<PAGE>
<PAGE>
======================================================================
FORM 10-Q
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D. C. 20549
(MARK ONE)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
FOR THE QUARTERLY PERIOD ENDED JUNE 30, 2000
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
COMMISSION FILE NUMBER 001-13255
---------
SOLUTIA INC.
------------
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
DELAWARE 43-1781797
-------- ----------
(STATE OR OTHER JURISDICTION OF (I.R.S. EMPLOYER IDENTIFICATION NO.)
INCORPORATION OR ORGANIZATION)
575 MARYVILLE CENTRE DRIVE, P.O. BOX 66760,
-------------------------------------------
ST. LOUIS, MISSOURI 63166-6760
------------------- ----------
(ADDRESS OF PRINCIPAL EXECUTIVE OFFICES) (ZIP CODE)
(314) 674-1000
--------------
(REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE)
INDICATE BY CHECK MARK WHETHER THE REGISTRANT (1) HAS FILED ALL
REPORTS TO BE FILED BY SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934 DURING THE PRECEDING TWELVE 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. YES X NO
--- ---
INDICATE THE NUMBER OF SHARES OUTSTANDING OF EACH OF THE
ISSUER'S CLASSES OF COMMON STOCK, AS OF THE LATEST PRACTICABLE DATE.
OUTSTANDING AT
CLASS JUNE 30, 2000
----- -------------
COMMON STOCK, $0.01 PAR VALUE 106,501,595 SHARES
----------------------------- ------------------
======================================================================
<PAGE>
<PAGE>
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
<TABLE>
SOLUTIA INC.
STATEMENT OF CONSOLIDATED INCOME
(DOLLARS IN MILLIONS, EXCEPT PER SHARE AMOUNTS)
<CAPTION>
THREE MONTHS SIX MONTHS
ENDED JUNE 30, ENDED JUNE 30,
----------------- -------------------
2000 1999 2000 1999
----- ----- ------ ------
<S> <C> <C> <C> <C>
NET SALES................................................. $ 834 $ 711 $1,680 $1,363
Cost of goods sold........................................ 676 518 1,323 1,065
----- ----- ------ ------
GROSS PROFIT.............................................. 158 193 357 298
Marketing expenses........................................ 40 39 85 70
Administrative expenses................................... 50 31 94 62
Technological expenses.................................... 23 20 47 37
Amortization expense...................................... 8 1 15 1
----- ----- ------ ------
OPERATING INCOME.......................................... 37 102 116 128
Equity earnings (loss) from affiliates.................... (1) 11 8 21
Interest expense.......................................... (21) (10) (41) (19)
Other income (expense)--net............................... (9) 3 (4) 9
----- ----- ------ ------
INCOME BEFORE INCOME TAXES................................ 6 106 79 139
Income taxes.............................................. 2 35 24 45
----- ----- ------ ------
NET INCOME................................................ $ 4 $ 71 $ 55 $ 94
===== ===== ====== ======
BASIC EARNINGS PER SHARE.................................. $0.04 $0.64 $ 0.51 $ 0.84
===== ===== ====== ======
DILUTED EARNINGS PER SHARE................................ $0.04 $0.61 $ 0.50 $ 0.81
===== ===== ====== ======
Weighted average equivalent shares (in millions):
Basic................................................. 107.4 111.3 108.3 111.6
Effect of dilutive securities:
Common share equivalents--common shares issuable
upon exercise of outstanding stock options...... 1.6 5.2 1.6 4.6
----- ----- ------ ------
Diluted............................................... 109.0 116.5 109.9 116.2
===== ===== ====== ======
<CAPTION>
STATEMENT OF CONSOLIDATED COMPREHENSIVE INCOME
(DOLLARS IN MILLIONS)
THREE MONTHS SIX MONTHS
ENDED JUNE 30, ENDED JUNE 30,
----------------- -------------------
2000 1999 2000 1999
----- ----- ------ ------
<S> <C> <C> <C> <C>
NET INCOME................................................ $ 4 $ 71 $ 55 $ 94
OTHER COMPREHENSIVE INCOME:
Currency translation adjustments.......................... (45) (9) (65) (26)
----- ----- ------ ------
COMPREHENSIVE INCOME (LOSS)............................... $ (41) $ 62 $ (10) $ 68
===== ===== ====== ======
See accompanying Notes to Consolidated Financial Statements.
</TABLE>
1
<PAGE>
<PAGE>
<TABLE>
SOLUTIA INC.
STATEMENT OF CONSOLIDATED FINANCIAL POSITION
(DOLLARS IN MILLIONS, EXCEPT PER SHARE AMOUNTS)
<CAPTION>
JUNE 30, DECEMBER 31,
2000 1999
-------- ------------
<S> <C> <C>
ASSETS
CURRENT ASSETS:
Cash and cash equivalents................................... $ 21 $ 28
Trade receivables, net of allowance of $12 in 2000 and
1999....................................................... 504 483
Miscellaneous receivables and prepaid expenses.............. 140 131
Deferred income tax benefit................................. 104 101
Inventories................................................. 367 371
------ ------
TOTAL CURRENT ASSETS........................................ 1,136 1,114
PROPERTY, PLANT AND EQUIPMENT:
Land........................................................ 62 68
Buildings................................................... 416 436
Machinery and equipment..................................... 2,715 2,919
Construction in progress.................................... 354 272
------ ------
Total property, plant and equipment......................... 3,547 3,695
Less accumulated depreciation............................... 2,247 2,379
------ ------
NET PROPERTY, PLANT AND EQUIPMENT........................... 1,300 1,316
INVESTMENTS IN AFFILIATES................................... 415 377
NET GOODWILL................................................ 451 511
IDENTIFIED INTANGIBLE ASSETS................................ 225 33
LONG-TERM DEFERRED INCOME TAX BENEFIT....................... 216 232
OTHER ASSETS................................................ 175 187
------ ------
TOTAL ASSETS................................................ $3,918 $3,770
====== ======
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts payable............................................ $ 372 $ 312
Accrued liabilities......................................... 513 504
Short-term debt............................................. 642 511
------ ------
TOTAL CURRENT LIABILITIES................................... 1,527 1,327
LONG-TERM DEBT.............................................. 790 802
POSTRETIREMENT LIABILITIES.................................. 984 998
OTHER LIABILITIES........................................... 582 561
SHAREHOLDERS' EQUITY:
Common stock (authorized, 600,000,000 shares, par value
$0.01)
Issued: 118,400,635 shares in 2000 and 1999............... 1 1
Additional contributed capital............................ (140) (137)
Treasury stock, at cost (11,899,040 shares in 2000 and
8,859,764 shares in 1999)............................... (247) (209)
Unearned ESOP shares........................................ (14) (18)
Accumulated other comprehensive income...................... (94) (29)
Reinvested earnings......................................... 529 474
------ ------
SHAREHOLDERS' EQUITY........................................ 35 82
------ ------
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY.................. $3,918 $3,770
====== ======
See accompanying Notes to Consolidated Financial Statements.
</TABLE>
2
<PAGE>
<PAGE>
<TABLE>
SOLUTIA INC.
STATEMENT OF CONSOLIDATED CASH FLOW
(DOLLARS IN MILLIONS)
<CAPTION>
SIX MONTHS ENDED
JUNE 30,
------------------
2000 1999
----- ----
<S> <C> <C>
INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS
OPERATING ACTIVITIES:
Net income.................................................. $ 55 $ 94
Adjustments to reconcile to Cash From Operations:
Items that did not use (provide) cash:
Deferred income taxes............................... 15 (8)
Depreciation and amortization....................... 96 74
Amortization of deferred credits.................... (5) (4)
Other............................................... 28 47
Working capital changes that provided (used) cash:
Trade receivables................................... (21) (55)
Inventories......................................... (13) (11)
Accounts payable and accrued liabilities............ 21 (19)
Other............................................... (18) 8
Other items............................................. (27) 14
----- ----
CASH FROM OPERATIONS........................................ 131 140
----- ----
INVESTING ACTIVITIES:
Property, plant and equipment purchases..................... (123) (92)
Acquisition and investment payments, net of cash acquired... (107) (203)
Investment and property disposal proceeds................... 28 6
----- ----
CASH FROM INVESTING ACTIVITIES.............................. (202) (289)
----- ----
FINANCING ACTIVITIES:
Long-term debt proceeds..................................... 196 --
Net change in short-term debt............................... (80) 119
Treasury stock purchases.................................... (53) (50)
Common stock issued under employee stock plans.............. 1 6
----- ----
CASH FROM FINANCING ACTIVITIES.............................. 64 75
----- ----
INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS............ (7) (74)
CASH AND CASH EQUIVALENTS:
BEGINNING OF YEAR........................................... 28 89
----- ----
END OF PERIOD............................................... $ 21 $ 15
===== ====
See accompanying Notes to Consolidated Financial Statements.
</TABLE>
3
<PAGE>
<PAGE>
SOLUTIA INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(DOLLARS IN MILLIONS)
1. BASIS OF PRESENTATION
Solutia Inc. and its subsidiaries produce and market a variety
of high-performance chemical-based materials. Solutia's strategic
focus is built on key strengths, including complex manufacturing
capabilities, process engineering expertise, polymer chemistry,
fiber technology, technical service, and customer problem solving.
These world-class skills are applied to create solutions and
products for customers in the consumer, household, automotive, and
industrial products industries. Solutia's products and services
include Saflex(R) plastic interlayer; adhesives; window and
industrial films; liquid, powder and waterborne resins; Vydyne(R)
and Ascend(TM) nylon polymers; nylon fibers; and process research
and technology services to the pharmaceutical industry.
These financial statements should be read in conjunction with
the audited financial statements and notes to consolidated financial
statements included in Solutia's 1999 Annual Report to shareholders
and incorporated by reference in Solutia's Annual Report on
Form 10-K, filed with the Securities and Exchange Commission on
March 10, 2000.
The accompanying unaudited consolidated financial statements
reflect all adjustments that, in the opinion of management, are
necessary to present fairly the financial position, results of
operations, comprehensive income, and cash flows for the interim
periods reported. Such adjustments are of a normal, recurring
nature. The results of operations for the three-month and six-month
periods ended June 30, 2000, are not necessarily indicative of the
results to be expected for the full year.
2. ACQUISITIONS
During the first quarter of 2000, Solutia completed two
acquisitions in the specialty products segment, which provide custom
process and technology services to the global pharmaceutical
industry. In the first acquisition, which closed on February 10,
Solutia acquired CarboGen Holdings AG. CarboGen is a leading
independent process research and development firm, serving the
global pharmaceutical industry. In the second acquisition, which
closed on March 24, Solutia purchased AMCIS AG. AMCIS serves the
global pharmaceutical industry by developing production processes
and by manufacturing active ingredients for clinical trials and
small-volume commercial drugs. The combined purchase price for these
acquisitions was approximately $118 million, which was financed with
commercial paper and the assumption of debt.
Both of the acquisitions have been accounted for using the
purchase method. The allocations of the purchase price to the assets
and liabilities acquired resulted in goodwill of approximately
$57 million and other intangible assets of approximately
$41 million. Goodwill is being amortized over its estimated useful
life of 20 years and other intangible assets are being amortized
over their estimated useful lives, which average 18 years. In
addition to goodwill and other intangible assets, the major
components of the purchase price allocations were current assets of
$17 million, non-current assets of $27 million, current liabilities
of $21 million, and non-current liabilities of $3 million.
Results of operations for CarboGen and AMCIS are included in
Solutia's results of operations from the acquisition dates. The
results of operations for the acquired businesses were not material
to Solutia's consolidated results of operations for the three-month
and six-month periods ended June 30, 2000.
On December 22, 1999, Solutia acquired Vianova Resins from
Morgan Grenfell Private Equity Ltd. for approximately 1.2 billion
deutsche marks (approximately $640 million), which was financed with
commercial paper and the assumption of debt. Vianova Resins was a
leading European producer of resins and additives for coatings and
technical applications for the specialty, industrial and automotive
sectors.
The acquisition has been accounted for using the purchase
method. The allocation of the purchase price to the assets and
liabilities acquired resulted in goodwill of approximately
$344 million and other intangible assets of approximately
$163 million. Goodwill is being amortized over its estimated useful
life of 20 years and other
4
<PAGE>
<PAGE>
intangible assets are being amortized over their estimated useful
lives, which average 19 years. In addition to goodwill and other
intangible assets, the major components of the purchase price
allocation were current assets of $192 million, non-current assets
of $227 million, current liabilities of $99 million, and non-current
liabilities of $187 million. This allocation is preliminary and is
subject to change based on the completion of a contractual purchase
price adjustment. Solutia anticipates completing the allocation of
the purchase price by the end of the third quarter of 2000.
During the second quarter of 2000, Solutia completed plans to
integrate Vianova Resins' operations with Solutia's resins business
and service organizations and recorded a liability of $11 million to
accrue for the costs of the integration, in accordance with Emerging
Issues Task Force Issue 95-3, "Recognition of Liabilities in Connection
with a Purchase Business Combination." The integration plans include
employment reductions of approximately 130 people, primarily from
Vianova Resins' service organizations located in more than 10 countries.
In addition, the plans include amounts to shut down certain Vianova
Resins sales offices. The integration actions are expected to be carried
out by the end of the second quarter of 2001.
The following table summarizes the Vianova Resins integration
costs and amounts utilized to carry out those plans:
<TABLE>
<CAPTION>
EMPLOYMENT SHUTDOWN OF
REDUCTIONS FACILITIES TOTAL
---------- ------------ ------
<S> <C> <C> <C>
BALANCE ESTABLISHED AT JUNE 30, 2000.......... $ 10 $ 1 $ 11
==== ==== ====
</TABLE>
3. RESTRUCTURING
As part of the integration of Vianova Resins with Solutia's
resins businesses, Solutia identified excess production capacity for
certain Solutia resins products that will allow for the
consolidation of production facilities. As a result, Solutia decided
to exit operations at the Port Plastics site in Addyston, Ohio. An
$8 million ($5 million aftertax) charge to cost of goods sold was
recorded in the second quarter of 2000 to carry out the exit plan.
The charge included $2 million to write down plant assets to their
fair value of approximately $1 million, $2 million of dismantling costs,
and $4 million of estimated costs for which Solutia is contractually
obligated under an operating agreement. Fair value was determined by
discounting future cash flows using an appropriate discount rate.
Under the operating agreement, Solutia is required to provide
24 months notice of intent to exit and to pay contractually
obligated costs for an additional 18 months thereafter to a
third-party operator. The contractually obligated costs represent
direct manufacturing, overhead, utilities, and severance. The
financial impact will not be material to Solutia as production will
be shifted to other production facilities.
The following table summarizes the 2000 restructuring charge and
amounts utilized to carry out those plans:
<TABLE>
<CAPTION>
SHUTDOWN OF ASSET OTHER
FACILITIES IMPAIRMENTS COSTS TOTAL
----------- ------------ ------ ------
<S> <C> <C> <C> <C>
Balance at April 1, 2000...................... $ -- $ -- $ -- $ --
Charges taken............................. 2 2 4 8
Amounts utilized.......................... -- (2) -- (2)
---- ---- ---- ----
BALANCE AT JUNE 30, 2000...................... $ 2 $ -- $ 4 $ 6
==== ==== ==== ====
</TABLE>
<PAGE>
During February 1999, certain equipment critical to the ammonia
production process failed. Based on an analysis of the economics of
purchased ammonia versus the cost to repair the equipment, Solutia
decided to exit the ammonia business. A $28 million ($18 million
aftertax) charge to cost of goods sold was recorded in the first
quarter of 1999 to complete the exit plan. The charge included $2 million
to write down the assets to their fair value of approximately
$4 million, $4 million of dismantling costs, and $22 million of
estimated costs for which Solutia is contractually obligated under
an operating agreement. The contractually obligated costs represent
an estimate of the direct manufacturing, overhead, and utilities
that Solutia is required to pay to a third-party operator during a
36-month termination period. During the first quarter of 2000,
Solutia entered into an agreement for the dismantling of the ammonia
assets by a third-party and as a result, transferred the liability
for dismantling to the third-party. For the quarter ended
March 31, 1999, net sales for the ammonia business were $1 million.
Operating income for the same period in 1999 was minimal.
5
<PAGE>
<PAGE>
The following table summarizes the 1999 restructuring charge and
amounts utilized to carry out those plans:
<TABLE>
<CAPTION>
SHUTDOWN OF ASSET OTHER
FACILITIES IMPAIRMENTS COSTS TOTAL
----------- ----------- ----- -----
<S> <C> <C> <C> <C>
Balance at January 1, 1999.................... $ -- $ -- $ -- $ --
Charges taken............................. 4 2 22 28
Amounts utilized.......................... -- (2) (6) (8)
---- ---- ---- ----
Balance at December 31, 1999.................. 4 -- 16 20
Amounts utilized.......................... (4) -- (3) (7)
---- ---- ---- ----
Balance at March 31, 2000..................... -- -- 13 13
Amounts utilized.......................... -- -- (1) (1)
---- ---- ---- ----
BALANCE AT JUNE 30, 2000...................... $ -- $ -- $ 12 $ 12
==== ==== ==== ====
</TABLE>
4. INVESTMENT IN AFFILIATES
In April 2000, Astaris LLC, a joint venture between Solutia and
FMC Corporation, started operations to manufacture and market
phosphorus chemicals. Solutia contributed its Phosphorus Derivatives
business to the joint venture in exchange for a 50 percent ownership
share. Net assets contributed to the venture totaled approximately
$87 million. Solutia accounts for the joint venture using the
equity-method of accounting.
5. ASSET IMPAIRMENT
During the second quarter of 2000, Solutia recorded a
$6 million ($4 million aftertax) impairment charge to administrative
expenses for the write down of capitalized software costs related to
the formation of the Astaris joint venture. The software had
previously been fully dedicated to Solutia's Phosphorus Derivatives
business. Impairment was indicated by a significant change in the
extent and manner in which Astaris was expected to utilize the asset
under a transition services agreement. As a result, Solutia
performed a review under a Statement of Financial Accounting
Standards No. 121, "Accounting for the Impairment of Long-Lived
Assets and for Long-Lived Assets to Be Disposed Of," from which it
determined that the asset was impaired. The carrying value of the
asset was written down to its estimated fair value, as determined by
discounting expected future cash flows, using an appropriate
discount rate.
6. INVENTORY VALUATION
The components of inventories as of June 30, 2000, and
December 31, 1999, were as follows:
<TABLE>
<CAPTION>
JUNE 30, DECEMBER 31,
2000 1999
-------- ------------
<S> <C> <C>
Finished goods................................. $ 246 $ 260
Goods in process............................... 112 121
Raw materials and supplies..................... 112 109
----- -----
Inventories, at FIFO cost...................... 470 490
Excess of FIFO over LIFO cost.................. (103) (119)
----- -----
TOTAL.......................................... $ 367 $ 371
===== =====
</TABLE>
7. CONTINGENCIES
Monsanto (now Pharmacia Corporation) is a party to a number of
lawsuits and claims relating to Solutia, for which Solutia assumed
responsibility in the spinoff. In addition, Solutia is a named party
to a number of lawsuits and claims. Solutia intends to defend all
suits and claims vigorously. Such matters arise out of the normal
course of business and relate to product liability; government
regulation, including environmental issues; employee relations; and
other issues. Certain of the lawsuits and claims seek damages in
very large amounts. Although the results of litigation cannot be
predicted with certainty, management's belief is that the final
outcome of such
6
<PAGE>
<PAGE>
litigation will not have a material adverse effect on Solutia's
consolidated financial position, profitability or liquidity in any
one year.
8. OTHER
During June 2000, Solutia agreed to sell its Polymer Modifiers
business to Ferro Corporation. The Polymer Modifiers business has
annual sales of approximately $140 million. Closing is expected to
occur during the third quarter of 2000.
9. SEGMENT DATA
Segment data for the three months and the six months ended
June 30, 2000, and 1999, were as follows:
<TABLE>
<CAPTION>
THREE MONTHS ENDED JUNE 30,
-------------------------------------------------------------------------------
2000 1999
----------------------------------- -----------------------------------
NET INTERSEGMENT NET INTERSEGMENT
SALES SALES PROFIT SALES SALES PROFIT
----- ------------ ------ ----- ------------ ------
<S> <C> <C> <C> <C> <C> <C>
SEGMENT:
Performance Films................... $208 $ -- $ 55 $175 $ -- $ 52
Specialty Products.................. 217 -- 47 152 -- 38
Integrated Nylon.................... 409 -- 43 385 1 87
---- ---- ---- ---- ---- ----
SEGMENT TOTALS........................ 834 -- 145 712 1 177
RECONCILIATION TO CONSOLIDATED TOTALS:
Sales eliminations.................. -- -- (1) (1)
Less unallocated service costs:
Cost of goods sold<F1>............ (25) (17)
Marketing, administrative and
technological expenses<F2>...... (75) (57)
Amortization expense................ (8) (1)
Equity earnings (loss) from
affiliates<F3>..................... (1) 11
Interest expense.................... (21) (10)
Other income (expense)--net<F4>..... (9) 3
CONSOLIDATED TOTALS:
---- ---- ---- ----
NET SALES........................... $834 $ -- $711 $ --
==== ==== ---- ==== ==== ----
INCOME BEFORE INCOME TAXES.......... $ 6 $106
==== ====
</TABLE>
7
<PAGE>
<PAGE>
<TABLE>
<CAPTION>
SIX MONTHS ENDED JUNE 30,
---------------------------------------------------------------------------------
2000 1999
------------------------------------ ------------------------------------
NET INTERSEGMENT NET INTERSEGMENT
SALES SALES PROFIT SALES SALES PROFIT
----- ------------ ------ ----- ------------ ------
<S> <C> <C> <C> <C> <C> <C>
SEGMENT:
Performance Films................ $ 405 $ -- $ 107 $ 323 $ -- $ 94
Specialty Products............... 484 -- 106 301 -- 78
Integrated Nylon................. 792 1 100 742 3 159
------ ---- ----- ------ ---- -----
SEGMENT TOTALS..................... 1,681 1 313 1,366 3 331
RECONCILIATION TO CONSOLIDATED
TOTALS:
Sales eliminations............... (1) (1) (3) (3)
Less unallocated service costs:
Cost of goods sold<F1>, <F5>... (38) (93)
Marketing, administrative and
technological expenses<F2>... (144) (109)
Amortization expense............. (15) (1)
Equity earnings (loss) from
affiliates<F3>.................. 8 21
Interest expense................. (41) (19)
Other income
(expense)--net<F4>.............. (4) 9
CONSOLIDATED TOTALS:
------ ---- ------ ----
NET SALES........................ $1,680 $ -- $1,363 $ --
====== ==== ----- ====== ==== -----
INCOME BEFORE INCOME TAXES....... $ 79 $ 139
===== =====
Segment profit includes only operating expenses directly
attributable to the segment. Unallocated service costs are managed
centrally and primarily include costs of administrative, technology,
and engineering and manufacturing services that are provided to the
segments.
<FN>
<F1> For the periods ended June 30, 2000, unallocated cost of goods sold
includes restructuring charges related to exiting operations at the Port
Plastics site in Addyston, Ohio ($8 million pretax, $5 million aftertax).
See Note 3.
<F2> For the periods ended June 30, 2000, unallocated marketing,
administrative, and technological expenses includes a charge associated
with the impairment of certain capitalized software costs ($6 million
pretax, $4 million aftertax). See Note 5.
<F3> For the periods ended June 30, 2000, equity earnings (loss) from
affiliates includes Solutia's portion of charges recorded by its Flexsys
and Astaris joint ventures ($15 million aftertax).
<F4> For the periods ended June 30, 2000, other income (expense)--net includes
charges related to the write down of two Asian investments based upon
indicators that the loss in their values was other than temporary
($19 million pretax, $11 million aftertax), period costs related to the
formation and startup of the Astaris joint venture ($8 million pretax,
$5 million aftertax), and a gain on the sale of a minority interest in
P4 Production L.L.C., a phosphorus manufacturing venture ($15 million
pretax, $9 million aftertax).
<F5> For the six months ended June 30, 1999, unallocated cost of goods includes
special charges related to exiting Integrated Nylon's ammonia business
($28 million pretax, $18 million aftertax), the write down of an
Integrated Nylon segment bulk continuous filament spinning machine
($6 million pretax, $4 million aftertax), and the anticipated settlement
of certain pending property claims litigation related to the Anniston,
Alabama plant site ($29 million pretax, $18 million aftertax).
</TABLE>
8
<PAGE>
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
This section includes forward-looking statements within the
meaning of Section 27A of the Securities Act of 1933 and Section 21E
of the Securities Exchange Act of 1934. These include all statements
regarding the expected future financial position, results of
operations, profitability, cash flows, liquidity, and effect of
changes in accounting due to recently issued accounting standards.
Important factors that could cause actual results to differ
materially from the expectations reflected in the forward-looking
statements herein include, among others, general economic, business
and market conditions, customer acceptance of new products, raw
material and energy pricing, currency fluctuations, and increased
competitive and/or customer pressure.
RESULTS OF OPERATIONS--THREE MONTHS ENDED JUNE 30, 2000, COMPARED
WITH THE THREE MONTHS ENDED JUNE 30, 1999
Net sales for the second quarter of 2000 increased by
17 percent as compared with the second quarter of 1999. Excluding
the acquisitions of CPFilms Inc. in May 1999, Vianova Resins
in December 1999, CarboGen Holdings AG in February 2000, and
AMCIS AG in March 2000, and the contribution of the Phosphorus Derivatives
business to the Astaris joint venture in April 2000, net sales for the
second quarter 2000 were up 4 percent from the comparable period in 1999.
Sales increases reflect increased average selling prices and volumes,
partially offset by unfavorable currency exchange rate fluctuations.
Performance Films
Net sales for the second quarter of 2000 in the Performance
Films segment increased by 19 percent over the same period of the
prior year primarily as the result of higher sales volumes in
CPFilms, which was acquired in the second quarter of 1999, and
improved volumes in the Saflex(R) plastic interlayer business. The
increase in sales of Saflex(R) plastic interlayer products was
driven primarily by increased demand from European and U.S. automotive
glass manufacturers. Also, to a lesser extent, businesses in this
segment achieved higher average selling prices than those of the
year-ago quarter. Partially offsetting the increases in sales
volumes and average selling prices were unfavorable currency
exchange rate fluctuations in the Saflex(R) plastic interlayer
and Polymer Modifiers businesses due to the devaluation of the euro in
relation to the U.S. dollar.
Performance Films segment profit for the three-month period
ended June 30, 2000, increased 6 percent over the three-month period
ended June 30, 1999, because of higher net sales. Higher net sales in
the segment were partially offset by increased raw material costs for
Polymer Modifiers and Saflex(R) plastic interlayer products.
Specialty Products
Net sales in the Specialty Products segment for the second
quarter of 2000 increased 43 percent over the comparable quarter of
1999 because of the acquisitions of Vianova, CarboGen, and AMCIS.
Excluding the acquisitions and the contribution of the Phosphorus Derivatives
business, net sales declined by 2 percent. The decrease primarily
resulted from the loss of sales from the Scriptsets line of
business, which was sold in August 1999, and to a lesser extent,
unfavorable currency exchange movements due to the devaluation of
the euro in relation to the U.S. dollar.
Segment profit for the quarter ended June 30, 2000, increased
24 percent over the year-ago quarter primarily because of higher net
sales in the segment, partially offset by unfavorable manufacturing
variances for specialty chemicals products.
Integrated Nylon
The Integrated Nylon segment's net sales for the three-month
period ended June 30, 2000, increased 6 percent from the comparable
period of 1999. The increase in sales occurred in almost all
businesses in this segment due to higher average selling prices and,
to a lesser extent, increased sales volumes. Integrated Nylon's
higher average selling prices were attributable to price increases for
branded and commodity staple carpet fiber
9
<PAGE>
<PAGE>
and higher average selling prices of intermediates. Sales volume
increases in carpet fiber and Acrilan(R) acrylic fiber products
were partially offset by lower sales volumes of textile polymers.
Segment profit for Integrated Nylon for the second quarter of
2000 was down 51 percent as compared to the second quarter of 1999.
The decline resulted almost exclusively from higher raw material
costs due to the dramatic increase in petrochemical costs over the
last several quarters. The costs of propylene and cyclohexane, two
major feedstocks used by the segment, have increased significantly.
As compared to the second quarter of 1999, propylene costs have more
than doubled and cyclohexane prices are up nearly 60 percent. While
crude oil prices are anticipated to moderate somewhat due to
increased production by OPEC members, elevated petrochemical costs
will continue to adversely affect profitability for the remainder of
the year. Additionally, the cost of natural gas has significantly
increased during the second quarter of 2000 compared to the year-ago
period, which has adversely affected the profitability of the
segment. Solutia expects that higher natural gas costs will continue
for the near term due to increased demand and limited supply.
Operating Income
Operating income for the second quarter of 2000 declined to
$37 million as compared to $102 million for the second quarter of
1999 because of lower segment profit discussed above and special
charges recorded during the quarter. Solutia recorded a
restructuring charge of $8 million ($5 million aftertax) to cost of
goods sold to exit operations at the Port Plastics site in Addyston,
Ohio, as more fully described in Note 3. Additionally, Solutia
recorded an asset impairment charge of $6 million ($4 million
aftertax), to administrative expenses for the write down of
capitalized software costs related to the formation of the Astaris
joint venture, as more fully described in Note 5. Excluding the
impact of special charges, overall lower segment profit was
negatively impacted by higher marketing, administrative,
technological, and amortization expenses. Higher marketing,
administrative, technological, and amortization expenses were
associated with the consolidation and integration of newly acquired
companies and Solutia's growth programs.
Equity Earnings (Loss) from Affiliates
The equity loss from affiliates was $1 million in the second
quarter of 2000 compared to $11 million of equity earnings in the
comparable 1999 quarter. The decrease was due to special charges
recorded by the Flexsys, L.P. and Astaris joint ventures. The
Flexsys joint venture recorded charges associated with the closure
and impairment of certain manufacturing operations in the United
Kingdom. Solutia's share of these charges was $13 million
($13 million aftertax). In addition, the Astaris joint venture
recorded charges related to the closure of certain of its production
facilities. Solutia's share of these charges was approximately
$2 million ($2 million aftertax). Excluding these special charges,
equity earnings from affiliates increased because of the formation
and start up of the Astaris joint venture in April 2000.
Other Income (Expense)--Net
Other expense for the quarter ended June 30, 2000, was
$9 million compared to other income of $3 million for the same
period in 1999. The significant increase in expense was principally
attributable to a charge of $14 million ($8 million aftertax) for
the write down of certain equity-method investments in Asia based
upon indicators that the loss in their values was other than
temporary, charges of $5 million ($3 million aftertax) to accrue for
debt payments under certain loan guarantees associated with one of
the Asian equity investments, and charges of $8 million ($5 million
aftertax), associated with the startup and formation of the Astaris
joint venture incurred during the period. Partially offsetting the
special charges was a $15 million gain ($9 million aftertax)
resulting from the sale of substantially all of Solutia's
40 percent interest in P4 Production L.L.C., a phosphorus
manufacturing venture.
RESULTS OF OPERATIONS--SIX MONTHS ENDED JUNE 30, 2000, COMPARED WITH
SIX MONTHS ENDED JUNE 30, 1999
Net sales for the six-month period ended June 30, 2000,
increased by 23 percent as compared with the six-month period ended
June 30, 1999. Excluding the acquisitions of CPFilms Inc., Vianova
Resins, CarboGen Holdings AG, and AMCIS AG and the contribution of the
Phosphorus Derivatives business to the Astaris joint
10
<PAGE>
<PAGE>
venture, net sales for the first six months of 2000 were up 4 percent
from the comparable period in 1999. Sales increases reflect higher
average selling prices and volumes, partially offset by unfavorable
currency exchange rate fluctuations.
Performance Films
Performance Films' net sales for the first six months of 2000
increased 25 percent in comparison to the first six months of 1999
as the result of the acquisition of CPFilms and improved volumes in
the Saflex(R) plastic interlayer business. Excluding CPFilms, net
sales increased approximately 3 percent. The increase in the
Saflex(R) plastic interlayer business was driven primarily from
increased demand by European and U.S. automotive glass
manufacturers. Also, to a lesser extent, businesses in this segment
achieved higher average selling prices than those of the year-ago
period. Partially offsetting the increases in sales volumes and
average selling prices were unfavorable currency exchange rate
fluctuations in Saflex(R) plastic interlayer and Polymer Modifiers
businesses due to the devaluation of the euro in relation to the
U.S. dollar.
Performance Films' segment profit for the first half of 2000
increased 14 percent from the first half of 1999 due to higher net
sales partially offset by increased raw material costs in the Polymer
Modifiers and Saflex(R) plastic interlayer businesses.
Specialty Products
Net sales in the Specialty Products segment increased
61 percent for the six months ended June 30, 2000, over the
comparable period of the prior year because of the acquisitions of
Vianova, CarboGen, and AMCIS, partially offset by the contribution
of the Phosphorus Derivatives business to the Astaris joint venture.
Excluding the acquisitions and the contribution of the Phosphorus
Derivatives business, net sales declined by 5 percent. Net sales
decreased primarily due to the loss of sales from the Scriptsets
line of business, which was sold in August 1999, and to a lesser
extent, unfavorable currency exchange movements due to the
devaluation of the euro in relation to the U.S. dollar.
Segment profit for the six-month period ended June 30, 2000,
increased 36 percent as compared to the six-month period ended
June 30, 1999. The profit increase was due to higher net sales,
partially offset by unfavorable manufacturing variances for specialty
chemicals products.
Integrated Nylon
The Integrated Nylon segment's net sales for the six months
ended June 30, 2000, increased 7 percent as compared with the six
months ended June 30, 1999. Pricing and volume contributed equally
to the increase. Solutia's carpet and Acrilan(R) acrylic fiber
businesses were principally responsible for the year-over-year
increases in sales volumes. Solutia's carpet, Acrilan(R) acrylic
fiber, and intermediates businesses were principally responsible for
the year-over-year increases in average selling prices.
Integrated Nylon's segment profit for the first half of 2000
decreased 37 percent from the first half of 1999. The decline
resulted almost exclusively from higher raw material costs due to
the sharp increase in petrochemical costs over the last three
quarters. The costs of propylene and cyclohexane, two major
feedstocks used by the segment, were up over 100 percent and
40 percent, respectively, versus the comparable prior-year period.
While crude oil prices are anticipated to moderate somewhat due to
increased production by OPEC members, elevated petrochemical costs
will continue to adversely affect profitability for the remainder of
the year. Additionally, the cost of natural gas has significantly
increased during the second quarter of 2000 compared to the year-ago
period, which has adversely affected the profitability of the
segment. Solutia expects that higher natural gas costs will continue
for the near term due to increased demand and limited supply.
Operating Income
Operating income for the first six months of 2000 declined by
9 percent as compared to the first six months of 1999 due to lower
segment profit discussed above and special charges affecting the
2000 and 1999 periods. These charges are discussed below. Excluding
the impact of special charges, overall lower segment profit was
negatively impacted by higher marketing, administrative,
technological, and amortization expenses. Higher
11
<PAGE>
<PAGE>
spending in these areas was associated with the consolidation and
integration of newly acquired companies and other growth programs.
During the second quarter of 2000, Solutia recorded a
restructuring charge of $8 million ($5 million aftertax) to cost of
goods sold to exit operations at the Port Plastics site in Addyston,
Ohio, as more fully described in Note 3. As more fully described in
Note 5, Solutia recorded an asset impairment charge of $6 million
($4 million aftertax), to administrative expenses for the write down of
capitalized software costs related to the formation of the Astaris
joint venture.
In February 1999, Integrated Nylon's ammonia unit experienced
the failure of certain equipment critical to the production process.
Based on an analysis of the economics of purchased ammonia and the
cost to repair the equipment, Solutia decided to exit the ammonia
business. A $28 million ($18 million aftertax) special operations
charge to cost of goods sold was recorded in the first quarter of
1999 to complete the exit plan. The charge included $2 million to
write down the assets to fair value, $4 million of dismantling
costs, and $22 million of costs for which Solutia is contractually
obligated under an operating agreement. During the first quarter of
2000, Solutia entered into an agreement for the dismantling of the
ammonia assets by a third-party and as a result, transferred the liability
for dismantling to the third-party. For the three months ended
March 31, 1999, net sales for the ammonia business was $1 million.
Net income for that period was minimal. See Note 3 for additional
information.
A special operations charge of $6 million ($4 million aftertax)
was recorded in the first quarter of 1999 to write down certain
Integrated Nylon segment assets to their fair values. The charge was
due to a review under Statement of Financial Accounting Standards
No. 121, "Accounting for the Impairment of Long-Lived Assets and
Assets to Be Disposed Of," (SFAS No. 121). The review stemmed from a
historical trend of operating losses and a forecast that the trend
would continue. The SFAS No. 121 review indicated that the carrying
amount of the assets exceeded the identifiable undiscounted cash
flows related to the assets. Fair value of the assets was determined
based on estimates of market prices.
Also during the 1999 first quarter, Solutia recorded a
$29 million ($18 million aftertax) charge to cost of goods sold
related to the anticipated settlement of two lawsuits brought
against Monsanto Company relating to the alleged discharge of
polychlorinated biphenyls ("PCBs") from the Anniston, Alabama plant
site. The anticipated settlement of these cases provided information
that allowed management to estimate more accurately Solutia's
position with respect to such litigation.
Equity Earnings (Loss) from Affiliates
Equity earnings from affiliates decreased to $8 million in the
first half of 2000 from $21 million in the comparable period of
1999. The decrease was due to special charges recorded by the
Flexsys and Astaris joint ventures. The Flexsys joint venture
recorded charges associated with the closure and impairment of
certain manufacturing operations in the United Kingdom. Solutia's
share of these charges was $13 million ($13 million aftertax). In
addition, the Astaris joint venture recorded charges related to the
closure of certain of its production facilities. Solutia's share of
these charges was approximately $2 million ($2 million aftertax).
Excluding these special charges, equity earnings from affiliates
increased because of the formation and start up of the Astaris joint
venture in April 2000.
Other Income (Expense)--Net
Other expense for the six months ended June 30, 2000, was
$4 million compared to other income of $9 million for the same
period in 1999. The significant increase in expense was principally
attributable to a charge of $14 million ($8 million aftertax) for
the write down of certain equity-method investments in Asia based
upon indicators that the loss in their values was other than
temporary, charges of $5 million ($3 million aftertax) to accrue for
debt payments under certain loan guarantees associated with one of
the Asian equity investments, and charges of $8 million ($5 million
aftertax), associated with the startup and formation of the Astaris
joint venture incurred during the period. Partially offsetting the
special charges was a $15 million gain ($9 million aftertax)
resulting from the sale of substantially all of Solutia's
40 percent interest in P4 Production L.L.C., a phosphorus
manufacturing venture.
12
<PAGE>
<PAGE>
Summary of Special Charges Affecting Comparability
Special charges recorded in the three and six-month periods
ended June 30, 2000 and 1999, have been summarized in the table
below (dollars in millions).
<TABLE>
<CAPTION>
THREE MONTHS SIX MONTHS
ENDED JUNE 30, ENDED JUNE 30,
--------------------- ---------------------------
2000 1999 2000 1999
---------- ---- ---------- ----------
<S> <C> <C> <C> <C>
Cost of goods sold..................... $ 8 <Fa> $-- $ 8 <Fa> $ 63 <Ff>
Marketing, administrative and
technological expenses............... 6 <Fb> -- 6 <Fb> --
---- ---- ---- ----
Operating income....................... (14) -- (14) (63)
---- ---- ---- ----
Equity earnings (loss) from affiliates. (2) <Fb> -- (2) <Fb> --
(13) <Fc> (13) <Fc>
---- ---- ---- ----
Other income (expense)--net............ (8) <Fb> -- (8) <Fb> --
15 <Fd> 15 <Fd>
(14) <Fe> (14) <Fe>
(5) <Fe> (5) <Fe>
---- ---- ---- ----
Income taxes........................... (10) -- (10) (23)
---- ---- ---- ----
Net income (loss)...................... $(31) $-- $(31) $(40)
==== ==== ==== ====
<FN>
<Fa> Solutia incurred restructuring charges related to exiting operations at
the Port Plastics site in Addyston, Ohio ($8 million pretax, $5 million
aftertax).
<Fb> Solutia incurred special operations charges related to the formation and
startup of the Astaris joint venture ($16 million pretax, $11 million
aftertax).
<Fc> Solutia incurred special operations charges associated with the impairment
and closure of certain manufacturing operations in the United Kingdom for
the Flexsys joint venture ($13 million aftertax).
<Fd> Solutia recognized a gain on the sale of a minority interest in
P4 Production L.L.C., a phosphorus manufacturing venture ($15 million
pretax, $9 million aftertax).
<Fe> Solutia recorded charges to write-down certain investments in Asia based
upon indicators that the loss in their values was other than temporary
($14 million pretax, $8 million aftertax), and to accrue for payment of
debt obligations associated with one of the investments ($5 million pretax,
$3 million aftertax).
<Ff> Solutia recorded special charges related to exiting the Integrated Nylon's
ammonia business, the write down of an Integrated Nylon segment bulk
continuous filament spinning machine, and the anticipated settlement of
certain pending property claims litigation related to the Anniston,
Alabama plant site ($63 million pretax, $40 million aftertax).
</TABLE>
LIQUIDITY AND CAPITAL RESOURCES
Solutia's working capital at June 30, 2000, decreased to
negative $391 million from negative $213 million at December 31, 1999.
Working capital is negative primarily due to increases in short-term
debt, which was used to finance recent acquisitions, treasury stock
repurchases, and capital expenditures. The recent acquisitions include the
February 2000 acquisition of CarboGen and the March 2000 purchase
of AMCIS. At June 30, 2000, Solutia had short-term debt of $642 million.
During February 2000, Solutia completed the issuance of EUR
200 million ($196 million) of notes, due February 2005. Proceeds
from the notes were used primarily to refinance outstanding
commercial paper, and also for general corporate purposes.
13
<PAGE>
<PAGE>
Solutia continued to reinvest in itself through share
repurchases. Shares repurchased during 2000 totaled 3.9 million
shares at a cost of $53 million. On April 26, 2000, the Board of
Directors authorized the repurchase of up to 15 million additional
shares of Solutia common stock. At June 30, 2000, this authorization
combined with the unused portion of an earlier authorization, gives
Solutia the authority to repurchase 15.9 million shares of its common
stock.
During June 2000, Solutia agreed to sell its Polymer Modifiers
business to Ferro Corporation. The Polymer Modifiers business has
annual sales of approximately $140 million. Closing is expected to
occur during the third quarter of 2000.
Solutia believes that its cash flow from operations and
available borrowing capacity provide sufficient resources to finance
its operations and planned capital needs for the next 12 months.
Solutia has an $800 million, five-year revolving credit facility and
a $300 million, 364-day multi-currency revolving credit agreement in
place.
RECENTLY ISSUED ACCOUNTING STANDARDS
In June 1998, the Financial Accounting Standards Board (FASB)
issued SFAS No. 133, "Accounting for Derivative Instruments and
Hedging Activity." SFAS No. 133 provides comprehensive and
consistent standards for the recognition and measurement of
derivative and hedging activities. It requires that derivatives be
recorded on the Statement of Consolidated Financial Position at fair
value and establishes criteria for hedges of changes in the fair
value of assets, liabilities or firm commitments, hedges of variable
cash flows of forecasted transactions, and hedges of foreign
currency exposures of net investments in foreign operations. Changes
in the fair value of derivatives that do not meet the criteria for
hedges are to be recognized in the Statement of Consolidated Income.
During June of 1999, FASB issued SFAS No. 137, "Accounting for
Derivative Instruments and Hedging Activities--Deferral of the
Effective Date of FASB Statement No. 133," to defer the effective
date of SFAS No. 133 by one year. The standard will now be effective
for Solutia beginning January 1, 2001. During June of 2000, FASB
issued SFAS No. 138, "Accounting for Certain Derivative Instruments
and Certain Hedging Activities--an Amendment of FASB Statement
No. 133." SFAS No. 138 amends the accounting and reporting standards
of SFAS No. 133 for certain derivative instruments and certain
hedging activities. Solutia does not expect the adoption of SFAS
No. 133, as amended by SFAS No. 138, to have a material effect on
its consolidated financial statements.
In December 1999, the Securities and Exchange Commission (SEC)
issued Staff Accounting Bulletin 101, "Revenue Recognition in
Financial Statements" (SAB 101) which provides guidance related to
revenue recognition. SAB 101 allows companies to report any changes
in revenue recognition related to adopting its provisions as an
accounting change at the time of implementation in accordance with
APB Opinion No. 20, "Accounting Changes." Companies must adopt the
new guidance no later than the fourth quarter of fiscal year 2000.
Solutia does not expect the adoption of SAB 101 to have a material
effect on its consolidated financial statements.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
FACTORS
There have been no material changes in market risk exposures
during the first six months of 2000 that affect the disclosures in
Item 7A of Solutia's Annual Report on Form 10-K for the year ended
December 31, 1999.
14
<PAGE>
<PAGE>
PART II. OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
Monsanto (now Pharmacia Corporation) is a party to a number of
lawsuits and claims relating to Solutia, for which Solutia assumed
responsibility in the spinoff. Solutia's Annual Report on Form 10-K
for the year ended December 31, 1999, described an action pending in
Harris County (Texas) District Court on behalf of 412 plaintiffs who
are former employees of owners/operators of the Brio site or members
of the employees' families. On April 24, 2000, the Company reached a
tentative agreement to settle this action for $6 million. Court
approval of the settlement is required for those plaintiffs who are
minors.
Solutia's Form 10-K also described two cases pending in Circuit
Court in St. Clair County, Alabama, which had been consolidated and
certified as a class action on behalf of all property owners in a
specified area along waterways near Solutia's Anniston plant.
Proceedings in this case had been stayed by the Alabama Supreme
Court following the filing of a petition for a writ of mandamus on
behalf of a small group of class members opposed to a tentative
settlement agreed to by the Company and class representatives in
April, 1999. On June 16, 2000, the Alabama Supreme Court issued an
order denying the writ of mandamus and lifted the stay of
proceedings. On July 6, 2000, the trial court entered an order of
final approval and final judgment, finding the settlement fair and
reasonable and directing the parties to implement the provisions of
the settlement agreement.
In addition, Solutia's Form 10-K, described 12 cases brought in
Circuit Court in Calhoun County, Circuit Court in St. Clair County,
Circuit Court in Talladega County and in U. S. District Court for
the Northern District of Alabama of behalf of 5,528 plaintiffs. On
July 10, 2000, an application for injunctive relief was made in one
case in Calhoun County brought on behalf of 787 plaintiffs.
Plaintiffs seek an order prohibiting further PCB releases from the
Company's property and directing the Company to remediate all PCB
contamination in and around Anniston. The Company will vigorously
oppose this application and has meritorious defenses, including lack
of any physical injury or property damage to plaintiffs, lack of any
immediate or substantial endangerment to health or the environment
and the ongoing implementation of remedial action by the Company
under the supervision of the Alabama Department of Environmental
Management and the United States Environmental Protection Agency.
Solutia's Form 10-K and Solutia's Report on Form 10-Q for the
quarter ended March 31, 2000, described administrative and judicial
proceedings arising out of alleged environmental violations at a
coal coking facility in Rock Springs, Wyoming owned by P4 Production,
L.L.C., and formerly operated by Solutia. On April 21, 2000,
Solutia, Pharmacia Corporation, and P4 Production filed their
memorandum supporting their motion for dismissal or summary judgment
on the grounds of claim preclusion, including the doctrines of res
judicata and release. The United States filed, on May 5, 2000, its
memorandum in opposition to the companies' motion for summary
judgment and its cross-motion for summary judgment against the
companies. Oral argument on the merits of these motions occurred
on June 7, 2000.
On June 2, 2000, Pharmacia was served with a complaint naming
Monsanto Company as the sole defendant in an action filed in United
States District Court for the Northern District of Alabama on behalf
of a purported class of "[a]ll persons who reside, or who at one
time did reside, in the areas contaminated by the Defendant's
Anniston, Alabama plant and were thereby directly or indirectly
exposed to PCBs." Plaintiffs allege that as a result of this
exposure, they are at an increased risk of suffering personal
injuries, and seek an injunction mandating medical monitoring and
funding of a study of the alleged adverse health effects of this
exposure.
On June 6, 2000, Pharmacia was served with a complaint naming
Monsanto as a defendant in an action filed in Circuit Court for
Calhoun County, Alabama on behalf of a corporate entity with a
manufacturing facility located near the Anniston plant. Plaintiff
alleges that PCBs and other allegedly harmful chemicals or
pollutants were released from the Anniston plant onto the soil,
waters and air on or adjacent to plaintiff's property, causing that
property to become unusable and worthless. Plaintiff seeks
compensatory and punitive damages of $2 million.
On June 21, 2000, Pharmacia was served with a complaint naming
it, Solutia and others as defendants in an action filed in Circuit
Court for Calhoun County, Alabama on behalf of a purported class of
owners of property
15
<PAGE>
<PAGE>
upon which soil contaminated with PCBs taken from the site of a
nearby commercial development was deposited. Plaintiffs seek
compensatory and punitive damages in an unspecified amount.
Solutia is vigorously defending these actions, and believes that
it has meritorious defenses, including lack of any physical injury
or property damage to plaintiffs, lack of any imminent or
substantial endangerment to health or the environment and lack of
negligence or improper conduct on the part of Solutia or Monsanto.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
At Solutia's annual meeting of shareholders on April 26, 2000,
five matters were submitted to a vote of shareholders.
1. The following directors were elected to the following terms
(or until their respective successors are elected and
qualified, or until their earlier death, resignation, or
removal):
<TABLE>
<CAPTION>
VOTES
VOTES "WITHHOLD
NAME "FOR" AUTHORITY"
---- ----- ----------
<S> <C> <C>
For term expiring at the 2002 annual meeting:
Paul H. Hatfield.......................................... 92,808,821 3,212,004
For term expiring at the 2003 annual meeting:
Robert T. Blakely......................................... 92,817,565 3,203,260
Robert H. Jenkins......................................... 92,816,886 3,203,939
Frank A. Metz, Jr......................................... 92,799,083 3,221,742
</TABLE>
The following directors are continuing terms expiring at the
annual meeting of shareholders in 2001: John C. Hunter III,
Michael E. Miller, William D. Ruckelshaus, and John B. Slaughter.
The following directors are continuing terms expiring at the
annual meeting of shareholders in 2002: J. Patrick Mulcahy and
Robert G. Potter.
2. The Solutia Inc. 2000 Stock-Based Incentive Plan was approved
by the stockholders. A total of 67,182,976 votes were cast in
favor of the plan, 27,938,199 votes were cast against it, and
899,650 votes were counted as abstentions.
3. The Solutia Inc. Annual Incentive Plan was approved by the
stockholders. A total of 87,956,602 votes were cast in favor
of the plan, 7,056,556 votes were cast against it, and
1,007,667 votes were counted as abstentions.
4. The Solutia Inc. Long-Term Incentive Plan was approved by the
stockholders. A total of 87,273,043 votes were cast in favor
of the plan, 7,856,580 votes were cast against it, and
891,202 votes were counted as abstentions.
5. The appointment by the Board of Directors of Deloitte &
Touche L.L.P. as principal independent auditors for the year
2000 was ratified by the shareholders. A total of 94,180,803
votes were cast in favor of ratification, 1,348,575 votes
were cast against it, and 491,447 votes were counted as
abstentions.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits--See the Exhibit Index at page 18 of this report.
(b) A Form 8-K announcing the formation of Astaris LLC, a joint
venture between Solutia Inc. and FMC Corp., was filed on
April 27, 2000.
16
<PAGE>
SIGNATURE
Pursuant to the requirements 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.
--------------------------
(Registrant)
/s/ JAMES M. SULLIVAN
--------------------------
(Vice President and
Controller)
(On behalf of the
Registrant and as
Principal Accounting
Officer)
Date: July 28, 2000
17
<PAGE>
<PAGE>
EXHIBIT INDEX
These Exhibits are numbered in accordance with the Exhibit Table
of Item 601 of Regulation S-K.
EXHIBIT
NUMBER DESCRIPTION
------- -----------
2 Omitted--Inapplicable
3 Omitted--Inapplicable
4 Omitted--Inapplicable
10 1. Solutia Inc. 1997 Stock-Based Incentive Plan, as amended
on April 26, 2000
2. Solutia Inc. 2000 Stock-Based Incentive Plan (incorporated
by reference to Appendix A of the Solutia Inc. Notice of
Annual Meeting and Proxy Statement dated March 9, 2000)
3. Solutia Inc. 2000 Annual Incentive Plan (incorporated by
reference to Appendix B of the Solutia Inc. Notice of Annual
Meeting and Proxy Statement dated March 9, 2000)
4. Solutia Inc. 2000 Long-Term Incentive Plan (incorporated
by reference to Appendix C of the Solutia Inc. Notice of
Annual Meeting and Proxy Statement dated March 9, 2000)
11 Omitted--Inapplicable; see "Statement of Consolidated
Income" on page 1.
15 Omitted--Inapplicable
18 Omitted--Inapplicable
19 Omitted--Inapplicable
22 Omitted--Inapplicable
23 Omitted--Inapplicable
24 Omitted--Inapplicable
27 Financial Data Schedule
99 Omitted--Inapplicable
18
