclosures that clearly identify
and distinguish between the interests of the parent and the interests of the noncontrolling owners.
This guidance is
effective for fiscal years beginning on or after December 15, 2008 with early adoption
prohibited. We have retrospectively adopted this guidance effective January 1, 2009 and as a
result, have reclassified our noncontrolling interest in a joint venture for prior periods on the
Consolidated Statement of Financial Position from other liabilities to a separate line item in the
equity section. The income attributable to the noncontrolling interest was also reclassified from
other income, net on the Consolidated Statement of Operations and Consolidated Statement of
Comprehensive Income (Loss) to a separate line item.
4. Acquisitions and Divestitures
Acquisitions
On November 13, 2007, we purchased Acquired Technology, Inc. (ATI) for $7. The ATI
acquisition provides technology to help grow and develop the broad product portfolio of our CPFilms
reportable segment while immediately adding sales volume in the window film components business.
The results of operations for ATI are included in the CPFilms reportable segment from the
acquisition date.
On May 1, 2007, we purchased the remaining 50 percent interest in our Flexsys joint venture
(Flexsys) simultaneous with Flexsys purchase of Akzo Nobels CRYSTEX® manufacturing operations
in Japan for $25. Under the terms of the purchase agreement, we purchased Akzo Nobels interest in
Flexsys for $213. The purchase was settled by cash payment of $115 plus the debt assumption by us
of Akzo Nobels pro-rata share of the projected Flexsys pension liability and the outstanding
balance on the existing term and revolving credit facility. Subsequent to the acquisition, we
reduced the projected pension liability via the payment of $27 to the pension plan, which was
classified as cash used in operating activities in the Consolidated Statement of Cash Flows. We
also refinanced the existing Flexsys $200 term and revolving credit facility with a new debt
agreement comprised of a $75 term loan and $150 revolving credit facility which was subsequently
repaid on the Effective Date as discussed in Note 10 Debt Obligations.
Flexsys is the worlds leading supplier of chemicals to the rubber processing and related
industries and manufactures more than fifty different products consisting of vulcanizing agents and
rubber chemicals. The acquisition was made to grow our portfolio of specialty chemical businesses.
The results of operations for Flexsys are included in the Technical Specialties reportable segment
from the acquisition date.
See Note 5 Impairment of Long-Lived Assets and Restructuring Reserves for restructuring
charges recognized in accrued liabilities and other liabilities as part of the purchase price
allocation above and charges utilized.
61
SOLUTIA
INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(Dollars in millions, except per share amounts or otherwise
noted)
Divestitures
On November 24, 2009, we announced the sale of our customer list and technology to Taminco NV
(Taminco) related to select products in our PERKACIT® ultra accelerators product line (Thiurams
Sale) for $4, which resulted in a gain of $4 recorded in research, development and other operating
expenses, net during 2009 in the Technical Specialties reportable segment. As part of the Thiurams
Sale, we entered into an agreement with Taminco to produce the select products through March 31,
2010 (Tolling Agreement) for $4, of which $2 will be paid at the end of the Tolling Agreement in
addition to reimbursement of certain costs. At the end of the Tolling Agreement, we will exit the
Akzo Nobel facility in Cologne, Germany (Cologne Facility) where we currently operate as a guest.
As a result of our exit from the Cologne Facility in 2010, certain restructuring charges will be
incurred, which are discussed in further detail in Note 5 Impairment of Long-Lived Assets and
Restructuring Reserves.
On August 28, 2009, we entered into an agreement to sell the North America portion of our
plastic products business to Orion Investment Group for $2 (Plastic Products Sale) effective
August 1, 2009. Therefore, operating results and cash flows related to the North America plastic
products business are not included in our Consolidated Statement of Operations or Consolidated
Statement of Cash Flows after July 31, 2009. We recognized a loss of $5 in research, development
and other operating expenses, net related to the Plastic Products Sale during 2009 in Unallocated
and Other.
We have classified the following completed transactions as discontinued operations in the
consolidated financial statements for all periods presented in accordance with U.S. GAAP. A
summary of the net sales and income (loss) from discontinued operations follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Successor |
|
|
Predecessor |
|
|
|
Twelve Months |
|
|
Ten Months |
|
|
Two Months |
|
|
Twelve Months |
|
|
|
Ended |
|
|
Ended |
|
|
Ended |
|
|
Ended |
|
|
|
December 31, |
|
|
December 31, |
|
|
February 29, |
|
|
December 31, |
|
|
|
2009 |
|
|
2008 |
|
|
2008 |
|
|
2007 |
|
Integrated Nylon: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net sales |
|
$ |
370 |
|
|
$ |
1,462 |
|
|
$ |
318 |
|
|
$ |
1,892 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income (Loss) before income taxes |
|
$ |
(187 |
) |
|
$ |
(648 |
) |
|
$ |
204 |
|
|
$ |
52 |
|
Income tax expense (benefit) |
|
|
(17 |
) |
|
|
1 |
|
|
|
|
|
|
|
2 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income (Loss) from discontinued operations |
|
$ |
(170 |
) |
|
$ |
(649 |
) |
|
$ |
204 |
|
|
$ |
50 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Water Treatment Phosphonates Business: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net sales |
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
$ |
43 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income before income taxes |
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
$ |
34 |
|
Income tax expense |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
15 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income from discontinued operations |
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
$ |
19 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Resins, Additives, and Adhesives Business: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income tax expense (benefit) |
|
$ |
(1 |
) |
|
$ |
(1 |
) |
|
$ |
|
|
|
$ |
5 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income (Loss) from discontinued operations |
|
$ |
1 |
|
|
$ |
1 |
|
|
$ |
|
|
|
$ |
(5 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
On June 1, 2009, we sold substantially all the assets and certain liabilities, including
environmental remediation and pension liabilities of active employees, of our Integrated Nylon
business to S.K. Capital Partners II, L.P. (Buyer), a New York-based private equity firm. We
realized a loss of $76 on this transaction in 2009, which was recorded in income (loss) from
discontinued operations. In 2009, we wrote the carrying value of our fixed assets down from $48 to
their fair value of zero, resulting in a $31 loss, net of tax, which was also recorded in income
(loss) from discontinued operations. The fair value of these long-lived assets was developed using
the sales agreement, which is a Level 2 fair value measurement under the fair value hierarchy.
In 2008, we performed an impairment test by estimating the fair value of the Integrated Nylon
asset group by weighting estimated sales proceeds and discounted cash flows that the asset group
could be expected to generate through the time of an assumed sale. This test resulted in an
impairment charge of $461, which was recorded in income (loss) from discontinued operations
in the Consolidated Statement of Operations for the ten months ended December 31, 2008.
62
SOLUTIA
INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(Dollars in millions, except per share amounts or otherwise
noted)
The carrying amounts of assets and liabilities for Integrated Nylon, which have been
classified as current in the Consolidated Statement of Financial Position consisted of the
following:
|
|
|
|
|
|
|
|
|
|
|
Successor |
|
|
|
December 31, |
|
|
December 31, |
|
|
|
2009 |
|
|
2008 |
|
|
|
Assets: |
|
|
|
|
|
|
|
|
Trade receivables, net |
|
$ |
|
|
|
$ |
75 |
|
Miscellaneous receivables |
|
|
10 |
|
|
|
15 |
|
Inventories |
|
|
|
|
|
|
336 |
|
Prepaid expenses and other assets |
|
|
|
|
|
|
15 |
|
Property, plant and equipment, net |
|
|
|
|
|
|
41 |
|
Other assets |
|
|
|
|
|
|
8 |
|
|
|
|
|
|
|
|
Assets of discontinued operations |
|
$ |
10 |
|
|
$ |
490 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Liabilities: |
|
|
|
|
|
|
|
|
Accounts payable |
|
$ |
29 |
|
|
$ |
101 |
|
Accrued liabilities |
|
|
21 |
|
|
|
54 |
|
Environmental remediation liabilities |
|
|
|
|
|
|
9 |
|
Other liabilities |
|
|
|
|
|
|
57 |
|
Postretirement liabilities |
|
|
|
|
|
|
81 |
|
|
|
|
|
|
|
|
Liabilities of discontinued operations |
|
$ |
50 |
|
|
$ |
302 |
|
|
|
|
|
|
|
|
Prior to the sale of our Integrated Nylon business, Lyondell Chemical Company
(Lyondell), a guest at the Integrated Nylon Alvin, Texas plant under various operating agreements
which expire in December 2010, declared bankruptcy and provided to us notice of its intention to
exit the facility and terminate its operating agreements early without consideration for the
contractually agreed to early exit penalties. In response, we have withheld payment on certain
trade payables to subsidiaries of Lyondell asserting these liabilities partially offset damages
associated with the rejection of these contracts. In conjunction with the sale of the Integrated
Nylon business, we have agreed to reimburse the Buyer for indirect residual costs incurred by them
resulting from Lyondells early exit.
On May 31, 2007, we sold the assets and transferred certain liabilities of DEQUEST®, our water
treatment phosphonates business (Dequest) to Thermphos Trading GmbH (Thermphos). Under the
terms of the agreement, Thermphos purchased the assets and assumed certain of the liabilities of
Dequest, resulting in a gain of $34 recorded in income (loss) from discontinued operations in the
Consolidated Statement of Operations. The gain on sale of Dequest is subject to income tax in
multiple jurisdictions, the allocation of which may be challenged by local authorities. We have
provided taxes in excess of the U.S. Federal income rate to reflect this uncertainty. Dequest was
a component of the former Performance Products segment prior to the classification as discontinued
operations.
On January 31, 2003, we sold the resins, additives and adhesives businesses to UCB S.A. In
2007, a reserve of $5 was established in income (loss) from discontinued operations in the
Consolidated Statement of Operations to provide for a potential liability for on-going tax audits
of these businesses for the years 2000 through 2004. During 2009 and 2008, changes related to the
tax audits for our 100% owned subsidiary, Solutia Deutschland GmbH, resulted in a $1 gain for both
the twelve months and ten months ended December 31, 2009 and 2008, respectively, in income (loss)
from discontinued operations in the Consolidated Statement of Operations.
5.
Impairment of Long-Lived Assets and Restructuring Reserves
In an effort to maintain competitiveness across our businesses and the geographic areas in
which we operate and to enhance the efficiency and cost effectiveness of our support operations, we
periodically initiate certain restructuring activities which result in charges for costs associated
with exit or disposal activities, severance and/or impairment of long-lived assets. A summary of
these activities for 2009, 2008 and 2007 is as follows:
Cologne Facility Closure
As a result of the Thiurams Sale (see Note 4 Acquisitions and Divestitures), we will cease
manufacturing at the Cologne Facility at the end of the first quarter of 2010 with complete exit by
the third quarter of 2010. As a result, based on current information, we expect to incur charges of approximately $10 throughout
the closure process as an increase to cost of goods sold within our Technical Specialties
reportable segment, categorized as follows: (i) $4 for employment reductions, (ii) $2 for future
contractual payments related to indirect residual costs through November 2012 in accordance with
the operating agreement and (iii) $4 for other costs including demolition. There can be no assurance as to what the ultimate charges will be. During
the year ended December 31, 2009, less than $1 of restructuring costs were charged to cost of goods
sold related to employment reductions.
63
SOLUTIA
INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(Dollars in millions, except per share amounts or otherwise
noted)
General Corporate
In the fourth quarter of 2008, we initiated a general corporate restructuring targeted to
increase the efficiency and cost effectiveness of our support operations. Throughout 2009, this
project has expanded in scope to include a reduction in operational personnel in order to more
appropriately match our organization with current production levels. A summary of the employee
reduction charges associated with this project during the year ended December 31, 2009 and
cumulative charges through December 31, 2009 are as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Technical |
|
|
Unallocated |
|
|
|
|
|
|
Saflex |
|
|
CPFilms |
|
|
Specialties |
|
|
and Other |
|
|
Total |
|
Year Ended December 31, 2009: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cost of goods sold |
|
$ |
3 |
|
|
$ |
1 |
|
|
$ |
1 |
|
|
$ |
1 |
|
|
$ |
6 |
|
Selling, general and administrative expenses |
|
|
12 |
|
|
|
3 |
|
|
|
2 |
|
|
|
10 |
|
|
|
27 |
|
Research, development and other operating
expenses, net |
|
|
1 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total |
|
$ |
16 |
|
|
$ |
4 |
|
|
$ |
3 |
|
|
$ |
11 |
|
|
$ |
34 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cumulative through December 31, 2009: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cost of goods sold |
|
$ |
3 |
|
|
$ |
1 |
|
|
$ |
1 |
|
|
$ |
1 |
|
|
$ |
6 |
|
Selling, general and administrative expenses |
|
|
12 |
|
|
|
3 |
|
|
|
2 |
|
|
|
13 |
|
|
|
30 |
|
Research, development and other operating
expenses, net |
|
|
1 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total |
|
$ |
16 |
|
|
$ |
4 |
|
|
$ |
3 |
|
|
$ |
14 |
|
|
$ |
37 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
In addition to the employee reduction charges recorded in selling, general and administrative expenses, we incurred $1 of charges in Unallocated
and Other for future contractual payments related to the relocation of certain regional support
operations from Singapore to Shanghai, China. We expect to incur an additional $2 in charges to be
shared by all our segments to cover the cost of impacted headcount reductions.
Trenton Sheet Facility Closure
In an effort to balance our North America production with customer demand, in the fourth
quarter of 2008, we announced the closure of our SAFLEX® plastic interlayer manufacturing line at our
facility in Trenton, Michigan (Trenton Facility) in 2009. A summary of the charges associated
with this project during the year ended December 31, 2009 and cumulative charges through December
31, 2009 as recorded in cost of goods sold are as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Impairment |
|
|
|
|
|
|
Other |
|
|
|
|
|
|
of Long-Lived |
|
|
Employment |
|
|
Restructuring |
|
|
|
|
|
|
Assets |
|
|
Reductions |
|
|
Costs |
|
|
Total |
|
Year Ended December 31, 2009: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Charges taken |
|
$ |
|
|
|
$ |
4 |
|
|
$ |
1 |
|
|
$ |
5 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cumulative through December 31, 2009: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Charges taken |
|
$ |
8 |
|
|
$ |
6 |
|
|
$ |
1 |
|
|
$ |
15 |
|
We do not expect to incur any additional restructuring charges for this project.
64
SOLUTIA
INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(Dollars in millions, except per share amounts or otherwise
noted)
Ruabon Facility Closure
Due to overcapacity within the industry, a disadvantaged cost position and increasing pressure
from Far Eastern producers, we ceased the manufacturing of certain rubber chemicals at our facility
in Ruabon, Wales, United Kingdom (Ruabon Facility) in the third and fourth quarters of 2008 with
a current expected final closure of the plant in 2014. A summary of the charges and changes in estimates
associated with this project during the year ended December 31, 2009 and cumulative charges through
December 31, 2009 as recorded in cost of goods sold are as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Future |
|
|
|
|
|
|
Other |
|
|
|
|
|
|
Contractual |
|
|
Employment |
|
|
Restructuring |
|
|
|
|
|
|
Payments |
|
|
Reductions |
|
|
Costs |
|
|
Total |
|
Year Ended December 31, 2009: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Charges taken |
|
$ |
|
|
|
$ |
2 |
|
|
$ |
1 |
|
|
$ |
3 |
|
Changes in estimates (a) |
|
|
(5 |
) |
|
|
|
|
|
|
|
|
|
|
(5 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
Total |
|
$ |
(5 |
) |
|
$ |
2 |
|
|
$ |
1 |
|
|
$ |
(2 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cumulative through December 31, 2009: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Charges taken |
|
$ |
10 |
|
|
$ |
9 |
|
|
$ |
4 |
|
|
$ |
23 |
|
Changes in estimates (a) |
|
|
(5 |
) |
|
|
|
|
|
|
|
|
|
|
(5 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
Total |
|
$ |
5 |
|
|
$ |
9 |
|
|
$ |
4 |
|
|
$ |
18 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(a) |
|
We reduced the future contractual payment reserve by $5 due to a
renegotiation of the lease and operating agreement with our third
party operator. The new lease and operating agreement, which is
effective from September 1, 2009 through December 31, 2013, reduced
the services to be provided and increased certain fees allowing the
contract to provide an economic benefit. |
To complete the closure process,
based on current information, we expect to incur an additional $5 in charges as an
increase to cost of goods sold within our Technical Specialties reportable segment for other
restructuring costs including demolition.
Plastic Products Manufacturing Relocation
To improve our cost position, we relocated the manufacturing operations of our plastic
products business in 2008 from Ghent, Belgium to Oradea, Romania. During the ten months ended
December 31, 2008, $2 of costs, categorized as other restructuring costs within Unallocated and
Other, was charged to cost of goods sold for this restructuring event.
Flexsys Integration
In conjunction with the Flexsys Acquisition (see Note 4 Acquisitions and Divestitures), we
increased our restructuring reserve $10 as an adjustment to the purchase price allocation and
assumed an additional $2 of existing restructuring reserves. The combined restructuring reserve is
expected to cover (i) $10 for employment reductions and (ii) $2 for future contractual payments for
administrative offices to be closed.
Other Rubber Chemical Impairment
Due to overcapacity within the industry, a disadvantaged cost position and increasing pressure
from Far Eastern producers, the long-term profitability outlook of certain rubber chemicals product
lines at our Ruabon Facility and our facility in Antwerp, Belgium (Antwerp Facility) declined
significantly. As a result, in the fourth quarter of 2007 we recorded $25 as an increase to cost
of goods sold within our Technical Specialties reportable segment for impairment of certain
long-lived assets.
In 2008, we recorded maintenance capital expenditures on certain product lines that
manufacture rubber chemicals at our Antwerp Facility. Because the carrying values of the related
asset groups were fully impaired in 2007, we reviewed the expected future cash flows attributable
to these product lines to ensure the 2008 capital expenditures were recoverable and concluded the
carrying value of these capital additions should be reduced. As a result, during the ten months
ended December 31, 2008, $3 of restructuring costs, categorized as impairment of fixed assets, was
charged to cost of goods sold within our Technical Specialties reportable segment.
Chapter 11 Reorganization
To continue to improve efficiency as well as our cost position during our Chapter 11 Case, we
enacted certain headcount reductions within our Saflex and Technical Specialties segments in 2007.
As a result, $2 for employment reductions was charged to costs of goods sold during the twelve
months ended December 31, 2007.
65
SOLUTIA
INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(Dollars in millions, except per share amounts or otherwise
noted)
Restructuring Summary
The following table summarizes the above noted restructuring charges, amounts utilized to
carry out those plans and amounts remaining at December 31, 2009:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Future |
|
|
|
|
|
|
Impairment of |
|
|
Other |
|
|
|
|
|
|
Contractual |
|
|
Employment |
|
|
Long-Lived |
|
|
Restructuring |
|
|
|
|
|
|
Payments |
|
|
Reductions |
|
|
Assets |
|
|
Costs |
|
|
Total |
|
Predecessor |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at January 1, 2008 |
|
$ |
3 |
|
|
$ |
5 |
|
|
$ |
|
|
|
$ |
|
|
|
$ |
8 |
|
Amounts utilized |
|
|
|
|
|
|
(1 |
) |
|
|
|
|
|
|
|
|
|
|
(1 |
) |
Currency fluctuations |
|
|
|
|
|
|
1 |
|
|
|
|
|
|
|
|
|
|
|
1 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at February 29, 2008 |
|
|
3 |
|
|
|
5 |
|
|
|
|
|
|
|
|
|
|
|
8 |
|
Successor |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Charges taken |
|
|
9 |
|
|
|
12 |
|
|
|
11 |
|
|
|
5 |
|
|
|
37 |
|
Amounts utilized |
|
|
(2 |
) |
|
|
(4 |
) |
|
|
|
|
|
|
(4 |
) |
|
|
(10 |
) |
Non-cash reductions |
|
|
|
|
|
|
|
|
|
|
(11 |
) |
|
|
(1 |
) |
|
|
(12 |
) |
Change in estimates |
|
|
2 |
|
|
|
(2 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
Currency fluctuations |
|
|
(2 |
) |
|
|
(1 |
) |
|
|
|
|
|
|
|
|
|
|
(3 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at December 31, 2008 |
|
|
10 |
|
|
|
10 |
|
|
|
|
|
|
|
|
|
|
|
20 |
|
Charges taken |
|
|
1 |
|
|
|
40 |
|
|
|
|
|
|
|
2 |
|
|
|
43 |
|
Amounts utilized |
|
|
(4 |
) |
|
|
(37 |
) |
|
|
|
|
|
|
(2 |
) |
|
|
(43 |
) |
Changes in estimates |
|
|
(5 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(5 |
) |
Currency fluctuations |
|
|
|
|
|
|
2 |
|
|
|
|
|
|
|
|
|
|
|
2 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at December 31, 2009 |
|
$ |
2 |
|
|
$ |
15 |
|
|
$ |
|
|
|
$ |
|
|
|
$ |
17 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
We expect $13 of restructuring liabilities as of December 31, 2009 to be utilized within
the next twelve months.
6.
Goodwill and Other Intangible Assets
Goodwill
As a result of applying fresh-start accounting, the Successor recorded goodwill of $520 as of
February 29, 2008. We do not have any goodwill that is deductible for tax purposes. During the
ten months ended December 31, 2008, goodwill was reduced by $9
in accordance with ASC 852 to
reflect our expectation that certain tax benefits, previously fully reserved, would be realized.
Goodwill by reportable segment is as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Technical |
|
|
|
|
|
|
Saflex |
|
|
CPFilms |
|
|
Specialties |
|
|
Total |
|
Predecessor |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at December 31, 2007 |
|
$ |
55 |
|
|
$ |
13 |
|
|
$ |
81 |
|
|
$ |
149 |
|
Currency adjustment |
|
|
|
|
|
|
|
|
|
|
1 |
|
|
|
1 |
|
Fresh-start eliminations |
|
|
(55 |
) |
|
|
(13 |
) |
|
|
(82 |
) |
|
|
(150 |
) |
Fresh-start additions |
|
|
205 |
|
|
|
159 |
|
|
|
156 |
|
|
|
520 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at February 29, 2008 |
|
|
205 |
|
|
|
159 |
|
|
|
156 |
|
|
|
520 |
|
Successor |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Tax Adjustment |
|
|
|
|
|
|
|
|
|
|
(9 |
) |
|
|
(9 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at December 31, 2008 |
|
$ |
205 |
|
|
$ |
159 |
|
|
$ |
147 |
|
|
$ |
511 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at December 31, 2009 |
|
$ |
205 |
|
|
$ |
159 |
|
|
$ |
147 |
|
|
$ |
511 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Identified Intangible Assets
Identified intangible assets are comprised of (i) amortizable customer relationships,
unpatented technology, contract-based intangible assets, trade names and patents and (ii)
indefinite-lived trademarks not subject to amortization. The value assigned to the identified
intangible assets upon the adoption of fresh-start accounting represents our best estimates of fair
value based on internal and external valuations. These intangible assets are summarized in
aggregate as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Successor |
|
|
|
December 31, 2009 |
|
|
December 31, 2008 |
|
|
|
Estimated |
|
|
|
|
|
|
|
|
|
|
|
|
|
Estimated |
|
|
|
|
|
|
|
|
|
|
|
|
Useful |
|
Gross |
|
|
|
|
|
|
Net |
|
|
Useful |
|
Gross |
|
|
|
|
|
|
Net |
|
|
|
Life in |
|
Carrying |
|
|
Accumulated |
|
|
Carrying |
|
|
Life in |
|
Carrying |
|
|
Accumulated |
|
|
Carrying |
|
|
|
Years |
|
Value |
|
|
Amortization |
|
|
Value |
|
|
Years |
|
Value |
|
|
Amortization |
|
|
Value |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Amortizable intangible assets: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Customer relationships |
|
23 to 27 |
|
$ |
491 |
|
|
$ |
(34 |
) |
|
$ |
457 |
|
|
23 to 27 |
|
$ |
486 |
|
|
$ |
(15 |
) |
|
$ |
471 |
|
Technology |
|
5 to 26 |
|
|
202 |
|
|
|
(19 |
) |
|
|
183 |
|
|
5 to 26 |
|
|
199 |
|
|
|
(9 |
) |
|
|
190 |
|
Trade names |
|
25 |
|
|
13 |
|
|
|
(1 |
) |
|
|
12 |
|
|
25 |
|
|
13 |
|
|
|
(-- |
) |
|
|
13 |
|
Patents |
|
13 |
|
|
5 |
|
|
|
(1 |
) |
|
|
4 |
|
|
13 |
|
|
4 |
|
|
|
(-- |
) |
|
|
4 |
|
Indefinite-lived intangible assets: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Trademarks |
|
|
|
|
147 |
|
|
|
|
|
|
|
147 |
|
|
|
|
|
145 |
|
|
|
|
|
|
|
145 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Identified Intangible Assets |
|
|
|
$ |
858 |
|
|
$ |
(55 |
) |
|
$ |
803 |
|
|
|
|
$ |
847 |
|
|
$ |
(24 |
) |
|
$ |
823 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
66
SOLUTIA
INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(Dollars in millions, except per share amounts or otherwise
noted)
During the twelve months and ten months ended December 31, 2009 and 2008, we recognized
$30 and $25 of amortization expense, respectively. Amortization expense is allocated to cost of
goods sold and selling, general and administrative expenses in the Consolidated Statement of
Operations as follows:
|
|
|
|
|
|
|
|
|
|
|
Successor |
|
|
|
Twelve Months |
|
|
Ten Months |
|
|
|
Ended |
|
|
Ended |
|
|
|
December 31, |
|
|
December 31, |
|
|
|
2009 |
|
|
2008 |
|
|
|
|
|
|
|
|
|
|
Cost of goods sold |
|
$ |
10 |
|
|
$ |
9 |
|
Selling, general and administrative expenses |
|
$ |
20 |
|
|
$ |
16 |
|
Based
on current information, we expect amortization expense for intangible assets to be approximately $30 annually
from 2010 through 2014.
In the fourth quarter of each year we test for impairment the carrying value of goodwill and
indefinite-lived intangible assets. There were no impairments to the carrying amount of goodwill
or trademarks during 2009. As a result of this test during the ten months ended December 31, 2008,
we recorded an impairment charge of $3 within our CPFilms reportable segment to reflect a write
down of trademarks. The charge was recorded in selling, general, and administrative expenses in
the Consolidated Statement of Operations and was determined after comparing the fair value,
estimated by discounting future cash flows attributable to this asset, to its carrying value. The
impairment charge was precipitated by an expectation of a lower percentage of projected cash flows
attributable to trademark branded window film products, which became apparent during the fourth
quarter of 2008 in conjunction with the completion of our annual budget and long range plan
process.
7.
Investments in Affiliates
On May 1, 2007 as further described in Note 4 Acquisitions and Divestitures, we acquired
Akzo Nobels interest in Flexsys resulting in us consolidating Flexsys as a 100% owned subsidiary.
We applied the equity method of accounting for Flexsys prior to May 1, 2007. Summarized combined
financial information for 100 percent of the Flexsys joint venture prior to May 1, 2007 is as
follows:
|
|
|
|
|
|
|
Predecessor |
|
|
|
Twelve Months |
|
|
|
Ended |
|
|
|
December 31, |
|
|
|
2007 |
|
Results of Operations: |
|
|
|
|
Net Sales |
|
$ |
207 |
|
Gross Profit |
|
$ |
50 |
|
Operating income |
|
$ |
34 |
|
Net income |
|
$ |
25 |
|
8.
Detail of Certain Balance Sheet Accounts
Components of inventories were as follows:
|
|
|
|
|
|
|
|
|
|
|
Successor |
|
|
|
December 31, |
|
|
December 31, |
|
Inventories |
|
2009 |
|
|
2008 |
|
|
|
|
|
|
|
|
|
|
Finished goods |
|
$ |
138 |
|
|
$ |
195 |
|
Goods in process |
|
|
47 |
|
|
|
59 |
|
Raw materials and supplies |
|
|
71 |
|
|
|
87 |
|
|
|
|
|
|
|
|
Inventories, at FIFO cost |
|
|
256 |
|
|
|
341 |
|
Excess of LIFO over FIFO cost |
|
|
1 |
|
|
|
|
|
|
|
|
|
|
|
|
Total Inventories |
|
$ |
257 |
|
|
$ |
341 |
|
|
|
|
|
|
|
|
67
SOLUTIA
INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(Dollars in millions, except per share amounts or otherwise
noted)
In connection with the adoption of fresh-start accounting, inventories were recorded at
the selling price less cost to sell resulting in the elimination of the LIFO reserve and a step-up
in basis of $67 at the Effective Date. The $67 step-up in basis was charged to cost of goods sold
in the Successor Consolidated Statement of Operations during the ten months ended December 31,
2008.
Components of property, plant and equipment were as follows:
|
|
|
|
|
|
|
|
|
|
|
Successor |
|
|
|
December 31, |
|
|
December 31, |
|
Property, Plant and Equipment |
|
2009 |
|
|
2008 |
|
|
|
|
|
|
|
|
|
|
Land |
|
$ |
33 |
|
|
$ |
34 |
|
Leasehold improvements |
|
|
10 |
|
|
|
9 |
|
Buildings |
|
|
211 |
|
|
|
203 |
|
Machinery and equipment |
|
|
758 |
|
|
|
727 |
|
Construction in progress |
|
|
35 |
|
|
|
35 |
|
|
|
|
|
|
|
|
Total property, plant and equipment |
|
|
1,047 |
|
|
|
1,008 |
|
Less accumulated depreciation |
|
|
(128 |
) |
|
|
(56 |
) |
|
|
|
|
|
|
|
Total |
|
$ |
919 |
|
|
$ |
952 |
|
|
|
|
|
|
|
|
Components of accrued liabilities were as follows:
|
|
|
|
|
|
|
|
|
|
|
Successor |
|
|
|
December 31, |
|
|
December 31, |
|
Accrued Liabilities |
|
2009 |
|
|
2008 |
|
|
|
|
|
|
|
|
|
|
Wages and benefits |
|
$ |
24 |
|
|
$ |
57 |
|
Foreign currency and interest rate hedge agreements |
|
|
7 |
|
|
|
36 |
|
Restructuring reserves |
|
|
13 |
|
|
|
19 |
|
Environmental remediation liabilities |
|
|
31 |
|
|
|
30 |
|
Accrued income taxes payable |
|
|
19 |
|
|
|
15 |
|
Accrued selling expenses |
|
|
20 |
|
|
|
16 |
|
Other |
|
|
92 |
|
|
|
86 |
|
|
|
|
|
|
|
|
Total Accrued Liabilities |
|
$ |
206 |
|
|
$ |
259 |
|
|
|
|
|
|
|
|
9.
Income Taxes
The components of income (loss) from continuing operations before income taxes were as
follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Successor |
|
|
Predecessor |
|
|
|
Twelve Months |
|
|
Ten Months |
|
|
Two Months |
|
|
Twelve Months |
|
|
|
Ended |
|
|
Ended |
|
|
Ended |
|
|
Ended |
|
|
|
December 31, |
|
|
December 31, |
|
|
February 29, |
|
|
December 31, |
|
|
|
2009 |
|
|
2008 |
|
|
2008 |
|
|
2007 |
|
United States |
|
$ |
(53 |
) |
|
$ |
(40 |
) |
|
$ |
1,094 |
|
|
$ |
(307 |
) |
Outside United States |
|
|
127 |
|
|
|
38 |
|
|
|
370 |
|
|
|
55 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total |
|
$ |
74 |
|
|
$ |
(2 |
) |
|
$ |
1,464 |
|
|
$ |
(252 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
The components of income tax expense recorded in continuing operations were as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Successor |
|
|
Predecessor |
|
|
|
Twelve Months |
|
|
Ten Months |
|
|
Two Months |
|
|
Twelve Months |
|
|
|
Ended |
|
|
Ended |
|
|
Ended |
|
|
Ended |
|
|
|
December 31, |
|
|
December 31, |
|
|
February 29, |
|
|
December 31, |
|
|
|
2009 |
|
|
2008 |
|
|
2008 |
|
|
2007 |
|
Current: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
U.S. federal |
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
U.S. state |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Outside United States |
|
|
26 |
|
|
|
21 |
|
|
|
15 |
|
|
|
32 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
26 |
|
|
|
21 |
|
|
|
15 |
|
|
|
32 |
|
Deferred: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
U.S. federal |
|
|
|
|
|
|
(1 |
) |
|
|
|
|
|
|
(10 |
) |
U.S. state |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Outside United States |
|
|
(12 |
) |
|
|
(7 |
) |
|
|
199 |
|
|
|
(5 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(12 |
) |
|
|
(8 |
) |
|
|
199 |
|
|
|
(15 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
Total |
|
$ |
14 |
|
|
$ |
13 |
|
|
$ |
214 |
|
|
$ |
17 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
68
SOLUTIA
INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(Dollars in millions, except per share amounts or otherwise
noted)
Income tax expense differed from the amounts computed by applying the U.S. Federal income
tax rate of 35% to income (loss) from continuing operations before income taxes as a result of the
following:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Successor |
|
|
Predecessor |
|
|
|
Twelve Months |
|
|
Ten Months |
|
|
Two Months |
|
|
Twelve Months |
|
|
|
Ended |
|
|
Ended |
|
|
Ended |
|
|
Ended |
|
|
|
December 31, |
|
|
December 31, |
|
|
February 29, |
|
|
December 31, |
|
Dollars in millions |
|
2009 |
|
|
2008 |
|
|
2008 |
|
|
2007 |
|
Income Tax at federal statutory rate |
|
$ |
26 |
|
|
$ |
(1 |
) |
|
$ |
513 |
|
|
$ |
(88 |
) |
Increase (reduction) in income taxes due to: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
U.S. state income taxes |
|
|
(3 |
) |
|
|
(6 |
) |
|
|
7 |
|
|
|
(9 |
) |
Taxes related to foreign earnings |
|
|
(23 |
) |
|
|
14 |
|
|
|
51 |
|
|
|
8 |
|
Valuation allowances |
|
|
23 |
|
|
|
8 |
|
|
|
(259 |
) |
|
|
82 |
|
Income from equity affiliates |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(3 |
) |
Surrendered losses from equity affiliate (a) |
|
|
|
|
|
|
|
|
|
|
(4 |
) |
|
|
(4 |
) |
Reorganization items |
|
|
|
|
|
|
|
|
|
|
(107 |
) |
|
|
17 |
|
Tax contingency adjustment |
|
|
(8 |
) |
|
|
1 |
|
|
|
10 |
|
|
|
10 |
|
Other |
|
|
(1 |
) |
|
|
(3 |
) |
|
|
3 |
|
|
|
4 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income tax expense |
|
$ |
14 |
|
|
$ |
13 |
|
|
$ |
214 |
|
|
$ |
17 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(a) |
|
During the Predecessor periods ended February 29, 2008 and December 31, 2007, a
non-consolidated equity affiliate surrendered a prior year loss that was used to
offset a foreign subsidiarys taxable income in the United Kingdom. |
We have been granted tax holidays in Malaysia and China which first benefited the year ended
December 31, 2006. The Malaysia holidays expire in 2012 and 2013, and the China holidays phase out
between 2009 and 2012. The aggregate benefits on income tax expense were $11 in the twelve months
ended December 31, 2009, $6 in the ten months ended December 31, 2008, $1 in the two months ended
February 29, 2008, and $5 in the twelve months ended December 31, 2007.
Deferred income tax balances were related to:
|
|
|
|
|
|
|
|
|
|
|
Successor |
|
|
|
December 31, |
|
|
December 31, |
|
|
|
2009 |
|
|
2008 |
|
|
|
Postretirement benefits |
|
$ |
138 |
|
|
$ |
163 |
|
Environmental liabilities |
|
|
111 |
|
|
|
115 |
|
Inventory |
|
|
|
|
|
|
5 |
|
Insurance reserves |
|
|
14 |
|
|
|
16 |
|
Miscellaneous accruals |
|
|
13 |
|
|
|
16 |
|
Equity affiliates |
|
|
24 |
|
|
|
4 |
|
Net operating losses |
|
|
559 |
|
|
|
488 |
|
Tax credit carryforward |
|
|
131 |
|
|
|
55 |
|
Accrued allowed claims |
|
|
|
|
|
|
14 |
|
Other |
|
|
23 |
|
|
|
60 |
|
|
|
|
|
|
|
|
Total Deferred Tax Assets |
|
|
1,013 |
|
|
|
936 |
|
Less: Valuation allowances |
|
|
(753 |
) |
|
|
(572 |
) |
|
|
|
|
|
|
|
Deferred Tax Assets Less Valuation Allowances |
|
|
260 |
|
|
|
364 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Intangible Assets |
|
|
(284 |
) |
|
|
(287 |
) |
Property |
|
|
(68 |
) |
|
|
(149 |
) |
Undistributed
earnings |
|
|
(46 |
) |
|
|
(90 |
) |
Inventory |
|
|
(3 |
) |
|
|
|
|
Other |
|
|
(9 |
) |
|
|
(9 |
) |
|
|
|
|
|
|
|
Total Deferred Tax Liabilities |
|
|
(410 |
) |
|
|
(535 |
) |
|
|
|
|
|
|
|
Net Deferred Tax Liabilities |
|
$ |
(150 |
) |
|
$ |
(171 |
) |
|
|
|
|
|
|
|
69
SOLUTIA
INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(Dollars in millions, except per share amounts or otherwise
noted)
Deferred tax assets are reduced by valuation allowances resulting in our best estimate of the amount of deferred tax assets that are more
likely than not to be realized. The valuation allowances are affected by items not included in our components of income tax expense from continuing
operations, including certain changes in estimated foreign tax credit carryforwards available and in unrecognized tax benefits, the tax effects of undistributed earnings of
foreign subsidiaries not indefinitely reinvested, deferred tax items recorded to accumulated other comprehensive loss and the completion of income tax returns.
For each tax-paying component and within a particular tax jurisdiction, (i) all current
deferred tax liabilities and assets are offset and presented as a single amount and (ii) all
noncurrent deferred tax liabilities and assets are offset and presented as a single amount. This
approach results in the following classification on the Consolidated Statement of Financial
Position as of December 31, 2009 and 2008:
|
|
|
|
|
|
|
|
|
|
|
Successor |
|
|
|
December 31, |
|
|
December 31, |
|
|
|
2009 |
|
|
2008 |
|
Deferred Tax Assets: |
|
|
|
|
|
|
|
|
Prepaid expenses and other assets |
|
$ |
8 |
|
|
$ |
21 |
|
Other assets |
|
|
21 |
|
|
|
11 |
|
|
|
|
|
|
|
|
Total |
|
$ |
29 |
|
|
$ |
32 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Deferred Tax Liabilities: |
|
|
|
|
|
|
|
|
Accrued liabilities |
|
$ |
|
|
|
$ |
1 |
|
Deferred tax liabilities |
|
|
179 |
|
|
|
202 |
|
|
|
|
|
|
|
|
Total |
|
$ |
179 |
|
|
$ |
203 |
|
|
|
|
|
|
|
|
At December 31, 2009, research and development tax credit carryforwards available to
reduce possible future U.S. income taxes amounted to approximately $5, all of which will expire in
2019 through 2022. At December 31, 2009, foreign tax credit carryforwards available upon election
to reduce possible future U.S. income taxes were estimated to be approximately $125, which will
expire in 2018 and 2019. Income taxes and remittance taxes have not been recorded on $96 of
undistributed earnings of subsidiaries because we intend to reinvest those earnings indefinitely.
It is not practicable to estimate the tax effect of remitting these earnings to the U.S.
Net Operating Loss and Valuation Allowance
At December 31, 2009, various federal, state and foreign net operating loss carryforwards were
available to offset future taxable income. These net operating losses expire from 2010 through
2027 or have an indefinite carryforward period. A full valuation allowance has been provided
against the U.S. deferred tax assets. The valuation allowance will be retained until there is
sufficient positive evidence to conclude that it is more likely than not that the deferred tax
assets will be realized.
As a result of the issuance of our common stock upon emergence from bankruptcy, we realized a
change of ownership for purposes of Section 382 of the Internal Revenue Code. We do not currently
expect this change to significantly limit our ability to utilize our U.S. net operating loss
carryforward, which we estimated to be approximately $1,600 at December 31, 2009, of which
approximately $600 was available without limitation. As discussed in Note 16 Capital Stock, during the third quarter of 2009, our Board of
Directors approved a net operating loss shareholder rights plan (Rights Plan) which is intended to reduce the likelihood of an additional
ownership change within the meaning of Section 382 of the Internal
Revenue Code and thereby preserve our ability to utilize our U.S. net
operating loss carryforward.
Unrecognized Tax Benefits
In July 2006, the FASB issued guidance, now referenced as ASC 740, which creates a single
model to address uncertainty in tax positions and clarifies the accounting for income taxes by
prescribing the minimum recognition threshold a tax position is required to meet before being
recognized in the financial statements. As a result of the adoption of this guidance on January 1,
2007, we increased our accumulated deficit by $3 as a cumulative effect adjustment in the
Consolidated Statement of Shareholders Equity (Deficit).
The total amount of unrecognized tax benefits, inclusive of interest and penalties, at
December 31, 2009 and 2008 was $155 and $157, respectively. The decrease in this amount is mainly
the result of the closure of tax audits and statute of limitation expirations offset by tax
positions with respect to events in the current year and currency exchange fluctuations. Included
in the balance at December 31, 2009 and 2008 were $54 and $63, respectively, of unrecognized tax
benefits that, if recognized, would affect the effective tax rate.
We recognize accrued interest and penalties related to unrecognized tax benefits in income tax
expense. As of December 31, 2009, we accrued $5 for interest and $6 for penalties. As of December
31, 2008 the amount accrued was $3 for interest and $6 for penalties.
70
SOLUTIA INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(Dollars in millions, except per share amounts or otherwise noted)
A reconciliation of the beginning and ending amount of unrecognized tax benefits (exclusive of
interest and penalties) is as follows:
|
|
|
|
|
|
|
Total |
|
Predecessor |
|
|
|
|
Balance at January 1, 2007 |
|
$ |
101 |
|
Gross increases tax positions in prior periods |
|
|
16 |
|
Gross increases current period tax positions |
|
|
24 |
|
Settlements |
|
|
(1 |
) |
Lapse of statute of limitations |
|
|
(4 |
) |
|
|
|
|
Balance at December 31, 2007 |
|
|
136 |
|
Gross increases tax positions in prior periods |
|
|
3 |
|
Gross increases current period tax positions |
|
|
11 |
|
|
|
|
|
Balance at February 29, 2008 |
|
|
150 |
|
Successor |
|
|
|
|
Gross increases tax positions in prior periods |
|
|
2 |
|
Gross decreases tax positions in prior periods |
|
|
(11 |
) |
Gross increases current period tax positions |
|
|
9 |
|
Settlements |
|
|
(1 |
) |
Lapse of statute of limitations |
|
|
(1 |
) |
|
|
|
|
Balance at December 31, 2008 |
|
|
148 |
|
Gross increases tax positions in prior periods |
|
|
5 |
|
Gross decreases tax positions in prior periods |
|
|
(12 |
) |
Gross increases current period tax positions |
|
|
12 |
|
Lapse of statute of limitations |
|
|
(9 |
) |
|
|
|
|
Balance at December 31, 2009 |
|
$ |
144 |
|
|
|
|
|
We file income tax returns in the United States and various states and foreign jurisdictions.
With few exceptions, we are no longer subject to U.S. federal, state and local, or non-U.S. income
tax examinations by tax authorities for years before 2002. It is reasonably possible that within
the next twelve months as a result of the resolution of Federal, state and foreign examinations and
appeals, and the expiration of various statutes of limitation that the unrecognized tax benefits
that would affect the effective tax rate will decrease by a range of $2 to $16 and the unrecognized
tax benefits that would not affect the effective tax rate will decrease by a range of $0 to $7.
10. Debt Obligations
On the Effective Date, we recapitalized our debt concurrent with our emergence from bankruptcy
by entering into certain financing agreements to borrow up to $2.05 billion from a syndicate of
lenders (the Financing Agreements). The Financing Agreements consisted of (i) a $450 senior
secured asset-based revolving credit facility (Revolver), which we voluntarily reduced to $350 in
2009, (ii) a $1.2 billion senior secured term loan facility (Term Loan) and (iii) a $400 senior
unsecured bridge facility (Bridge), which was repaid in August 2008 with proceeds from the stock
offerings discussed in Note 16 Capital Stock. Proceeds from the Financing Agreements and
existing cash were used to (i) repay the debtor-in-possession (DIP) credit facility, (ii) retire
Solutia Services International S.C.A./Comm. V.A.s (SSI) Facility Agreement due 2011, (iii)
retire the Flexsys term loan and revolving credit facility due 2012, (iv) pay certain secured and
administrative claims, and (v) provide additional liquidity for operations.
During the second quarter of 2009, $74 of senior unsecured term debt, due 2011, at a price of
95 percent of its original principal amount was issued by our 100% owned German subsidiary, Flexsys
Verkauf GmbH (the Senior Term Loan). Net proceeds, after incorporating the original issue
discount and debt issuance fees, of $66, were used to pay down our Revolver. On June 25, 2009, we
repaid the Senior Term Loan utilizing a portion of the $119 of proceeds from our 2009 stock
offering discussed in Note 16 Capital Stock.
In the fourth quarter of 2009, we issued $400 of senior unsecured notes, due 2017 (2017
Notes). A portion of the $391 net proceeds received from the 2017 Notes were used to pay down
$300 of principal on the Term Loan. As a result of the early payment, we incurred a $30 charge to
interest expense to write-off deferred financing fees related to the Term Loan. In conjunction
with the issuance of the 2017 Notes, we amended our Revolver and Term Loan to provide greater
operational and strategic flexibility in addition to increasing our liquidity and leverage covenant
cushion.
71
SOLUTIA INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(Dollars in millions, except per share amounts or otherwise noted)
We had short-term borrowings of $16 and $25 at December 31, 2009 and 2008, respectively,
comprised of other lines of credit.
Our long-term debt consisted of the following as of December 31, 2009 and 2008:
|
|
|
|
|
|
|
|
|
|
|
Successor |
|
|
|
December 31, |
|
|
December 31, |
|
|
|
2009 |
|
|
2008 |
|
|
|
Term Loan, due 2014 |
|
$ |
876 |
|
|
$ |
1,188 |
|
Revolver, due 2013 |
|
|
|
|
|
|
183 |
|
2017 Notes |
|
|
400 |
|
|
|
|
|
|
|
|
|
|
|
|
Total principal amount |
|
|
1,276 |
|
|
|
1,371 |
|
Less current portion of long-term debt |
|
|
(12 |
) |
|
|
(12 |
) |
|
|
|
|
|
|
|
Total |
|
$ |
1,264 |
|
|
$ |
1,359 |
|
|
|
|
|
|
|
|
Maximum availability under the Revolver is limited to the lesser of $350 or the amount of our
borrowing base, as defined, but generally calculated as a percentage of allowable inventory and
trade receivables. In addition to outstanding borrowings, availability is further reduced by
outstanding letters of credit. As of December 31, 2009, availability under the Revolver was $120.
The weighted average interest rate on our total debt outstanding at both December 31, 2009 and 2008
was 7.7 percent. Our weighted average interest rate on short-term debt outstanding at December 31,
2009, was 2.1 percent as compared to 4.2 percent at December 31, 2008.
The Revolver bears interest, at our option, at LIBOR or the prime rate plus an applicable
margin. As of December 31, 2009, the applicable margin for the LIBOR and prime rate loans in the
Revolver are 1.75 percent and 0.75 percent, respectively. The Term Loan bears interest at our
option, at LIBOR with a floor of 3.50 percent through the fourth anniversary of the Effective Date
plus 5.00 percent, or at the prime rate plus 4.00 percent. Interest for the Revolver and Term Loan
is payable (i) with respect to LIBOR loans, on the last day of each relevant interest period
(defined as one, two, three or six months or any longer period available to all lenders under each
facility) and, in the case of any interest period longer than three months, on each successive date
three months after the first day of such interest period, and (ii) with respect to prime rate
loans, quarterly in arrears.
The 2017 Notes were issued at par bearing interest at 8.75 percent and require semi-annual
interest payments. Our current subsidiaries CPFilms Inc., Flexsys America L.P., Flexsys America
Co., Monchem International, Inc., Solutia Inter-America, Inc., Solutia Overseas, Inc. and future
subsidiaries as defined by the Financing Agreements and 2017 Notes, subject to certain exceptions
(Guarantors) are guarantors of the Term Loan and 2017 Notes as of December 31, 2009. The
Financing Agreements and the related guarantees are secured by liens on substantially all of our
and the Guarantors present and future assets.
We are required to make mandatory repayments of the Financing Agreements in connection with
asset sales and certain other events subject to certain exceptions. We are required to pay 1
percent of the principal of the Term Loan annually via quarterly payments. In addition, on an
annual basis and subject to our leverage position at December 31st of each year, we are
required to repay the Term Loan with a portion of excess cash flow generated during the year, as
defined in the Financing Agreements. If net leverage is less than 3.0x or greater than or equal to
3.0x, then we are required to repay 25 percent or 50 percent, respectively, of excess cash flow
generated during the year. Excess cash flow is generally defined as EBITDA less interest, capital
expenditures, taxes, and amortization of debt, plus or minus working capital changes and other
adjustments. Any portion of the Term Loan that is repaid through mandatory prepayments or
voluntarily prepaid may not be reborrowed. We were not required to make a mandatory repayment in
connection with our financial results for the periods ended December 31, 2009 or 2008.
Voluntary prepayments or amendments to the Term Loan are subject to a prepayment premium or
fee of 3 percent of the principal amount prepaid or principal amount outstanding, respectively,
prior to the first anniversary of the Effective Date, 2 percent after the first anniversary and
prior to the second anniversary of the Effective Date and 1 percent after the second anniversary
and prior to the third anniversary of the Effective Date. We are not subject to any prepayment
premiums after the third anniversary of the Effective Date.
72
SOLUTIA INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(Dollars in millions, except per share amounts or otherwise noted)
The Financing Agreements include a number of customary covenants and events of default,
including the maintenance of certain financial covenants that restrict our ability to, among other
things, incur additional debt; make certain investments; pay dividends, repurchase stock, sell
certain assets or merge with or into other companies; enter into new lines of business; make
capital expenditures; and prepay, redeem or exchange our debt. The financial covenants are (i)
total leverage ratio, (ii) fixed charge coverage ratio and (iii) a capital expenditure cap as
defined by the Financing Agreements. We were in compliance with all applicable covenants as of
December 31, 2009.
Maryville Notes
In the second quarter of 2008, we completed the sale and leaseback of our corporate
headquarters for $43 and repaid the balance outstanding on the promissory notes on our corporate
headquarters with the sale proceeds.
11. Derivatives and Risk Management
Our business operations give rise to market risk exposures that result from changes in foreign
currency exchange rates, interest rates and certain commodity prices. To manage the volatility
relating to these exposures, we periodically enter into various derivative transactions that enable
us to alleviate the adverse effects of financial market risk. The changes in fair value of these
hedging instruments are offset in part or in whole by corresponding changes in the fair value or
cash flows of the underlying exposures being hedged. Our approved policies and procedures do not
permit the purchase or holding of any derivative financial instruments for trading purposes, and
management of counterparty credit risk is through diversification and credit rating reviews of the
firms with whom we transact.
Foreign Currency Exchange Rate Risk
We manufacture and sell our products in a number of countries throughout the world and, as a
result, are exposed to movements in foreign currency exchange rates. We are exposed to this risk
both on an intercompany and a third-party basis. We use foreign currency derivative instruments to
manage the volatility associated with foreign currency purchases of materials and other assets and
liabilities created in the normal course of business. We also enter into certain foreign currency
derivative instruments primarily to protect against exposure related to intercompany financing
transactions. These risks are managed primarily through the use of forward exchange contracts and
purchased options with maturities of less than 18 months.
We have chosen not to designate these instruments as hedges to allow the changes in the fair
value of these instruments to largely offset the re-measurement of the underlying assets and
liabilities in the Consolidated Statement of Operations. We had currency forward and option
contracts to purchase and sell $167 and $642 of currencies as of December 31, 2009 and 2008,
respectively, comprised principally of the Euro, Swiss Franc, British Pound-Sterling, U.S. Dollar,
Japanese Yen and Malaysian Ringgit. Included in the currency forward contracts at December 31,
2009 and 2008 are contracts to purchase and sell $28 and $341 of currencies which were executed to
in-substance defease contracts with the same financial institution.
Interest Rate Risk
Interest rate risk is primarily related to changes in interest expense from floating rate
debt. To limit our exposure to this risk, in 2008 we entered into interest rate swap agreements
related to our Term Loan. The interest rate swap agreements have declining total notional amounts
of $800 to $150 which are effective from April 2010 through February 2014. The terms of the
interest rate swap agreements require us to pay interest utilizing fixed interest rates ranging
from 4.65 percent to 4.85 percent and receive interest utilizing 1-Month LIBOR, with a floor of
3.50 percent. Through February 2009, we designated the interest rate swap agreements as cash flow
hedges. Because of significant declines in interest rates and the significant difference between
the prime and LIBOR rates, we could no longer assert that we would always choose the 1-Month LIBOR
on our Term Loan. Subsequent effectiveness testing on a historical and
prospective basis comparing our interest rate swap agreements to the available interest rate
options on our Term Loan concluded the relationships were not highly effective. Therefore, we
discontinued hedge accounting in February 2009 and all prospective mark-to-market gains or losses
are recognized in interest expense on the Consolidated Statement of Operations.
Commodity Price Risk
Certain raw materials and energy resources we use are subject to price volatility caused by
weather, crude oil prices, supply conditions, political and economic variables and other
unpredictable factors. Our natural gas usage was significantly reduced upon the divestiture of our
Integrated Nylon business in the second quarter 2009. Therefore, although from time to time we may
use forward and option contracts to manage a portion of the volatility related to expected energy
purchases with maturities of up to 12 months, we settled all outstanding contracts to purchase
natural gas in the second quarter 2009.
73
SOLUTIA INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(Dollars in millions, except per share amounts or otherwise noted)
At December 31, 2009, we did not have any derivatives designated as hedging instruments. Our
derivatives not designated as hedging instruments, recorded at their respective fair values at
December 31, 2009, are summarized as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Asset Derivatives |
|
|
Liability Derivatives |
|
|
|
Consolidated Statement |
|
|
|
|
|
Consolidated Statement |
|
|
|
|
|
of Financial Position |
|
|
|
|
|
of Financial Position |
|
|
|
|
|
Presentation |
|
Fair Value |
|
|
Presentation |
|
Fair Value |
|
Derivative not designated as hedging instruments: |
|
|
|
|
|
|
|
|
|
|
|
|
Interest rate contracts |
|
Miscellaneous Receivables |
|
$ |
|
|
|
Accrued Liabilities |
|
$ |
6 |
|
|
|
Other Assets |
|
|
|
|
|
Other Liabilities |
|
|
14 |
|
|
|
|
|
|
|
|
|
|
|
|
Total interest rate contracts |
|
|
|
|
|
|
|
|
|
|
20 |
|
Foreign exchange contracts |
|
Miscellaneous Receivables |
|
|
2 |
|
|
Accrued Liabilities |
|
|
1 |
|
|
|
|
|
|
|
|
|
|
|
|
Total |
|
|
|
$ |
2 |
|
|
|
|
$ |
21 |
|
|
|
|
|
|
|
|
|
|
|
|
For the year ended December 31, 2009, we recognized a gain of $4 in other comprehensive
income (loss) for the period in which our interest rate contracts were designated as cash flow
hedging instruments. During the twelve months following December 31, 2009, we expect a
reclassification of $6 into earnings of the $21 accumulated losses on our interest rate contracts
as of December 31, 2009.
A summary of the effect of our derivatives not designated as hedging instruments on the
Consolidated Statement of Operations for the twelve months ended December 31, 2009 is as follows:
|
|
|
|
|
|
|
|
|
|
|
Amount of Gain Recognized in |
|
|
|
|
|
Consolidated Statement of Operations |
|
|
|
|
|
Successor |
|
|
|
Presentation of Gain Recognized in |
|
Twelve Months Ended |
|
|
|
Consolidated Statement of Operations |
|
December 31, 2009 |
|
Derivatives not designated as hedging instruments: |
|
|
|
|
|
|
Interest rate contracts |
|
Interest expense |
|
$ |
|
|
Foreign exchange contracts |
|
Other income, net |
|
|
18 |
|
Commodity contracts |
|
Income (Loss) from Discontinued Operations, net of tax |
|
|
1 |
|
|
|
|
|
|
|
Total |
|
|
|
$ |
19 |
|
|
|
|
|
|
|
12.
Financial Instruments and Risk Management
The following tables present our assets and liabilities that are measured at fair value on a
recurring basis and are categorized using the fair value hierarchy.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fair Value Measurements at December 31, 2009 |
|
|
|
|
|
|
|
Quoted Prices in |
|
|
|
|
|
|
Significant |
|
|
|
|
|
|
|
Active Markets for |
|
|
Significant Other |
|
|
Unobservable |
|
|
|
|
|
|
|
Identical Assets |
|
|
Observable Inputs |
|
|
Inputs |
|
|
|
Total |
|
|
(Level 1) |
|
|
(Level 2) |
|
|
(Level 3) |
|
Assets: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Derivatives Foreign Exchange (a) |
|
$ |
2 |
|
|
$ |
|
|
|
$ |
2 |
|
|
$ |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total |
|
$ |
2 |
|
|
$ |
|
|
|
$ |
2 |
|
|
$ |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Liabilities: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Derivatives Foreign Exchange (a) |
|
$ |
1 |
|
|
$ |
|
|
|
$ |
1 |
|
|
$ |
|
|
Derivatives Interest Rates (b) |
|
|
20 |
|
|
|
|
|
|
|
20 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total |
|
$ |
21 |
|
|
$ |
|
|
|
$ |
21 |
|
|
$ |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
74
SOLUTIA INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(Dollars in millions, except per share amounts or otherwise noted)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fair Value Measurements at December 31, 2008 |
|
|
|
|
|
|
|
Quoted Prices in |
|
|
|
|
|
|
Significant |
|
|
|
|
|
|
|
Active Markets for |
|
|
Significant Other |
|
|
Unobservable |
|
|
|
|
|
|
|
Identical Assets |
|
|
Observable Inputs |
|
|
Inputs |
|
|
|
Total |
|
|
(Level 1) |
|
|
(Level 2) |
|
|
(Level 3) |
|
Assets: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Derivatives Foreign Exchange (a) |
|
$ |
7 |
|
|
$ |
|
|
|
$ |
7 |
|
|
$ |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total |
|
$ |
7 |
|
|
$ |
|
|
|
$ |
7 |
|
|
$ |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Liabilities: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Derivatives Foreign Exchange (a) |
|
$ |
36 |
|
|
$ |
|
|
|
$ |
36 |
|
|
$ |
|
|
Derivatives Interest Rates (b) |
|
|
25 |
|
|
|
|
|
|
|
25 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total |
|
$ |
61 |
|
|
$ |
|
|
|
$ |
61 |
|
|
$ |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(a) |
|
Includes foreign currency forward and options contracts which are
valued using an income approach based on the present value of the
forward rate less the contract rate multiplied by the notional
amount. |
|
(b) |
|
Includes interest rate caps and swaps which are valued using
counterparty quotes, which use discounted cash flows and the
then-applicable forward interest rates. |
The recorded amounts of cash, trade receivables, accounts payable and short-term debt
approximate their fair values at both December 31, 2009 and 2008, due to the short maturity of
these instruments.
The estimated fair value of our long-term debt at December 31, 2009 is $1,309 compared to the
recorded amount of $1,276 (including current portion of long-term debt). The estimated fair value
of our long-term debt at December 31, 2008 was $979 compared to the recorded amount of $1,371 (including
current portion of long-term debt). The fair values are estimated by various banks based upon
trading levels on the date of measurement.
13. Pension Plans and Other Postretirement Benefits
During our Chapter 11 Case, we amended our U.S. qualified pension plan (U.S. Plan) in 2004
and 2005 to cease future benefit accruals for union and non-union participants, respectively, in
these plans which eliminated service costs for benefits earned as a pension benefit cost.
Furthermore, we amended our U.S. postretirement plan in accordance with the Plan for retiree
participants and established a VEBA retiree trust at the Effective Date. The postretirement plan
amendment, which became effective on the Effective Date, reduces the eligible charges covered by
the postretirement plan and establishes a lifetime maximum benefit. This action resulted in a
curtailment of the U.S. postretirement plan due to the changes in medical benefits provided to
retiree participants in our U.S. postretirement plan. The net result of this action was a $109
gain recorded in accumulated other comprehensive loss in the Consolidated Statement of Financial
Position as of February 29, 2008. As described in Note 2 Fresh-Start Accounting, upon the
adoption of fresh-start accounting, the balance in accumulated other comprehensive loss in the
Consolidated Statement of Financial Position was reduced to zero and charged to reorganization
items, net. The VEBA retiree trust, valued at $174 as of December 31, 2009 as funded at emergence
by proceeds from the sale of our new common stock and a contribution of the retirees allowed
unsecured claim, effectuates defeasance of a substantial amount of the remaining healthcare and
other benefits liabilities assumed by us at the Solutia Spinoff.
In preparation for the sale of our Integrated Nylon business, we divided our U.S. Plan into
the following three plans, effective February 28, 2009: (i) Nylon Pension Plan; (ii) Solutia
Pension Plan; and (iii) Solutia Union Pension Plan. The Nylon Pension Plan covers all active
employees of the Integrated Nylon business. In accordance with the terms of the sale agreement as
further described in Note 4 Acquisitions and Divestitures, the Nylon Pension Plan was assumed by
the Buyer at the completion of the sale.
As a result of the division of the U.S. Plan into three plans, we were required to perform a
funded analysis in accordance with the Pension Protection Act of 2006 (PPA). The result of this
analysis is the Solutia Pension Plan is prohibited by the PPA from paying out lump sum benefits,
until such time as the plan assets rise above the 60 percent funding level for up to half a lump
sum or above the 80 percent funding level for a full lump sum. For participants in the Solutia
Union Pension Plan, the lump sum restrictions in the PPA do not apply until April 1, 2010.
We use a measurement date of December 31 for our pension and other postretirement benefit
plans.
75
SOLUTIA INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(Dollars in millions, except per share amounts or otherwise noted)
Net Periodic Cost
For the twelve months ended December 31, 2009, the ten months ended December 31, 2008, the two
months ended February 29, 2008 and the twelve months ended December 31, 2007 our pension and
healthcare and other benefit costs were as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Pension Benefits |
|
|
|
Successor |
|
|
Predecessor |
|
|
|
Twelve Months |
|
|
Ten Months |
|
|
Two Months |
|
|
Twelve Months |
|
|
|
Ended |
|
|
Ended |
|
|
Ended |
|
|
Ended |
|
|
|
December 31, |
|
|
December 31, |
|
|
February 29, |
|
|
December 31, |
|
|
|
2009 |
|
|
2008 |
|
|
2008 |
|
|
2007 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Service costs for benefits earned |
|
$ |
2 |
|
|
$ |
3 |
|
|
$ |
1 |
|
|
$ |
5 |
|
Interest costs on benefit obligation |
|
|
59 |
|
|
|
50 |
|
|
|
11 |
|
|
|
63 |
|
Assumed return on plan assets |
|
|
(57 |
) |
|
|
(56 |
) |
|
|
(13 |
) |
|
|
(75 |
) |
Prior service costs |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1 |
|
Actuarial net loss |
|
|
3 |
|
|
|
|
|
|
|
2 |
|
|
|
12 |
|
Special termination benefits |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
4 |
|
Settlement charges |
|
|
11 |
|
|
|
|
|
|
|
1 |
|
|
|
5 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total |
|
$ |
18 |
|
|
$ |
(3 |
) |
|
$ |
2 |
|
|
$ |
15 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Healthcare and Other Benefits |
|
|
|
Successor |
|
|
Predecessor |
|
|
|
Twelve Months |
|
|
Ten Months |
|
|
Two Months |
|
|
Twelve Months |
|
|
|
Ended |
|
|
Ended |
|
|
Ended |
|
|
Ended |
|
|
|
December 31, |
|
|
December 31, |
|
|
February 29, |
|
|
December 31, |
|
|
|
2009 |
|
|
2008 |
|
|
2008 |
|
|
2007 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Service costs for benefits earned |
|
$ |
5 |
|
|
$ |
4 |
|
|
$ |
1 |
|
|
$ |
4 |
|
Interest costs on benefit obligation |
|
|
13 |
|
|
|
13 |
|
|
|
4 |
|
|
|
26 |
|
Assumed return on plan assets |
|
|
(6 |
) |
|
|
(5 |
) |
|
|
|
|
|
|
|
|
Prior service gains |
|
|
|
|
|
|
|
|
|
|
(3 |
) |
|
|
(18 |
) |
Actuarial net (gain) loss |
|
|
(8 |
) |
|
|
(3 |
) |
|
|
|
|
|
|
5 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total |
|
$ |
4 |
|
|
$ |
9 |
|
|
$ |
2 |
|
|
$ |
17 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The estimated amount that will be amortized from accumulated other
comprehensive loss into net periodic costs during the year ended December 31, 2010 is as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Healthcare and Other |
|
|
|
Pension Benefits |
|
|
Benefits |
|
Recognized net actuarial (gain) loss |
|
$ |
11 |
|
|
$ |
(6 |
) |
Curtailments and Settlements
As a result of the assumption of the Nylon Pension Plan by the Buyer, we recognized a
settlement charge of $20 which was recorded in income (loss) from discontinued operations for the
twelve months ended December 31, 2009. For the twelve months ended December 31, 2009, we recorded
a settlement charge of $11 resulting from the significant amount of lump sum distributions,
predominantly in the U.S. and Belgium, associated with a reduction of salaried personnel prior to
February 28, 2009 and union personnel throughout 2009. Both reductions were driven by
restructuring activities as more fully discussed in Note 5 Impairment of Long-Lived Assets and
Restructuring Reserves. We recorded a pension settlement charge of $1 in the two months ended
February 29, 2008 resulting from the significant amount of lump sum distributions from our Belgium
retirement plan. In the twelve months ended December 31, 2007, we recorded a pension settlement
charge of $5 resulting principally from the significant amount of lump sum distributions, resulting
primarily from the majority of retirees electing the lump sum distribution option, from our U.S.
Plan.
76
SOLUTIA INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(Dollars in millions, except per share amounts or otherwise noted)
Actuarial Assumptions
The significant actuarial assumptions used to determine net periodic cost for our principal
pension, healthcare and other benefit plans were as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Pension Benefits |
|
|
|
Successor |
|
|
Predecessor |
|
|
|
Twelve Months |
|
|
Ten Months |
|
|
Two Months |
|
|
Twelve Months |
|
|
|
Ended |
|
|
Ended |
|
|
Ended |
|
|
Ended |
|
|
|
December 31, |
|
|
December 31, |
|
|
February 29, |
|
|
December 31, |
|
|
|
2009 |
|
|
2008 |
|
|
2008 |
|
|
2007 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Discount rate |
|
|
6.25 |
% |
|
|
5.75 |
% |
|
|
6.00 |
% |
|
|
5.75 |
% |
Expected return on plan assets |
|
|
8.50 |
% |
|
|
8.50 |
% |
|
|
8.50 |
% |
|
|
8.75 |
% |
Rate of compensation increase (a) |
|
|
3.50 |
% |
|
|
4.25 |
% |
|
|
4.25 |
% |
|
|
4.00 |
% |
|
|
|
(a) |
|
The rate of compensation increase in all periods relates specifically to our foreign
pension plans. The rate of compensation increase is not applicable to the valuation of
U.S. pension plans due to the cessation of future benefit accruals in prior years for
participants in the U.S. pension plans. |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Healthcare and Other Benefits |
|
|
|
Successor |
|
|
Predecessor |
|
|
|
Twelve Months |
|
|
Ten Months |
|
|
Two Months |
|
|
Twelve Months |
|
|
|
Ended |
|
|
Ended |
|
|
Ended |
|
|
Ended |
|
|
|
December 31, |
|
|
December 31, |
|
|
February 29, |
|
|
December 31, |
|
|
|
2009 |
|
|
2008 |
|
|
2008 |
|
|
2007 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Discount rate |
|
|
6.25 |
% |
|
|
5.50 |
% |
|
|
5.75 |
% |
|
|
5.75 |
% |
Expected return on plan assets |
|
|
3.50 |
% |
|
|
3.50 |
% |
|
|
N/A |
|
|
|
N/A |
|
Assumed trend rate for healthcare costs |
|
|
8.50 |
% |
|
|
9.00 |
% |
|
|
9.00 |
% |
|
|
8.00 |
% |
Ultimate trend rate for healthcare costs |
|
|
5.00 |
% |
|
|
5.00 |
% |
|
|
5.00 |
% |
|
|
5.00 |
% |
We establish our discount rates based upon the internal rate of return for a portfolio of
high quality bonds with maturities consistent with the nature and timing of future cash flows for
each specific plan. The expected long-term rate of return on plan assets assumption is based on
the target asset allocation policy and the expected future rates of return on assets for each
specific plan.
A 1 percent change in the assumed health care cost trend rates would have the following effect
as of December 31, 2009:
|
|
|
|
|
|
|
|
|
|
|
1-Percentage- |
|
|
1-Percentage- |
|
|
|
Point Increase |
|
|
Point Decrease |
|
Effect on postretirement benefit obligation |
|
$ |
1 |
|
|
$ |
(1 |
) |
Our costs for postretirement medical benefits are capped for many current retirees and for
active employees; therefore, the impact of this hypothetical change in the assumed health care cost
trend rate is limited.
Benefit Obligations
Components of the changes in the benefit obligation of our principal pension, healthcare and
other benefit plans were as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Pension Benefits |
|
|
|
Successor |
|
|
Predecessor |
|
|
|
December 31, |
|
|
December 31, |
|
|
February 29, |
|
|
|
2009 |
|
|
2008 |
|
|
2008 |
|
Changes in Benefit Obligation |
|
|
|
|
|
|
|
|
|
|
|
|
Benefit obligation as of beginning of period |
|
$ |
1,010 |
|
|
$ |
1,164 |
|
|
$ |
1,180 |
|
Service costs |
|
|
2 |
|
|
|
3 |
|
|
|
1 |
|
Interest cost |
|
|
59 |
|
|
|
50 |
|
|
|
11 |
|
Contributions |
|
|
1 |
|
|
|
1 |
|
|
|
|
|
Actuarial (gains) losses |
|
|
115 |
|
|
|
(42 |
) |
|
|
(3 |
) |
Foreign currency |
|
|
18 |
|
|
|
(67 |
) |
|
|
|
|
Benefits paid |
|
|
(155 |
) |
|
|
(99 |
) |
|
|
(25 |
) |
Other |
|
|
(6 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Benefit obligation at end of period |
|
$ |
1,044 |
|
|
$ |
1,010 |
|
|
$ |
1,164 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accumulated Benefit Obligation |
|
$ |
1,012 |
|
|
$ |
993 |
|
|
$ |
1,139 |
|
77
SOLUTIA INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(Dollars in millions, except per share amounts or otherwise noted)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Healthcare and Other Benefits |
|
|
|
Successor |
|
|
Predecessor |
|
|
|
December 31, |
|
|
December 31, |
|
|
February 29, |
|
|
|
2009 |
|
|
2008 |
|
|
2008 |
|
Changes in Benefit Obligation |
|
|
|
|
|
|
|
|
|
|
|
|
Benefit obligation as of beginning of period |
|
$ |
236 |
|
|
$ |
312 |
|
|
$ |
434 |
|
Service costs |
|
|
5 |
|
|
|
4 |
|
|
|
1 |
|
Interest cost |
|
|
13 |
|
|
|
13 |
|
|
|
4 |
|
Contributions |
|
|
23 |
|
|
|
19 |
|
|
|
2 |
|
Actuarial gains |
|
|
(7 |
) |
|
|
(54 |
) |
|
|
(2 |
) |
Foreign currency |
|
|
1 |
|
|
|
(2 |
) |
|
|
|
|
Plan amendments |
|
|
|
|
|
|
|
|
|
|
(109 |
) |
Federal subsidy on benefits paid |
|
|
2 |
|
|
|
5 |
|
|
|
1 |
|
Benefits paid |
|
|
(56 |
) |
|
|
(61 |
) |
|
|
(19 |
) |
|
|
|
|
|
|
|
|
|
|
Benefit obligation at end of period |
|
$ |
217 |
|
|
$ |
236 |
|
|
$ |
312 |
|
|
|
|
|
|
|
|
|
|
|
The significant actuarial assumptions used to estimate the projected benefit obligation
for our principal pension, healthcare and other benefit plans were as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Pension Benefits |
|
|
|
Successor |
|
|
Predecessor |
|
|
|
December 31, |
|
|
December 31, |
|
|
February 29, |
|
|
|
2009 |
|
|
2008 |
|
|
2008 |
|
Discount rate |
|
|
5.25 |
% |
|
|
6.25 |
% |
|
|
5.75 |
% |
Rate of compensation increase (a) |
|
|
4.50 |
% |
|
|
3.50 |
% |
|
|
4.25 |
% |
|
|
|
(a) |
|
The rate of compensation increase for all periods relates specifically to our foreign
pension plans. The rate of compensation increase is not applicable to the valuation of
U.S. pension plans due to the cessation of future benefit accruals in prior years for
participants in the U.S. pension plans. |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Healthcare and Other Benefits |
|
|
|
Successor |
|
|
Predecessor |
|
|
|
December 31, |
|
|
December 31, |
|
|
February 29, |
|
|
|
2009 |
|
|
2008 |
|
|
2008 |
|
Discount rate |
|
|
4.75 |
% |
|
|
6.25 |
% |
|
|
5.50 |
% |
Assumed trend rate for healthcare costs |
|
|
8.00 |
% |
|
|
8.50 |
% |
|
|
9.00 |
% |
Ultimate trend rate for healthcare costs |
|
|
5.00 |
% |
|
|
5.00 |
% |
|
|
5.00 |
% |
Plan Assets
Plan investments, whether equity or debt securities, real estate, or other, are measured at
their fair value as of the measurement date. Components of the changes in fair value of plan assets
of our plan assets were as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Pension Benefits |
|
|
|
Successor |
|
|
Predecessor |
|
|
|
December 31, |
|
|
December 31, |
|
|
February 29, |
|
|
|
2009 |
|
|
2008 |
|
|
2008 |
|
Changes in Fair Value of Plan Assets |
|
|
|
|
|
|
|
|
|
|
|
|
Fair value of plan assets at beginning of period |
|
$ |
619 |
|
|
$ |
933 |
|
|
$ |
1,000 |
|
Actual return on plan assets |
|
|
131 |
|
|
|
(194 |
) |
|
|
(59 |
) |
Contributions |
|
|
77 |
|
|
|
38 |
|
|
|
17 |
|
Foreign currency |
|
|
15 |
|
|
|
(59 |
) |
|
|
|
|
Benefits paid |
|
|
(155 |
) |
|
|
(99 |
) |
|
|
(25 |
) |
Other |
|
|
(6 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fair value of plan assets at end of period |
|
$ |
681 |
|
|
$ |
619 |
|
|
$ |
933 |
|
|
|
|
|
|
|
|
|
|
|
78
SOLUTIA INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(Dollars in millions, except per share amounts or otherwise noted)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Healthcare and Other Benefits |
|
|
|
Successor |
|
|
Predecessor |
|
|
|
December 31, |
|
|
December 31, |
|
|
February 29, |
|
|
|
2009 |
|
|
2008 |
|
|
2008 |
|
Changes in Fair Value of Plan Assets |
|
|
|
|
|
|
|
|
|
|
|
|
Fair value of plan assets at beginning of period |
|
$ |
173 |
|
|
$ |
195 |
|
|
$ |
|
|
Actual return on plan assets |
|
|
10 |
|
|
|
(7 |
) |
|
|
|
|
Contributions |
|
|
45 |
|
|
|
41 |
|
|
|
195 |
|
Federal subsidy on benefits paid |
|
|
2 |
|
|
|
5 |
|
|
|
|
|
Benefits paid |
|
|
(56 |
) |
|
|
(61 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fair value of plan assets at end of period |
|
$ |
174 |
|
|
$ |
173 |
|
|
$ |
195 |
|
|
|
|
|
|
|
|
|
|
|
The other postretirement benefits plans were unfunded until February 29, 2008 as
described above.
At December 31, 2009, plan investments were valued as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Pension Benefits |
|
|
Healthcare and Other Benefits |
|
|
|
|
|
|
|
Quoted |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Quoted |
|
|
|
|
|
|
|
|
|
|
|
|
|
Prices in |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Prices in |
|
|
|
|
|
|
|
|
|
|
|
|
|
Active |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Active |
|
|
|
|
|
|
|
|
|
|
|
|
|
Markets |
|
|
Significant |
|
|
|
|
|
|
|
|
|
|
Markets |
|
|
Significant |
|
|
|
|
|
|
|
|
|
|
for |
|
|
Other |
|
|
Significant |
|
|
|
|
|
|
for |
|
|
Other |
|
|
Significant |
|
|
|
|
|
|
|
Identical |
|
|
Observable |
|
|
Unobservable |
|
|
|
|
|
|
Identical |
|
|
Observable |
|
|
Unobservable |
|
|
|
|
|
|
|
Assets |
|
|
Inputs |
|
|
Inputs |
|
|
|
|
|
|
Assets |
|
|
Inputs |
|
|
Inputs |
|
|
|
Total |
|
|
(Level 1) |
|
|
(Level 2) |
|
|
(Level 3) |
|
|
Total |
|
|
(Level 1) |
|
|
(Level 2) |
|
|
(Level 3) |
|
Equity Securities: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Common collective trusts (a) |
|
$ |
396 |
|
|
$ |
|
|
|
$ |
396 |
|
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
Solutia common stock |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
15 |
|
|
|
15 |
|
|
|
|
|
|
|
|
|
Debt Securities: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Common collective trusts (a) |
|
|
172 |
|
|
|
|
|
|
|
172 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Corporate bonds (b) |
|
|
30 |
|
|
|
|
|
|
|
30 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Federal agencies (c) |
|
|
3 |
|
|
|
|
|
|
|
3 |
|
|
|
|
|
|
|
40 |
|
|
|
|
|
|
|
40 |
|
|
|
|
|
Asset-backed securities (d) |
|
|
14 |
|
|
|
|
|
|
|
14 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other Types of Investments: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents (e) |
|
|
45 |
|
|
|
3 |
|
|
|
42 |
|
|
|
|
|
|
|
119 |
|
|
|
|
|
|
|
119 |
|
|
|
|
|
Multi-asset common collective trusts (f) |
|
|
19 |
|
|
|
|
|
|
|
19 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Private equity funds (g) |
|
|
2 |
|
|
|
|
|
|
|
|
|
|
|
2 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Investments |
|
$ |
681 |
|
|
$ |
3 |
|
|
$ |
676 |
|
|
$ |
2 |
|
|
$ |
174 |
|
|
$ |
15 |
|
|
$ |
159 |
|
|
$ |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(a) |
|
Common collective trusts are comprised of shares or units in commingled funds that are not
publicly traded. The underlying assets in these funds (primarily equity and fixed income
securities) are valued using a market approach with either unadjusted quotes in active markets
(Level 1) or quoted prices for similar assets or other observable inputs (Level 2). |
|
(b) |
|
Corporate bonds consist of fixed income securities issued by U.S. and non-U.S. corporations.
These assets are valued using a bid evaluation process with bid data provided by independent
pricing sources. |
|
(c) |
|
Federal agency securities consist of bills, notes, bonds, and other fixed income securities
issued directly by the U.S. Treasury or other government-sponsored enterprises. These assets are
valued using a bid evaluation process with bid data provided by independent pricing sources. |
|
(d) |
|
Asset backed securities are comprised of securities collateralized by a specified pool of
underlying assets. These assets are valued using a bid evaluation process with bid data provided
by independent pricing sources. |
|
(e) |
|
Cash equivalents consist of money market accounts valued at $1.00 per unit. |
|
(f) |
|
Multi-asset common collective trusts are comprised of equity securities, bonds, mututal funds
and term deposits. These investments are valued at the net asset value per share mulitplied by the
number of shares held as of the measurement date. |
|
(g) |
|
Private equity funds represent limited partnership interests which are valued by the general
partners based on the underlying assets in each fund. Changes in fair value for the twelve months
ended December 31, 2009 for these assets were comprised of unrealized losses of less than $1. |
79
SOLUTIA INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(Dollars in millions, except per share amounts or otherwise noted)
The asset allocation for our pension and other postretirement plans and the target
allocation for 2010, by asset category, follows:
Pension Benefits
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Successor |
|
|
|
2010 Target |
|
|
December 31, |
|
|
December 31, |
|
Asset Category |
|
Allocation |
|
|
2009 |
|
|
2008 |
|
Equity securities |
|
|
69 |
% |
|
|
58 |
% |
|
|
64 |
% |
Debt securities |
|
|
30 |
|
|
|
32 |
|
|
|
35 |
|
Cash and cash equivalents |
|
|
|
|
|
|
7 |
|
|
|
|
|
Other |
|
|
1 |
|
|
|
3 |
|
|
|
1 |
|
|
|
|
|
|
|
|
|
|
|
Total |
|
|
100 |
% |
|
|
100 |
% |
|
|
100 |
% |
|
|
|
|
|
|
|
|
|
|
Our pension plan asset investment strategy is to maintain an asset allocation that is
diversified among multiple asset classes, and among multiple managers within each asset class, in
order to minimize the risk of large losses and to maximize the long-term risk-adjusted rate of
return.
Healthcare and Other Benefits
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Successor |
|
|
|
2010 Target |
|
|
December 31, |
|
|
December 31, |
|
Asset Category |
|
Allocation |
|
|
2009 |
|
|
2008 |
|
Cash and cash equivalents |
|
|
54 |
% |
|
|
68 |
% |
|
|
69 |
% |
Debt securities |
|
|
41 |
|
|
|
23 |
|
|
|
28 |
|
Solutia common stock |
|
|
5 |
|
|
|
9 |
|
|
|
3 |
|
|
|
|
|
|
|
|
|
|
|
Total |
|
|
100 |
% |
|
|
100 |
% |
|
|
100 |
% |
|
|
|
|
|
|
|
|
|
|
Our other postretirement benefits plan asset investment strategy is to invest in
short-term, well-diversified, high quality investment instruments, with a primary objective of
capital preservation.
Funded Status
The funded status of our plans is measured as the difference between the plan assets at fair
value and the projected benefit obligation. The funded status of our principal pension, healthcare
and other benefit plans at December 31, 2009 and 2008 and the related amounts recognized in the
Consolidated Statement of Financial Position was as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Pension Benefits |
|
|
Healthcare and Other Benefits |
|
|
|
Successor |
|
|
Successor |
|
|
|
December 31, |
|
|
December 31, |
|
|
December 31, |
|
|
December 31, |
|
|
|
2009 |
|
|
2008 |
|
|
2009 |
|
|
2008 |
|
Fair value of plan assets |
|
$ |
681 |
|
|
$ |
619 |
|
|
$ |
174 |
|
|
$ |
173 |
|
Projected benefit obligation |
|
|
1,044 |
|
|
|
1,010 |
|
|
|
217 |
|
|
|
236 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Funded Status |
|
$ |
(363 |
) |
|
$ |
(391 |
) |
|
$ |
(43 |
) |
|
$ |
(63 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Pension Benefits |
|
|
Healthcare and Other Benefits |
|
|
|
Successor |
|
|
Successor |
|
|
|
December 31, |
|
|
December 31, |
|
|
December 31, |
|
|
December 31, |
|
|
|
2009 |
|
|
2008 |
|
|
2009 |
|
|
2008 |
|
Long-term asset |
|
$ |
3 |
|
|
$ |
10 |
|
|
$ |
|
|
|
$ |
|
|
Current liability |
|
$ |
|
|
|
$ |
|
|
|
$ |
(3 |
) |
|
$ |
(4 |
) |
Long-term liability |
|
$ |
(366 |
) |
|
$ |
(401 |
) |
|
$ |
(40 |
) |
|
$ |
(59 |
) |
Accumulated other comprehensive loss: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net actuarial (gain) loss |
|
$ |
212 |
|
|
$ |
205 |
|
|
$ |
(41 |
) |
|
$ |
(39 |
) |
80
SOLUTIA INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(Dollars in millions, except per share amounts or otherwise noted)
The projected benefit obligation, accumulated benefit obligation and fair value of plan
assets for the pension plans with projected benefit obligation in excess of plan assets and for the
pension plans with accumulated benefit obligations in excess of plan assets were as follows as of
December 31:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Projected Benefit Obligation |
|
|
Accumulated Benefit |
|
|
|
Exceeds the Fair |
|
|
Obligation Exceeds the Fair |
|
|
|
Value of Plan Assets |
|
|
Value of Plan Assets |
|
|
|
Successor |
|
|
Successor |
|
|
|
December 31, |
|
|
December 31, |
|
|
December 31, |
|
|
December 31, |
|
|
|
2009 |
|
|
2008 |
|
|
2009 |
|
|
2008 |
|
Projected benefit obligation |
|
$ |
949 |
|
|
$ |
940 |
|
|
$ |
943 |
|
|
$ |
940 |
|
Accumulated benefit obligation |
|
$ |
922 |
|
|
$ |
923 |
|
|
$ |
917 |
|
|
$ |
923 |
|
Fair value of plan assets |
|
$ |
583 |
|
|
$ |
539 |
|
|
$ |
578 |
|
|
$ |
539 |
|
The accumulated postretirement benefit obligation exceeds plan assets for all of our
other postretirement benefit plans.
We actively manage funding of our domestic qualified pension plans in order to meet the
requirements of the IRS and the Pension Benefits Guarantee Corporation (a U.S. federal agency). We
contributed $65 in the twelve months ended December 31, 2009, $31 in the ten months ended December
31, 2008, $15 in the two months ended February 29, 2008, and $105 in the twelve months ended
December 31, 2007 to the qualified pension plans in accordance with IRS funding rules. According
to current IRS funding rules, we estimate that we will be required to make approximately $37 in
pension contributions to our U.S. qualified pension plans in 2010. In addition, we contributed $11
in the twelve months ended December 31, 2009, $6 in the ten months ended December 31, 2008, $2 in
the two months ended February 29, 2008, and $35 in the twelve months ended December 31, 2007,
respectively, to fund our foreign pension plans. Moreover, we expect to be required to fund $13 in
pension contributions for our foreign pension plans in 2010.
Estimated Future Benefit Payments
Based on current information, estimated benefit payments expected to be made over the next five years and the cumulative
five year period thereafter are as follows:
|
|
|
|
|
|
|
|
|
|
|
Pension |
|
|
Healthcare and |
|
|
|
Benefits |
|
|
Other Benefits |
|
2010 |
|
$ |
98 |
|
|
$ |
39 |
|
2011 |
|
|
94 |
|
|
|
37 |
|
2012 |
|
|
101 |
|
|
|
33 |
|
2013 |
|
|
104 |
|
|
|
30 |
|
2014 |
|
|
85 |
|
|
|
26 |
|
2015-2019 |
|
|
355 |
|
|
|
68 |
|
We have available as of December 31, 2009, pension and other postretirement benefit plan
assets of $681 and $174, respectively, to fund these future estimated benefit payments.
14. Employee Savings Plans
Substantially all of our U.S. employees are eligible to participate in the Solutia Savings and
Investment Plans (SIP), a 401(k) plan with matching contributions being invested in the same
manner as participants personal SIP contributions. For the twelve months ended December 31, 2009,
our matching contributions were suspended, subject to any agreements. Our cash contributions
related to the employer match were $2 in the twelve months ended December 31, 2009, $15 in the ten
months ended December 31,
2008, $3 in the two months ended February 29, 2008, and $17 in the twelve months ended
December 31, 2007, and were invested in accordance with participants personal investment
elections. Our SIP matching contribution percentage for eligible employees was 100 percent on the
first 7 percent of a participants qualified contributions during these periods. Effective in
January of 2010, the employer match was reinstated at 50 percent on the first 7 percent of a
participants qualified contributions with an additional performance match to be determined based
upon Company performance.
15. Share-Based Compensation
All previous equity interests, including shares authorized for grant and options outstanding
were cancelled upon the Effective Date. On the Effective Date, we adopted the Solutia Inc. 2007
Management Long-Term Incentive Plan (2007 Management Plan). The 2007 Management Plan authorizes
up to 7,200,000 shares of our common stock for grants of non-qualified and incentive stock options,
stock appreciation rights, restricted stock, restricted stock units and other stock awards. The
shares used may be newly issued shares, treasury shares or a combination. As of December 31, 2009,
1,562,779 shares from the 2007 Management Plan remained available for grants.
81
SOLUTIA INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(Dollars in millions, except per share amounts or otherwise noted)
Also on the Effective Date, we adopted the Solutia Inc. 2007 Non-Employee Director Stock
Compensation Plan (2007 Director Plan). The 2007 Director Plan authorizes up to 250,000 shares
of our common stock for grants of stock options, stock appreciation rights, restricted stock,
restricted stock units and other stock awards. The shares used may be newly issued shares,
treasury shares or a combination. As of December 31, 2009, 150,749 shares from the 2007 Director
Plan remained available for grants.
Stock Options
We granted options to purchase a total of 20,000 and 2,946,544 shares of common stock to
eligible employees under the 2007 Management Plan during the twelve months ended December 31, 2009
and ten months ended December 31, 2008, respectively. The options (i) have an exercise price of
not less than 100 percent of the fair market value of the common stock on the grant date, (ii)
become exercisable in three equal installments on the first, second, and third anniversary of the
grant date, subject to the employees continued employment and (iii) expire on the tenth
anniversary of the grant date.
The fair value of stock options is determined at the grant date using a Black-Scholes model,
which requires us to make several assumptions including risk-free interest rate, expected dividends
and volatility. The risk-free rate is based on the U.S. Treasury yield curve in effect for the
expected term of the options at the time of grant. The dividend yield on our common stock is
assumed to be zero since we do not pay dividends and have no current plans to do so. Due to our
Chapter 11 Case, our historical volatility data and employee stock option exercise patterns were
not considered in determining the volatility data and expected life assumptions. The volatility
assumptions were based on (i) historical volatilities of the stock of comparable chemical companies
whose shares are traded using daily stock price returns equivalent to the expected term of the
options and (ii) implied volatility. The expected life of an option was determined based on a
simplified assumption that the option will be exercised evenly from the time it becomes exercisable
to expiration.
The weighted-average fair value of options granted during the twelve months and ten months
ended December 31, 2009 and 2008 was determined based on the following weighted-average
assumptions:
|
|
|
|
|
|
|
|
|
|
|
Successor |
|
|
|
December 31, |
|
|
December 31, |
|
|
|
2009 |
|
|
2008 |
|
|
|
|
|
|
|
|
|
|
Expected volatility |
|
|
35.4 |
% |
|
|
26.1 |
% |
Expected term (in years) |
|
|
6 |
|
|
|
6 |
|
Risk-free rate |
|
|
2.30 |
% |
|
|
4.24 |
% |
Weighted-average grant date fair value |
|
$ |
4.44 |
|
|
$ |
5.91 |
|
A summary of stock option activity for the twelve months and ten months ended December 31,
2009 and 2008 is as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted- |
|
|
|
|
|
|
|
|
|
|
Weighted |
|
|
Average |
|
|
|
|
|
|
|
|
|
|
-Average |
|
|
Remaining |
|
|
Aggregate |
|
|
|
|
|
|
|
Exercise |
|
|
Contractual |
|
|
Intrinsic |
|
|
|
Options |
|
|
Price |
|
|
Life |
|
|
Value (a) |
|
Outstanding at February 29, 2008 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Granted |
|
|
2,946,544 |
|
|
$ |
17.29 |
|
|
|
|
|
|
|
|
|
Exercised |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Forfeited or expired |
|
|
(183,834 |
) |
|
|
17.23 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Outstanding at December 31, 2008 |
|
|
2,762,710 |
|
|
$ |
17.29 |
|
|
|
9.2 |
|
|
$ |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Vested or Expected to Vest at December 31, 2008 |
|
|
2,369,734 |
|
|
$ |
17.29 |
|
|
|
9.2 |
|
|
$ |
|
|
Exercisable at December 31, 2008 |
|
|
54,333 |
|
|
$ |
17.33 |
|
|
|
9.2 |
|
|
$ |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Outstanding at December 31, 2008 |
|
|
2,762,710 |
|
|
$ |
17.29 |
|
|
|
9.2 |
|
|
|
|
|
Granted |
|
|
20,000 |
|
|
|
11.64 |
|
|
|
|
|
|
|
|
|
Exercised |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Forfeited or expired |
|
|
(880,751 |
) |
|
|
17.30 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Outstanding at December 31, 2009 |
|
|
1,901,959 |
|
|
$ |
17.21 |
|
|
|
8.2 |
|
|
$ |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Vested or Expected to Vest at December 31, 2009 |
|
|
1,883,896 |
|
|
$ |
17.24 |
|
|
|
8.2 |
|
|
$ |
|
|
Exercisable at December 31, 2009 |
|
|
637,721 |
|
|
$ |
17.28 |
|
|
|
8.2 |
|
|
$ |
|
|
|
|
|
(a) |
|
Intrinsic value for stock options is calculated based on the
difference between the exercise price of the underlying awards and
the quoted market price of our common stock as of the reporting
date. If the exercise price of the underlying awards is higher
than the quoted market price of our common stock as of the
reporting date, the intrinsic value of the award is $0. |
82
SOLUTIA INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(Dollars in millions, except per share amounts or otherwise noted)
During the twelve months and ten months ended December 31, 2009 and 2008, we recognized
$6 and $5 of compensation expense related to our stock options, respectively, of which $1 was
allocated to discontinued operations for both periods. Pre-tax unrecognized compensation expense
for stock options, net of estimated forfeitures, was $4 as of December 31, 2009 and will be
recognized as expense over a remaining weighted-average period of 1 year.
Restricted Stock Awards
We granted 2,417,859 shares of restricted stock awards to eligible employees under the 2007
Management Plan during the twelve months ended December 31, 2009. Approximately two thirds of the
shares granted under the 2007 Management Plan during the year ended December 31, 2009 vest upon
completion of a service condition and the remaining one third of the shares vest based upon the
attainment of certain performance and market conditions. The service condition shares vest 40
percent in both July 2010 and 2011 and 20 percent in July 2012. The performance and market
condition shares vest in February 2012 if attainment of the performance and market conditions is
achieved. During the ten months ended December 31, 2008, we granted 1,508,815 shares and 46,160
shares of restricted stock awards to eligible employees under the 2007 Management Plan and to our
non-employee directors under the 2007 Director Plan, respectively. The shares granted during the
ten months ended December 31, 2008 vest ratably over a three year service period.
A summary of restricted stock award activity for the twelve months and ten months ended
December 31, 2009 and 2008 is as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted- |
|
|
|
|
|
|
|
Average |
|
|
|
|
|
|
|
Grant Date Fair |
|
|
|
Shares |
|
|
Value |
|
Outstanding at February 29, 2008 |
|
|
|
|
|
|
|
|
Granted |
|
|
1,554,975 |
|
|
$ |
16.19 |
|
Vested |
|
|
(96,568 |
) |
|
|
15.24 |
|
Forfeited |
|
|
(38,867 |
) |
|
|
17.05 |
|
|
|
|
|
|
|
|
Outstanding at December 31, 2008 |
|
|
1,419,540 |
|
|
$ |
16.24 |
|
Granted |
|
|
2,417,859 |
|
|
|
8.10 |
|
Vested |
|
|
(825,029 |
) |
|
|
15.54 |
|
Forfeited |
|
|
(116,069 |
) |
|
|
14.21 |
|
|
|
|
|
|
|
|
Outstanding at December 31, 2009 |
|
|
2,896,301 |
|
|
$ |
9.71 |
|
|
|
|
|
|
|
|
During the twelve months and ten months ended December 31, 2009 and 2008, we recognized
$13 and $8 of compensation expense related to our restricted stock awards, respectively, of which,
$1 was allocated to discontinued operations for both periods. Pre-tax unrecognized compensation
expense for restricted stock awards, net of estimated forfeitures, was $18 as of December 31, 2009
and will be recognized as expense over a remaining weighted-average period of 1.5 years.
Other Stock Awards
During the twelve months ended December 31, 2009, our independent directors each received
8,134 shares, or 56,938 shares in aggregate, as the annual equity retainer portion of their 2009
director compensation. For the twelve months ended December 31, 2009, we recognized less than $1 of
compensation expense on these awards.
83
SOLUTIA INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(Dollars in millions, except per share amounts or otherwise noted)
16. Capital Stock
After the Effective Date, our common stock (New Common Stock) trades on the New York Stock
Exchange (NYSE) under the symbol SOA. Our common stock prior to filing for Bankruptcy (Old
Common Stock) was traded on the NYSE under the symbol SOI. Our New Common Stock traded on a
when-issued basis on the NYSE from December 20, 2007 until shortly after the Effective Date, at
which time our New Common Stock began trading on a regular way basis.
On the Effective Date, all of our Old Common Stock was canceled pursuant to the Plan and we
issued 59,749,686 shares of New Common Stock, par value $0.01 per share, of the newly reorganized
Solutia in satisfaction of various creditor claims and stockholder interests. In addition, on the
Effective Date, we issued warrants to purchase an aggregate of 4,481,250 shares of New Common Stock
to holders of Old Common Stock based on a holders pre-petition stock ownership, provided that such
holder held at least 24 shares of the Old Common Stock (the Warrants). Subject to the terms of
the warrant agreement, Warrant holders are entitled to purchase shares of New Common Stock at an
exercise price of $29.70 per share. The Warrants have a five-year term in which they may be
exercised for cash or on a net issuance basis and will expire on February 27, 2013.
During
the third quarter 2009, our Board of Directors approved a Rights Plan which is intended to reduce the likelihood of an ownership change within the
meaning of Section 382 of the Internal Revenue Code and thereby preserve our ability to utilize
certain net operating loss carryforwards and other tax benefits. Our adoption of the Rights Plan
effectively attaches one right (Right) to each outstanding share of our common stock, to
stockholders of record at the close of business on July 28, 2009. If the Rights are triggered,
each Right may entitle the holder of the Right to purchase our common stock at a discount to its
market price, subject to certain exceptions as set forth in the Rights Plan.
In the second quarter 2009, we completed a public offering (2009 Stock Offering) of
24,738,641 shares of common stock, including the over-allotment option as exercised by the
underwriters of the offering. Net proceeds from the 2009 Stock Offering were $119. In the third
quarter 2008, we completed two public offerings, which in aggregate, resulted in the issuance of
33,021,976 total shares of common stock with net proceeds of $422.
No dividends were paid by the Predecessor in the two months ended February 29, 2008 or in 2007
since we were prohibited by both the Bankruptcy Code and the DIP credit facility from paying
dividends to shareholders. No dividends were paid by the Successor in the twelve months and ten
months ended December 31, 2009 and 2008 and we have no current plans to do so.
We have 100 million shares of preferred stock, par value $0.01 per share, authorized. As of
December 31, 2009 and 2008 there were no preferred shares issued or outstanding.
17. Commitments and Contingencies
Commitments
Commitments, principally in connection with uncompleted additions to property, were
approximately $5 and $13 at December 31, 2009 and 2008, respectively. In addition, we were
contingently liable under letters of credit totaling $49 and $85 as of December 31, 2009 and 2008,
respectively. The letters of credit included $1 and $3 which were cash collaterized at December
31, 2009 and 2008, respectively, primarily related to environmental remediation and various
insurance related activities. The cash underlying these collateralized letters of credit is
contractually restricted and accordingly is excluded from cash and cash equivalents and recorded in
other assets within the Consolidated Statement of Financial Position as of December 31, 2009 and
2008.
Our future minimum payments under operating leases and various unconditional purchase
obligations are $103 for 2010, $38 for 2011, $16 for 2012, $9 for 2013, $6 for 2014 and $13 for
2015 and thereafter.
Contingencies
Litigation
We are a party to legal proceedings, which have arisen in the ordinary course of business and
involve claims for money damages. As of December 31, 2009 and 2008, we accrued approximately $2
and $5, respectively, for legal costs to defend ourselves in all legal matters.
84
SOLUTIA INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(Dollars in millions, except per share amounts or otherwise noted)
Except for the potential effect of an unfavorable outcome with respect to our Legacy Tort
Claims Litigation, it is our opinion that the aggregate of all claims and lawsuits will not have a
material adverse impact on our consolidated financial statements.
Legacy Tort Claims Litigation
Pursuant to the Amended and Restated Settlement Agreement effective February 28, 2008, entered
into by Solutia and Monsanto Company (Monsanto) in connection with our emergence from Chapter 11
(the Monsanto Settlement Agreement), Monsanto is responsible to defend and indemnify Solutia for
any Legacy Tort Claims as that term is defined in the agreement, while Solutia retains
responsibility for tort claims arising out of exposure occurring after the Solutia Spinoff.
Solutia or Flexsys have been named as defendants in the following actions, and have submitted the
matters to Monsanto as Legacy Tort Claims. However, to the extent these matters relate to post
Solutia Spinoff exposure or such matters are not within the meaning of Legacy Tort Claims within
the Monsanto Settlement Agreement, we would potentially be liable. All claims in the Flexsys tort
litigation matters described below concern alleged conduct occurring while Flexsys was a joint
venture of Solutia and Akzo Nobel, and any potential damages in these cases would be evenly
apportioned between Solutia and Akzo Nobel. In addition to the below actions, Monsanto has sought
indemnity from us for certain tort and workers compensation claims in which Monsanto has been
named a defendant. We have rejected such demand pursuant to the Monsanto Settlement Agreement.
There are no pending legal actions regarding these alleged indemnification rights.
Putnam County, West Virginia Litigation. In December 2004, a purported class action lawsuit
was filed in the Circuit Court of Putnam County, West Virginia against Flexsys, Pharmacia, Monsanto
and Akzo Nobel (Solutia is not a named defendant) alleging exposure to dioxin from Flexsys Nitro,
West Virginia facility, which is now closed. The relevant production activities at the facility
occurred during Pharmacias ownership and operation of the facility and well prior to the creation
of the Flexsys joint venture between Pharmacia (whose interest was subsequently transferred to us
in the Solutia Spinoff) and Akzo Nobel. The plaintiffs are seeking damages for loss of property
value, medical monitoring and other equitable relief.
Beginning in February 2008, Flexsys, Monsanto, Pharmacia, Akzo Nobel and another third party
were named as defendants in approximately seventy-five individual lawsuits, and Solutia was named
in two individual lawsuits, filed in various state court jurisdictions by residents or former
residents of Putnam County, West Virginia. The largely identical complaints allege that the
residents were exposed to potentially harmful levels of dioxin particles from the Nitro facility.
Plaintiffs did not specify the amount of their alleged damages in their complaints. In 2009, over
fifty additional nearly identical complaints were filed by individual plaintiffs in the Putnam
County area, which named Solutia and Flexsys as defendants.
Escambia County, Florida Litigation. In June 2008, a group of approximately fifty property
owners and business owners in the Pensacola, Florida area filed a lawsuit in the Circuit Court for
Escambia County, Florida against Monsanto, Pharmacia, Solutia, and the plant manager at Solutias
former Pensacola plant, which was included in the sale of our Integrated Nylon business. The
lawsuit, entitled John Allen, et al. v. Monsanto Company, et al., alleges that the defendants are
responsible for elevated levels of PCBs in the Escambia River and Escambia Bay due to past and
allegedly continuing releases of PCBs from the Pensacola plant. The plaintiffs seek: (1) damages
associated with alleged decreased property values caused by the alleged contamination, and (2)
remediation of the alleged contamination in the waterways. Plaintiffs did not specify the amount
of their alleged damages in their complaint.
St. Clair County, Illinois Litigation. In February 2009, a purported class action lawsuit was
filed in the Circuit Court of St. Clair County, Illinois against Solutia, Pharmacia, Monsanto and
two other unrelated defendants alleging the contamination of their property from PCBs, dioxins,
furans, and other alleged hazardous substances emanating from the defendants facilities in Sauget,
Illinois (including our W.G. Krummrich site in Sauget, Illinois). The proposed class is comprised
of residents who live within a two-mile radius of the Sauget facilities. The plaintiffs are
seeking damages for medical monitoring and the costs associated with remediation and removal of
alleged contaminants from their property.
In addition to the purported class action lawsuit, twenty additional individual lawsuits have
been filed since February 2009 against the same defendants (including Solutia) comprised of claims
from over one thousand individual residents of Illinois who claim they suffered illnesses and/or
injuries as well as property damages as a result of the same PCBs, dioxins, furans, and other
alleged hazardous substances allegedly emanating from the defendants facilities in Sauget.
Upon assessment of the terms of the Monsanto Settlement Agreement and other defenses available
to us, we believe the probability of an unfavorable outcome to us on the Putnam County, West
Virginia, Escambia County, Florida, and St. Clair County, Illinois litigation against us is remote
and, accordingly, we have not recorded a loss contingency. Nonetheless, if it were subsequently
determined these matters are not within the meaning of Legacy Tort Claims, as defined in the
Monsanto Settlement Agreement, or other defenses to us were unsuccessful, it is reasonably possible
we would be liable for an amount which cannot be estimated but which could have a material adverse
effect on our consolidated financial statements.
85
SOLUTIA INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(Dollars in millions, except per share amounts or otherwise noted)
Solutia Inc. Employees Pension Plan Litigation
Starting in October 2005, separate purported class action lawsuits were filed by
current or former participants in our U.S. Plan, which were ultimately consolidated in September
2006 into a single case. The Consolidated Class Action Complaint alleged three separate causes of
action against the U.S. Plan: (1) the U.S. Plan violates ERISA by terminating interest credits on
prior plan accounts at the age of 55; (2) the U.S. Plan is improperly backloaded in violation of
ERISA; and (3) the U.S. Plan is discriminatory on the basis of age. In September 2007, the court
dismissed the plaintiffs second and third claims, and by consent of the parties, certified a class
action against the U.S. Plan only with respect to plaintiffs claim that the U.S. Plan violates
ERISA by allegedly terminating interest credits on prior plan accounts at the age of 55. On June
11, 2009, the United States District Court for the Southern District of Illinois entered a summary
judgment in favor of the U.S. Plan on the sole remaining claim against the U.S. Plan. The District
Court entered its final appealable judgment in the case on September 29, 2009.
Medicare Reimbursement Litigation
In December 2009, the Department of Justice (DOJ), on behalf of the United States
government, filed suit in the United States District Court, Northern District of Alabama (in a case
captioned United States of America v. Stricker, et al.), against Solutia, Monsanto, Pharmacia, and
the attorneys and law firms who represented the plaintiffs in Abernathy v. Solutia Inc., et al.
(Abernathy) lawsuit arising out of PCB contamination in Anniston, Alabama. The DOJ alleges the
defendants failed to reimburse Medicare for medical expenses paid to Abernathy settlement
recipients who were Medicare beneficiaries. Specifically, the DOJ claims that approximately 907
claimants who received payments for medical treatment under the Abernathy settlement were Medicare
beneficiaries who received conditional payments from Medicare for the same treatment. The DOJ
alleges that the conditional payments were subject to reimbursement if a primary payer had
responsibility to cover the treatment at issue, but no reimbursement was made to the government by
any of the Abernathy participants. The DOJ is seeking recovery of these allegedly unpaid
reimbursements from the defendants who paid into the Abernathy settlement fund, as well as the
plaintiffs counsel who represented the Medicare recipients and were responsible for the
distribution of the settlement funds. The DOJ did not specify the amount of damages either
generally from the defendants or specifically from Solutia which the government seeks in this
case.
Solutia denies the allegations, and asserts that liability for such reimbursements should be
the responsibility of the plaintiffs counsel who were actually responsible for the distribution of
the settlement funds to the plaintiffs. Defendants initial responses to the claim are due in
February 2010, and no trial is expected until at least 2011.
Environmental Liabilities
In the ordinary course of business, we are subject to numerous environmental laws and
regulations covering compliance matters or imposing liability for the costs of, and damages
resulting from, cleaning up sites, past spills, disposals and other releases of hazardous
substances. We have incurred, and we may in the future incur, liabilities to investigate and clean
up waste or contamination at our current facilities, properties adjacent to our current facilities
or facilities operated by third parties at where we may have disposed of waste or other materials.
Under some circumstances, the scope of our liability may extend to damages to natural resources for
which we have accrued $2, exclusive of the balances noted below. In almost all cases, our
potential liability arising from historical contamination is based on operations and other events
occurring at our facilities or as a result of their operation prior to the Solutia Spinoff.
Further, under terms of the Monsanto Settlement Agreement and our Plan, we have agreed to
share responsibility with Monsanto for the environmental remediation at certain locations outside
our plant boundaries in Anniston, Alabama, and Sauget, Illinois which were also incurred prior to
the Solutia Spinoff (the Shared Sites). Under this cost-sharing arrangement, we are responsible
for the funding of environmental liabilities at the Shared Sites from the Effective Date up to a
total of $325 after the exhaustion of funds from the special purpose entity dedicated to the Shared
Sites. Thereafter, if needed, we and Monsanto will share responsibility equally. From the
Effective Date through December 31, 2009, we have made cash payments of $11 million toward
remediation of Shared Sites after exhaustion of the of special purpose entity funds and have
accrued an additional $173 million to be paid over the life of the Shared Sites remediation
activity.
86
SOLUTIA INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(Dollars in millions, except per share amounts or otherwise noted)
Reserves for environmental remediation that we believe to be probable and estimable are
recorded appropriately as current and long-term liabilities in the Consolidated Statement of
Financial Position. These reserves include liabilities expected to be paid out within fifteen
years. The amounts charged to pre-tax earnings for environmental remediation and related charges
are included in cost of goods sold and are summarized below:
|
|
|
|
|
|
|
Total |
|
Predecessor |
|
|
|
|
Balance at December 31, 2007 |
|
$ |
71 |
|
Charges taken |
|
|
257 |
|
Amounts utilized |
|
|
(1 |
) |
|
|
|
|
Balance at February 29, 2008 |
|
|
327 |
|
Successor |
|
|
|
|
Charges taken |
|
|
7 |
|
Amounts utilized (a) |
|
|
(22 |
) |
Currency fluctuations |
|
|
(3 |
) |
|
|
|
|
Balance at December 31, 2008 |
|
|
309 |
|
Charges taken |
|
|
10 |
|
Amounts utilized (a) |
|
|
(29 |
) |
Currency fluctuations |
|
|
1 |
|
|
|
|
|
Balance at December 31, 2009 |
|
$ |
291 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Successor |
|
|
|
December 31, 2009 |
|
|
December 31, 2008 |
|
Environmental Remediation Liabilities, current |
|
$ |
31 |
|
|
$ |
30 |
|
Environmental Remediation Liabilities, long-term |
|
|
260 |
|
|
|
279 |
|
|
|
|
|
|
|
|
Total |
|
$ |
291 |
|
|
$ |
309 |
|
|
|
|
|
|
|
|
|
|
|
(a) |
|
For the twelve months and ten months ended December 31, 2009 and 2008, allowable
expenditures of $28 and $18, respectively, were reimbursed to us by a special purpose
entity established with proceeds of stock issued by us on the Effective Date. |
In addition to accrued environmental liabilities, there are costs which have not met the
definition of probable, and accordingly, are not recorded in the Consolidated Statement of
Financial Position. These loss contingencies are monitored regularly for a change in fact or
circumstance that would require an accrual adjustment. These matters involve significant
unresolved issues, including the interpretation of applicable laws and regulations, the outcome of
negotiations with regulatory authorities and alternative methods of remediation. Because of these
uncertainties, the potential liability for existing environmental remediation may range up to two
times the amount recorded.
Except as noted below, we believe that these matters, when ultimately resolved, which may be
over an extended period of time, will not have a material adverse effect on our Consolidated
Statement of Financial Position, but could have a material adverse effect on our Consolidated
Statement of Operations in any given period. Our significant sites are described in more detail
below:
Anniston,
Alabama: On Aug. 4, 2003, the U.S. District Court for the Northern District of
Alabama approved a Revised Partial Consent Decree, pursuant to which Pharmacia and Solutia are
obligated to perform, among other things, residential cleanup work and a remedial
investigation/feasibility study (RI/FS) as a result of PCB contamination from our Anniston plant,
which occurred prior to the Solutia Spinoff. The residential cleanup is proceeding and should be
completed within the next year to eighteen months. Some level of remediation of non-residential
properties and creek floodplains and/or sediment will be required in the future and we have accrued
for this liability based upon our understanding of the level and extent of contamination in these
areas, the remedial effort likely to be required by various governmental organizations and
estimated costs associated with similar remediation projects. We may recover some of our
investigation and remediation costs from parties, against whom we filed a cost recovery action in
July 2003 but because the eventual outcome of these proceedings is uncertain, our environmental
liability at December 31, 2009 does not incorporate this potential reimbursement. State and
Federal Natural Resource Damage Trustees have asserted a claim for potential natural resource
damage and advised us that they are preparing to undertake an assessment as to the nature and
extent of such damages. As of December 31, 2009, we have accrued $114 for all environmental
remediation projects in the Anniston, Alabama area which represents our best estimate of the final
cost liability. Timing of the remediation will not be established until we complete the RI/FS, a
Record of Decision is issued by the United States Environmental Protection Agency (USEPA), and a
consent decree is negotiated and entered by the court to cover the selected remediation, which will
take several years.
87
SOLUTIA INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(Dollars in millions, except per share amounts or otherwise noted)
Sauget,
Illinois: A number of industries, including our W.G. Krummrich Plant, have
operated and disposed of wastes in Sauget, Illinois. Areas of contamination from these industrial
operations, which for our W.G. Krummrich Plant occurred prior to the Solutia Spinoff, have been
classified as part of either the Sauget Area 1 Sites or the Sauget Area 2 Sites. We conducted a
RI/FS for the Sauget
Area 1 Sites under an Administrative Order on Consent issued on January 21, 1999. Although an
extensive removal action for one of the Sauget Area 1 Sites was conducted under a Unilateral
Administrative Order issued on May 31, 2000, the cost and timing of any additional required
remedial actions will be established only after a Record of Decision is issued by the USEPA, and a
consent decree is negotiated and entered by the court to cover the selected remediation, which is
expected within the next year to eighteen months. We have an agreement with two other potentially
responsible parties (PRPs) to enter into an allocation proceeding upon issuance of the Record of
Decision to resolve our respective shares of the liability for the Sauget Area 1 Sites. We, in
coordination with 19 other PRPs, are also required to conduct a RI/FS for the Sauget Area 2 Sites
under an Administrative Order on Consent issued effective November 24, 2000. We submitted the
revised RI/FS report with other PRPs based on interim allocations and have agreed, upon issuance of
the Record of Decision, to participate in an allocation proceeding to fully resolve each PRPs
share of the liability for the investigation and remediation costs. An interim groundwater remedy
has been installed pursuant to a Unilateral Administrative Order issued on October 3, 2002. We
anticipate that the USEPA will issue a Record of Decision sometime in mid-2010. Our ultimate
exposure at these sites will depend on the final remedial actions to be taken and on the level of
contribution from other PRPs. In addition, several PRPs, including Solutia and Pharmacia, received
in June 2009 from the U.S. Department of the Interior, on behalf of various federal and state
natural resource trustees, a notice of intent to perform and an invitation to cooperate in a
natural resource damage assessment for the Sauget Industrial Corridor. Our best estimate of the
ultimate cost of all remedial measures that will be required at the Sauget, Illinois area sites is
$72 which we have accrued as of December 31, 2009.
W.
G. Krummrich Site: We entered into a Consent Order under the U.S. Resource Conservation
and Recovery Act of 1976, as amended, effective May 3, 2000, to investigate and remediate soil and
groundwater contamination from our manufacturing operations at the W.G. Krummrich Plant, which
occurred prior to the Solutia Spinoff. We conducted an extensive corrective measures study and a
Final Decision was issued by the USEPA in February 2008 setting out the required corrective
measures to be completed. Due to the complexity of the contamination issues at this site, certain
of the corrective measures will be performed in phases with the final remediation approach and
timing for some of the corrective measures being determined only after investigation and pilot
testing phases are completed. Our best estimate of the ultimate cost of the remaining corrective
measures that will be required at the W.G. Krummrich Site is $27 which we have accrued as of
December 31, 2009.
We also have accruals for remedial obligations at several of our current or former
manufacturing sites which we have owned or operated since the Solutia Spinoff. Our best estimate
of the ultimate cost of all corrective measures that will be required at these sites is $78 which
we have accrued as of December 31, 2009.
Environmental Agency Enforcement Actions
On March 3, 2009, the USEPA issued a Notice of Violation (NOV), Administrative Order (AO)
and Reporting Requirement (RR) to us concerning alleged violations of the Clean Air Act arising
out of an inspection conducted at our manufacturing facility in Springfield, Massachusetts. The
NOV describes the USEPAs findings alleging violations of the plants Title V and state operating
permits related to emissions of volatile organic compounds. The AO orders us to comply with its
Title V permit and the National Emission Standards for Hazardous Air Pollutants, Subpart OOO
(Amino/Phenolic Resins), Subpart UU (Equipment Leaks), and General Provisions. The RR requires us
to submit additional information regarding certain storage vessels and associated equipment. On
March 23, 2009, we met with the USEPA to confer on this NOV, AO, and RR. Submittals of the
requested information under the RR were made as required. The USEPA recently informed us that it
is expecting to take civil enforcement action with respect to this matter and has requested we
enter into a tolling agreement that provides the USEPA time to evaluate its case. The amount of a
potential loss, if any, is not currently estimable.
88
SOLUTIA INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(Dollars in millions, except per share amounts or otherwise noted)
18. Supplemental Data
Supplemental income statement and cash flow data from continuing operations were as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Successor |
|
|
Predecessor |
|
|
|
Twelve Months |
|
|
Ten Months |
|
|
Two Months |
|
|
Twelve Months |
|
|
|
Ended |
|
|
Ended |
|
|
Ended |
|
|
Ended |
|
|
|
December 31, |
|
|
December 31, |
|
|
February 29, |
|
|
December 31, |
|
Income Statement: |
|
2009 |
|
|
2008 |
|
|
2008 |
|
|
2007 |
|
Raw material and energy costs |
|
$ |
581 |
|
|
$ |
820 |
|
|
$ |
179 |
|
|
$ |
627 |
|
Employee compensation and benefits |
|
$ |
308 |
|
|
$ |
338 |
|
|
$ |
70 |
|
|
$ |
342 |
|
Depreciation expense |
|
$ |
74 |
|
|
$ |
61 |
|
|
$ |
10 |
|
|
$ |
52 |
|
Amortization of capitalized computer software |
|
$ |
3 |
|
|
$ |
3 |
|
|
$ |
1 |
|
|
$ |
5 |
|
Taxes other than income |
|
$ |
98 |
|
|
$ |
75 |
|
|
$ |
15 |
|
|
$ |
65 |
|
Rent expense |
|
$ |
19 |
|
|
$ |
17 |
|
|
$ |
3 |
|
|
$ |
13 |
|
Provision for doubtful accounts (net of recoveries) |
|
$ |
2 |
|
|
$ |
|
|
|
$ |
|
|
|
$ |
-- |
|
Research and development |
|
$ |
14 |
|
|
$ |
16 |
|
|
$ |
3 |
|
|
$ |
26 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest expense: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total interest cost |
|
$ |
160 |
|
|
$ |
144 |
|
|
$ |
22 |
|
|
$ |
139 |
|
Less capitalized interest |
|
|
1 |
|
|
|
3 |
|
|
|
1 |
|
|
|
5 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net interest expense |
|
$ |
159 |
|
|
$ |
141 |
|
|
$ |
21 |
|
|
$ |
134 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash Flow: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash payments for interest |
|
$ |
100 |
|
|
$ |
114 |
|
|
$ |
43 |
|
|
$ |
122 |
|
Cash payments for income taxes |
|
$ |
19 |
|
|
$ |
23 |
|
|
$ |
4 |
|
|
$ |
20 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Non-Cash Investing Activities: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Capital expenditures included in accounts payable |
|
$ |
2 |
|
|
$ |
14 |
|
|
$ |
10 |
|
|
$ |
16 |
|
The effect of exchange rate changes on cash and cash equivalents was not significant.
19. Segment and Geographic Data
We are a global manufacturer and marketer of a variety of high-performance chemical-based
materials, which are used in a broad range of consumer and industrial applications. Our operations
are managed and reported in three reportable segments consisting of Saflex, CPFilms and Technical
Specialties.
The Saflex reportable segment is a global manufacturer of performance films for laminated
safety glass. The CPFilms reportable segment is a manufacturer of performance films for
after-market applications which add functionality to glass. The Technical Specialties reportable
segment is a global manufacturer of specialties such as chemicals for the rubber, solar energy,
process manufacturing and aviation industries. The major products by reportable segment are as
follows:
|
|
|
Reportable Segment |
|
Products |
Saflex
|
|
SAFLEX® plastic interlayer |
|
|
Specialty intermediate Polyvinyl Butyral resin and plasticizer |
CPFilms
|
|
LLUMAR®, VISTA®, GILA® and FORMULA ONE PERFORMANCE AUTOMOTIVE
FILMS® professional and retail window films |
|
|
Other enhanced polymer films for industrial customers |
Technical Specialties
|
|
CRYSTEX® insoluble sulphur |
|
|
SANTOFLEX® antidegradants |
|
|
SANTOCURE® and PERKACIT® primary and ultra accelerators |
|
|
THERMINOL® heat transfer fluids |
|
|
SKYDROL® aviation hydraulic fluids |
|
|
SKYKLEEN® brand of aviation solvents |
89
SOLUTIA INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(Dollars in millions, except per share amounts or otherwise noted)
The performance of our operating segments is evaluated based on segment profit, defined as
earnings before interest expense, income taxes, depreciation and amortization less net income
attributable to noncontrolling interests, and reorganization items, net (EBITDA). Segment profit
includes selling, general and administrative, research, development and other operating expenses,
gains and losses from asset dispositions and restructuring charges, net income attributable to
noncontrolling interests and other income and expense items that can be directly attributable to
the segment. Certain operations, expenses and other items that are managed outside the reportable
segments are reported as Unallocated and Other. Unallocated and Other is comprised of corporate
expenses, adjustments to our LIFO valuation reserve, adjustments to our environmental liabilities,
equity earnings from affiliates, other income and expense items including currency gains/losses,
gains and losses from asset dispositions and restructuring charges that are not directly
attributable to the reportable segments in addition to operating segments that do not meet the
quantitative threshold for determining reportable segments. There were no inter-segment sales in
the periods presented below.
Our 2009, 2008 and 2007 segment information follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Successor |
|
|
Predecessor |
|
|
|
Twelve Months |
|
|
Ten Months |
|
|
Two Months |
|
|
Twelve Months |
|
|
|
Ended |
|
|
Ended |
|
|
Ended |
|
|
Ended |
|
|
|
December 31, 2009 |
|
|
December 31, 2008 |
|
|
February 29, 2008 |
|
|
December 31, 2007 |
|
|
|
Net |
|
|
Profit |
|
|
Net |
|
|
Profit |
|
|
Net |
|
|
Profit |
|
|
Net |
|
|
Profit |
|
|
|
Sales |
|
|
(Loss) |
|
|
Sales |
|
|
(Loss) |
|
|
Sales |
|
|
(Loss) |
|
|
Sales |
|
|
(Loss) |
|
Segment: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Saflex |
|
$ |
690 |
|
|
$ |
145 |
|
|
$ |
697 |
|
|
$ |
78 |
|
|
$ |
125 |
|
|
$ |
16 |
|
|
$ |
727 |
|
|
$ |
111 |
|
CPFilms |
|
|
185 |
|
|
|
26 |
|
|
|
197 |
|
|
|
33 |
|
|
|
39 |
|
|
|
9 |
|
|
|
234 |
|
|
|
58 |
|
Technical Specialties |
|
|
774 |
|
|
|
261 |
|
|
|
851 |
|
|
|
152 |
|
|
|
164 |
|
|
|
40 |
|
|
|
646 |
|
|
|
94 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Reportable Segment totals |
|
|
1,649 |
|
|
|
432 |
|
|
|
1,745 |
|
|
|
263 |
|
|
|
328 |
|
|
|
65 |
|
|
|
1,607 |
|
|
|
263 |
|
Unallocated and Other |
|
|
18 |
|
|
|
(96 |
) |
|
|
30 |
|
|
|
(40 |
) |
|
|
7 |
|
|
|
(2 |
) |
|
|
36 |
|
|
|
(27 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total |
|
|
1,667 |
|
|
|
336 |
|
|
|
1,775 |
|
|
|
223 |
|
|
|
335 |
|
|
|
63 |
|
|
|
1,643 |
|
|
|
236 |
|
Reconciliation to consolidated totals: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Depreciation and Amortization |
|
|
|
|
|
|
(107 |
) |
|
|
|
|
|
|
(89 |
) |
|
|
|
|
|
|
(11 |
) |
|
|
|
|
|
|
(59 |
) |
Interest expense |
|
|
|
|
|
|
(159 |
) |
|
|
|
|
|
|
(141 |
) |
|
|
|
|
|
|
(21 |
) |
|
|
|
|
|
|
(134 |
) |
Reorganization items, net |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1,433 |
|
|
|
|
|
|
|
(298 |
) |
Net income attributable to noncontrolling interest |
|
|
|
|
|
|
4 |
|
|
|
|
|
|
|
5 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
3 |
|
Consolidated totals: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net sales |
|
$ |
1,667 |
|
|
|
|
|
|
$ |
1,775 |
|
|
|
|
|
|
$ |
335 |
|
|
|
|
|
|
$ |
1,643 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income (Loss) from Continuing Operations Before
Income Tax Expense |
|
|
|
|
|
$ |
74 |
|
|
|
|
|
|
$ |
(2 |
) |
|
|
|
|
|
$ |
1,464 |
|
|
|
|
|
|
$ |
(252 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Successor |
|
|
Predecessor |
|
|
|
Twelve Months Ended |
|
|
Ten Months Ended |
|
|
Two Months Ended |
|
|
Twelve Months Ended |
|
|
|
December 31, 2009 |
|
|
December 31, 2008 |
|
|
February 28, 2007 |
|
|
December 31, 2007 |
|
|
|
|
|
|
|
Depreciation |
|
|
|
|
|
|
Depreciation |
|
|
|
|
|
|
Depreciation |
|
|
|
|
|
|
Depreciation |
|
|
|
Capital |
|
|
and |
|
|
Capital |
|
|
and |
|
|
Capital |
|
|
and |
|
|
Capital |
|
|
and |
|
|
|
Expenditures |
|
|
Amortization |
|
|
Expenditures |
|
|
Amortization |
|
|
Expenditures |
|
|
Amortization |
|
|
Expenditures |
|
|
Amortization |
|
Segment: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Saflex |
|
$ |
29 |
|
|
$ |
48 |
|
|
$ |
52 |
|
|
$ |
40 |
|
|
$ |
7 |
|
|
$ |
5 |
|
|
$ |
59 |
|
|
$ |
25 |
|
CPFilms |
|
|
3 |
|
|
|
19 |
|
|
|
8 |
|
|
|
15 |
|
|
|
2 |
|
|
|
1 |
|
|
|
11 |
|
|
|
10 |
|
Technical Specialties |
|
|
11 |
|
|
|
36 |
|
|
|
17 |
|
|
|
28 |
|
|
|
3 |
|
|
|
4 |
|
|
|
20 |
|
|
|
17 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Reportable Segment totals |
|
|
43 |
|
|
|
103 |
|
|
|
77 |
|
|
|
83 |
|
|
|
12 |
|
|
|
10 |
|
|
|
90 |
|
|
|
52 |
|
Unallocated and Other |
|
|
1 |
|
|
|
4 |
|
|
|
7 |
|
|
|
6 |
|
|
|
3 |
|
|
|
1 |
|
|
|
9 |
|
|
|
7 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total |
|
$ |
44 |
|
|
$ |
107 |
|
|
$ |
84 |
|
|
$ |
89 |
|
|
$ |
15 |
|
|
$ |
11 |
|
|
$ |
99 |
|
|
$ |
59 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Successor |
|
|
|
2009 |
|
|
2008 |
|
Assets by Segment: |
|
|
|
|
|
|
|
|
Saflex |
|
$ |
1,305 |
|
|
$ |
1,322 |
|
CPFilms |
|
|
598 |
|
|
|
619 |
|
Technical Specialties |
|
|
903 |
|
|
|
925 |
|
|
|
|
|
|
|
|
Reportable Segment totals |
|
|
2,806 |
|
|
|
2,866 |
|
Reconciliation to consolidated totals: |
|
|
|
|
|
|
|
|
Discontinued Operations |
|
|
10 |
|
|
|
490 |
|
Unallocated and Other |
|
|
450 |
|
|
|
378 |
|
|
|
|
|
|
|
|
Consolidated totals |
|
$ |
3,266 |
|
|
$ |
3,734 |
|
|
|
|
|
|
|
|
90
SOLUTIA INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(Dollars in millions, except per share amounts or otherwise noted)
Our net sales by geographic region, based upon geographic region which product was
shipped to, for 2009, 2008 and 2007 follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Technical |
|
|
Unallocated |
|
|
Consolidated |
|
|
|
Saflex |
|
|
CPFilms |
|
|
Specialties |
|
|
and Other |
|
|
Totals |
|
Successor |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Twelve Months Ended December 31, 2009 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
U.S. |
|
$ |
124 |
|
|
$ |
105 |
|
|
$ |
184 |
|
|
$ |
4 |
|
|
$ |
417 |
|
Europe |
|
|
343 |
|
|
|
28 |
|
|
|
197 |
|
|
|
11 |
|
|
|
579 |
|
Asia Pacific |
|
|
128 |
|
|
|
37 |
|
|
|
282 |
|
|
|
2 |
|
|
|
449 |
|
Rest of World |
|
|
95 |
|
|
|
15 |
|
|
|
111 |
|
|
|
1 |
|
|
|
222 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$ |
690 |
|
|
$ |
185 |
|
|
$ |
774 |
|
|
$ |
18 |
|
|
$ |
1,667 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Successor |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Ten Months Ended December 31, 2008 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
U.S. |
|
$ |
134 |
|
|
$ |
99 |
|
|
$ |
203 |
|
|
$ |
9 |
|
|
$ |
445 |
|
Europe |
|
|
336 |
|
|
|
45 |
|
|
|
239 |
|
|
|
16 |
|
|
|
636 |
|
Asia Pacific |
|
|
113 |
|
|
|
31 |
|
|
|
287 |
|
|
|
2 |
|
|
|
433 |
|
Rest of World |
|
|
114 |
|
|
|
22 |
|
|
|
122 |
|
|
|
3 |
|
|
|
261 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$ |
697 |
|
|
$ |
197 |
|
|
$ |
851 |
|
|
$ |
30 |
|
|
$ |
1,775 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Predecessor |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Two Months Ended February 29, 2008 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
U.S. |
|
$ |
26 |
|
|
$ |
20 |
|
|
$ |
40 |
|
|
$ |
2 |
|
|
$ |
88 |
|
Europe |
|
|
62 |
|
|
|
9 |
|
|
|
51 |
|
|
|
4 |
|
|
|
126 |
|
Asia Pacific |
|
|
19 |
|
|
|
6 |
|
|
|
50 |
|
|
|
|
|
|
|
75 |
|
Rest of World |
|
|
18 |
|
|
|
4 |
|
|
|
23 |
|
|
|
1 |
|
|
|
46 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$ |
125 |
|
|
$ |
39 |
|
|
$ |
164 |
|
|
$ |
7 |
|
|
$ |
335 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Twelve Months Ended December 31, 2007 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
U.S. |
|
$ |
145 |
|
|
$ |
124 |
|
|
$ |
161 |
|
|
$ |
13 |
|
|
$ |
443 |
|
Europe |
|
|
346 |
|
|
|
51 |
|
|
|
186 |
|
|
|
19 |
|
|
|
602 |
|
Asia Pacific |
|
|
115 |
|
|
|
35 |
|
|
|
204 |
|
|
|
2 |
|
|
|
356 |
|
Rest of World |
|
|
121 |
|
|
|
24 |
|
|
|
95 |
|
|
|
2 |
|
|
|
242 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$ |
727 |
|
|
$ |
234 |
|
|
$ |
646 |
|
|
$ |
36 |
|
|
$ |
1,643 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
No individual country, customer or customer group represents greater than 10 percent of
net sales for the twelve months ended December 31, 2009, ten months ended December 31, 2008, two
months ended February 29, 2008 and twelve months ended December 31, 2007 except for China during
the twelve months ended December 31, 2009. During 2009, China represented approximately 12 percent
of annual consolidated net sales for the year.
Our property, plant and equipment by geographic region for 2009 and 2008 follow:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Technical |
|
|
Unallocated |
|
|
Consolidated |
|
|
|
Saflex |
|
|
CPFilms |
|
|
Specialties |
|
|
and Other |
|
|
Totals |
|
Successor |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2009 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
U.S. |
|
$ |
151 |
|
|
$ |
83 |
|
|
$ |
84 |
|
|
$ |
7 |
|
|
$ |
325 |
|
Europe |
|
|
213 |
|
|
|
1 |
|
|
|
160 |
|
|
|
3 |
|
|
|
377 |
|
Asia Pacific |
|
|
40 |
|
|
|
|
|
|
|
98 |
|
|
|
|
|
|
|
138 |
|
Rest of World |
|
|
51 |
|
|
|
|
|
|
|
28 |
|
|
|
|
|
|
|
79 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$ |
455 |
|
|
$ |
84 |
|
|
$ |
370 |
|
|
$ |
10 |
|
|
$ |
919 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Successor |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2008 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
U.S. |
|
$ |
161 |
|
|
$ |
87 |
|
|
$ |
82 |
|
|
$ |
18 |
|
|
$ |
348 |
|
Europe |
|
|
209 |
|
|
|
4 |
|
|
|
140 |
|
|
|
29 |
|
|
|
382 |
|
Asia Pacific |
|
|
42 |
|
|
|
|
|
|
|
103 |
|
|
|
|
|
|
|
145 |
|
Rest of World |
|
|
54 |
|
|
|
|
|
|
|
23 |
|
|
|
|
|
|
|
77 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$ |
466 |
|
|
$ |
91 |
|
|
$ |
348 |
|
|
$ |
47 |
|
|
$ |
952 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
91
SOLUTIA INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(Dollars in millions, except per share amounts or otherwise noted)
20. Earnings (Loss) Per Share
The following table presents the net income (loss) used in the basic and diluted earnings
(loss) per share and reconciles weighted-average number of shares used in the basic earnings (loss)
per share calculation to the weighted-average number of shares used to compute diluted earnings
(loss) per share.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Successor |
|
|
Predecessor |
|
|
|
Twelve Months |
|
|
Ten Months |
|
|
Two Months |
|
|
Twelve Months |
|
|
|
Ended |
|
|
Ended |
|
|
Ended |
|
|
Ended |
|
|
|
December 31, |
|
|
December 31, |
|
|
February 29, |
|
|
December 31, |
|
(Shares in millions) |
|
2009 |
|
|
2008 |
|
|
2008 |
|
|
2007 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Consolidated Statement of Operations Results: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income (Loss) from Continuing Operations |
|
$ |
60 |
|
|
$ |
(15 |
) |
|
$ |
1,250 |
|
|
$ |
(269 |
) |
Less Net Income attributable to noncontrolling interest |
|
|
4 |
|
|
|
5 |
|
|
|
|
|
|
|
3 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income (Loss) from Continuing Operations attributable to Solutia |
|
$ |
56 |
|
|
$ |
(20 |
) |
|
$ |
1,250 |
|
|
$ |
(272 |
) |
Income (Loss) from Discontinued Operations |
|
|
(169 |
) |
|
|
(648 |
) |
|
|
204 |
|
|
|
64 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net Income (Loss) attributable to Solutia |
|
$ |
(113 |
) |
|
$ |
(668 |
) |
|
$ |
1,454 |
|
|
$ |
(208 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted-average number of shares outstanding used for basic earnings (loss) per share |
|
|
106.5 |
|
|
|
74.7 |
|
|
|
104.5 |
|
|
|
104.5 |
|
Non-vested restricted shares |
|
|
0.2 |
|
|
|
|
|
|
|
|
|
|
|
|
|
Stock options |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Warrants |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted-average number of shares outstanding and common equivalent shares used for diluted earnings (loss) per share |
|
|
106.7 |
|
|
|
74.7 |
|
|
|
104.5 |
|
|
|
104.5 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
During the twelve months and ten months ended December 31, 2009 and 2008, the following
shares were not included in the computation of earnings (loss) per share since the result would
have been anti-dilutive.
|
|
|
|
|
|
|
|
|
|
|
Successor |
|
|
|
Twelve Months |
|
|
Ten Months |
|
|
|
Ended |
|
|
Ended |
|
(Shares in millions) |
|
December 31, 2009 |
|
|
December 31, 2008 |
|
Non-vested restricted shares |
|
|
1.0 |
|
|
|
1.4 |
|
Stock options |
|
|
2.4 |
|
|
|
2.8 |
|
Warrants |
|
|
4.5 |
|
|
|
4.5 |
|
21. Quarterly Data Unaudited
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Successor |
|
|
|
First |
|
|
Second |
|
|
Third |
|
|
Fourth |
|
2009 |
|
Quarter |
|
|
Quarter |
|
|
Quarter |
|
|
Quarter |
|
Net Sales |
|
$ |
339 |
|
|
$ |
410 |
|
|
$ |
448 |
|
|
$ |
470 |
|
Gross Profit |
|
$ |
81 |
|
|
$ |
122 |
|
|
$ |
136 |
|
|
$ |
131 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income (Loss) from Continuing Operations
attributable to Solutia |
|
$ |
(4 |
) |
|
$ |
24 |
|
|
$ |
29 |
|
|
$ |
7 |
|
Loss from Discontinued Operations, net of tax |
|
|
(155 |
) |
|
|
(14 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net Income (Loss) attributable to Solutia |
|
$ |
(159 |
) |
|
$ |
10 |
|
|
$ |
29 |
|
|
$ |
7 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic/Diluted Income (Loss) per share: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income (Loss) from Continuing Operations
attributable to Solutia |
|
$ |
(0.04 |
) |
|
$ |
0.25 |
|
|
$ |
0.24 |
|
|
$ |
0.06 |
|
Loss from Discontinued Operations, net of tax |
|
|
(1.66 |
) |
|
|
(0.15 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net Income (Loss) attributable to Solutia |
|
$ |
(1.70 |
) |
|
$ |
0.10 |
|
|
$ |
0.24 |
|
|
$ |
0.06 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
92
SOLUTIA INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(Dollars in millions, except per share amounts or otherwise noted)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Predecessor |
|
|
Successor |
|
|
|
Two Months |
|
|
One Month |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Ended |
|
|
Ended |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
February 29, |
|
|
March 31, |
|
|
Second |
|
|
Third |
|
|
Fourth |
|
2008 |
|
2008 |
|
|
2008 |
|
|
Quarter |
|
|
Quarter |
|
|
Quarter |
|
Net Sales |
|
$ |
335 |
|
|
$ |
182 |
|
|
$ |
577 |
|
|
$ |
587 |
|
|
$ |
429 |
|
Gross Profit |
|
$ |
94 |
|
|
$ |
26 |
|
|
$ |
101 |
|
|
$ |
156 |
|
|
$ |
84 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income (Loss) from Continuing
Operations attributable to Solutia |
|
$ |
1,250 |
|
|
$ |
(16 |
) |
|
$ |
(6 |
) |
|
$ |
21 |
|
|
$ |
(19 |
) |
Income (Loss) from Discontinued Operations, net of tax |
|
|
204 |
|
|
|
(14 |
) |
|
|
(10 |
) |
|
|
(28 |
) |
|
|
(596 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net Income (Loss) attributable to Solutia |
|
$ |
1,454 |
|
|
$ |
(30 |
) |
|
$ |
(16 |
) |
|
$ |
(7 |
) |
|
$ |
(615 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic/Diluted Income (Loss) per share: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income (Loss) from Continuing Operations attributable to Solutia |
|
$ |
11.96 |
|
|
$ |
(0.27 |
) |
|
$ |
(0.10 |
) |
|
$ |
0.28 |
|
|
$ |
(0.20 |
) |
Income (Loss) from Discontinued Operations, net of tax |
|
|
1.95 |
|
|
|
(0.23 |
) |
|
|
(0.17 |
) |
|
|
(0.37 |
) |
|
|
(6.40 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net Income (Loss) attributable to Solutia |
|
$ |
13.91 |
|
|
$ |
(0.50 |
) |
|
$ |
(0.27 |
) |
|
$ |
(0.09 |
) |
|
$ |
(6.60 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
During the first quarter of 2008, we emerged from bankruptcy on the Effective Date and as
a result, adopted fresh-start accounting. In 2008, certain events affecting comparability were
recorded in Reorganization Items, net in the Consolidated Statement of Operations. A breakdown of
reorganization items for this period is provided in Note 2 Fresh-Start Accounting. Charges and
gains recorded in 2009 and 2008 and other events affecting comparability recorded outside of
reorganization items, net have been summarized below for income (loss) from continuing operations
before taxes.
Loss from continuing operations in the three months ended March 31, 2009 included a $23 gain
related to the reduction in the 2008 annual incentive plan, substantially offset by charges of $17
for severance and retraining costs related to the general corporate restructuring, $4 related to
the closure of our production line at the Trenton Facility and $1 related to the closure of our
Ruabon Facility. The income from continuing operations for the three months ended June 30, 2009,
included charges of $8 related to the repayment of the Senior Term Loan to write-off unamortized
debt issuance costs and debt discount, $5 for severance and retraining costs related to the general
corporate restructuring and $1 related to the closure of our production line at the Trenton
Facility, partially offset by a $4 gain related to a change in estimate for the restructuring
reserve related to the Ruabon Facility. Income from continuing operations in the three months
ended September 30, 2009 included charges of $6 related to net pension plan settlements, $6
resulting from the Plastic Products Sale and $4 for severance and retraining costs related to the
general corporate restructuring. The income from continuing operations in the three months ended
December 31, 2009 included charges of $30 related to write-off of unamortized debt issuance costs
from the $300 pay down on the Term Loan, $9 for severance and retraining costs related to the
general corporate restructuring, $5 related to net pension plan settlements, $3 for CPFilms
European consolidation efforts and $1 related to the closure of our Ruabon Facility, partially
offset by a $3 gain related to the Thiurams Sale.
Income from continuing operations in the two months ended February 28, 2008 included a $3 gain
resulting from settlements of legacy insurance policies with insolvent insurance carriers as well
as restructuring charges of $1 for severance and retraining. The loss from continuing operations
for the month ended March 1, 2008, included charges of $23 resulting from the step-up in basis of
our inventory in accordance with fresh-start accounting. Loss from continuing operations in the
second quarter of 2008, included charges of $44 resulting from the step-up in basis of our
inventory in accordance with fresh-start accounting and $6 related to the announced closure of our
Ruabon Facility, partially offset by gains of $3 from a surplus land sale and $4 on the settlement
of emergence related incentive accruals. For the third quarter of 2008, income from continuing
operations included charges of $7 related to the announced closure of our Ruabon Facility, $1
resulting from the relocation of our plastic products business from our manufacturing facility in
Ghent, Belgium to Oradea, Romania and $1 related to unamortized debt issuance costs associated with
the repayment of the Bridge. The charges were fully offset by gains of $6 resulting from the
termination of a natural gas contract at the Ruabon Facility and $3 from a surplus land sale. Loss
from continuing operations in the fourth quarter of 2008 included charges of $12 related to the
closure of the Ruabon Facility, $10 from the closure of our production line at the Trenton
Facility, $3 related to the impairment of fixed assets in our rubber chemical operations, $3
related to the impairment of indefinite-lived intangible assets in our CPFilms reportable segment
and a loss of $1 on the settlement of the natural gas purchase contract associated with the Ruabon
Facility, partially offset by a $3 gain on the settlement of emergence related professional fees
accruals.
93
SOLUTIA INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(Dollars in millions, except per share amounts or otherwise noted)
Under ASC 260 Earnings per Share, the quarterly and total year calculations of basic and
diluted loss per share are based on weighted average shares outstanding for that quarterly or total
year period, respectively. As a result, the sum of basic and diluted income (loss) per share for
the quarterly periods may not equal total year income (loss) per share.
22. Condensed Consolidating Financial Statements
In accordance with SEC regulation S-X Rule 3-10 Financial Statements of Guarantors and
Issuers of Guaranteed Securities Registered or Being Registered, we are providing condensed
consolidating financial statements as our 2017 Notes are fully and unconditionally guaranteed on a
joint and several basis.
The following consolidating financial statements present, in separate columns, financial
information for: Solutia on a parent only basis carrying its investment in subsidiaries under the
equity method; Guarantors on a combined basis, carrying investments in subsidiaries which do not
guarantee the debt (the Non-Guarantors) under the equity method; Non-Guarantors on a combined
basis; eliminating entries; and consolidated totals as of December 31, 2009 and December 31, 2008,
and for the twelve months ended December 31, 2009, the ten months ended December 31, 2008, the two
months ended February 29, 2008 and the twelve months ended December 31, 2007. The eliminating
entries primarily reflect intercompany transactions, such as interest income and expense, accounts
receivable and payable, advances, short and long-term debt, royalties and profit in inventory
eliminations.
94
SOLUTIA INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(Dollars in millions, except per share amounts or otherwise noted)
Condensed Consolidating Statement of Operations
Twelve Months Ended December 31, 2009
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Parent-Only |
|
|
|
|
|
|
Non- |
|
|
|
|
|
|
Consolidated |
|
|
|
Solutia |
|
|
Guarantors |
|
|
Guarantors |
|
|
Eliminations |
|
|
Solutia |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net Sales |
|
$ |
399 |
|
|
$ |
352 |
|
|
$ |
1,506 |
|
|
$ |
(590 |
) |
|
$ |
1,667 |
|
Cost of goods sold |
|
|
345 |
|
|
|
229 |
|
|
|
1,237 |
|
|
|
(614 |
) |
|
|
1,197 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross Profit |
|
|
54 |
|
|
|
123 |
|
|
|
269 |
|
|
|
24 |
|
|
|
470 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Selling, general, and administrative expenses |
|
|
80 |
|
|
|
58 |
|
|
|
89 |
|
|
|
|
|
|
|
227 |
|
Research, development and other operating expenses, net |
|
|
12 |
|
|
|
3 |
|
|
|
(5 |
) |
|
|
|
|
|
|
10 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating Income (Loss) |
|
|
(38 |
) |
|
|
62 |
|
|
|
185 |
|
|
|
24 |
|
|
|
233 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Equity earnings from affiliates |
|
|
196 |
|
|
|
73 |
|
|
|
|
|
|
|
(269 |
) |
|
|
|
|
Interest expense |
|
|
(159 |
) |
|
|
(1 |
) |
|
|
(154 |
) |
|
|
155 |
|
|
|
(159 |
) |
Other income, net |
|
|
42 |
|
|
|
67 |
|
|
|
74 |
|
|
|
(183 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income from Continuing Operations Before Income Tax
Expense |
|
|
41 |
|
|
|
201 |
|
|
|
105 |
|
|
|
(273 |
) |
|
|
74 |
|
Income tax expense |
|
|
|
|
|
|
|
|
|
|
14 |
|
|
|
|
|
|
|
14 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income from Continuing Operations |
|
|
41 |
|
|
|
201 |
|
|
|
91 |
|
|
|
(273 |
) |
|
|
60 |
|
Loss from discontinued operations, net of tax |
|
|
(154 |
) |
|
|
|
|
|
|
(15 |
) |
|
|
|
|
|
|
(169 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net Income (Loss) |
|
|
(113 |
) |
|
|
201 |
|
|
|
76 |
|
|
|
(273 |
) |
|
|
(109 |
) |
Net Income attributable to noncontrolling interest |
|
|
|
|
|
|
|
|
|
|
4 |
|
|
|
|
|
|
|
4 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net Income (Loss) attributable to Solutia |
|
$ |
(113 |
) |
|
$ |
201 |
|
|
$ |
72 |
|
|
$ |
(273 |
) |
|
$ |
(113 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
95
SOLUTIA INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(Dollars in millions, except per share amounts or otherwise noted)
Condensed Consolidating Statement of Operations
Ten Months Ended December 31, 2008
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Parent-Only |
|
|
|
|
|
|
Non- |
|
|
|
|
|
|
Consolidated |
|
|
|
Solutia |
|
|
Guarantors |
|
|
Guarantors |
|
|
Eliminations |
|
|
Solutia |
|
Net Sales |
|
$ |
427 |
|
|
$ |
385 |
|
|
$ |
1,615 |
|
|
$ |
(652 |
) |
|
$ |
1,775 |
|
Cost of goods sold |
|
|
399 |
|
|
|
257 |
|
|
|
1,438 |
|
|
|
(686 |
) |
|
|
1,408 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross Profit |
|
|
28 |
|
|
|
128 |
|
|
|
177 |
|
|
|
34 |
|
|
|
367 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Selling, general, and administrative expenses |
|
|
89 |
|
|
|
63 |
|
|
|
91 |
|
|
|
|
|
|
|
243 |
|
Research, development and other operating expenses, net |
|
|
6 |
|
|
|
3 |
|
|
|
|
|
|
|
|
|
|
|
9 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating Income (Loss) |
|
|
(67 |
) |
|
|
62 |
|
|
|
86 |
|
|
|
34 |
|
|
|
115 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Equity earnings from affiliates |
|
|
189 |
|
|
|
116 |
|
|
|
|
|
|
|
(305 |
) |
|
|
|
|
Interest expense |
|
|
(142 |
) |
|
|
|
|
|
|
(161 |
) |
|
|
162 |
|
|
|
(141 |
) |
Other income, net |
|
|
43 |
|
|
|
50 |
|
|
|
128 |
|
|
|
(197 |
) |
|
|
24 |
|
Reorganization items, net |
|
|
(27 |
) |
|
|
(45 |
) |
|
|
72 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income (Loss) from Continuing Operations Before Income
Tax Expense (Benefit) |
|
|
(4 |
) |
|
|
183 |
|
|
|
125 |
|
|
|
(306 |
) |
|
|
(2 |
) |
Income tax expense (benefit) |
|
|
|
|
|
|
(1 |
) |
|
|
15 |
|
|
|
(1 |
) |
|
|
13 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income (Loss) from Continuing Operations |
|
|
(4 |
) |
|
|
184 |
|
|
|
110 |
|
|
|
(305 |
) |
|
|
(15 |
) |
Income (Loss) from discontinued operations, net of tax |
|
|
(664 |
) |
|
|
(2 |
) |
|
|
18 |
|
|
|
|
|
|
|
(648 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net Income (Loss) |
|
|
(668 |
) |
|
|
182 |
|
|
|
128 |
|
|
|
(305 |
) |
|
|
(663 |
) |
Net Income attributable to noncontrolling interest |
|
|
|
|
|
|
|
|
|
|
5 |
|
|
|
|
|
|
|
5 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net Income (Loss) attributable to Solutia |
|
$ |
(668 |
) |
|
$ |
182 |
|
|
$ |
123 |
|
|
$ |
(305 |
) |
|
$ |
(668 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
96
SOLUTIA INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(Dollars in millions, except per share amounts or otherwise noted)
Condensed Consolidating Statement of Operations
Two Months Ended February 29, 2008
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Parent-Only |
|
|
|
|
|
|
Non- |
|
|
|
|
|
|
Consolidated |
|
|
|
Solutia |
|
|
Guarantors |
|
|
Guarantors |
|
|
Eliminations |
|
|
Solutia |
|
Net Sales |
|
$ |
102 |
|
|
$ |
79 |
|
|
$ |
301 |
|
|
$ |
(147 |
) |
|
$ |
335 |
|
Cost of goods sold |
|
|
76 |
|
|
|
47 |
|
|
|
256 |
|
|
|
(138 |
) |
|
|
241 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross Profit |
|
|
26 |
|
|
|
32 |
|
|
|
45 |
|
|
|
(9 |
) |
|
|
94 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Selling, general, and administrative expenses |
|
|
18 |
|
|
|
9 |
|
|
|
15 |
|
|
|
|
|
|
|
42 |
|
Research, development and other operating expenses, net |
|
|
3 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
3 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating Income |
|
|
5 |
|
|
|
23 |
|
|
|
30 |
|
|
|
(9 |
) |
|
|
49 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Equity earnings from affiliates |
|
|
913 |
|
|
|
377 |
|
|
|
|
|
|
|
(1,290 |
) |
|
|
|
|
Interest expense |
|
|
(16 |
) |
|
|
(2 |
) |
|
|
(18 |
) |
|
|
15 |
|
|
|
(21 |
) |
Other income (loss), net |
|
|
(7 |
) |
|
|
2 |
|
|
|
14 |
|
|
|
(6 |
) |
|
|
3 |
|
Reorganization items, net |
|
|
381 |
|
|
|
524 |
|
|
|
528 |
|
|
|
|
|
|
|
1,433 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income from Continuing Operations Before Income Tax Expense |
|
|
1,276 |
|
|
|
924 |
|
|
|
554 |
|
|
|
(1,290 |
) |
|
|
1,464 |
|
Income tax expense |
|
|
27 |
|
|
|
14 |
|
|
|
173 |
|
|
|
|
|
|
|
214 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income from Continuing Operations |
|
|
1,249 |
|
|
|
910 |
|
|
|
381 |
|
|
|
(1,290 |
) |
|
|
1,250 |
|
Income (Loss) from discontinued operations, net of tax |
|
|
205 |
|
|
|
|
|
|
|
(1 |
) |
|
|
|
|
|
|
204 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net Income |
|
|
1,454 |
|
|
|
910 |
|
|
|
380 |
|
|
|
(1,290 |
) |
|
|
1,454 |
|
Net Income attributable to noncontrolling interest |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net Income attributable to Solutia |
|
$ |
1,454 |
|
|
$ |
910 |
|
|
$ |
380 |
|
|
$ |
(1,290 |
) |
|
$ |
1,454 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
97
SOLUTIA INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(Dollars in millions, except per share amounts or otherwise noted)
Consolidating Statement of Operations
Twelve Months Ended December 31, 2007
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Parent-Only |
|
|
|
|
|
|
Non- |
|
|
|
|
|
|
Consolidated |
|
|
|
Solutia |
|
|
Guarantors |
|
|
Guarantors |
|
|
Eliminations |
|
|
Solutia |
|
Net Sales |
|
$ |
480 |
|
|
$ |
361 |
|
|
$ |
1,322 |
|
|
$ |
(520 |
) |
|
$ |
1,643 |
|
Cost of goods sold |
|
|
433 |
|
|
|
214 |
|
|
|
1,149 |
|
|
|
(536 |
) |
|
|
1,260 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross Profit |
|
|
47 |
|
|
|
147 |
|
|
|
173 |
|
|
|
16 |
|
|
|
383 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Selling, general, and administrative expenses |
|
|
91 |
|
|
|
48 |
|
|
|
79 |
|
|
|
|
|
|
|
218 |
|
Research, development and other operating expenses, net |
|
|
16 |
|
|
|
5 |
|
|
|
3 |
|
|
|
|
|
|
|
24 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating Income (Loss) |
|
|
(60 |
) |
|
|
94 |
|
|
|
91 |
|
|
|
16 |
|
|
|
141 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Equity earnings (loss) from affiliates |
|
|
136 |
|
|
|
21 |
|
|
|
(1 |
) |
|
|
(144 |
) |
|
|
12 |
|
Interest expense |
|
|
(111 |
) |
|
|
(5 |
) |
|
|
(85 |
) |
|
|
67 |
|
|
|
(134 |
) |
Other income, net |
|
|
54 |
|
|
|
19 |
|
|
|
46 |
|
|
|
(85 |
) |
|
|
34 |
|
Loss on debt modification |
|
|
(7 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(7 |
) |
Reorganization items, net |
|
|
(295 |
) |
|
|
(2 |
) |
|
|
(1 |
) |
|
|
|
|
|
|
(298 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income (Loss) from Continuing Operations Before Income Tax Expense (Benefit) |
|
|
(283 |
) |
|
|
127 |
|
|
|
50 |
|
|
|
(146 |
) |
|
|
(252 |
) |
Income tax expense (benefit) |
|
|
(9 |
) |
|
|
|
|
|
|
27 |
|
|
|
(1 |
) |
|
|
17 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income (Loss) from Continuing Operations |
|
|
(274 |
) |
|
|
127 |
|
|
|
23 |
|
|
|
(145 |
) |
|
|
(269 |
) |
Income (Loss) from discontinued operations, net of tax |
|
|
66 |
|
|
|
(2 |
) |
|
|
|
|
|
|
|
|
|
|
64 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net Income (Loss) |
|
|
(208 |
) |
|
|
125 |
|
|
|
23 |
|
|
|
(145 |
) |
|
|
(205 |
) |
Net Income attributable to noncontrolling interest |
|
|
|
|
|
|
|
|
|
|
3 |
|
|
|
|
|
|
|
3 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net Income (Loss) attributable to Solutia |
|
$ |
(208 |
) |
|
$ |
125 |
|
|
$ |
20 |
|
|
$ |
(145 |
) |
|
$ |
(208 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
98
SOLUTIA INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(Dollars in millions, except per share amounts or otherwise noted)
Condensed Consolidating Balance Sheet
December 31, 2009
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Parent-Only |
|
|
|
|
|
|
Non- |
|
|
|
|
|
|
Consolidated |
|
|
|
Solutia |
|
|
Guarantors |
|
|
Guarantors |
|
|
Eliminations |
|
|
Solutia |
|
ASSETS |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Current Assets: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents |
|
$ |
104 |
|
|
$ |
1 |
|
|
$ |
138 |
|
|
$ |
|
|
|
$ |
243 |
|
Trade receivables, net |
|
|
27 |
|
|
|
44 |
|
|
|
197 |
|
|
|
|
|
|
|
268 |
|
Intercompany receivables |
|
|
188 |
|
|
|
357 |
|
|
|
326 |
|
|
|
(871 |
) |
|
|
|
|
Miscellaneous receivables |
|
|
7 |
|
|
|
2 |
|
|
|
73 |
|
|
|
|
|
|
|
82 |
|
Inventories |
|
|
65 |
|
|
|
39 |
|
|
|
184 |
|
|
|
(31 |
) |
|
|
257 |
|
Prepaid expenses and other current assets |
|
|
24 |
|
|
|
1 |
|
|
|
7 |
|
|
|
5 |
|
|
|
37 |
|
Assets of discontinued operations |
|
|
10 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
10 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Current Assets |
|
|
425 |
|
|
|
444 |
|
|
|
925 |
|
|
|
(897 |
) |
|
|
897 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Property, Plant and Equipment, net |
|
|
182 |
|
|
|
142 |
|
|
|
595 |
|
|
|
|
|
|
|
919 |
|
Investments in Affiliates |
|
|
2,064 |
|
|
|
421 |
|
|
|
52 |
|
|
|
(2,537 |
) |
|
|
|
|
Goodwill |
|
|
150 |
|
|
|
191 |
|
|
|
170 |
|
|
|
|
|
|
|
511 |
|
Identified Intangible Assets, net |
|
|
194 |
|
|
|
320 |
|
|
|
289 |
|
|
|
|
|
|
|
803 |
|
Intercompany Advances |
|
|
153 |
|
|
|
552 |
|
|
|
1,259 |
|
|
|
(1,964 |
) |
|
|
|
|
Other Assets |
|
|
92 |
|
|
|
4 |
|
|
|
40 |
|
|
|
|
|
|
|
136 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Assets |
|
$ |
3,260 |
|
|
$ |
2,074 |
|
|
$ |
3,330 |
|
|
$ |
(5,398 |
) |
|
$ |
3,266 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
LIABILITIES AND SHAREHOLDERS EQUITY |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Current Liabilities: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accounts payable |
|
$ |
48 |
|
|
$ |
13 |
|
|
$ |
108 |
|
|
$ |
|
|
|
$ |
169 |
|
Intercompany payables |
|
|
578 |
|
|
|
18 |
|
|
|
275 |
|
|
|
(871 |
) |
|
|
|
|
Accrued liabilities |
|
|
85 |
|
|
|
9 |
|
|
|
121 |
|
|
|
(9 |
) |
|
|
206 |
|
Short-term debt, including current portion of long-term debt |
|
|
12 |
|
|
|
|
|
|
|
16 |
|
|
|
|
|
|
|
28 |
|
Intercompany short-term debt |
|
|
|
|
|
|
|
|
|
|
778 |
|
|
|
(778 |
) |
|
|
|
|
Liabilities of discontinued operations |
|
|
50 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
50 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Current Liabilities |
|
|
773 |
|
|
|
40 |
|
|
|
1,298 |
|
|
|
(1,658 |
) |
|
|
453 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Long-Term Debt |
|
|
1,264 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1,264 |
|
Intercompany Long-Term Debt |
|
|
19 |
|
|
|
23 |
|
|
|
1,144 |
|
|
|
(1,186 |
) |
|
|
|
|
Postretirement Liabilities |
|
|
304 |
|
|
|
3 |
|
|
|
104 |
|
|
|
|
|
|
|
411 |
|
Environmental Remediation Liabilities |
|
|
242 |
|
|
|
1 |
|
|
|
17 |
|
|
|
|
|
|
|
260 |
|
Deferred Tax Liabilities |
|
|
20 |
|
|
|
10 |
|
|
|
149 |
|
|
|
|
|
|
|
179 |
|
Other Liabilities |
|
|
45 |
|
|
|
7 |
|
|
|
47 |
|
|
|
|
|
|
|
99 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Shareholders Equity: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Common stock |
|
|
1 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1 |
|
Additional contributed capital |
|
|
1,612 |
|
|
|
1,990 |
|
|
|
564 |
|
|
|
(2,554 |
) |
|
|
1,612 |
|
Treasury stock |
|
|
(2 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(2 |
) |
Accumulated other comprehensive loss |
|
|
(237 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(237 |
) |
Accumulated deficit |
|
|
(781 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(781 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Shareholders Equity attributable to Solutia |
|
|
593 |
|
|
|
1,990 |
|
|
|
564 |
|
|
|
(2,554 |
) |
|
|
593 |
|
Equity attributable to noncontrolling interest |
|
|
|
|
|
|
|
|
|
|
7 |
|
|
|
|
|
|
|
7 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Shareholders Equity |
|
|
593 |
|
|
|
1,990 |
|
|
|
571 |
|
|
|
(2,554 |
) |
|
|
600 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Liabilities and Shareholders Equity |
|
$ |
3,260 |
|
|
$ |
2,074 |
|
|
$ |
3,330 |
|
|
$ |
(5,398 |
) |
|
$ |
3,266 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
99
SOLUTIA INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(Dollars in millions, except per share amounts or otherwise noted)
Condensed Consolidating Balance Sheet
December 31, 2008
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Parent-Only |
|
|
|
|
|
|
Non- |
|
|
|
|
|
|
Consolidated |
|
|
|
Solutia |
|
|
Guarantors |
|
|
Guarantors |
|
|
Eliminations |
|
|
Solutia |
|
ASSETS |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Current Assets: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents |
|
$ |
|
|
|
$ |
1 |
|
|
$ |
31 |
|
|
$ |
|
|
|
$ |
32 |
|
Trade receivables, net |
|
|
|
|
|
|
66 |
|
|
|
161 |
|
|
|
|
|
|
|
227 |
|
Intercompany receivables |
|
|
41 |
|
|
|
405 |
|
|
|
207 |
|
|
|
(653 |
) |
|
|
|
|
Miscellaneous receivables |
|
|
12 |
|
|
|
2 |
|
|
|
96 |
|
|
|
|
|
|
|
110 |
|
Inventories |
|
|
85 |
|
|
|
54 |
|
|
|
230 |
|
|
|
(28 |
) |
|
|
341 |
|
Prepaid expenses and other assets |
|
|
29 |
|
|
|
1 |
|
|
|
49 |
|
|
|
6 |
|
|
|
85 |
|
Assets of discontinued operations |
|
|
345 |
|
|
|
63 |
|
|
|
82 |
|
|
|
|
|
|
|
490 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Current Assets |
|
|
512 |
|
|
|
592 |
|
|
|
856 |
|
|
|
(675 |
) |
|
|
1,285 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Property, Plant and Equipment, net |
|
|
198 |
|
|
|
150 |
|
|
|
604 |
|
|
|
|
|
|
|
952 |
|
Investments in Affiliates |
|
|
2,149 |
|
|
|
353 |
|
|
|
436 |
|
|
|
(2,938 |
) |
|
|
|
|
Goodwill |
|
|
150 |
|
|
|
191 |
|
|
|
170 |
|
|
|
|
|
|
|
511 |
|
Identified Intangible Assets, net |
|
|
202 |
|
|
|
332 |
|
|
|
289 |
|
|
|
|
|
|
|
823 |
|
Intercompany Advances |
|
|
214 |
|
|
|
510 |
|
|
|
1,440 |
|
|
|
(2,164 |
) |
|
|
|
|
Other Assets |
|
|
118 |
|
|
|
5 |
|
|
|
40 |
|
|
|
|
|
|
|
163 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Assets |
|
$ |
3,543 |
|
|
$ |
2,133 |
|
|
$ |
3,835 |
|
|
$ |
(5,777 |
) |
|
$ |
3,734 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
LIABILITIES AND SHAREHOLDERS EQUITY |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Current Liabilities: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accounts payable |
|
$ |
81 |
|
|
$ |
12 |
|
|
$ |
77 |
|
|
$ |
|
|
|
$ |
170 |
|
Intercompany payables |
|
|
429 |
|
|
|
1 |
|
|
|
222 |
|
|
|
(652 |
) |
|
|
|
|
Accrued liabilities |
|
|
88 |
|
|
|
13 |
|
|
|
170 |
|
|
|
(12 |
) |
|
|
259 |
|
Short-term debt, including current portion of long-term debt |
|
|
14 |
|
|
|
|
|
|
|
23 |
|
|
|
|
|
|
|
37 |
|
Intercompany short-term debt |
|
|
3 |
|
|
|
|
|
|
|
633 |
|
|
|
(636 |
) |
|
|
|
|
Liabilities of discontinued operations |
|
|
298 |
|
|
|
|
|
|
|
4 |
|
|
|
|
|
|
|
302 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Current Liabilities |
|
|
913 |
|
|
|
26 |
|
|
|
1,129 |
|
|
|
(1,300 |
) |
|
|
768 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Long-Term Debt |
|
|
1,351 |
|
|
|
|
|
|
|
8 |
|
|
|
|
|
|
|
1,359 |
|
Intercompany Long-Term Debt |
|
|
5 |
|
|
|
23 |
|
|
|
1,511 |
|
|
|
(1,539 |
) |
|
|
|
|
Post Retirement Liabilities |
|
|
384 |
|
|
|
3 |
|
|
|
78 |
|
|
|
|
|
|
|
465 |
|
Environmental Remediation Liabilities |
|
|
264 |
|
|
|
1 |
|
|
|
14 |
|
|
|
|
|
|
|
279 |
|
Deferred Tax Liabilities |
|
|
37 |
|
|
|
11 |
|
|
|
154 |
|
|
|
|
|
|
|
202 |
|
Other Liabilities |
|
|
68 |
|
|
|
8 |
|
|
|
56 |
|
|
|
|
|
|
|
132 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Shareholders Equity: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Common stock |
|
|
1 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1 |
|
Additional contributed capital |
|
|
1,474 |
|
|
|
2,061 |
|
|
|
877 |
|
|
|
(2,938 |
) |
|
|
1,474 |
|
Accumulated other comprehensive loss |
|
|
(286 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(286 |
) |
Accumulated deficit |
|
|
(668 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(668 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Shareholders Equity attributable to Solutia |
|
|
521 |
|
|
|
2,061 |
|
|
|
877 |
|
|
|
(2,938 |
) |
|
|
521 |
|
Equity attributable to noncontrolling interest |
|
|
|
|
|
|
|
|
|
|
8 |
|
|
|
|
|
|
|
8 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Shareholders Equity |
|
|
521 |
|
|
|
2,061 |
|
|
|
885 |
|
|
|
(2,938 |
) |
|
|
529 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Liabilities and Shareholders Equity |
|
$ |
3,543 |
|
|
$ |
2,133 |
|
|
$ |
3,835 |
|
|
$ |
(5,777 |
) |
|
$ |
3,734 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
100
SOLUTIA INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(Dollars in millions, except per share amounts or otherwise noted)
Condensed Consolidating Statement of Cash Flows
Twelve Months ended December 31, 2009
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Parent-Only |
|
|
|
|
|
|
Non- |
|
|
|
|
|
|
Consolidated |
|
|
|
Solutia |
|
|
Guarantors |
|
|
Guarantors |
|
|
Eliminations |
|
|
Solutia |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash Provided by (Used in) Operations |
|
$ |
(274 |
) |
|
$ |
247 |
|
|
$ |
278 |
|
|
$ |
|
|
|
$ |
251 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
INVESTING ACTIVITIES: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Property, plant and equipment purchases |
|
|
(18 |
) |
|
|
(5 |
) |
|
|
(27 |
) |
|
|
|
|
|
|
(50 |
) |
Acquisition and investment payments |
|
|
|
|
|
|
(2 |
) |
|
|
|
|
|
|
|
|
|
|
(2 |
) |
Restricted cash investments |
|
|
9 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
9 |
|
Investment proceeds and property disposals |
|
|
16 |
|
|
|
|
|
|
|
6 |
|
|
|
|
|
|
|
22 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash Provided by (Used in) Investing Activities |
|
|
7 |
|
|
|
(7 |
) |
|
|
(21 |
) |
|
|
|
|
|
|
(21 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
FINANCING ACTIVITIES: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net change in lines of credit |
|
|
(3 |
) |
|
|
|
|
|
|
(11 |
) |
|
|
|
|
|
|
(14 |
) |
Proceeds from short-term debt obligations |
|
|
|
|
|
|
|
|
|
|
22 |
|
|
|
|
|
|
|
22 |
|
Payments of short-term debt obligations |
|
|
|
|
|
|
|
|
|
|
(17 |
) |
|
|
|
|
|
|
(17 |
) |
Proceeds from long-term debt obligations |
|
|
400 |
|
|
|
|
|
|
|
70 |
|
|
|
|
|
|
|
470 |
|
Payments of long-term debt obligations |
|
|
(312 |
) |
|
|
|
|
|
|
(74 |
) |
|
|
|
|
|
|
(386 |
) |
Net change in long-term revolving credit facility |
|
|
(175 |
) |
|
|
|
|
|
|
(6 |
) |
|
|
|
|
|
|
(181 |
) |
Debt issuance costs |
|
|
(25 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(25 |
) |
Proceeds from stock issuance |
|
|
119 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
119 |
|
Purchase of treasury shares |
|
|
(2 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(2 |
) |
Other, net |
|
|
|
|
|
|
|
|
|
|
(5 |
) |
|
|
|
|
|
|
(5 |
) |
Changes in investments and advances from (to) affiliates |
|
|
369 |
|
|
|
(240 |
) |
|
|
(129 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash Provided by (Used in) Financing Activities |
|
|
371 |
|
|
|
(240 |
) |
|
|
(150 |
) |
|
|
|
|
|
|
(19 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Increase in Cash and Cash Equivalents |
|
|
104 |
|
|
|
|
|
|
|
107 |
|
|
|
|
|
|
|
211 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
CASH AND CASH EQUIVALENTS: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Beginning of year |
|
|
|
|
|
|
1 |
|
|
|
31 |
|
|
|
|
|
|
|
32 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
End of year |
|
$ |
104 |
|
|
$ |
1 |
|
|
$ |
138 |
|
|
$ |
|
|
|
$ |
243 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
101
SOLUTIA INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(Dollars in millions, except per share amounts or otherwise noted)
Condensed Consolidating Statement of Cash Flows
Ten Months Ended December 31, 2008
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Parent-Only |
|
|
|
|
|
|
Non- |
|
|
|
|
|
|
Consolidated |
|
|
|
Solutia |
|
|
Guarantors |
|
|
Guarantors |
|
|
Eliminations |
|
|
Solutia |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash Provided by (Used In) Operations |
|
$ |
(386 |
) |
|
$ |
240 |
|
|
$ |
165 |
|
|
$ |
|
|
|
$ |
19 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
INVESTING ACTIVITIES: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Property, plant and equipment purchases |
|
|
(64 |
) |
|
|
(10 |
) |
|
|
(46 |
) |
|
|
|
|
|
|
(120 |
) |
Acquisition and investment payments |
|
|
|
|
|
|
(4 |
) |
|
|
|
|
|
|
|
|
|
|
(4 |
) |
Investment proceeds and property disposals |
|
|
52 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
52 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash Used In Investing Activities |
|
|
(12 |
) |
|
|
(14 |
) |
|
|
(46 |
) |
|
|
|
|
|
|
(72 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
FINANCING ACTIVITIES: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net change in lines of credit |
|
|
3 |
|
|
|
|
|
|
|
22 |
|
|
|
|
|
|
|
25 |
|
Net change in long-term revolving credit facilities |
|
|
(15 |
) |
|
|
|
|
|
|
10 |
|
|
|
|
|
|
|
(5 |
) |
Proceeds from stock issuance |
|
|
422 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
422 |
|
Payment of long-term debt obligations |
|
|
(437 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(437 |
) |
Debt issuance costs |
|
|
|
|
|
|
|
|
|
|
(1 |
) |
|
|
|
|
|
|
(1 |
) |
Other, net |
|
|
|
|
|
|
|
|
|
|
(2 |
) |
|
|
|
|
|
|
(2 |
) |
Changes in investments and advances from (to) affiliates |
|
|
413 |
|
|
|
(234 |
) |
|
|
(179 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash Provided by (Used In) Financing Activities |
|
|
386 |
|
|
|
(234 |
) |
|
|
(150 |
) |
|
|
|
|
|
|
2 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Decrease in Cash and Cash Equivalents |
|
|
(12 |
) |
|
|
(8 |
) |
|
|
(31 |
) |
|
|
|
|
|
|
(51 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
CASH AND CASH EQUIVALENTS: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Beginning of period |
|
|
12 |
|
|
|
9 |
|
|
|
62 |
|
|
|
|
|
|
|
83 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
End of period |
|
$ |
|
|
|
$ |
1 |
|
|
$ |
31 |
|
|
$ |
|
|
|
$ |
32 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
102
SOLUTIA INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(Dollars in millions, except per share amounts or otherwise noted)
Condensed Consolidating Statement of Cash Flows
Two Months Ended February 29, 2008
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Parent-Only |
|
|
|
|
|
|
Non- |
|
|
|
|
|
|
Consolidated |
|
|
|
Solutia |
|
|
Guarantors |
|
|
Guarantors |
|
|
Eliminations |
|
|
Solutia |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash Provided by (Used In) Operations |
|
$ |
(328 |
) |
|
$ |
52 |
|
|
$ |
(136 |
) |
|
$ |
|
|
|
$ |
(412 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
INVESTING ACTIVITIES: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Property, plant and equipment purchases |
|
|
(18 |
) |
|
|
(3 |
) |
|
|
(8 |
) |
|
|
|
|
|
|
(29 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash Used In Investing Activities |
|
|
(18 |
) |
|
|
(3 |
) |
|
|
(8 |
) |
|
|
|
|
|
|
(29 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
FINANCING ACTIVITIES: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Proceeds from long-term debt obligations |
|
|
1,600 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1,600 |
|
Net change in long-term revolving credit facilities |
|
|
190 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
190 |
|
Proceeds from stock issuance |
|
|
250 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
250 |
|
Payment of short-term debt obligations |
|
|
(951 |
) |
|
|
|
|
|
|
(15 |
) |
|
|
|
|
|
|
(966 |
) |
Payment of long-term debt obligations |
|
|
|
|
|
|
|
|
|
|
(366 |
) |
|
|
|
|
|
|
(366 |
) |
Payment of debt obligations subject to compromise |
|
|
(221 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(221 |
) |
Debt issuance costs |
|
|
(135 |
) |
|
|
|
|
|
|
(1 |
) |
|
|
|
|
|
|
(136 |
) |
Changes in investments and advances from (to) affiliates |
|
|
(374 |
) |
|
|
(48 |
) |
|
|
422 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash Provided by (Used In) Financing Activities |
|
|
359 |
|
|
|
(48 |
) |
|
|
40 |
|
|
|
|
|
|
|
351 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Increase (Decrease) in Cash and Cash Equivalents |
|
|
13 |
|
|
|
1 |
|
|
|
(104 |
) |
|
|
|
|
|
|
(90 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
CASH AND CASH EQUIVALENTS: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Beginning of period |
|
|
(1 |
) |
|
|
8 |
|
|
|
166 |
|
|
|
|
|
|
|
173 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
End of period |
|
$ |
12 |
|
|
$ |
9 |
|
|
$ |
62 |
|
|
$ |
|
|
|
$ |
83 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
103
SOLUTIA INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(Dollars in millions, except per share amounts or otherwise noted)
Condensed Consolidating Statement of Cash Flows
Twelve Months Ended December 31, 2007
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Parent-Only |
|
|
|
|
|
|
Non- |
|
|
|
|
|
|
Consolidated |
|
|
|
Solutia |
|
|
Guarantors |
|
|
Guarantors |
|
|
Eliminations |
|
|
Solutia |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash Provided by (Used In) Operations |
|
$ |
(209 |
) |
|
$ |
85 |
|
|
$ |
73 |
|
|
$ |
|
|
|
$ |
(51 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
INVESTING ACTIVITIES: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Property, plant and equipment purchases |
|
|
(69 |
) |
|
|
(14 |
) |
|
|
(68 |
) |
|
|
|
|
|
|
(151 |
) |
Acquisition and investment payments |
|
|
(10 |
) |
|
|
(64 |
) |
|
|
(56 |
) |
|
|
|
|
|
|
(130 |
) |
Restricted cash |
|
|
|
|
|
|
|
|
|
|
4 |
|
|
|
|
|
|
|
4 |
|
Investment proceeds and property disposals |
|
|
45 |
|
|
|
|
|
|
|
27 |
|
|
|
|
|
|
|
72 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash Used In Investing Activities |
|
|
(34 |
) |
|
|
(78 |
) |
|
|
(93 |
) |
|
|
|
|
|
|
(205 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
FINANCING ACTIVITIES: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net changes in lines of credit |
|
|
|
|
|
|
|
|
|
|
14 |
|
|
|
|
|
|
|
14 |
|
Proceeds from short-term debt obligations |
|
|
325 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
325 |
|
Payment of short-term obligations |
|
|
(53 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(53 |
) |
Proceeds from long-term debt obligations |
|
|
|
|
|
|
|
|
|
|
75 |
|
|
|
|
|
|
|
75 |
|
Payment of long-term debt obligations |
|
|
|
|
|
|
|
|
|
|
(4 |
) |
|
|
|
|
|
|
(4 |
) |
Net change in long-term revolving credit facilities |
|
|
30 |
|
|
|
|
|
|
|
(91 |
) |
|
|
|
|
|
|
(61 |
) |
Debt issuance costs |
|
|
(7 |
) |
|
|
|
|
|
|
(4 |
) |
|
|
|
|
|
|
(11 |
) |
Other, net |
|
|
(6 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(6 |
) |
Changes in investments and advances from (to) affiliates |
|
|
(70 |
) |
|
|
(13 |
) |
|
|
83 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash Provided by (Used in) Financing Activities |
|
|
219 |
|
|
|
(13 |
) |
|
|
73 |
|
|
|
|
|
|
|
279 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Increase (Decrease) in Cash and Cash Equivalents |
|
|
(24 |
) |
|
|
(6 |
) |
|
|
53 |
|
|
|
|
|
|
|
23 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
CASH AND CASH EQUIVALENTS: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Beginning of year |
|
|
23 |
|
|
|
14 |
|
|
|
113 |
|
|
|
|
|
|
|
150 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
End of year |
|
$ |
(1 |
) |
|
$ |
8 |
|
|
$ |
166 |
|
|
$ |
|
|
|
$ |
173 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
104
|
|
|
ITEM 9. |
|
CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE |
None
|
|
|
ITEM 9A. |
|
CONTROLS AND PROCEDURES |
Evaluation of Disclosure Controls and Procedures
As of December 31, 2009, Solutia carried out an evaluation, under the supervision and with the
participation of Solutias management, including its Chief Executive Officer and Chief Financial
Officer, of the effectiveness of the design and operation of Solutias disclosure controls and
procedures (as defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934
(Exchange Act)). Based upon that evaluation, the Chief Executive Officer and Chief Financial
Officer concluded that, as of December 31, 2009, Solutias disclosure controls and procedures are
effective in timely accumulating and communicating to them material information relating to Solutia
and its consolidated subsidiaries that is required to be included in Solutias periodic SEC
filings. The Chief Executive Officer and Chief Financial Officer also concluded that, as of
December 31, 2009, Solutias disclosure controls and procedures are effective to provide reasonable
assurance that Solutia records, processes, summarizes, and reports the required disclosure
information within the specified time periods. Further, there were no changes in Solutias
internal control over financial reporting (as defined in Rules 13a-15(f) and 15d-15(f) under the
Exchange Act) that occurred during the last fiscal quarter that have materially affected, or are
reasonably likely to materially affect, the Companys internal controls over financial reporting.
Managements Report on Internal Control over Financial Reporting
Management of Solutia Inc. and its subsidiaries (the Company) is responsible for
establishing and maintaining adequate internal control over financial reporting as defined in Rules
13a-15(f) and 15d-15(f) under the Securities Exchange Act of 1934. Solutias internal control over
financial reporting is a process designed by, or under the supervision of, Solutias principal
executive and principal financial officers and effected by Solutias board of directors, management
and other personnel to provide reasonable assurance regarding the reliability of financial
reporting and the preparation of financial statements for external purposes in accordance with
generally accepted accounting principles. Solutias internal control over financial reporting
includes those policies and procedures that:
(i) pertain to the maintenance of records that, in reasonable detail, accurately and
fairly reflect the transactions and dispositions of the assets of Solutia;
(ii) provide reasonable assurance that transactions are recorded as necessary to permit
preparation of financial statements in accordance with generally accepted accounting
principles, and that receipts and expenditures of Solutia are being made only in accordance
with authorizations of management and directors of Solutia; and
(iii) provide reasonable assurance regarding prevention or timely detection of
unauthorized acquisition, use or disposition of Solutias assets that could have a material
effect on the financial statements.
Because of its inherent limitations, internal control over financial reporting may not prevent
or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are
subject to the risk that controls may become inadequate because of changes in conditions, or that
the degree of compliance with the policies or procedures may deteriorate.
Management assessed the effectiveness of Solutias internal control over financial reporting
as of December 31, 2009. In making this assessment, management used the criteria set forth by the
Committee of Sponsoring Organizations of the Treadway Commission (COSO) in Internal
Control-Integrated Framework. Based on our assessment and those criteria, management believes that
Solutia maintained effective internal control over financial reporting as of December 31, 2009.
Solutias independent auditors have issued an attestation report on Solutias internal control
over financial reporting. This report appears on pages 48-49.
|
|
|
ITEM 9B. |
|
OTHER INFORMATION |
None.
105
PART III
|
|
|
ITEM 10. |
|
DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE |
We incorporate by reference the information under the headings Code of Conduct, Director
Biographies and Board Meetings and Committees appearing in the section entitled Corporate
Governance Practices and the information appearing in the section entitled Section 16(a)
Beneficial Ownership Reporting Compliance in our Proxy Statement to be distributed to stockholders
in connection with our 2010 annual meeting.
|
|
|
ITEM 11. |
|
EXECUTIVE COMPENSATION |
We incorporate by reference the information under the heading Compensation Committee
Interlocks and Insider Participation appearing in the section entitled Corporate Governance
Practices and under the headings Compensation Discussion and Analysis, Summary Compensation
Table, Grant of Plan-Based Awards for the Year Ended December 31, 2009, Outstanding Equity
Awards at December 31, 2009, Executive Compensation & Development Committee Report, Option
Exercises and Stock Vested for the Year Ended December 31, 2009, Pension Benefits,
Non-Qualified Deferred Compensation, Employment Agreements with Named Executive Officers,
Potential Payments upon Termination of Employment or Change-in-Control appearing in the section
entitled Executive and Director Compensation, and Director Compensation for the Year Ended
December 31, 2009 appearing in the section entitled The Board of Directors and Its Committees in
our Proxy Statement to be distributed to stockholders in connection with our 2010 annual meeting.
|
|
|
ITEM 12. |
|
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER
MATTERS |
We incorporate by reference the information appearing under the sections entitled Security
Ownership of Directors and Executive Officers, Security Ownership of Certain Beneficial Owners
and Equity Compensation Plan Information in our Proxy Statement to be distributed to stockholders
in connection with our 2010 annual meeting.
|
|
|
ITEM 13. |
|
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR INDEPENDENCE |
We incorporate by reference the information under the headings Related Party Transaction
Policy and Procedures and Director Independence appearing in the section entitled Corporate
Governance Practices in our Proxy Statement to be distributed to stockholders in connection with
our 2010 annual meeting.
|
|
|
ITEM 14. |
|
PRINCIPAL ACCOUNTANT FEES AND SERVICES |
We incorporate by reference the information in the section entitled Ratification of the
Appointment of Independent Public Accounting Firm in our Proxy Statement to be distributed to
stockholders in connection with our 2010 annual meeting.
106
PART IV
|
|
|
ITEM 15. |
|
EXHIBITS AND FINANCIAL STATEMENT SCHEDULE |
(a) Documents filed as part of this Form 10-K:
|
1. |
|
Financial StatementsSee the Index to Consolidated Financial Statements and
Financial Statement Schedule at page 47 of this report. |
|
2. |
|
The following supplemental schedule for the years ended December 31, 2009, 2008
and 2007 |
IIValuation and Qualifying Accounts
|
3. |
|
ExhibitsSee the Exhibit Index beginning at page 110 of this report. For a
listing of all management contracts and compensatory plans or arrangements required to
be filed as exhibits to this report, see the exhibits listed under (Exhibit Nos. 10(a)
through 10(l), 10(n) and 10(o). The following exhibits listed in the Exhibit Index are
filed with this Form 10-K: |
|
|
|
|
|
|
10 |
(j) |
|
Amended and Restated Employment Agreement by and between Solutia Inc. and Robert T. DeBolt |
|
10 |
(k) |
|
Executive Separation Pay Plan |
|
10 |
(l) |
|
Letter Agreement between Paul J. Berra, III and Solutia Inc. dated February 25, 2009 |
|
21 |
|
|
Subsidiaries of the Registrant |
|
23 |
|
|
Consent of Independent Registered Public Accounting Firm |
|
24 |
(a) |
|
Powers of Attorney |
|
24 |
(b) |
|
Certified copy of board resolution authorizing Form 10-K filing using powers of attorney |
|
31 |
(a) |
|
Certification of Chief Executive Officer Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 |
|
31 |
(b) |
|
Certification of Chief Financial Officer Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 |
|
32 |
(a) |
|
Certification of Chief Executive Officer Pursuant to 18 U.S.C.
Section 1350 as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 |
|
32 |
(b) |
|
Certification of Chief Financial Officer Pursuant to 18 U.S.C.
Section 1350 as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 |
107
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934,
the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto
duly authorized.
|
|
|
|
|
|
SOLUTIA INC.
|
|
|
By: |
/s/ Timothy J. Spihlman
|
|
|
|
Timothy J. Spihlman |
|
|
|
Vice President and Controller
(Principal Accounting Officer) |
|
|
Dated: February 17, 2010
Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been
signed below by the following persons on behalf of the registrant and in the capacities and on the
dates indicated.
|
|
|
|
|
Signature |
|
Title |
|
Date |
|
|
|
|
|
/s/ Jeffry N. Quinn
Jeffry N. Quinn
|
|
President, Chief Executive
Officer and
Chairman of the
Board
(Principal Executive
Officer)
|
|
February 17, 2010 |
|
|
|
|
|
/s/ James M. Sullivan
James M. Sullivan
|
|
Executive Vice President
and
Chief Financial Officer
(Principal Financial
Officer)
|
|
February 17, 2010 |
|
|
|
|
|
/s/ Timothy J. Spihlman
Timothy J. Spihlman
|
|
Vice President and
Controller
(Principal
Accounting Officer)
|
|
February 17, 2010 |
|
|
|
|
|
|
|
Director
|
|
February 17, 2010 |
|
|
|
|
|
* Robert K. deVeer, Jr.
|
|
Director
|
|
February 17, 2010 |
|
|
|
|
|
* James P. Heffernan
|
|
Director
|
|
February 17, 2010 |
|
|
|
|
|
* W. Thomas Jagodinski
|
|
Director
|
|
February 17, 2010 |
|
|
|
|
|
* William T. Monahan
|
|
Director
|
|
February 17, 2010 |
|
|
|
|
|
* Robert A. Peiser
|
|
Director
|
|
February 17, 2010 |
|
|
|
|
|
* Gregory C. Smith
|
|
Director
|
|
February 17, 2010 |
|
|
|
* |
|
Paul J. Berra, III, by signing his name hereto, does sign this document on behalf of the
above noted individuals, pursuant to powers of attorney duly executed by such individuals which
have been filed as an Exhibit to this Form 10-K. |
|
|
|
|
|
|
|
|
|
/s/ Paul J. Berra, III
|
|
|
Paul J. Berra, III, Attorney-in-Fact |
|
|
|
|
108
SCHEDULE II
SOLUTIA INC.
VALUATION AND QUALIFYING ACCOUNTS
FOR THE TWELVE MONTHS ENDED DECEMBER 31, 2009, TEN MONTHS ENDED DECEMBER 31, 2008,
TWO MONTHS ENDED FEBRUARY 29, 2008 AND TWELVE MONTHS ENDED DECEMBER 31, 2007
(Dollars in Millions)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
COLUMN A |
|
COLUMN B |
|
|
COLUMN C |
|
|
COLUMN D |
|
|
COLUMN E |
|
|
|
|
|
|
Additions |
|
|
|
|
|
|
|
|
|
|
|
|
(1) |
|
|
|
|
|
|
|
|
|
|
|
|
Balance at |
|
|
Charged to |
|
|
(2) |
|
|
|
|
|
|
|
|
|
beginning of |
|
|
costs and |
|
|
Charged to |
|
|
|
|
|
Balance at end |
|
Description |
|
year |
|
|
expenses |
|
|
other accounts |
|
|
Deductions |
|
|
of period |
|
Successor: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Twelve Months Ended December 31, 2009 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Valuation accounts for doubtful
receivables |
|
$ |
|
|
|
$ |
2 |
|
|
$ |
|
|
|
$ |
|
|
|
$ |
2 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Restructuring reserves |
|
|
20 |
|
|
|
43 |
|
|
|
(3 |
) |
|
|
43 |
|
|
|
17 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Ten Months Ended December 31, 2008 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Valuation accounts for doubtful
receivables |
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Restructuring reserves |
|
|
8 |
|
|
|
26 |
|
|
|
|
|
|
|
14 |
|
|
|
20 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Predecessor: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Two Months Ended February 29, 2008 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Valuation accounts for doubtful
receivables |
|
$ |
2 |
|
|
$ |
|
|
|
$ |
(2 |
) |
|
$ |
|
|
|
$ |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Restructuring reserves |
|
|
8 |
|
|
|
1 |
|
|
|
|
|
|
|
1 |
|
|
|
8 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31, 2007 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Valuation accounts for doubtful
receivables |
|
$ |
2 |
|
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
$ |
2 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Restructuring reserves |
|
|
5 |
|
|
|
8 |
|
|
|
12 |
|
|
|
17 |
|
|
|
8 |
|
109
EXHIBIT INDEX
These exhibits are numbered in accordance with the Exhibit Table of Item 601 of Regulation
S-K.
|
|
|
|
|
Exhibit No. |
|
Description |
|
2 |
|
|
Debtors Fifth Amended Joint Plan of Reorganization Pursuant to Chapter 11 of the Bankruptcy Code (incorporated by
reference to Exhibit 99.2 of Solutias Form 8-K filed October 25, 2007) |
|
|
|
|
|
|
3 |
(a) |
|
Second Amended and Restated Certificate of Incorporation of Solutia Inc. (incorporated by reference to Exhibit 3.1 to
Solutias Form 8-K filed on March 4, 2008) |
|
|
|
|
|
|
3 |
(b) |
|
Certificate of Designation, Preferences and Rights of Series A Preferred Stock. (incorporated by reference to Exhibit
3.1 to Solutias Current Report on Form 8-K filed on July 27, 2009) |
|
|
|
|
|
|
3 |
(c) |
|
Amended and Restated Bylaws of Solutia Inc. (incorporated by reference to Exhibit 3.2 to Solutias Form 8-K filed on
March 4, 2008) |
|
|
|
|
|
|
4 |
(a) |
|
382 Rights Agreement, dated as of July 27, 2009, between Solutia Inc. and American Stock Transfer & Trust Company, LLC,
which includes the Form of Certificate Designation, Preferences and Rights of Series A Participating Preferred Stock as
Exhibit A and the Summary of Rights as Exhibit C. (incorporated by reference to Exhibit 3.1 to Solutias Current Report
on Form 8-K filed July 27, 2009) |
|
|
|
|
|
|
4 |
(b) |
|
Indenture dated October 15, 2009 by and between Solutia Inc., the subsidiary guarantors parties thereto and the Trustee.
(incorporated by reference to Exhibit 4.1 to Solutias Current Report on Form 8-K filed October 16, 2009) |
|
|
|
|
|
|
4 |
(c) |
|
First Supplemental Indenture to the Indenture dated October 15, 2009, by and between Solutia Inc., the subsidiary
guarantors parties thereto and the Trustee. (incorporated by reference to Exhibit 4.2 to Solutias Current Report on
Form 8-K filed October 16, 2009) |
|
|
|
|
|
|
4 |
(d) |
|
Form of Non-Qualified Stock Option Agreement pursuant to the Solutia Inc. 2007 Management Long-Term Incentive Plan
(incorporated by reference to Exhibit 4.1 to Solutias Form 10-Q for the first quarter ended March 31, 2008) |
|
|
|
|
|
|
4 |
(e) |
|
Form of Restricted Stock Award Agreement Pursuant To The Solutia Inc. 2007 Management Long-Term Incentive Plan
(incorporated by reference to Exhibit 4.2 to Solutias Form 10-Q for the quarter ended March 31, 2008) |
|
|
|
|
|
|
4 |
(f) |
|
Form of Restricted Stock Unit Award Agreement Pursuant To The Solutia Inc. 2007 Management Long-Term Incentive Plan
(incorporated by reference to Exhibit 4.3 to Solutias Form 10-Q for the quarter ended March 31, 2008) |
|
|
|
|
|
|
4 |
(g) |
|
Registration Rights Agreement, dated as of November 19, 2007, by and among Solutia Inc. and the holders party thereto
(incorporated by reference to Exhibit 4.1 to Solutias Form 8-K filed March 5, 2008) |
|
|
|
|
|
|
4 |
(h) |
|
Solutia Inc. 2007 Management Long-Term Incentive Plan (incorporated by reference to Exhibit 4(c) to Solutias
registration statement on Form S-8 filed February 28, 2008) |
|
|
|
|
|
|
4 |
(i) |
|
Solutia Inc. 2007 Non-Employee Director Stock Compensation Plan (incorporated by reference to Exhibit 4(d) to Solutias
registration statement on Form S-8 filed February 28, 2008) |
|
|
|
|
|
|
4 |
(j) |
|
Warrant Agreement, dated as of February 28, 2008, by and between Solutia Inc. and American Stock Transfer and Trust
Company, as Warrant Agent (incorporated by reference to Exhibit 4.1 to Solutias Form 8-K filed March 4, 2008) |
|
|
|
|
|
|
10 |
(a) |
|
Financial Planning and Tax Preparation Services Program for the Executive Leadership Team (incorporated by reference to
Exhibit 10(a) of Solutias Form 10-K for the year ended December 31, 1997) |
|
|
|
|
|
|
10 |
(b) |
|
Letter Agreement between Solutia Inc. and Luc De Temmerman effective as of July 19, 2004 (incorporated by reference to
Exhibit 99.3 of Solutias Form 8-K filed January 18, 2005) |
|
|
|
|
|
|
10 |
(c) |
|
2007 Solutia Annual Incentive Program. (incorporated by reference to Exhibit 10.1 of Solutias Form 8-K filed on March
17, 2007) |
|
|
|
|
|
|
10 |
(d) |
|
Amended 2008 Solutia Inc. Annual Incentive Plan. (incorporated by reference to Exhibit 10(f) to Solutias Form 10-K for
the year ended December 31, 2008) |
|
|
|
|
|
|
10 |
(e) |
|
Amended and Restated Employment Agreement by and between Solutia Inc. and Jeffry N. Quinn. (incorporated by reference to
Exhibit 10(g) to Solutias Form 10-K for the year ended December 31, 2008) |
110
|
|
|
|
|
Exhibit No. |
|
Description |
|
10 |
(f) |
|
Amended and Restated Employment Agreement by and between Solutia Inc. and Kent J. Davies. (incorporated by reference to
Exhibit 10(h) to Solutias Form 10-K for the year ended December 31, 2008) |
|
|
|
|
|
|
10 |
(g) |
|
Amended and Restated Employment Agreement by and between Solutia Inc. and Luc De Temmerman. (incorporated by reference
to Exhibit 10(i) to Solutias Form 10-K for the year ended December 31, 2008) |
|
|
|
|
|
|
10 |
(h) |
|
Amended and Restated Employment Agreement by and between Solutia Inc. and James M. Sullivan. (incorporated by reference
to Exhibit 10(k) to Solutias Form 10-K for the year ended December 31, 2008) |
|
|
|
|
|
|
10 |
(i) |
|
Amended and Restated Employment Agreement by and between Solutia Inc. and James R. Voss. (incorporated by reference to
Exhibit 10(l) to Solutias Form 10-K for the year ended December 31, 2008) |
|
|
|
|
|
|
10 |
(j) |
|
Amended and Restated Employment Agreement by and between Solutia Inc. and Robert T. DeBolt. |
|
|
|
|
|
|
10 |
(k) |
|
Executive Separation Pay Plan |
|
|
|
|
|
|
10 |
(l) |
|
Letter Agreement between Paul J. Berra, III and Solutia Inc. dated February 25, 2009 |
|
|
|
|
|
|
10 |
(m) |
|
Transaction Agreement, dated as of March 31, 2009, by and between Solutia Inc., NyCo LLC, SK Capital Partners II, L.P.
and SK Titan Holdings LLC. (incorporated by reference to Exhibit 10.1 to Solutias Current Report on Form 8-K filed
April 1, 2009) |
|
|
|
|
|
|
10 |
(n) |
|
Solutia Inc. Annual Incentive Plan. (incorporated by reference to Exhibit 10.6 to Solutias Form 8-K filed March 5, 2008) |
|
|
|
|
|
|
10 |
(o) |
|
Solutia Inc. Savings and Investment Restoration Plan. (incorporated by reference to Exhibit 10.7 of Solutias Form 10-Q
for the quarter ended June 30, 2008) |
|
|
|
|
|
|
10 |
(p) |
|
Solutia Inc. Non-Employee Director Deferred Compensation Plan. (incorporated by reference to Exhibit 10(p) to Solutias
Form 10-K for the year ended December 31, 2008) |
|
|
|
|
|
|
10 |
(q) |
|
Solutia Inc. Non-Employee Director Deferred Compensation Plan Form of Deferral Election Form. (incorporated by reference
to Exhibit 10(q) to Solutias Form 10-K for the year ended December 31, 2008) |
|
|
|
|
|
|
10 |
(r) |
|
Transaction agreement by and among Akzo Nobel Chemicals International B.V., Akzo Nobel Chemicals Inc., Akzo Nobel N.V.,
Flexsys Holding B.V., Flexsys America LP, Flexsys Rubber Chemicals Ltd. and Solutia Inc. (incorporated by reference to
Exhibit 10(rr) of Solutias Form 10-K for the year ended December 31,2006) |
|
|
|
|
|
|
10 |
(s) |
|
Works council side letter by and among Akzo Nobel N.V., Akzo Nobel Chemicals International B.V., Flexsys America LP,
Flexsys Rubber Chemicals Ltd. and Solutia Inc., dated as of February 27, 2007 (incorporated by reference to Exhibit
10(ss) of Solutias Form 10-K for the year ended December 31, 2006) |
|
|
|
|
|
|
10 |
(t) |
|
Amended and Restated Monsanto Settlement Agreement dated as of February 28, 2008 among Solutia Inc., Monsanto Company
and SFC LLC (incorporated by reference to Exhibit 10.1 to Solutias Form 8-K filed March 5, 2008) |
|
|
|
|
|
|
10 |
(u) |
|
Pharmacia Indemnity Agreement, dated as of February 28, 2008, by and between Solutia Inc. and Pharmacia Corporation
(incorporated by reference to Exhibit 10.2 to Solutias Form 8-K filed March 5, 2008) |
|
|
|
|
|
|
10 |
(v) |
|
First Amended and Restated Retiree Settlement Agreement dated as of July 10, 2007 among Solutia Inc. and the claimants
set forth therein (incorporated by reference to Exhibit 10.3 to Solutias Form 8-K filed March 5, 2008) |
|
|
|
|
|
|
10 |
(w) |
|
2008 Retiree Welfare Plan (incorporated by reference to Exhibit 10.4 to Solutias Form 8-K filed March 5, 2008) |
|
|
|
|
|
|
10 |
(x) |
|
First Amendment dated as of October 15, 2009 to the Credit Agreement dated as of February 28, 2008 among Solutia Inc.,
the lending institutions party thereto and Citibank, N.A., as administrative agent for the lenders. (incorporated by
reference to Exhibit 10.3 to Solutias Current Report on Form 8-K filed October 16, 2009) |
|
|
|
|
|
|
10 |
(y) |
|
Credit Agreement (Term Loan), dated as of February 28, 2008, by and among Solutia Inc., the lender parties thereto,
Citibank, N.A., as Administrative Agent and Collateral Agent, Goldman Sachs Credit Partners L.P., as Syndication Agent,
Deutsche Bank AG New York Branch, as Documentation Agent, and Citigroup Global Markets Inc., Goldman Sachs Credit
Partners L.P. and Deutsche Bank Securities Inc., as Joint Lead Arrangers and as Joint Bookrunners (incorporated by
reference to Exhibit 10.1 to Solutias Form 8-K filed March 4, 2008) |
|
|
|
|
|
|
10 |
(z) |
|
First Amendment dated as of May 29, 2009 to the Credit Agreement, dated as of February 28, 2008, among Solutia Inc.,
Solutia Europe SPRL/BVBA, Flexsys SA/NV, and Citibank, N.A., as administrative agent for the lenders. (incorporated by
reference to Exhibit 10.1 to Solutias Current Report on Form 8-K filed October 16, 2009) |
111
|
|
|
|
|
Exhibit No. |
|
Description |
10
|
(aa) |
|
Second Amendment dated as of October 15, 2009 to the Credit Agreement, dated as of February 28, 2008 to Credit Agreement
dated as of May 29, 2009 among Solutia Inc., Solutia Europe SPRL/BVBA, Flexsys SA/NV, and Citibank, N.A., as
administrative agent for the lenders. (incorporated by reference to Exhibit 10.2 to Solutias Current Report on Form 8-K
filed October 16, 2009) |
|
|
|
|
|
10
|
(bb) |
|
Credit Agreement (Asset Based Revolving Credit Facility), dated as of February 28, 2008, by and among Solutia Inc.,
Solutia Europe SA/NV and Flexsys SA/NV, the lender parties thereto, Citibank, N.A., as Administrative Agent and
Collateral Agent, Citibank International PLC, as European Collateral Agent, Deutsche Bank AG New York Branch, as
Syndication Agent, Goldman Sachs Credit Partners L.P., as Documentation Agent, and Citigroup Global Markets Inc.,
Goldman Sachs Credit Partners L.P. and Deutsche Bank Securities Inc., as Joint Lead Arrangers and as Joint Bookrunners
(incorporated by reference to Exhibit 10.2 to Solutias Form 8-K filed March 4, 2008) |
|
|
|
|
|
10
|
(cc) |
|
Credit Agreement (Bridge Facility), dated as of February 28, 2008, by and among Solutia Inc., the lender parties
thereto, Citibank, N.A., as Administrative Agent, Goldman Sachs Credit Partners L.P., as Syndication Agent, Deutsche
Bank AG New York Branch, as Documentation Agent, and Citigroup Global Markets Inc., Goldman Sachs Credit Partners L.P.
and Deutsche Bank Securities Inc., as Joint Lead Arrangers and as Joint Bookrunners (incorporated by reference to
Exhibit 10.3 to Solutias Form 8-K filed March 4, 2008) |
|
|
|
|
|
10
|
(dd) |
|
Guarantee Agreement, dated as of February 28, 2008, by and among certain subsidiaries of Solutia Inc. party hereto, as
Guarantors, and Citibank, N.A., as Collateral Agent (Term Loan) (incorporated by reference to Exhibit 10.4 to Solutias
Form 8-K filed March 4, 2008) |
|
|
|
|
|
10
|
(ee) |
|
Security Agreement, dated as of February 28, 2008, by and among Solutia Inc., the subsidiaries party thereto, as
Grantors, and Citibank N.A., as Collateral Agent (Term Loan) (incorporated by reference to Exhibit 10.5 to Solutias
Form 8-K filed March 4, 2008) |
|
|
|
|
|
10
|
(ff) |
|
Pledge Agreement, dated as of February 28, 2008, by and among Solutia Inc., the subsidiaries party thereto, as Pledgors,
and Citibank N.A., as Collateral Agent (Term Loan) (incorporated by reference to Exhibit 10.6 to Solutias Form 8-K
filed March 4, 2008) |
|
|
|
|
|
10
|
(gg) |
|
Guarantee Agreement, dated as of February 28, 2008, by and among certain subsidiaries of Solutia Inc. party hereto, as
Guarantors, and Citibank, N.A., as Collateral Agent (ABL Facility) (incorporated by reference to Exhibit 10.7 to
Solutias Form 8-K filed March 4, 2008) |
|
|
|
|
|
10
|
(hh) |
|
Security Agreement, dated as of February 28, 2008, by and among Solutia Inc., the subsidiaries party thereto, as
Grantors, and Citibank N.A., as Collateral Agent (ABL Facility) (incorporated by reference to Exhibit 10.8 to Solutias
Form 8-K filed March 4, 2008) |
|
|
|
|
|
10
|
(ii) |
|
Pledge Agreement, dated as of February 28, 2008, by and among Solutia Inc., the subsidiaries party thereto, as Pledgors,
and Citibank N.A., as Collateral Agent (ABL Facility) (incorporated by reference to Exhibit 10.9 to Solutias Form 8-K
filed March 4, 2008) |
|
|
|
|
|
10
|
(jj) |
|
Intercreditor Agreement, dated as of February 28, 2008, by and among Solutia Inc., each of the subsidiaries from time to
time party thereto, Citibank, N.A., in its capacity as administrative agent and collateral agent for the holders of the
Term Loan Obligations, and Citibank, N.A., in its capacity as administrative agent and collateral agent for the holders
of the Revolving Credit Obligations (incorporated by reference to Exhibit 10.11 to Solutias Form 8-K filed March 4,
2008) |
|
|
|
|
|
10
|
(kk) |
|
Joinder Agreement Supplement No. 1 dated as of May 5, 2008, to the Security Agreement (ABL) (incorporated by reference
to Exhibit 10.1 of Solutias Form 10-Q for the quarter ended June 30, 2008) |
|
|
|
|
|
10
|
(ll) |
|
Joinder Agreement Supplement No. 1 dated as of May 5, 2008, to the Security Agreement (Term) (incorporated by reference
to Exhibit 10.2 of Solutias Form 10-Q for the quarter ended June 30, 2008) |
|
|
|
|
|
10
|
(mm) |
|
Joinder Agreement Supplement No. 1 dated as of May 5, 2008, to the Guarantee Agreement (ABL) (incorporated by reference
to Exhibit 10.3 of Solutias Form 10-Q for the quarter ended June 30, 2008) |
|
|
|
|
|
10
|
(nn) |
|
Joinder Agreement Supplement No. 1 dated as of May 5, 2008, to the Guarantee Agreement (Term) (incorporated by reference
to Exhibit 10.4 of Solutias Form 10-Q for the quarter ended June 30, 2008) |
|
|
|
|
|
10
|
(oo) |
|
Intercreditor Agreement Joinder dated as of May 5, 2008 (incorporated by reference to Exhibit 10.6 of Solutias Form
10-Q for the quarter ended June 30, 2008) |
|
|
|
|
|
|
11 |
|
|
OmittedInapplicable; see Consolidated Statement of Operations on page 50. |
|
|
|
12 |
|
|
Omitted Inapplicable |
112
|
|
|
|
|
Exhibit No. |
|
Description |
|
14 |
|
|
Solutia Inc. Code of Ethics for Senior Financial Officers as amended (incorporated by reference to Exhibit 14 of
Solutias Form 10-K for the year ended December 31, 2006) |
|
|
|
|
|
|
16 |
|
|
OmittedInapplicable |
|
|
|
|
|
|
18 |
|
|
OmittedInapplicable |
|
|
|
|
|
|
21 |
|
|
Subsidiaries of the Registrant |
|
|
|
|
|
|
22 |
|
|
OmittedInapplicable |
|
|
|
|
|
|
23 |
|
|
Consent of Independent Registered Public Accounting Firm |
|
|
|
|
|
|
24 |
(a) |
|
Powers of Attorney |
|
|
|
|
|
|
24 |
(b) |
|
Certified copy of board resolution authorizing Form 10-K filing utilizing powers of attorney |
|
|
|
|
|
|
31 |
(a) |
|
Certification of Chief Executive Officer Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 |
|
|
|
|
|
|
31 |
(b) |
|
Certification of Chief Financial Officer Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 |
|
|
|
|
|
|
32 |
(a) |
|
Certification of Chief Executive Officer Pursuant to 18 U.S.C. Section 1350 as Adopted Pursuant to Section 906 of the
Sarbanes-Oxley Act of 2002 |
|
|
|
|
|
|
32 |
(b) |
|
Certification of Chief Financial Officer Pursuant to 18 U.S.C. Section 1350 as Adopted Pursuant to Section 906 of the
Sarbanes-Oxley Act of 2002 |
113