##### Table of Contents



UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
 Washington, D.C. 20549
 FORM 10-K
  þ
    
    ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
 For
the fiscal year ended December 31, 2008
 o
    
    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)
 Delaware
    
    43-1781797(State or other jurisdiction of 
incorporation or organization)
    
    (I.R.S. Employer
Identification No.)575 Maryville Centre Drive, P.O. Box 66760, St. Louis, Missouri 63166-6760(Address of principal executive offices)
    
    (Zip Code)
   Title of each class
    
    Name of each exchange on which registered$.01 par value Common Stock
    
    New York Stock Exchange
  None
 o Yes þ No
 o þ
 þ o
 þ
  Large accelerated filer þ
    
    Accelerated filer o
    
    Non-accelerated filer o
    
    Smaller reporting company o(Do not check if a smaller reporting company)
 o þ
  Note.
  
 þ o
  Portion of Definitive Proxy Statement for Annual Meeting 
of Stockholders on April 22, 2009
    
    Part III




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CAUTIONARY STATEMENT ABOUT FORWARD-LOOKING STATEMENTS




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TABLE OF CONTENTS  PART IITEM 1. BUSINESSITEM 1A. RISK FACTORSITEM 1B. UNRESOLVED STAFF COMMENTSITEM 2. PROPERTIESITEM 3. LEGAL PROCEEDINGSITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERSPART IIITEM 5. MARKET FOR REGISTRANTS COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUERS PURCHASES OF EQUITY SECURITIESITEM 6. SELECTED FINANCIAL DATAITEM 7. MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONSITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISKITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATAITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSUREITEM 9A. CONTROLS AND PROCEDURESITEM 9B. OTHER INFORMATIONPART IIIITEM 10. DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCEITEM 11. EXECUTIVE COMPENSATIONITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER MATTERSITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR INDEPENDENCEITEM 14. PRINCIPAL ACCOUNTANT FEES AND SERVICESPART IVITEM 15. EXHIBITS AND FINANCIAL STATEMENT SCHEDULESIGNATURESExhibit 10(f)Exhibit 10(g)Exhibit 10(h)Exhibit 10(i)Exhibit 10(j)Exhibit 10(k)Exhibit 10(l)Exhibit 10(p)Exhibit 10(q)Exhibit 12Exhibit 21Exhibit 23Exhibit 24(a)Exhibit 24(b)Exhibit 31(a)Exhibit 31(b)Exhibit 32(a)Exhibit 32(b)    Table of Contents  
 
 PART I
 
 
 ITEM 1. BUSINESS
 Company Overview
    Significant Strategic and Operational Developments in 2008
 ® ®
 ® ® ® ® ® ®
   2




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Segments; Principal Products
  
    
    Saflex;
 
    
    CPFilms; and
 
    
    Technical Specialties.
  Saflex
 ® ®
    3




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##### Table of Contents



Principal Products
 Major End-Use
    
    Major Products
    
    Major
    
    Major Raw
    
    Major
    
    Major End-UseMarkets
    
    Brand
    
    Description
    
    Competitors
    
    Materials
    
    Plants(1)
    
    ApplicationsCONSTRUCTION
AND HOME
FURNISHINGS
    

SAFLEX®
    
    Laminated window
glass
    
    DuPont
Kuraray
Sekisui
    
    Butyraldehyde
Ethanol
Polyvinyl
alcohol
Vinyl acetate
monomer
    
    Ghent, Belgium
Springfield, MA
Santo Toribio,
MexicoSuzhou,
China Sao
Jose dos Campos,
Brazil
    
    Products to
increase the
safety, security,
sound attenuation,
energy efficiency
and ultraviolet
protection of
architectural glass
for residential and
commercial
structuresVEHICLES
    
    SAFLEX®
    
    Laminated window
glass
    
    DuPont
Sekisui
    
    Butyraldehyde
Ethanol
Polyvinyl
alcohol
Vinyl acetate
monomer
    
    Ghent, Belgium
Santo Toribio,
Mexico
Springfield, MA
Trenton, MI Suzhou,
China Sao Jose
dos Campos, Brazil
    
    Products to
increase the
safety, security,
sound attenuation
and ultraviolet
protection of
automotive glass
 (1)
    
    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
  
    
    LLUMAR®;
    
    VISTA®;
    
    GILA®; and
    
    FORMULA ONE PERFORMANCE AUTOMOTIVE FILMS®.
    4




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Principal Products
 Major End-Use
    
    Major Products
    
    Major
    
    Major Raw
    
    Major
    
    Major End-UseMarkets
    
    Brand
    
    Description
    
    Competitors
    
    Materials
    
    Plants(1)
    
    ApplicationsCONSTRUCTION 
AND HOME 
FURNISHINGS
    
    LLUMAR®
VISTA®
GILA®
    
    Professional window
films
Retail window films
    
    3M
Madico Bekaert
    
    Polyester film
    
    Martinsville, VA
Runcorn, U.K.
    
    After-market films
for solar control,
security and safetyVEHICLES
    
    LLUMAR®
FORMULA
ONE®
GILA®
    
    Professional window
films
Retail window films
    
    Johnson Laminating
Garware
Commonwealth
Laminating
NovoMatrix
Hanita Coatings
    
    Polyester film
    
    Martinsville, VA
Runcorn, U.K.
    
    Products to
increase the
safety, security,
sound attenuation
and ultraviolet
protection of
automotive glass
and give vehicles a
custom appearanceINDUSTRIAL 
APPLICATIONS &
ELECTRONICS
    
    Metalized films
Sputtered films
Deep-dyed films
Release liners
    
    Components
Enhanced polymer
films
    
    3M
Intellicoat
Mitsubishi
Southwall
VDI
Technimet
Nitto Denko
Toppan
    
    Polyester film
Indium tin
Precious metals
    
    Martinsville, VA
Runcorn, U.K.
Canoga Park, CA
    
    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
 (1)
    
    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
   ®
 ®
  5




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® ® ®
  Principal Products
 Major End-Use
    
    Major Products
    
    Major
    
    Major Raw
    
    Major
    
    Major End-UseMarkets
    
    Brand
    
    Description
    
    Competitors
    
    Materials
    
    Plants(1)
    
    ApplicationsRUBBER CHEMICALS
    
    CRYSTEX®
SANTOFLEX®
SANTOCURE®
PERKACIT®
    
    Insoluble Sulfur
Antidegradant
Primary and ultra
accelerators
    
    Lanxess
Chemtura
Shikoku
Oriental Carbon
Chemicals
Limited (India)
NCC
Sinorgchem
    
    Benzene derivatives
Ketones
Sulfur
CS2
Napthenic
processing oil
    
    Antwerp, Belgium
Itupeva, Brazil
Kashima, Japan
Monogahela, PA
Lemoyne, AL
Nienburg, Germany
Kuantan, Malaysia
Sauget, IL
Sete, France
Termoli, Italy
Sao Jose dos
Campos, Brazil
    
    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
tiresCAPITAL EQUIPMENT
    
    THERMINOL®
    
    Heat transfer fluids
    
    Dow
    
    Benzene
Phenol
    
    Anniston, AL
Newport, U.K.
    
    Heat transfer
fluids for a wide
variety of
manufacturing and
refining usesAVIATION &
TRANSPORTATION
    
    SKYDROL®
SKYKLEEN®
    
    Aviation hydraulic
fluids
Aviation solvents
    
    ExxonMobil
    
    Phosphate esters
    
    Anniston, AL
    
    Hydraulic fluids
for commercial
aircraft, and
environmentally
friendly solvents
for aviation
maintenance
 (1)
    
    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.  6




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Sale of Products
    Competition
  Raw Materials and Energy Resources
   Intellectual Property
  Research and Development
  ®
  7




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®
 Environmental Matters
  Employee Relations
   International Operations
    8




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Executive Officers
  Year First Became anName, Age and Position
    
    Executive Officer of
    
    Other Business Experience Sincewith Solutia
    
    Solutia
    
    At Least January 1, 2004Jeffry N. Quinn, 50
President, Chief Executive
Officer and Chairman of the
Board
    
    
    2003
    
    
    President, Chief Executive
Officer and Director since May
2004. Named Chairman of the
Board on February 22, 2006.
Mr. Quinn previously served as
Solutias 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.James M. Sullivan, 48
Executive Vice President, Chief
Financial Officer and Treasurer
    
    
    2004
    
    
    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.Luc De Temmerman, 54
Executive Vice President,
Growth and Development
    
    
    2003
    
    
    Executive Vice President,
Growth and Development since
2009. Mr. De Temmerman served
as Senior Vice President and
President, Performance
Products from 2005 to 2009.
Mr. De Temmerman is a
long-time Solutia employee who
has previously served as
Senior Vice President and
Chief Operating Officer from
2004 through 2005; Vice
President and General Manager,
Performance Products, from
2003 through 2004; Worldwide
Commercial Director for
Laminated Glazing Products and
Services, from 2001 through
2002.James R. Voss, 42
Executive Vice President,
Global
Operations
    
    
    2005
    
    
    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., an
independent petroleum refiner
and supplier of unbranded
transportation fuels, heating
oil, petrochemical feedstocks,
petroleum coke and other
petroleum products in the
United States, from 2000
through 2005. Premcor Inc. is
now owned by Valero Energy
Corp.Kent J. Davies, 45
Senior Vice President and
President, CPFilms
    
    
    2006
    
    
    Senior Vice President and
President, CPFilms since
January 2006. Mr. Davies
previously served as Senior
Vice President, Marketing, R&D
and Regulatory, for United
Industries Corp., a global
consumer products company,
from 2002 through 2005 and
Senior Vice President,
Marketing of United Industries
Corp., from 2001 through 2002.Robert T. DeBolt, 48
Senior Vice President, Business
Operations
    
    
    2007
    
    
    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.Paul J. Berra, III, 40
Senior Vice President, General
Counsel, and Chief
Administrative Officer
    
    
    2008
    
    
    Senior Vice President, General
Counsel, and Chief
Administrative Officer since
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.Timothy J. Spihlman, 37
Vice President and Corporate
Controller
    
    
    2004
    
    
    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.
   9




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Internet Access to Information
 www.solutia.com www.solutia.com www.sec.gov 1-800-SEC-0330.
  10




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ITEM 1A. RISK FACTORS
 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.
 RISKS RELATED TO OUR EMERGENCE FROM BANKRUPTCY
 Our actual financial results may vary significantly from the projections filed with the Bankruptcy
Court
 Financial
Reporting by Entities in Reorganization under the Bankruptcy Code
 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
 Business Combinations
  11




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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 Are Restricted by Our Credit Facilities and Could be Impacted by the Failure of Our
Lenders to Perform
  
    
    incur additional debt;
 
    
    make certain investments and acquisitions;
 
    
    enter into certain types of transactions with affiliates;
 
    
    limit dividends or other payments by us and certain of our subsidiaries;
 
    
    use assets as security in other transactions;
 
    
    pay dividends on our common stock or repurchase our equity interests;
 
    
    sell certain assets or merge with or into other companies;
 
    
    guarantee the debts of others;
 
    
    enter into new lines of business;
 
    
    make capital expenditures;
 
    
    prepay, redeem or exchange our debt;
 
    
    form any joint ventures or subsidiary investments.
   12




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The Prices of Raw Materials
and Energy We Require to Produce Our Products Are Volatile and Could
Significantly Impact Our Operating Margins
  Problems Encountered in Operating Our Production Facilities Could Adversely Impact Our Business
   We Have and Will Continue to Have Significant Indebtedness
  
    
    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.
 
    
    Certain levels of indebtedness may make us less attractive to potential acquirors or
acquisition targets.
 
    
    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.
 
    
    As described in more detail above, the documents providing for our indebtedness
contain restrictive covenants that may limit our financing and operational flexibility.
   13




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Turnover in the Senior Management Team and Losses of Other Key Personnel 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
  We Operate in Cyclical Business Segments and Our Financial Results Are Likely to Fluctuate
Accordingly
  If We Are Unable to Protect Our Intellectual Property Rights, Our Sales and Financial Performance
Could Be Adversely Affected
    14




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Legal Proceedings including proceedings related to environmental and other regulatory obligations
may have a materially negative impact on our future results of operations
  The Applicability of Numerous Environmental Laws to Our Manufacturing Facilities Could Cause Us to
Incur Material Costs and Liabilities
       15




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We Face Currency and Other Risks Associated with International Sales
   Many of Our Products and Manufacturing Processes Are Subject to Technological Change and Our
Business Will Suffer if We Fail to Keep Pace
  Significant Payments May Be Required to Maintain the Funding of Our Domestic Qualified Pension Plan
  Labor Disruptions With the Unionized Portion Of Our Workforce Could Have a Negative Effect
   16




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ITEM 1B. UNRESOLVED STAFF COMMENTS
  
 
 ITEM 2. PROPERTIES
      
 
 ITEM 3. LEGAL PROCEEDINGS
 Litigation
   Legacy
Tort Claims Litigation
   17




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Putnam County, West Virginia litigation.
  Escambia County, Florida Litigation. John Allen, et al. v. Monsanto Company, et al.
  Solutia Inc. Employees Pension Plan Litigation
 Davis, et al. v. Solutia, Inc. Employees Pension Plan Hammond, et al. v.
Solutia, Inc. Employees Pension Plan Walker et al. v. The Monsanto Pension Plan, et al.) Donaldson v. Pharmacia Cash Balance Pension Plan, et al.
    18




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Department of Justice Investigations
  Risk Management
   
 
 ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
   19




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PART II
 
 
 ITEM 5.
    MARKET FOR REGISTRANTS COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUERS PURCHASES
OF EQUITY SECURITIES
 Market for Registrants Common Equity and Related Stockholder Matters
     2008
    
    High
    
    
    LowFirst Quarter (February 28, 2008 through March 31, 2008)
    
    $
    15.97
    
    
    $
    10.06Second Quarter
    
    $
    15.49
    
    
    $
    11.09Third Quarter
    
    $
    17.29
    
    
    $
    12.38Fourth Quarter
    
    $
    13.61
    
    
    $
    3.64
   Purchases of Equity Securities by the Issuer
 Total Number of
    
    
    Approximate DollarShares Purchased as
    
    
    Value (in millions)Total Number of
    
    
    
    
    
    
    Part of Publicly
    
    
    that May Yet BeShares
    
    
    Average Price Paid
    
    
    Announced Plans or
    
    
    Purchased Under thePeriod
    
    Purchased (1)
    
    
    Per Share (2)
    
    
    Programs
    
    
    Plans or ProgramsOctober 131, 2008
    
    
    0
    
    
    $
    0.00
    
    
    
    0
    
    
    $
    0November 130, 2008
    
    
    424
    
    
    $
    4.77
    
    
    
    0
    
    
    $
    0December 131, 2008
    
    
    7,962
    
    
    $
    4.06
    
    
    
    0
    
    
    $
    0Total
    
    
    8,116
    
    
    $
    4.09
    
    
    
    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.  20




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Stock Performance Graph
  
  21




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ITEM 6. SELECTED FINANCIAL DATA
 Financial Summary
 Ten Months
    
    
    Two MonthsEnded
    
    
    Ended(Dollars and shares in millions, except per
    
    December 31,
    
    
    February 29,
    
    
    Twelve Months Ended December 31,share amounts)
    
    2008
    
    
    2008
    
    
    2007
    
    
    2006
    
    
    2005
    
    
    2004Operating Results:Net Sales
    
    $
    1,775
    
    
    $
    335
    
    
    $
    1,643
    
    
    $
    1,064
    
    
    $
    1,003
    
    
    $
    941Gross Profit
    
    
    364
    
    
    
    93
    
    
    
    380
    
    
    
    268
    
    
    
    216
    
    
    
    145As percent of net sales
    
    
    21
    %
    
    
    28
    %
    
    
    23
    %
    
    
    25
    %
    
    
    22
    %
    
    
    15
    %Operating
Income (Loss) (1)
    
    
    111
    
    
    
    48
    
    
    
    135
    
    
    
    64
    
    
    
    14
    
    
    
    (55
    )As percent of net sales
    
    
    6
    %
    
    
    14
    %
    
    
    8
    %
    
    
    6
    %
    
    
    1
    %
    
    
    (6
    )%Income (Loss) from Continuing Operations Before Taxes
    
    
    (1
    )
    
    
    1,466
    
    
    
    (239
    )
    
    
    (42
    )
    
    
    11
    
    
    
    (257
    )Income (Loss) from Continuing Operations(2)
    
    
    (14
    )
    
    
    1,252
    
    
    
    (256
    )
    
    
    (60
    )
    
    
    2
    
    
    
    (250
    )Income (Loss) from Discontinued Operations, net of tax
    
    
    (654
    )
    
    
    202
    
    
    
    48
    
    
    
    62
    
    
    
    9
    
    
    
    (70
    )Cumulative Effect of Change in Accounting Principle,
net of tax
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (3
    )
    
    
    Net Income (Loss)
    
    
    (668
    )
    
    
    1,454
    
    
    
    (208
    )
    
    
    2
    
    
    
    8
    
    
    
    (320
    )Per Share Data:Basic and Diluted Earnings (Loss) per Share from
Continuing Operations(2)
    
    $
    (0.19
    )
    
    $
    11.98
    
    
    $
    (2.45
    )
    
    $
    (0.57
    )
    
    $
    0.02
    
    
    $
    (2.39
    )Weighted Average Shares Outstanding  Basic and Diluted
    
    
    74.7
    
    
    
    104.5
    
    
    
    104.5
    
    
    
    104.5
    
    
    
    104.5
    
    
    
    104.5Dividends per Share
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Financial Position  Continuing Operations:Total Assets
    
    $
    3,244
    
    
    $
    3,663
    
    
    $
    1,832
    
    
    $
    1,298
    
    
    $
    1,217
    
    
    $
    1,247Liabilities not Subject to Compromise
    
    
    2,992
    
    
    
    3,408
    
    
    
    2,019
    
    
    
    1,356
    
    
    
    930
    
    
    
    1,023Liabilities Subject to Compromise
    
    
    
    
    
    
    
    
    
    
    1,922
    
    
    
    1,849
    
    
    
    2,176
    
    
    
    2,187Long-Term Debt(3)
    
    
    1,359
    
    
    
    1,796
    
    
    
    359
    
    
    
    210
    
    
    
    247
    
    
    
    285Shareholders Equity (Deficit)
    
    
    521
    
    
    
    1,037
    
    
    
    (1,595
    )
    
    
    (1,405
    )
    
    
    (1,433
    )
    
    
    (1,423
    )Other Data from Continuing Operations:Working Capital(4)
    
    $
    329
    
    
    $
    492
    
    
    $
    (510
    )
    
    $
    (393
    )
    
    $
    (31
    )
    
    $
    (63
    )Interest Expense(5)
    
    
    132
    
    
    
    17
    
    
    
    112
    
    
    
    77
    
    
    
    57
    
    
    
    87Income Tax Expense (Benefit)(6)
    
    
    13
    
    
    
    214
    
    
    
    17
    
    
    
    18
    
    
    
    9
    
    
    
    (7
    )Depreciation and Amortization
    
    
    89
    
    
    
    11
    
    
    
    59
    
    
    
    46
    
    
    
    40
    
    
    
    42Capital Expenditures
    
    
    84
    
    
    
    15
    
    
    
    99
    
    
    
    55
    
    
    
    49
    
    
    
    34Employees (Year-End)
    
    
    3,700
    
    
    
    3,700
    
    
    
    3,700
    
    
    
    2,900
    
    
    
    3,400
    
    
    
    3,300
 (1)
    
    Operating income (loss) includes net restructuring (gains)/charges and other items
of $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, $14 million in 2005, and $57 million
in 2004.(2)
    
    Income (loss) from continuing operations includes net restructuring charges and
other (gains)/charges of $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, ($37) million, or ($0.35) per share in
2005, and $140 million, or $1.34 per share in 2004.(3)
    
    Long-term debt excludes $659 million as of December 31, 2007 and $668 million as of
December 31, 2006, 2005 and 2004 of debt classified as subject to compromise in accordance with
Statement of Position 90-7, Financial Reporting by Entities in Reorganization Under the Bankruptcy
Code, as a result of our Chapter 11 bankruptcy filing in 2003.(4)
    
    Working capital is defined as total current assets less total current liabilities.(5)
    
    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 of
$1 million in the ten months ended December 31, 2008, $6 million in 2006 and $25 million in 2004
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.(6)
    
    Income tax expense (benefit) includes an increase (decrease) in valuation allowances
of $6 million in the ten months ended December 31, 2008, $(259) million in the two months ended
February 29, 2008, $78 million in 2007, $29 million in 2006, $9 million in 2005 and $85 million in 2004.   22




---



##### Table of Contents



ITEM 7.
    MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
  General Business Overview
  Reportable Segment
    
    ProductsSaflex
    
    
    
    SAFLEX® plastic interlayer
    
    Specialty intermediate Polyvinyl Butyral resin and plasticizerCPFilms
    
    
    
    LLUMAR®, VISTA®, GILA® and FORMULA ONE PERFORMANCE AUTOMOTIVE
FILMS® professional and retail window films
    
    Other enhanced polymer films for industrial customersTechnical 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
  Summary of Significant 2008 Events
 Bankruptcy Proceedings and Emergence from Chapter 11
   Strategic
and Operational Actions
 ® ®
  23




---



##### Table of Contents



® ® ® ® ®
  Combined Yearly Financial Results of the Predecessor and Successor
    Summary Results of Operations
   24




---



##### Table of Contents



Outlook
     25




---



##### Table of Contents



Critical Accounting Policies and Estimates
   
    
    Environmental Remediation
    
    Litigation and Other Contingencies
    
    Income Taxes
    
    Impairment of Long-Lived Assets
    
    Impairment of Goodwill and Indefinite-Lived Intangible Assets
    
    Pension and Other Postretirement Benefits
  Environmental Remediation
     26




---



##### Table of Contents



Litigation and Other Contingencies
 Accounting for
Contingencies
  Income Taxes
     27




---



##### Table of Contents



Impairment of Long-Lived Assets
 Accounting for the Impairment or Disposal of Long-Lived Assets
 Impairment of Goodwill and Indefinite-Lived Intangible Assets
 Goodwill and Other Intangible Assets, .
 Outlook
 Pension and Other Postretirement Benefits
 Employers Accounting for Pensions , Employers Accounting for Postretirement Benefits Other Than Pensions
   28




---



##### Table of Contents



Results of Operations
 Consolidated
Solutia
 $
    
    
    %Increase
    
    
    IncreaseCombined
    
    
    Predecessor
    
    
    Predecessor
    
    
    (Decrease)
    
    
    (Decrease)2008 vs.
    
    
    2007 vs.
    
    
    2008 vs.
    
    
    2007 vs.(dollars in millions)
    
    2008
    
    
    2007
    
    
    2006
    
    
    2007
    
    
    2006
    
    
    2007
    
    
    2006Net Sales
    
    $
    2,110
    
    
    $
    1,643
    
    
    $
    1,064
    
    
    $
    467
    
    
    $
    579
    
    
    
    28
    %
    
    
    54
    %Operating Income:Reportable Segment
Profit
(a)
    
    $
    328
    
    
    $
    263
    
    
    $
    179
    
    
    $
    65
    
    
    $
    84
    
    
    
    25
    %
    
    
    47
    %Unallocated and Other
    
    
    (47
    )
    
    
    (33
    )
    
    
    (27
    )
    
    
    (14
    )
    
    
    (6
    )
    
    
    (42
    )%
    
    
    (22
    )%Less: Depreciation
and
Amortization
    
    
    (100
    )
    
    
    (59
    )
    
    
    (46
    )Less: Equity
Earnings from
Affiliates,
Other Income
and Loss on
Debt
Modification
included in
Segment
Profit and
Unallocated
and Other
    
    
    (22
    )
    
    
    (36
    )
    
    
    (42
    )Operating Income
    
    $
    159
    
    
    $
    135
    
    
    $
    64
    
    
    $
    24
    
    
    $
    71
    
    
    
    18
    %
    
    
    111
    %Net Gains (Charges)
included in Operating
Income
    
    $
    (100
    )
    
    $
    (41
    )
    
    $
    7
 (a)
    
    See Note 18 to the accompanying consolidated financial statements for description of
the computation of reportable segment profit.    29




---



##### Table of Contents



Saflex
 $
    
    
    %Increase
    
    
    IncreaseCombined
    
    
    Predecessor
    
    
    Predecessor
    
    
    (Decrease)
    
    
    (Decrease)2008 vs.
    
    
    2007 vs.
    
    
    2008 vs.
    
    
    2007 vs.(dollars in millions)
    
    2008
    
    
    2007
    
    
    2006
    
    
    2007
    
    
    2006
    
    
    2007
    
    
    2006Net Sales
    
    $
    822
    
    
    $
    727
    
    
    $
    663
    
    
    $
    95
    
    
    $
    64
    
    
    
    13
    %
    
    
    10
    %Segment Profit
    
    $
    94
    
    
    $
    111
    
    
    $
    106
    
    
    $
    (17
    )
    
    $
    5
    
    
    
    (15
    )%
    
    
    5
    %Net Charges included in Segment Profit
    
    $
    (47
    )
    
    $
    (2
    )
    
    $
    (3
    )
 ®
     30




---



##### Table of Contents



CPFilms
 $
    
    
    %Increase
    
    
    IncreaseCombined
    
    
    Predecessor
    
    
    Predecessor
    
    
    (Decrease)
    
    
    (Decrease)2008 vs.
    
    
    2007 vs.
    
    
    2008 vs.
    
    
    2007 vs.(dollars in millions)
    
    2008
    
    
    2007
    
    
    2006
    
    
    2007
    
    
    2006
    
    
    2007
    
    
    2006Net Sales
    
    $
    236
    
    
    $
    234
    
    
    $
    214
    
    
    $
    2
    
    
    $
    20
    
    
    
    1
    %
    
    
    9
    %Segment Profit
    
    $
    42
    
    
    $
    58
    
    
    $
    50
    
    
    $
    (16
    )
    
    $
    8
    
    
    
    (28
    )%
    
    
    16
    %Net Charges
included in
Segment Profit
    
    $
    (13
    )
    
    $
    
    
    
    $
    (1
    )
 ® ®
 ® ®
   Technical Specialties
 $
    
    
    %Increase
    
    
    IncreaseCombined
    
    
    Predecessor
    
    
    Predecessor
    
    
    (Decrease)
    
    
    (Decrease)2008 vs.
    
    
    2007 vs.
    
    
    2008 vs.
    
    
    2007 vs.(dollars in millions)
    
    2008
    
    
    2007
    
    
    2006
    
    
    2007
    
    
    2006
    
    
    2007
    
    
    2006Net Sales
    
    $
    1,015
    
    
    $
    646
    
    
    $
    146
    
    
    $
    369
    
    
    $
    500
    
    
    
    57
    %
    
    
    342
    %Segment Profit
    
    $
    192
    
    
    $
    94
    
    
    $
    23
    
    
    $
    98
    
    
    $
    71
    
    
    
    104
    %
    
    
    309
    %Net Charges
included in
Segment Profit
    
    $
    (43
    )
    
    $
    (30
    )
    
    $
    
  31




---



##### Table of Contents



® ® ® ® ®
 ®
   Unallocated and Other
 $
    
    
    %Increase
    
    
    IncreaseCombined
    
    
    Predecessor
    
    
    Predecessor
    
    
    (Decrease)
    
    
    (Decrease)2008 vs.
    
    
    2007 vs.
    
    
    2008 vs.
    
    
    2007 vs.(dollars in millions)
    
    2008
    
    
    2007
    
    
    2006
    
    
    2007
    
    
    2006
    
    
    2007
    
    
    2006Unallocated and Other results
    
    $
    (47
    )
    
    $
    (33
    )
    
    $
    (27
    )
    
    $
    (14
    )
    
    $
    (6
    )
    
    
    (42
    )%
    
    
    (22
    )%Gains (Charges) included
in Unallocated and Other
    
    $
    10
    
    
    $
    5
    
    
    $
    (1
    )
   32




---



##### Table of Contents



Interest Expense
 $
    
    
    %Increase
    
    
    IncreaseCombined
    
    
    Predecessor
    
    
    Predecessor
    
    
    (Decrease)
    
    
    (Decrease)2008 vs.
    
    
    2007 vs.
    
    
    2008 vs.
    
    
    2007 vs.(dollars in millions)
    
    2008
    
    
    2007
    
    
    2006
    
    
    2007
    
    
    2006
    
    
    2007
    
    
    2006Interest Expense
    
    $
    149
    
    
    $
    112
    
    
    $
    77
    
    
    $
    37
    
    
    $
    35
    
    
    
    33
    %
    
    
    45
    %Charges included in Interest Expense
    
    $
    (1
    )
    
    $
    (8
    )
    
    $
    (4
    )
    33




---



##### Table of Contents



Reorganization Items, net
 $
    
    
    %Increase
    
    
    IncreaseCombined
    
    
    Predecessor
    
    
    Predecessor
    
    
    (Decrease)
    
    
    (Decrease)2008 vs.
    
    
    2007 vs.
    
    
    2008 vs.
    
    
    2007 vs.(dollars in millions)
    
    2008
    
    
    2007
    
    
    2006
    
    
    2007
    
    
    2006
    
    
    2007
    
    
    2006Reorganization Items, net
    
    $
    1,433
    
    
    $
    (298
    )
    
    $
    (71
    )
    
    
    1,731
    
    
    
    (227
    )
    
    
    N.M.
    
    
    
    N.M.
   Income Tax Expense
 $
    
    
    %Increase
    
    
    IncreaseCombined
    
    
    Predecessor
    
    
    Predecessor
    
    
    (Decrease)
    
    
    (Decrease)2008 vs.
    
    
    2007 vs.
    
    
    2008 vs.
    
    
    2007 vs.(dollars in millions)
    
    2008
    
    
    2007
    
    
    2006
    
    
    2007
    
    
    2006
    
    
    2007
    
    
    2006Income Tax Expense
    
    $
    227
    
    
    $
    17
    
    
    $
    18
    
    
    $
    210
    
    
    $
    (1
    )
    
    
    N.M.
    
    
    
    (6
    )%Increase (Decrease)
in Valuation
Allowance included
in Income Tax
Expense
    
    $
    (253
    )
    
    $
    78
    
    
    $
    29
     34




---



##### Table of Contents



Discontinued Operations
 $
    
    
    %Increase
    
    
    IncreaseCombined
    
    
    Predecessor
    
    
    Predecessor
    
    
    (Decrease)
    
    
    (Decrease)2008 vs.
    
    
    2007 vs.
    
    
    2008 vs.
    
    
    2007 vs.(dollars in millions)
    
    2008
    
    
    2007
    
    
    2006
    
    
    2007
    
    
    2006
    
    
    2007
    
    
    2006Integrated Nylon business
    
    $
    (453
    )
    
    $
    34
    
    
    $
    4Dequest business
    
    
    
    
    
    
    19
    
    
    
    Pharmaceutical services business
    
    
    
    
    
    
    
    
    
    
    58Other
    
    
    1
    
    
    
    (5
    )
    
    
    Income (Loss) from Discontinued
Operations, net of tax
    
    $
    (452
    )
    
    $
    48
    
    
    $
    62
    
    
    $
    (500
    )
    
    $
    (14
    )
    
    
    N.M.
    
    
    
    (23
    )%Reorganization items included
in income from discontinued
operations
    
    $
    212
    
    
    $
    
    
    
    $
    
      35




---



##### Table of Contents



Summary of Events Affecting Comparability
  2008 Events
 Technical
    
    
    UnallocatedIncrease/(Decrease)
    
    Saflex
    
    
    CPFilms
    
    
    Specialties
    
    
    /Other
    
    
    ConsolidatedImpact 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)
    
    
    
    3
    
    
    
    
    
    
    
    
    
    
    
    3
    (g)1
    
    
    
    
    
    
    
    
    
    
    
    2
    
    
    
    3
    (h)Selling, general and administrative expenses
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    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
    
    
    
    1,339Income 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)
    
    Write-down of indefinite-lived intangible assets in accordance with SFAS No. 142 ($3 million pre-tax and $2 million after-tax).(h)
    
    Restructuring costs related principally to severance and retraining costs ($6 million pre-tax and 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.  36




---



##### Table of Contents



2007 Events
 Technical
    
    
    UnallocatedIncrease/(Decrease)
    
    Saflex
    
    
    CPFilms
    
    
    Specialties
    
    
    /Other
    
    
    ConsolidatedImpact 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 in the third quarter 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 in the
second quarter ($3 million pre-tax and after-tax).(d)
    
    Net pension plan settlements, as more fully described in Note 12 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 in the second quarter ($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) in the first quarter 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.  37




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##### Table of Contents



2006 Events
 Technical
    
    
    UnallocatedIncrease/(Decrease)
    
    Saflex
    
    
    CPFilms
    
    
    Specialties
    
    
    /Other
    
    
    ConsolidatedImpact on:Cost of goods sold
    
    $
    
    
    
    $
    
    
    
    $
    
    
    
    $
    9
    
    
    $
    9
    (a)
    
    
    
    
    
    
    
    
    
    
    
    (20
    )
    
    
    (20
    )(b)1
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    1
    (c)Selling, general and administrative expenses
    
    
    2
    
    
    
    1
    
    
    
    
    
    
    
    
    
    
    
    3
    (c)Operating Income Impact
    
    
    (3
    )
    
    
    (1
    )
    
    
    
    
    
    
    11
    
    
    
    7Interest expense
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (1
    )
    
    
    (1
    )(d)
    
    
    
    
    
    
    
    
    
    
    
    (3
    )
    
    
    (3
    )(e)Equity income from affiliates
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (4
    )
    
    
    (4
    )(f)Loss on debt modification
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (8
    )
    
    
    (8
    )(d)Reorganization items, net
    
    
    (1
    )
    
    
    
    
    
    
    (2
    )
    
    
    (68
    )
    
    
    (71
    )(g)Pre-tax Income Statement Impact
    
    $
    (4
    )
    
    $
    (1
    )
    
    $
    (2
    )
    
    $
    (73
    )
    
    
    (80
    )Income tax impact
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (5
    )(h)After-tax Income Statement Impact
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    $
    (75
    )
 (a)
    
    Environmental charge in the first quarter 2006 precipitated by the notification by a third-party of its intent to
terminate a tolling agreement at one of our facilities outside the U.S. that will likely result in the cessation of
operations at that site ($9 million pre-tax and $6 million after-tax).(b)
    
    Gain resulting from the reversal of a litigation reserve with respect to a litigation matter that was decided favorably
in the second quarter 2006 ($20 million pre-tax and after-tax  see note (h) below).(c)
    
    Restructuring costs related principally to severance and retraining costs ($4 million pre-tax and $3 million after-tax).(d)
    
    We recorded a charge of approximately $8 million (pre-tax and after-tax  see note (h) below) to record the write-off
of debt issuance costs and to record the DIP credit facility as modified at its fair value. In addition, $1 million
(pre-tax and after-tax  see note (h) below) of unamortized debt issuance costs associated with the DIP credit
facility were written off at the time of modification in March 2006.(e)
    
    We refinanced our Euronotes in July 2006 and recorded early extinguishment costs at the time of refinancing ($3 million
pre-tax and $2 million after-tax).(f)
    
    Net charges at Flexsys, our 50 percent owned joint venture, included charges for restructuring and asset impairments of
$5 million, partially offset by a non-operational gain of $1 million related to the reversal of a litigation reserve
($4 million pre-tax and after-tax  see note (h) below).(g)
    
    Reorganization items, net consist of the following: $58 million of professional fees for services provided by debtor
and creditor professionals directly related to our reorganization proceedings; $11 million of other reorganization
charges primarily involving costs incurred with exiting certain non-strategic businesses; $4 million of 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; and a $2 million net gain from
adjustments to record certain pre-petition claims at estimated amounts of the allowed claims ($71 million pre-tax and
after-tax  see note (h) below).(h)
    
    With the exception of items (a), (c) and (e) above, which primarily relate to ex-U.S. operations, 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
   38




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##### Table of Contents



Pension and Other Postretirement Benefit Matters
  , st
    39




---



##### Table of Contents



Pension Plan Funded Status
   Derivative Financial Instruments
  Foreign Currency Exchange Rate Risk
    40




---



##### Table of Contents



Interest Rate Risk
   Commodity Price Risk
  Restructuring Activities
    Financial Condition and Liquidity
    41




---



##### Table of Contents



Cash Flows  Continuing Operations
  Combined
    
    
    PredecessorTwelve Months
    
    
    Twelve Months
    
    
    Twelve MonthsEnded
    
    
    Ended
    
    
    EndedCash Flow Summary  continuing operations
    
    December 31,
    
    
    December 31,
    
    
    December 31,(dollars in millions)
    
    2008
    
    
    2007
    
    
    2006Cash provided by (used in) operating activities before reorganization items
    
    $
    140
    
    
    $
    (16
    )
    
    $
    (117
    )Cash used in reorganization activities
    
    
    (380
    )
    
    
    (80
    )
    
    
    (65
    )Cash used in operating activities
    
    
    (240
    )
    
    
    (96
    )
    
    
    (182
    )Cash used in investing activities
    
    
    (50
    )
    
    
    (218
    )
    
    
    (66
    )Cash provided by financing activities
    
    
    353
    
    
    
    279
    
    
    
    275Net change in cash for period attributable to continuing operations
    
    $
    63
    
    
    $
    (35
    )
    
    $
    27
 Operating activities
  42




---



##### Table of Contents



Investing activities: ®
 ® ® ®
 Financing activities:
   43




---



##### Table of Contents



Working Capital  Continuing Operations
  Successor
    
    
    PredecessorWorking Capital  continuing operations
    
    December 31,
    
    
    December 31,
    
    
    Increase(dollars in millions)
    
    2008
    
    
    2007
    
    
    (Decrease)Cash and cash equivalents
    
    $
    32
    
    
    $
    173Trade receivables, net
    
    
    227
    
    
    
    293Inventories
    
    
    341
    
    
    
    268Other current assets
    
    
    195
    
    
    
    157Total current assets
    
    $
    795
    
    
    $
    891Accounts payable
    
    $
    170
    
    
    $
    180Accrued liabilities
    
    
    259
    
    
    
    239Short-term debt, including current maturities of long-term debt
    
    
    37
    
    
    
    982Total current liabilities
    
    $
    466
    
    
    $
    1,401Working Capital
    
    $
    329
    
    
    $
    (510
    )
    
    $
    839
   Accounting
for Transfers and Servicing of Financial Assets and Extinguishment of Liabilities Accounting for Servicing of Financial Assets an Amendment of FASB Statement No. 140
 Cash Flows  Discontinued Operations
 Combined
    
    
    PredecessorTwelve Months
    
    
    Twelve Months
    
    
    Twelve MonthsEnded
    
    
    Ended
    
    
    EndedCash Flow Summary  discontinuing operations
    
    December 31,
    
    
    December 31,
    
    
    December 31,(dollars in millions)
    
    2008
    
    
    2007
    
    
    2006Cash provided by (used in) operating activities
    
    $
    (153
    )
    
    $
    45
    
    
    $
    (2
    )Cash provided by (used in) investing activities
    
    
    (51
    )
    
    
    13
    
    
    
    18Net change in cash for period attributable
to discontinued operations
    
    $
    (204
    )
    
    $
    58
    
    
    $
    16
 Discontinued Operations ®
  44




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##### Table of Contents



Debt Covenants
 Leverage Ratio: Fixed
Charge Ratio:
 December 31,
    
    
    March 31,
    
    
    June 30,
    
    
    September 30,
    
    
    December 31,2008
    
    
    2009
    
    
    2009
    
    
    2009
    
    
    2009Actual
    
    
    Covenant
    
    
    Covenant
    
    
    Covenant
    
    
    Covenant
    
    
    CovenantMax Leverage Ratio
    
    
    3.56
    
    
    
    5.00
    
    
    
    4.75
    
    
    
    4.50
    
    
    
    4.25
    
    
    
    4.25Min Fixed Charge Ratio
    
    
    1.60
    
    
    
    1.05
    
    
    
    1.15
    
    
    
    1.15
    
    
    
    1.15
    
    
    
    1.15Max Capital Expenditures
    
    $
    99
    
    
    $
    175
    
    
    
    n.a.
    
    
    
    n.a.
    
    
    
    n.a.
    
    
    $
    252
 Capital Expenditures
  Pension
Contributions
  Off-Balance Sheet Arrangements
  Contingencies
   45




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##### Table of Contents



Commitments
   Obligations Due by Period (Dollars in Millions)2012-
    
    
    2014 andContractual Obligations
    
    Total
    
    
    2009
    
    
    2010
    
    
    2011
    
    
    2013
    
    
    thereafterShort-Term Debt
    
    $
    25
    
    
    
    25
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Long-Term Debt, including current portion
    
    
    1,371
    
    
    
    12
    
    
    
    12
    
    
    
    12
    
    
    
    207
    
    
    
    1,128Interest Payments Related to Long-Term Debt
    
    
    529
    
    
    
    106
    
    
    
    104
    
    
    
    103
    
    
    
    200
    
    
    
    16Operating Leases
    
    
    59
    
    
    
    12
    
    
    
    10
    
    
    
    7
    
    
    
    12
    
    
    
    18Unconditional Purchase Obligations
    
    
    216
    
    
    
    94
    
    
    
    45
    
    
    
    45
    
    
    
    12
    
    
    
    20Standby Letters of Credit(a)
    
    
    85
    
    
    
    84
    
    
    
    
    
    
    
    
    
    
    
    1
    
    
    
    Postretirement Obligations(b)
    
    
    550
    
    
    
    67
    
    
    
    118
    
    
    
    102
    
    
    
    219
    
    
    
    44Environmental Remediation(c)
    
    
    309
    
    
    
    30
    
    
    
    33
    
    
    
    37
    
    
    
    57
    
    
    
    152Uncertain Tax Positions(d)
    
    
    3
    
    
    
    3
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Total Contractual Obligations
    
    $
    3,147
    
    
    $
    433
    
    
    $
    322
    
    
    $
    306
    
    
    $
    708
    
    
    $
    1,378
 (a)
    
    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.(b)
    
    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.(c)
    
    The future obligations do not include $28 million available for reimbursement in the
special purpose entity established with proceeds of stock issued by us on the Effective
Date.(d)
    
    In addition to the $3 million reported in the 2009 column and classified as a current
liability, we have $47 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
  
 
 ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
   46




---



##### Table of Contents



ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
 FINANCIAL SECTION  TABLE OF CONTENTS
 Page NumberReport of
Independent Registered Public Accounting Firm  Deloitte & Touche LLP
    
    
    48Consolidated Statement of Operations
    
    
    50Consolidated Statement of Comprehensive Income (Loss)
    
    
    50Consolidated Statement of Financial Position
    
    
    51Consolidated Statement of Cash Flows
    
    
    52Consolidated
Statement of Shareholders Equity (Deficit)
    
    
    53Notes to Consolidated Financial Statements
    
    
    54
  47




---



##### Table of Contents



REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
  Iternal Control  Integrated Framework
    Financial Reporting by Entities in
Reorganization Under the Bankruptcy Code An Amendment of AICPA Statement of Position 90-7
  48




---



##### Table of Contents



Internal Control  Integrated Framework .
 Accounting
for Uncertainty in Income Taxes Employers accounting for Defined Benefit Pension and Other Postretirement Plans
   
  49




---



##### Table of Contents



SOLUTIA INC.
CONSOLIDATED STATEMENT OF OPERATIONS
(Dollars and shares in millions, except per share amounts)
 Successor
    
    
    
    PredecessorTen Months
    
    
    Two Months
    
    
    Twelve Months
    
    
    Twelve MonthsEnded
    
    
    Ended
    
    
    Ended
    
    
    EndedDecember 31,
    
    
    February 29,
    
    
    December 31,
    
    
    December 31,2008
    
    
    2008
    
    
    2007
    
    
    2006Net Sales
    
    $
    1,775
    
    
    $
    335
    
    
    $
    1,643
    
    
    $
    1,064Cost of goods sold
    
    
    1,411
    
    
    
    242
    
    
    
    1,263
    
    
    
    796Gross Profit
    
    
    364
    
    
    
    93
    
    
    
    380
    
    
    
    268Selling, general and administrative expenses
    
    
    244
    
    
    
    42
    
    
    
    221
    
    
    
    184Research, development and other operating expenses, net
    
    
    9
    
    
    
    3
    
    
    
    24
    
    
    
    20Operating Income
    
    
    111
    
    
    
    48
    
    
    
    135
    
    
    
    64Equity earnings from affiliates
    
    
    
    
    
    
    
    
    
    
    12
    
    
    
    38Interest expense (a)
    
    
    (132
    )
    
    
    (17
    )
    
    
    (112
    )
    
    
    (77
    )Other income, net
    
    
    20
    
    
    
    2
    
    
    
    31
    
    
    
    12Loss on debt modification
    
    
    
    
    
    
    
    
    
    
    (7
    )
    
    
    (8
    )Reorganization items, net
    
    
    
    
    
    
    1,433
    
    
    
    (298
    )
    
    
    (71
    )Income (Loss) from Continuing Operations Before Income
Tax Expense
    
    
    (1
    )
    
    
    1,466
    
    
    
    (239
    )
    
    
    (42
    )Income tax expense
    
    
    13
    
    
    
    214
    
    
    
    17
    
    
    
    18Income (Loss) from Continuing Operations
    
    
    (14
    )
    
    
    1,252
    
    
    
    (256
    )
    
    
    (60
    )Income (Loss) from Discontinued Operations, net of tax
    
    
    (654
    )
    
    
    202
    
    
    
    48
    
    
    
    62Net Income (Loss)
    
    $
    (668
    )
    
    $
    1,454
    
    
    $
    (208
    )
    
    $
    2Basic and Diluted Income (Loss) per Share:Income (Loss) from Continuing Operations
    
    $
    (0.19
    )
    
    $
    11.98
    
    
    $
    (2.45
    )
    
    $
    (0.57
    )Income (Loss) from Discontinued Operations
    
    
    (8.75
    )
    
    
    1.93
    
    
    
    0.46
    
    
    
    0.59Net Income (Loss)
    
    $
    (8.94
    )
    
    $
    13.91
    
    
    $
    (1.99
    )
    
    $
    0.02
 (a)
    
    Predecessor excludes unrecorded contractual interest expense of $5 in the two months ended
February 29, 2008 and $32 in the years ended December 31, 2007 and 2006. CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME (LOSS)
(Dollars in millions)
 Successor
    



    PredecessorTen Months
    
    
    Two Months
    
    
    Twelve Months
    
    
    Twelve MonthsEnded
    
    
    Ended
    
    
    Ended
    
    
    EndedDecember 31,
    
    
    February 29,
    
    
    December 31,
    
    
    December 31,2008
    
    
    2008
    
    
    2007
    
    
    2006Net Income (Loss)
    
    $
    (668
    )
    
    $
    1,454
    
    
    $
    (208
    )
    
    $
    2Other Comprehensive Income (Loss):Currency translation adjustments
    
    
    (98
    )
    
    
    32
    
    
    
    30
    
    
    
    (12
    )Net unrealized gain (loss) on derivative instruments
    
    
    (26
    )
    
    
    
    
    
    
    
    
    
    
    1Amortization of prior service gain
    
    
    
    
    
    
    (3
    )
    
    
    (17
    )
    
    
    Amortization of actuarial loss
    
    
    
    
    
    
    2
    
    
    
    16
    
    
    
    Actuarial loss arising during the year
    
    
    (162
    )
    
    
    (64
    )
    
    
    (8
    )
    
    
    Prior service gain arising during the year
    
    
    
    
    
    
    109Minimum pension liability adjustments
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    24Fresh-start accounting adjustment
    
    
    
    
    
    
    (30
    )
    
    
    
    
    
    
    Comprehensive Income (Loss)
    
    $
    (954
    )
    
    $
    1,500
    
    
    $
    (187
    )
    
    $
    15
   50




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##### Table of Contents



SOLUTIA INC.
CONSOLIDATED STATEMENT OF FINANCIAL POSITION
(Dollars in millions, except per share amounts)
 Successor
    



    
    
    PredecessorDecember 31,
    
    
    December 31,2008
    
    

2007ASSETSCurrent Assets:Cash and cash equivalents
    
    $
    32
    
    
    $
    173Trade receivables, net of allowances of $0 in 2008 and $2 in 2007
    
    
    227
    
    
    
    293Miscellaneous receivables
    
    
    110
    
    
    
    114Inventories
    
    
    341
    
    
    
    268Prepaid expenses and other assets
    
    
    85
    
    
    
    43Assets of discontinued operations
    
    
    490
    
    
    
    808Total Current Assets
    
    
    1,285
    
    
    
    1,699Property, Plant and Equipment,net of accumulated depreciation of
$56 in 2008 and $1,102 in 2007
    
    
    952
    
    
    
    619Goodwill
    
    
    511
    
    
    
    149Identified Intangible Assets, net
    
    
    823
    
    
    
    57Other Assets
    
    
    163
    
    
    
    116Total Assets
    
    $
    3,734
    
    
    $
    2,640LIABILITIES AND SHAREHOLDERS EQUITY (DEFICIT)Current Liabilities:Accounts payable
    
    $
    170
    
    
    $
    180Accrued liabilities
    
    
    259
    
    
    
    239Short-term debt, including current portion of long-term debt
    
    
    37
    
    
    
    982Liabilities of discontinued operations
    
    
    221
    
    
    
    294Total Current Liabilities
    
    
    687
    
    
    
    1,695Long-Term Debt
    
    
    1,359
    
    
    
    359Postretirement Liabilities
    
    
    546
    
    
    
    80Environmental Remediation Liabilities
    
    
    279
    
    
    
    56Deferred Tax Liabilities
    
    
    202
    
    
    
    45Other Liabilities
    
    
    140
    
    
    
    78Liabilities Subject to Compromise
    
    
    
    
    
    
    1,922Commitments and Contingencies (Note 16)Shareholders Equity (Deficit):Successor common stock at $0.01 par value; (500,000,000 shares
authorized, 94,392,772 shares issued in 2008)
    
    
    1
    
    
    
    Predecessor common stock at $0.01 par value; (600,000,000 shares
authorized, 118,400,635 shares issued in 2007)
    
    
    
    
    
    
    1Additional contributed capital
    
    
    1,474
    
    
    
    56Predecessor stock held in treasury, at cost (13,941,057 shares in 2007)
    
    
    
    
    
    
    (251
    )Predecessor net deficiency of assets at spinoff
    
    
    
    
    
    
    (113
    )Accumulated other comprehensive loss
    
    
    (286
    )
    
    
    (46
    )Accumulated deficit
    
    
    (668
    )
    
    
    (1,242
    )Total Shareholders Equity (Deficit)
    
    
    521
    
    
    
    (1,595
    )Total Liabilities and Shareholders Equity (Deficit)
    
    $
    3,734
    
    
    $
    2,640
   51




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##### Table of Contents



SOLUTIA INC.
CONSOLIDATED STATEMENT OF CASH FLOWS
(Dollars in millions)
 Successor
    

   
    PredecessorTen Months
    
    
    Two Months
    
    
    Twelve Months
    
    
    Twelve MonthsEnded
    
    
    Ended
    
    
    Ended
    
    
    EndedDecember 31,
    
    
    February 29,
    
    
    December 31,
    
    
    December 31,2008
    
    
    2008
    
    
    2007
    
    
    2006INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS
OPERATING ACTIVITIES:OPERATING ACTIVITIES:Net income (loss)
    
    $
    (668
    )
    
    $
    1,454
    
    
    $
    (208
    )
    
    $
    2Adjustments to reconcile to Cash From Continuing Operations:(Income) Loss from discontinued operations, net of tax
    
    
    654
    
    
    
    (202
    )
    
    
    (48
    )
    
    
    (62
    )Depreciation and amortization
    
    
    89
    
    
    
    11
    
    
    
    59
    
    
    
    46Revaluation of assets and liabilities, net of tax
    
    
    
    
    
    
    (1,383
    )
    
    
    
    
    
    
    Discharge of claims and liabilities, net of tax
    
    
    
    
    
    
    100
    
    
    
    
    
    
    
    Other reorganization items, net
    
    
    
    
    
    
    52
    
    
    
    298
    
    
    
    71Pension obligation related expense less than contributions
    
    
    (44
    )
    
    
    (21
    )
    
    
    (138
    )
    
    
    (175
    )Other postretirement benefit obligation related expense less than
contributions
    
    
    (13
    )
    
    
    (6
    )
    
    
    (39
    )
    
    
    (48
    )Deferred income taxes
    
    
    (21
    )
    
    
    5
    
    
    
    (13
    )
    
    
    4Amortization of debt issuance costs
    
    
    15
    
    
    
    
    
    
    
    3
    
    
    
    Equity earnings from affiliates
    
    
    
    
    
    
    
    
    
    
    (12
    )
    
    
    (38
    )Gain on sale of other assets
    
    
    (8
    )
    
    
    
    
    
    
    
    
    
    
    Other (gains) charges including restructuring expenses
    
    
    97
    
    
    
    (2
    )
    
    
    35
    
    
    
    4Other, net
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (1
    )Changes in assets and liabilities, net of acquisitions and divestitures:Income taxes payable
    
    
    (7
    )
    
    
    5
    
    
    
    14
    
    
    
    4Trade receivables
    
    
    91
    
    
    
    (24
    )
    
    
    (34
    )
    
    
    (9
    )Inventories
    
    
    (7
    )
    
    
    (34
    )
    
    
    (5
    )
    
    
    12Accounts payable
    
    
    (31
    )
    
    
    31
    
    
    
    12
    
    
    
    15Restricted cash to fund payment of legacy liabilities
    
    
    18
    
    
    
    
    
    
    
    
    
    
    
    Environmental remediation liabilities
    
    
    (18
    )
    
    
    (1
    )
    
    
    
    
    
    
    7Other assets and liabilities
    
    
    9
    
    
    
    (1
    )
    
    
    60
    
    
    
    51Cash Provided by (Used in) Continuing Operations before Reorganization Activities
    
    
    156
    
    
    
    (16
    )
    
    
    (16
    )
    
    
    (117
    )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
    )
    
    
    (57
    )Other reorganization and emergence related payments
    
    
    (1
    )
    
    
    (17
    )
    
    
    (8
    )
    
    
    (8
    )Cash Used in Reorganization Activities
    
    
    (32
    )
    
    
    (348
    )
    
    
    (80
    )
    
    
    (65
    )Cash Provided by (Used in) OperationsContinuing Operations
    
    
    124
    
    
    
    (364
    )
    
    
    (96
    )
    
    
    (182
    )Cash Provided by (Used in) OperationsDiscontinued Operations
    
    
    (105
    )
    
    
    (48
    )
    
    
    45
    
    
    
    (2
    )Cash Provided by (Used in) Operations
    
    
    19
    
    
    
    (412
    )
    
    
    (51
    )
    
    
    (184
    )INVESTING ACTIVITIES:Property, plant and equipment purchases
    
    
    (84
    )
    
    
    (15
    )
    
    
    (99
    )
    
    
    (55
    )Acquisition and investment payments
    
    
    (4
    )
    
    
    
    
    
    
    (131
    )
    
    
    (16
    )Restricted cash
    
    
    
    
    
    
    
    
    
    
    4
    
    
    
    Investment proceeds and property disposals
    
    
    53
    
    
    
    
    
    
    
    8
    
    
    
    5Cash Used in Investing ActivitiesContinuing Operations
    
    
    (35
    )
    
    
    (15
    )
    
    
    (218
    )
    
    
    (66
    )Cash Provided by (Used in) Investing ActivitiesDiscontinued Operations
    
    
    (37
    )
    
    
    (14
    )
    
    
    13
    
    
    
    18Cash Used in Investing Activities
    
    
    (72
    )
    
    
    (29
    )
    
    
    (205
    )
    
    
    (48
    )FINANCING ACTIVITIES:Net change in lines of credit
    
    
    25
    
    
    
    
    
    
    
    14
    
    
    
    Proceeds from long-term debt obligations
    
    
    
    
    
    
    1,600
    
    
    
    75
    
    
    
    Net change in long-term revolving credit facilities
    
    
    (5
    )
    
    
    190
    
    
    
    (61
    )
    
    
    Proceeds from stock issuance
    
    
    422
    
    
    
    250
    
    
    
    
    
    
    
    Proceeds from short-term debt obligations
    
    
    
    
    
    
    
    
    
    
    325
    
    
    
    350Payment of short-term debt obligations
    
    
    
    
    
    
    (966
    )
    
    
    (53
    )
    
    
    Payment of long-term debt obligations
    
    
    (437
    )
    
    
    (366
    )
    
    
    (4
    )
    
    
    (51
    )Payment of debt obligations subject to compromise
    
    
    
    
    
    
    (221
    )
    
    
    
    
    
    
    Debt issuance costs
    
    
    (1
    )
    
    
    (136
    )
    
    
    (11
    )
    
    
    (17
    )Other, net
    
    
    (2
    )
    
    
    
    
    
    
    (6
    )
    
    
    (7
    )Cash Provided by Financing ActivitiesContinuing Operations
    
    
    2
    
    
    
    351
    
    
    
    279
    
    
    
    275INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS
    
    
    (51
    )
    
    
    (90
    )
    
    
    23
    
    
    
    43CASH AND CASH EQUIVALENTS:Beginning of year
    
    
    83
    
    
    
    173
    
    
    
    150
    
    
    
    107End of year
    
    $
    32
    
    
    $
    83
    
    
    $
    173
    
    
    $
    150
   52




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##### Table of Contents



SOLUTIA INC.
CONSOLIDATED STATEMENT OF SHAREHOLDERS EQUITY (DEFICIT)
(Dollars in millions)
 Net
    
    
    
    
    
    
    Accumulated
    
    
    
    
    
    
    TotalAdditional
    
    
    Deficiency
    
    
    
    
    
    
    Other
    
    
    
    
    
    
    ShareholdersCommon
    
    
    Contributed
    
    
    of Assets at
    
    
    Treasury
    
    
    Comprehensive
    
    
    Accumulated
    
    
    EquityStock
    
    
    Capital
    
    
    Spinoff
    
    
    Stock
    
    
    Loss
    
    
    Deficit
    
    
    (Deficit)Predecessor, January 1, 2006
    
    $
    1
    
    
    $
    56
    
    
    $
    (113
    )
    
    $
    (251
    )
    
    $
    (93
    )
    
    $
    (1,033
    )
    
    $
    (1,433
    )Net income
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    2
    
    
    
    2Minimum pension liability adjustments, net of tax of $4
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    24
    
    
    
    
    
    
    
    24Incremental effect of adopting SFAS No. 158
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    13
    
    
    
    
    
    
    
    13Accumulated currency adjustments
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (12
    )
    
    
    
    
    
    
    (12
    )Net unrealized gain on derivative instruments
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    1
    
    
    
    
    
    
    
    1Predecessor, December 31, 2006
    
    $
    1
    
    
    $
    56
    
    
    $
    (113
    )
    
    $
    (251
    )
    
    $
    (67
    )
    
    $
    (1,031
    )
    
    $
    (1,405
    )Net loss
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (208
    )
    
    
    (208
    )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
    
    
    
    
    
    
    
    16Accumulated currency adjustments
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    30
    
    
    
    
    
    
    
    30Effect of adopting FIN 48
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (3
    )
    
    
    (3
    )Predecessor, December 31, 2007
    
    $
    1
    
    
    $
    56
    
    
    $
    (113
    )
    
    $
    (251
    )
    
    $
    (46
    )
    
    $
    (1,242
    )
    
    $
    (1,595
    )Net income
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    1,454
    
    
    
    1,454Amortization of prior service gain
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (3
    )
    
    
    
    
    
    
    (3
    )Prior service gain arising during the period
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    109
    
    
    
    
    
    
    
    109Amortization of actuarial loss
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    2
    
    
    
    
    
    
    
    2Actuarial
loss arising during the period
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (64
    )
    
    
    
    
    
    
    (64
    )Accumulated currency adjustments
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    32
    
    
    
    
    
    
    
    32Cancellation of old common stock
    
    
    (1
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (1
    )Fresh-start elimination of equity
    
    
    
    
    
    
    (56
    )
    
    
    113
    
    
    
    251
    
    
    
    (30
    )
    
    
    (212
    )
    
    
    66Predecessor, February 29, 2008
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Issuance of new common stock
    
    
    1
    
    
    
    1,036
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    1,037Successor, February 29, 2008
    
    
    1
    
    
    
    1,036
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    1,037Net loss
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (668
    )
    
    
    (668
    )Actuarial loss arising during the
period, net of tax of $4
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (162
    )
    
    
    
    
    
    
    (162
    )Accumulated currency adjustments
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (98
    )
    
    
    
    
    
    
    (98
    )Net unrealized loss on derivative instruments
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (26
    )
    
    
    
    
    
    
    (26
    )Issuance of common stock
    
    
    
    
    
    
    425
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    425Share-based compensation expense
    
    
    
    
    
    
    13
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    13Successor, December 31, 2008
    
    $
    1
    
    
    $
    1,474
    
    
    $
    
    
    
    $
    
    
    
    $
    (286
    )
    
    $
    (668
    )
    
    $
    521
   53




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##### Table of Contents



SOLUTIA INC.
 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in millions, except per share amounts or otherwise noted)
 1. Background
       Financial Reporting
by Entities in Reorganization Under the Bankruptcy Code An Amendment of AICPA Statement
of Position 90-7
  54




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##### Table of Contents



SOLUTIA INC.
 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(Dollars in millions, except per share amounts or otherwise noted)
 Accounting for the
Impairment or Disposal of Long-Lived Assets
 2. Fresh-Start Accounting
 Business Combinations Accounting for
Income Taxes
     55




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##### Table of Contents



SOLUTIA INC.
 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(Dollars in millions, except per share amounts or otherwise noted)
  Predecessor
    
    
    
    
    
    
    Revaluation of
    
    
    SuccessorFebruary 29,
    
    
    Effect of
    
    
    Assets and
    
    
    February 29,2008
    
    
    Plan
    
    
    Liabilities
    
    
    2008ASSETSCurrent Assets:Cash and cash equivalents
    
    $
    180
    
    
    $
    (97)
    (a)
    
    $
    
    
    
    $
    83Trade receivables
    
    
    317
    
    
    
    
    
    
    
    
    
    
    
    317Miscellaneous receivables
    
    
    128
    
    
    
    (3)
    (a)
    
    
    (1)
    (d)
    
    
    124Inventories
    
    
    302
    
    
    
    
    
    
    
    98
    (d)
    
    
    400Prepaid expenses and other assets
    
    
    56
    
    
    
    30
    (a)(b)
    
    
    (5)
    (d)
    
    
    81Assets of discontinued operations
    
    
    863
    
    
    
    
    
    
    
    218
    (d)
    
    
    1,081Total Current Assets
    
    
    1,846
    
    
    
    (70
    )
    
    
    310
    
    
    
    2,086Property, Plant and Equipment
    
    
    629
    
    
    
    
    
    
    
    406
    (d)
    
    
    1,035Goodwill
    
    
    150
    
    
    
    
    
    
    
    370
    (e)
    
    
    520Identified Intangible Assets
    
    
    56
    
    
    
    
    
    
    
    825
    (d)
    
    
    881Other Assets
    
    
    113
    
    
    
    112
    (a)(b)
    
    
    (3)
    (d)
    
    
    222Total Assets
    
    $
    2,794
    
    
    $
    42
    
    
    $
    1,908
    
    
    $
    4,744LIABILITIES AND
SHAREHOLDERS EQUITY (DEFICIT)Current Liabilities:Accounts payable
    
    $
    234
    
    
    $
    
    
    
    $
    
    
    
    $
    234Accrued liabilities
    
    
    234
    
    
    
    17
    (a)
    
    
    15
    (d)
    
    
    266Short-term debt, including current portion of long-term debt
    
    
    1,098
    
    
    
    (1,085)
    (b)
    
    
    
    
    
    
    13Liabilities of discontinued operations
    
    
    297
    
    
    
    
    
    
    
    2
    (d)
    
    
    299Total Current Liabilities
    
    
    1,863
    
    
    
    (1,068
    )
    
    
    17
    
    
    
    812Long-Term Debt
    
    
    386
    
    
    
    1,410
    (b)
    
    
    
    
    
    
    1,796Postretirement Liabilities
    
    
    86
    
    
    
    369
    (a)
    
    
    
    
    
    
    455Environmental Remediation Liabilities
    
    
    55
    
    
    
    207
    (a)
    
    
    29
    (d)
    
    
    291Deferred Tax Liabilities
    
    
    47
    
    
    
    (12)
    (a)
    
    
    194
    (d)
    
    
    229Other Liabilities
    
    
    83
    
    
    
    34
    (a)
    
    
    7
    (d)
    
    
    124Total Liabilities not Subject to Compromise
    
    
    2,520
    
    
    
    940
    
    
    
    247
    
    
    
    3,707Liabilities Subject to Compromise
    
    
    1,962
    
    
    
    (1,962)
    (a)
    
    
    
    
    
    
    Shareholders Equity (Deficit):Successor common stock at $0.01 par value
    
    
    
    
    
    
    1
    (c)
    
    
    
    
    
    
    1Predecessor common stock at $0.01 par value
    
    
    1
    
    
    
    
    
    
    
    (1)
    (c)
    
    
    Additional contributed capital
    
    
    56
    
    
    
    1,036
    (c)
    
    
    (56)
    (c)
    
    
    1,036Predecessor 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)
    
    
    (1,688
    )
    
    
    1,064
    
    
    
    1,661
    
    
    
    1,037Total 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.(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.  56




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##### Table of Contents



SOLUTIA INC.
 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(Dollars in millions, except per share amounts or otherwise noted)
 Liabilities Subject to Compromise
  PredecessorDecember 31,2007Postretirement benefits
    
    $
    664Litigation reserves
    
    
    106Accounts payable
    
    
    102Environmental reserves
    
    
    80Other miscellaneous liabilities
    
    
    311Subtotal
    
    
    1,263Debt Subject to Compromise:6.72% debentures due 2037
    
    
    1507.375% debentures due 2027
    
    
    30011.25% notes due 2009
    
    
    223673Unamortized debt discount and debt issuance costs
    
    
    (14
    )Subtotal
    
    
    659Total Liabilities Subject to Compromise
    
    $
    1,922
 Reorganization Items, net
   PredecessorTwo Months
    
    
    Twelve Months
    
    
    Twelve MonthsEnded
    
    
    Ended
    
    
    EndedFebruary 29,
    
    
    December 31,
    
    
    December 31,2008
    
    
    2007
    
    
    2006Discharge of claims and liabilities (a)
    
    $
    (104
    )
    
    $
    
    
    
    $
    Revaluation of assets and liabilities (b)
    
    
    1,589
    
    
    
    
    
    
    
    Professional fees (c)
    
    
    (52
    )
    
    
    (67
    )
    
    
    (58
    )Severance and employee retention costs (d)
    
    
    
    
    
    
    (9
    )
    
    
    (4
    )Adjustments to allowed claim amounts (e)
    
    
    
    
    
    
    (224
    )
    
    
    2Settlements of pre-petition claims (f)
    
    
    
    
    
    
    2
    
    
    
    Other
    
    
    
    
    
    
    
    
    
    
    (11
    )Total Reorganization Items, net
    
    $
    1,433
    
    
    $
    (298
    )
    
    $
    (71
    )
 (a)
    
    The discharge of claims and liabilities primarily relates to allowed general, unsecured claims in our Chapter 11 proceedings,
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.   57




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##### Table of Contents



SOLUTIA INC.
 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(Dollars in millions, except per share amounts or otherwise noted)
 3. Significant Accounting Policies
 Financial Statement Presentation
  Basis of Consolidation
  Reclassifications
  Marketing expenses:
 Twelve Months
    
    
    Twelve MonthsEnded
    
    
    EndedDecember 31,
    
    
    December 31,2007
    
    
    2006Selling, general and administrative expenses
    
    $
    99
    
    
    $
    86Income (Loss) from Discontinued Operations
    
    $
    41
    
    
    $
    45
 Administrative expenses:
 Twelve Months
    
    
    Twelve MonthsEnded
    
    
    EndedDecember 31,
    
    
    December 31,2007
    
    
    2006Selling, general and administrative expenses
    
    $
    114
    
    
    $
    92Research, development and other operating expenses, net
    
    $
    (2
    )
    
    $
    1Income (Loss) from Discontinued Operations
    
    $
    
    
    
    $
    4
 Technological expenses:
 Twelve Months
    
    
    Twelve MonthsEnded
    
    
    EndedDecember 31,
    
    
    December 31,2007
    
    
    2006Selling, general and administrative expenses
    
    $
    6
    
    
    $
    5Research, development and other operating expenses, net
    
    $
    26
    
    
    $
    19Income (Loss) from Discontinued Operations
    
    $
    13
    
    
    $
    20
 Amortization expense:
  58




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##### Table of Contents



SOLUTIA INC.
 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(Dollars in millions, except per share amounts or otherwise noted)
 Use of Estimates
  Cash and Cash Equivalents
  Trade Receivables
  Inventory Valuation
   Inventory Costs  an amendment of ARB No. 43, Chapter 4,
 Property, Plant and Equipment
  Estimated Useful LivesAsset Classification
    
    Successor
    
    
    PredecessorBuildings and Improvements
    
    
    5 to 35 years
    
    
    
    5 to 35 yearsMachinery and Equipment
    
    
    5 to 20 years
    
    
    
    3 to 15 years
 Goodwill and Intangible Assets
 th
  59




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##### Table of Contents



SOLUTIA INC.
 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(Dollars in millions, except per share amounts or otherwise noted)
   Estimated Useful LivesSuccessor
    
    
    PredecessorFinite-Lived Intangible Assets
    
    
    5 to 27 years
    
    
    
    5 to 25 years
  Impairment of Long-Lived Assets
  Environmental Remediation
  Litigation and Other Contingencies
 Accounting for
Contingencies
   60




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##### Table of Contents



SOLUTIA INC.
 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(Dollars in millions, except per share amounts or otherwise noted)
 Self-Insurance and Insurance Recoveries
   Foreign Currency Translation
  Derivative Financial Instruments
 Accounting for Derivative Instruments and
Hedging Activities
    Revenue Recognition
  Shipping and Handling Costs
   61




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##### Table of Contents



SOLUTIA INC.
 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(Dollars in millions, except per share amounts or otherwise noted)
 Distribution Costs
  Income Taxes
  Accounting for Uncertainty in Income Taxes,
 Earnings (Loss) per Share
  Share-Based Compensation
 Share-Based Payment Accounting for Stock
Based Compensation Accounting for Stock-Based CompensationTransition
and Disclosure.
 Recently Issued Accounting Standards
 Business Combinations,
 Noncontrolling Interests in Consolidated
Financial Statements  an amendment of ARB No. 51,
 Disclosures about Derivative Instruments and
Hedging Activities
  62




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##### Table of Contents



SOLUTIA INC.
 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(Dollars in millions, except per share amounts or otherwise noted)
 Determination of the
Useful Life of Intangible Assets Goodwill and Other Intangible Assets
 Employers Disclosures about
Postretirement Benefit Plan Assets
 4. Acquisitions and Discontinued Operations
 Acquisitions
 ®
  Recognition of Liabilities in Connection with a Purchase Business Combination
  ®
  63




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##### Table of Contents



SOLUTIA INC.
 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(Dollars in millions, except per share amounts or otherwise noted)
 Discontinued Operations
  Successor
    
    
    PredecessorTen Months
    
    
    Two Months
    
    
    Twelve Months
    
    
    Twelve MonthsEnded
    
    
    Ended
    
    
    Ended
    
    
    EndedDecember 31,
    
    
    February 29,
    
    
    December 31,
    
    
    December 31,2008
    
    
    2008
    
    
    2007
    
    
    2006Integrated Nylon:Net sales
    
    $
    1,462
    
    
    $
    318
    
    
    $
    1,892
    
    
    $
    1,731Income (Loss) before income taxes
    
    $
    (654
    )
    
    $
    202
    
    
    $
    36
    
    
    $
    5Income tax expense
    
    
    1
    
    
    
    
    
    
    
    2
    
    
    
    1Income (Loss) from discontinued operations
    
    $
    (655
    )
    
    $
    202
    
    
    $
    34
    
    
    $
    4Water Treatment Phosphonates Business:Net sales
    
    $
    
    
    
    $
    
    
    
    $
    43
    
    
    $
    110Income before income taxes
    
    $
    
    
    
    $
    
    
    
    $
    34
    
    
    $
    1Income tax expense
    
    
    
    
    
    
    
    
    
    
    15
    
    
    
    1Income from discontinued operations
    
    $
    
    
    
    $
    
    
    
    $
    19
    
    
    $
    Pharmaceutical Services Business:Net sales
    
    $
    
    
    
    $
    
    
    
    $
    
    
    
    $
    42Income before income taxes
    
    $
    
    
    
    $
    
    
    
    $
    
    
    
    $
    54Income tax benefit
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (4
    )Income from discontinued operations
    
    $
    
    
    
    $
    
    
    
    $
    
    
    
    $
    58Resins, Additives, and Adhesives Business:Income tax expense (benefit)
    
    $
    (1
    )
    
    $
    
    
    
    $
    5
    
    
    $
    Income (Loss) from discontinued operations
    
    $
    1
    
    
    $
    
    
    
    $
    (5
    )
    
    $
    
   64




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##### Table of Contents



SOLUTIA INC.
 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(Dollars in millions, except per share amounts or otherwise noted)
  Successor
    
    
    PredecessorDecember 31,
    
    
    December 31,2008
    
    
    2007Assets:Trade receivables, net
    
    $
    75
    
    
    $
    155Miscellaneous receivables
    
    
    15
    
    
    
    19Inventories
    
    
    336
    
    
    
    149Prepaid expenses and other assets
    
    
    15
    
    
    
    9Property, plant and equipment, net
    
    
    41
    
    
    
    433Identified intangible assets, net
    
    
    
    
    
    
    1Other assets
    
    
    8
    
    
    
    35Assets of discontinued operations
    
    $
    490
    
    
    $
    801Liabilities:Accounts payable
    
    $
    101
    
    
    $
    162Accrued liabilities
    
    
    54
    
    
    
    58Environmental remediation liabilities
    
    
    9
    
    
    
    5Other liabilities
    
    
    57
    
    
    
    63Liabilities of discontinued operations
    
    $
    221
    
    
    $
    288
  ®
    65




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##### Table of Contents



SOLUTIA INC.
 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(Dollars in millions, except per share amounts or otherwise noted)
 5. Impairment of Long-Lived Assets and Restructuring Reserves
  2008 Restructuring Events
  ®
    2007 Restructuring Events
    2006 Restructuring Events
   66




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##### Table of Contents



SOLUTIA INC.
 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(Dollars in millions, except per share amounts or otherwise noted)
  Future
    
    
    
    
    
    
    Impairment of
    
    
    OtherDecommissioning/
    
    
    Contractual
    
    
    Employment
    
    
    Long-Lived
    
    
    RestructuringDismantling
    
    
    Payments
    
    
    Reductions
    
    
    Assets
    
    
    Costs
    
    
    TotalPredecessorBalance at January 1, 2007
    
    $
    1
    
    
    $
    2
    
    
    $
    2
    
    
    $
    
    
    
    $
    
    
    
    $
    5Assumed liabilities
    
    
    
    
    
    
    
    
    
    
    2
    
    
    
    
    
    
    
    
    
    
    
    2Acquisition related liabilities
    
    
    
    
    
    
    2
    
    
    
    8
    
    
    
    
    
    
    
    
    
    
    
    10Charges taken
    
    
    
    
    
    
    
    
    
    
    2
    
    
    
    25
    
    
    
    
    
    
    
    27Amounts utilized
    
    
    (1
    )
    
    
    (1
    )
    
    
    (9
    )
    
    
    
    
    
    
    
    
    
    
    (11
    )Non-cash reductions
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (25
    )
    
    
    
    
    
    
    (25
    )Balance at December 31, 2007
    
    
    
    
    
    
    3
    
    
    
    5
    
    
    
    
    
    
    
    
    
    
    
    8Amounts utilized
    
    
    
    
    
    
    
    
    
    
    (1
    )
    
    
    
    
    
    
    
    
    
    
    (1
    )Currency fluctuations
    
    
    
    
    
    
    
    
    
    
    1
    
    
    
    
    
    
    
    
    
    
    
    1Balance at February 29, 2008
    
    
    
    
    
    
    3
    
    
    
    5
    
    
    
    
    
    
    
    
    
    
    
    8SuccessorCharges taken
    
    
    
    
    
    
    9
    
    
    
    12
    
    
    
    11
    
    
    
    5
    
    
    
    37Amounts utilized
    
    
    
    
    
    
    (2
    )
    
    
    (4
    )
    
    
    
    
    
    
    (4
    )
    
    
    (10
    )Non-cash reductions
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (11
    )
    
    
    (1
    )
    
    
    (12
    )Currency fluctuations
    
    
    
    
    
    
    (2
    )
    
    
    (1
    )
    
    
    
    
    
    
    
    
    
    
    (3
    )Change in estimates
    
    
    
    
    
    
    2
    
    
    
    (2
    )
    
    
    
    
    
    
    
    
    
    
    Balance at December 31, 2008
    
    $
    
    
    
    $
    10
    
    
    $
    10
    
    
    $
    
    
    
    $
    
    
    
    $
    20
  6. Goodwill and Other Intangible Assets
 Goodwill
  TechnicalSaflex
    
    
    CPFilms
    
    
    Specialties
    
    
    TotalPredecessorBalance at December 31, 2007
    
    $
    55
    
    
    $
    13
    
    
    $
    81
    
    
    $
    149Currency adjustment
    
    
    
    
    
    
    
    
    
    
    1
    
    
    
    1Fresh-start eliminations
    
    
    (55
    )
    
    
    (13
    )
    
    
    (82
    )
    
    
    (150
    )Fresh-start additions
    
    
    205
    
    
    
    159
    
    
    
    156
    
    
    
    520Balance at February 29, 2008
    
    
    205
    
    
    
    159
    
    
    
    156
    
    
    
    520SuccessorTax Adjustment
    
    
    
    
    
    
    
    
    
    
    (9
    )
    
    
    (9
    )Balance at December 31, 2008
    
    $
    205
    
    
    $
    159
    
    
    $
    147
    
    
    $
    511
  67




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##### Table of Contents



SOLUTIA INC.
 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(Dollars in millions, except per share amounts or otherwise noted)
 Identified Intangible Assets
  Successor
    
    
    PredecessorDecember 31, 2008
    
    
    December 31, 2007Estimated
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    EstimatedUseful
    
    
    Gross
    
    
    
    
    
    
    Net
    
    
    Useful
    
    
    Gross
    
    
    
    
    
    
    NetLife in
    
    
    Carrying
    
    
    Accumulated
    
    
    Carrying
    
    
    Life in
    
    
    Carrying
    
    
    Accumulated
    
    
    CarryingYears
    
    
    Value
    
    
    Amortization
    
    
    Value
    
    
    Years
    
    
    Value
    
    
    Amortization
    
    
    ValueAmortizable intangible assets:Customer relationships
    
    
    23 to 27
    
    
    $
    486
    
    
    $
    (15
    )
    
    $
    471
    
    
    
    12
    
    
    $
    1
    
    
    $
    (
    )
    
    $
    1Technology
    
    
    5 to 26
    
    
    
    199
    
    
    
    (9
    )
    
    
    190
    
    
    
    15 to 25
    
    
    
    18
    
    
    
    (1
    )
    
    
    17Trade names
    
    
    25
    
    
    
    13
    
    
    
    (
    )
    
    
    13
    
    
    
    16 to 25
    
    
    
    2
    
    
    
    (
    )
    
    
    2Patents
    
    
    13
    
    
    
    4
    
    
    
    (
    )
    
    
    4
    
    
    
    5 to 10
    
    
    
    2
    
    
    
    (
    )
    
    
    2Contract-based
    
    
    
    
    
    
    
    
    
    
    (
    )
    
    
    
    
    
    
    5 to 20
    
    
    
    18
    
    
    
    (8
    )
    
    
    10Indefinite-lived intangible assets:Trademarks
    
    
    
    
    
    
    145
    
    
    
    
    
    
    
    145
    
    
    
    
    
    
    
    26
    
    
    
    
    
    
    
    26Total Identified Intangible Assets
    
    
    
    
    
    $
    847
    
    
    $
    (24
    )
    
    $
    823
    
    
    
    
    
    
    $
    67
    
    
    $
    (9
    )
    
    $
    58
  Ten MonthsEndedDecember 31,2008Cost of goods sold
    
    $
    9Selling, general and administrative expenses
    
    $
    16
   7. Investments in Affiliates
  PredecessorTwelve
    
    
    TwelveMonths Ended
    
    
    Months EndedDecember 31,
    
    
    December 31,2007
    
    
    2006Results of operations:Net sales
    
    $
    207
    
    
    $
    606Gross profit
    
    
    50
    
    
    
    155Operating income
    
    
    34
    
    
    
    91Net income
    
    
    25
    
    
    
    66
  68




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##### Table of Contents



SOLUTIA INC.
 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(Dollars in millions, except per share amounts or otherwise noted)
 8. Detail of Certain Balance Sheet Accounts
  Successor
    
    
    PredecessorDecember 31,
    
    
    December 31,Inventories
    
    2008
    
    
    2007Finished goods
    
    $
    195
    
    
    $
    188Goods in process
    
    
    59
    
    
    
    39Raw materials and supplies
    
    
    87
    
    
    
    76Inventories, at FIFO cost
    
    
    341
    
    
    
    303Excess of FIFO over LIFO cost
    
    
    
    
    
    
    (35
    )Total Inventories
    
    $
    341
    
    
    $
    268
   Successor
    
    
    PredecessorDecember 31,
    
    
    December 31,Property, Plant and Equipment
    
    2008
    
    
    2007Land
    
    $
    34
    
    
    $
    33Leasehold improvements
    
    
    9
    
    
    
    23Buildings
    
    
    203
    
    
    
    338Machinery and equipment
    
    
    727
    
    
    
    1,279Construction in progress
    
    
    35
    
    
    
    48Total property, plant and equipment
    
    
    1,008
    
    
    
    1,721Less accumulated depreciation
    
    
    (56
    )
    
    
    (1,102
    )Total
    
    $
    952
    
    
    $
    619
  Successor
    
    
    PredecessorDecember 31,
    
    
    December 31,Accrued Liabilities
    
    2008
    
    
    2007Wages and benefits
    
    $
    57
    
    
    $
    84Foreign
currency and interest rate hedge agreements
    
    
    61
    
    
    
    1Environmental remediation liabilities
    
    
    30
    
    
    
    15Accrued income and other taxes payable
    
    
    16
    
    
    
    20Accrued selling expenses
    
    
    16
    
    
    
    19Accrued interest
    
    
    9
    
    
    
    24Other
    
    
    70
    
    
    
    76Total Accrued Liabilities
    
    $
    259
    
    
    $
    239
 9. Income Taxes
  Successor
    
    
    PredecessorTen Months
    
    
    Two Months
    
    
    Twelve Months
    
    
    Twelve MonthsEnded
    
    
    Ended
    
    
    Ended
    
    
    EndedDecember 31,
    
    
    February 29,
    
    
    December 31,
    
    
    December 31,2008
    
    
    2008
    
    
    2007
    
    
    2006United States
    
    $
    (39
    )
    
    $
    1,096
    
    
    $
    (294
    )
    
    $
    (80
    )Outside United States
    
    
    38
    
    
    
    370
    
    
    
    55
    
    
    
    38Total
    
    $
    (1
    )
    
    $
    1,466
    
    
    $
    (239
    )
    
    $
    (42
    )
  69




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##### Table of Contents



SOLUTIA INC.
 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(Dollars in millions, except per share amounts or otherwise noted)
  Successor
    
    
    PredecessorTen Months
    
    
    Two Months
    
    
    Twelve Months
    
    
    Twelve MonthsEnded
    
    
    Ended
    
    
    Ended
    
    
    EndedDecember 31,
    
    
    February 29,
    
    
    December 31,
    
    
    December 31,2008
    
    
    2008
    
    
    2007
    
    
    2006Current:U.S. federal
    
    $
    
    
    
    $
    
    
    
    $
    
    
    
    $
    U.S. state
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Outside United States
    
    
    21
    
    
    
    15
    
    
    
    32
    
    
    
    1321
    
    
    
    15
    
    
    
    32
    
    
    
    13Deferred:U.S. federal
    
    
    (1
    )
    
    
    
    
    
    
    (10
    )
    
    
    U.S. state
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Outside United States
    
    
    (7
    )
    
    
    199
    
    
    
    (5
    )
    
    
    5(8
    )
    
    
    199
    
    
    
    (15
    )
    
    
    5Total
    
    $
    13
    
    
    $
    214
    
    
    $
    17
    
    
    $
    18
  Successor
    
    
    PredecessorTen Months
    
    
    Two Months
    
    
    Twelve Months
    
    
    Twelve MonthsEnded
    
    
    Ended
    
    
    Ended
    
    
    EndedDecember 31,
    
    
    February 29,
    
    
    December 31,
    
    
    December 31,Dollars in millions
    
    2008
    
    
    2008
    
    
    2007
    
    
    2006Income Tax at federal statutory rate
    
    $
    
    
    
    $
    513
    
    
    $
    (84
    )
    
    $
    (15
    )Increase (reduction) in income taxes due to:U.S. state income taxes
    
    
    (6
    )
    
    
    7
    
    
    
    (9
    )
    
    
    (3
    )Export tax benefit
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (2
    )Taxes related to foreign earnings
    
    
    14
    
    
    
    51
    
    
    
    8
    
    
    
    6Valuation allowances
    
    
    7
    
    
    
    (259
    )
    
    
    78
    
    
    
    29Income from equity affiliates
    
    
    
    
    
    
    
    
    
    
    (3
    )
    
    
    (10
    )Surrendered losses from equity affiliate
(a)
    
    
    
    
    
    
    (4
    )
    
    
    (4
    )
    
    
    (4
    )Reorganization items
    
    
    
    
    
    
    (107
    )
    
    
    17
    
    
    
    12Tax contingency adjustment
    
    
    1
    
    
    
    10
    
    
    
    10
    
    
    
    8Other
    
    
    (3
    )
    
    
    3
    
    
    
    4
    
    
    
    (3
    )Income tax expense
    
    $
    13
    
    
    $
    214
    
    
    $
    17
    
    
    $
    18
 (a)
    
    During the Predecessor periods ended February 29, 2008, December 31, 2007 and
2006, a non-consolidated equity affiliate surrendered a prior year loss that was used to
offset a foreign subsidiarys taxable income in the United Kingdom.   70




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##### Table of Contents



SOLUTIA INC.
 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(Dollars in millions, except per share amounts or otherwise noted)
  Successor
    
    
    PredecessorDecember 31,
    
    
    December 31,2008
    
    
    2007Postretirement benefits
    
    $
    194
    
    
    $
    281Environmental liabilities
    
    
    115
    
    
    
    42Inventory
    
    
    5
    
    
    
    5Insurance reserves
    
    
    16
    
    
    
    40Miscellaneous accruals
    
    
    16
    
    
    
    Equity affiliates
    
    
    4
    
    
    
    14Net operating losses
    
    
    488
    
    
    
    478Tax credit carryforward
    
    
    55
    
    
    
    Accrued allowed claims
    
    
    14
    
    
    
    105Other
    
    
    58
    
    
    
    16Total
Deferred Tax Assets
    
    
    965
    
    
    
    981Less: Valuation allowances
    
    
    (601
    )
    
    
    (858
    )Deferred
Tax Assets Less Valuation
Allowances
    
    
    364
    
    
    
    123Intangible Assets
    
    
    (287
    )
    
    
    Property
    
    
    (149
    )
    
    
    (54
    )Unremitted earnings
    
    
    (90
    )
    
    
    Accrued interest
    
    
    
    
    
    
    (53
    )Other
    
    
    (9
    )
    
    
    (2
    )Total
Deferred Tax Liabilities
    
    
    (535
    )
    
    
    (109
    )Net
Deferred Tax Assets (Liabilities)
    
    $
    (171
    )
    
    $
    14
  Successor
    
    
    PredecessorDecember 31,
    
    
    December 31,2008
    
    
    2007Deferred Tax Assets:Prepaid expenses and other assets
    
    $
    21
    
    
    $
    19Other assets
    
    
    11
    
    
    
    40Total
    
    $
    32
    
    
    $
    59Deferred Tax Liabilities:Accrued liabilities
    
    $
    1
    
    
    $
    Deferred tax liabilities
    
    
    202
    
    
    
    45Total
    
    $
    203
    
    
    $
    45
    71




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##### Table of Contents



SOLUTIA INC.
 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(Dollars in millions, except per share amounts or otherwise noted)
 Net Operating Loss and Valuation Allowance
   Unrecognized Tax Benefits
 Accounting for Contingencies
      PredecessorBalance at January 1, 2008
    
    $
    136Gross increases  tax positions in prior periods
    
    
    3Gross increases  current period tax positions
    
    
    11Balance at February 29, 2008
    
    $
    150SuccessorGross increases  tax positions in prior periods
    
    
    2Gross decreases  tax positions in prior periods
    
    
    (11
    )Gross increases  current period tax positions
    
    
    9Settlements
    
    
    (1
    )Lapse of
statute of limitations
    
    
    (1
    )Balance
at December 31, 2008
    
    $
    148
   72




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##### Table of Contents



SOLUTIA INC.
 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(Dollars in millions, except per share amounts or otherwise noted)
 10. Debt Obligations
    Successor
    
    
    PredecessorDecember 31,
    
    
    December 31,2008
    
    
    2007Term Loan, due 2014
    
    $
    1,188
    
    
    $
    Revolver, due 2013
    
    
    183
    
    
    
    SSI Facility Agreement, due 2011
    
    
    
    
    
    
    231Flexsys term loan, due 2012
    
    
    
    
    
    
    76Flexsys revolving credit facility, due 2012
    
    
    
    
    
    
    476.72% debentures, due 2037
    
    
    
    
    
    
    1507.375% debentures, due 2027
    
    
    
    
    
    
    30011.25% notes, due 2009
    
    
    
    
    
    
    223Maryville notes, due 2022
    
    
    
    
    
    
    20Total principal amount
    
    
    1,371
    
    
    
    1,047Unamortized net discount (a)
    
    
    
    
    
    
    1,371
    
    
    
    1,047Less current portion of long-term debt
    
    
    (12
    )
    
    
    (15
    )Less debt
subject to compromise (Note 3)
    
    
    
    
    
    
    (673
    )Total
    
    $
    1,359
    
    
    $
    359
 (a)
    
    Unamortized net discount of $14 as of December 31, 2007 is included in
liabilities subject to compromise, as further described in Note 3.    73




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##### Table of Contents



SOLUTIA INC.
 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(Dollars in millions, except per share amounts or otherwise noted)
  st
  Maryville Notes
  11. Financial Instruments and Risk Management
 Fair Values of Financial Instruments
 Fair Value Measurements Effective
Date of Statement 157
   74




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##### Table of Contents



SOLUTIA INC.
 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(Dollars in millions, except per share amounts or otherwise noted)
  Fair Value Measurements at December 31, 2008Quoted Prices in
    
    
    
    
    
    
    SignificantActive Markets for
    
    
    Significant Other
    
    
    UnobservableIdentical Assets
    
    
    Observable Inputs
    
    
    InputsTotal
    
    
    (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.   Risk Management Activities
  Foreign Currency Exchange Rate Risk
    75




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##### Table of Contents



SOLUTIA INC.
 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(Dollars in millions, except per share amounts or otherwise noted)
 Interest Rate Risk
  Commodity Price Risk
   Credit Risk
  12. Pension Plans and Other Postretirement Benefits
 Employers Accounting for Postretirement Benefits
Other Than Pensions
   76




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##### Table of Contents



SOLUTIA INC.
 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(Dollars in millions, except per share amounts or otherwise noted)
 Net Periodic Cost
  Pension Benefits
 Successor
    
    
    PredecessorTen Months
    
    
    Two Months
    
    
    Twelve Months
    
    
    Twelve MonthsEnded
    
    
    Ended
    
    
    Ended
    
    
    EndedDecember 31,
    
    
    February 29,
    
    
    December 31,
    
    
    December 31,2008
    
    
    2008
    
    
    2007
    
    
    2006Service costs for benefits earned
    
    $
    3
    
    
    $
    1
    
    
    $
    5
    
    
    $
    4Interest costs on benefit obligation
    
    
    54
    
    
    
    12
    
    
    
    68
    
    
    
    65Assumed return on plan assets
    
    
    (56
    )
    
    
    (13
    )
    
    
    (75
    )
    
    
    (60
    )Prior service costs
    
    
    
    
    
    
    
    
    
    
    1
    
    
    
    Actuarial net loss
    
    
    
    
    
    
    2
    
    
    
    12
    
    
    
    14Special termination benefits
    
    
    
    
    
    
    
    
    
    
    4
    
    
    
    Settlement charges
    
    
    
    
    
    
    1
    
    
    
    5
    
    
    
    Total
    
    $
    1
    
    
    $
    3
    
    
    $
    20
    
    
    $
    23
 Healthcare and Other Benefits
 Successor
    
    
    PredecessorTen Months
    
    
    Two Months
    
    
    Twelve Months
    
    
    Twelve MonthsEnded
    
    
    Ended
    
    
    Ended
    
    
    EndedDecember 31,
    
    
    February 29,
    
    
    December 31,
    
    
    December 31,2008
    
    
    2008
    
    
    2007
    
    
    2006Service costs for benefits earned
    
    $
    4
    
    
    $
    1
    
    
    $
    4
    
    
    $
    5Interest costs on benefit obligation
    
    
    13
    
    
    
    4
    
    
    
    26
    
    
    
    29Assumed return on plan assets
    
    
    (5
    )
    
    
    
    
    
    
    
    
    
    
    Prior service gains
    
    
    
    
    
    
    (3
    )
    
    
    (18
    )
    
    
    (11
    )Actuarial net (gain) loss
    
    
    (3
    )
    
    
    
    
    
    
    5
    
    
    
    7Total
    
    $
    9
    
    
    $
    2
    
    
    $
    17
    
    
    $
    30
 Curtailments and Settlements
  Actuarial Assumptions
  Pension Benefits
 Successor
    
    
    PredecessorTen Months
    
    
    Two Months
    
    
    Twelve Months
    
    
    Twelve MonthsEnded
    
    
    Ended
    
    
    Ended
    
    
    EndedDecember 31,
    
    
    February 29,
    
    
    December 31,
    
    
    December 31,2008
    
    
    2008
    
    
    2007
    
    
    2006Discount rate
    
    
    5.75
    %
    
    
    6.00
    %
    
    
    5.75
    %
    
    
    5.50
    %Expected return on plan assets
    
    
    8.50
    %
    
    
    8.50
    %
    
    
    8.75
    %
    
    
    8.75
    %Rate of compensation increase (a)
    
    
    4.25
    %
    
    
    4.25
    %
    
    
    4.00
    %
    
    
    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.  77




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##### Table of Contents



SOLUTIA INC.
 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(Dollars in millions, except per share amounts or otherwise noted)
 Healthcare and Other Benefits
 Successor
    
    
    PredecessorTen Months
    
    
    Two Months
    
    
    Twelve Months
    
    
    Twelve MonthsEnded
    
    
    Ended
    
    
    Ended
    
    
    EndedDecember 31,
    
    
    February 29,
    
    
    December 31,
    
    
    December 31,2008
    
    
    2008
    
    
    2007
    
    
    2006Discount rate
    
    
    5.50
    %
    
    
    5.75
    %
    
    
    5.75
    %
    
    
    5.50
    %Expected return on plan assets
    
    
    3.50
    %
    
    
    N/A
    
    
    
    N/A
    
    
    
    N/AAssumed trend rate for healthcare costs
    
    
    9.00
    %
    
    
    9.00
    %
    
    
    8.00
    %
    
    
    9.00
    %Ultimate trend rate for healthcare costs
    
    
    5.00
    %
    
    
    5.00
    %
    
    
    5.00
    %
    
    
    5.00
    %
   1-Percentage-
    
    
    1-Percentage-Point Increase
    
    
    Point DecreaseEffect on postretirement benefit
obligation
    
    $
    2
    
    
    $
    (1
    )
  Benefit Obligations
  Pension Benefits
 Successor
    
    
    PredecessorDecember 31,
    
    
    February 29,
    
    
    December 31,2008
    
    
    2008
    
    
    2007Changes in Benefit ObligationBenefit obligation as of beginning
of period
    
    $
    1,256
    
    
    $
    1,270
    
    
    $
    1,180Service costs
    
    
    3
    
    
    
    1
    
    
    
    5Interest cost
    
    
    54
    
    
    
    12
    
    
    
    68Acquisitions
    
    
    
    
    
    
    
    
    
    
    138Contributions
    
    
    1
    
    
    
    
    
    
    
    2Actuarial (gain) losses
    
    
    (47
    )
    
    
    (2
    )
    
    
    21Foreign currency
    
    
    (67
    )
    
    
    
    
    
    
    10Special termination benefits
    
    
    
    
    
    
    
    
    
    
    4Transfer from plan
    
    
    
    
    
    
    
    
    
    
    (2
    )Benefits paid
    
    
    (99
    )
    
    
    (25
    )
    
    
    (156
    )Benefit obligation at end of period
    
    $
    1,101
    
    
    $
    1,256
    
    
    $
    1,270Accumulated Benefit Obligation
    
    $
    1,084
    
    
    $
    1,231
    
    
    $
    1,244
  78




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##### Table of Contents



SOLUTIA INC.
 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(Dollars in millions, except per share amounts or otherwise noted)
 Healthcare and Other Benefits
 Successor
    
    
    PredecessorDecember 31,
    
    
    February 29,
    
    
    December 31,2008
    
    
    2008
    
    
    2007Changes in Benefit ObligationBenefit obligation as of beginning
of period
    
    $
    312
    
    
    $
    434
    
    
    $
    485Service costs
    
    
    4
    
    
    
    1
    
    
    
    4Interest cost
    
    
    13
    
    
    
    4
    
    
    
    26Acquisitions
    
    
    
    
    
    
    
    
    
    
    3Contributions
    
    
    19
    
    
    
    2
    
    
    
    15Actuarial gains
    
    
    (54
    )
    
    
    (2
    )
    
    
    (14
    )Foreign currency
    
    
    (2
    )
    
    
    
    
    
    
    1Plan amendments
    
    
    
    
    
    
    (109
    )
    
    
    Federal subsidy on benefits paid
    
    
    5
    
    
    
    1
    
    
    
    7Benefits paid
    
    
    (61
    )
    
    
    (19
    )
    
    
    (93
    )Benefit obligation at end of period
    
    $
    236
    
    
    $
    312
    
    
    $
    434
  Pension Benefits
 Successor
    
    
    PredecessorDecember 31,
    
    
    February 29,
    
    
    December 31,2008
    
    
    2008
    
    
    2007Discount rate
    
    
    6.25
    %
    
    
    5.75
    %
    
    
    6.00
    %Rate of compensation increase (a)
    
    
    3.50
    %
    
    
    4.25
    %
    
    
    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
    
    
    PredecessorDecember 31,
    
    
    February 29,
    
    
    December 31,2008
    
    
    2008
    
    
    2007Discount rate
    
    
    6.25
    %
    
    
    5.50
    %
    
    
    5.75
    %Assumed trend rate for healthcare costs
    
    
    8.50
    %
    
    
    9.00
    %
    
    
    9.00
    %Ultimate trend rate for healthcare costs
    
    
    5.00
    %
    
    
    5.00
    %
    
    
    5.00
    %
 Plan Assets
 Employers Disclosures
about Pensions and Other Postretirement Benefits
 Pension Benefits
 Successor
    
    
    PredecessorDecember 31,
    
    
    February 29,
    
    
    December 31,2008
    
    
    2008
    
    
    2007Changes in Fair Value of Plan AssetsFair value of plan assets at beginning of
period
    
    $
    938
    
    
    $
    1,002
    
    
    $
    827Actual return on plan assets
    
    
    (197
    )
    
    
    (60
    )
    
    
    65Acquisitions
    
    
    
    
    
    
    
    
    
    
    117Contributions
    
    
    46
    
    
    
    21
    
    
    
    142Foreign currency
    
    
    (59
    )
    
    
    
    
    
    
    9Transfer from plan
    
    
    
    
    
    
    
    
    
    
    (2
    )Benefits paid
    
    
    (99
    )
    
    
    (25
    )
    
    
    (156
    )Fair value of plan assets at end of period
    
    $
    629
    
    
    $
    938
    
    
    $
    1,002
  79




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##### Table of Contents



SOLUTIA INC.
 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(Dollars in millions, except per share amounts or otherwise noted)
 Healthcare and Other Benefits
 Successor
    
    
    PredecessorDecember 31,
    
    
    February 29,2008
    
    
    2008Changes in Fair Value of Plan AssetsFair value of plan assets at beginning of
period
    
    $
    195
    
    
    $
    Actual return on plan assets
    
    
    (7
    )
    
    
    Contributions
    
    
    41
    
    
    
    195Federal subsidy on benefits paid
    
    
    5
    
    
    
    Benefits paid
    
    
    (61
    )
    
    
    Fair value of plan assets at end of period
    
    $
    173
    
    
    $
    195
   Pension Benefits
 Successor
    
    
    Predecessor2009 Target
    
    
    December 31,
    
    
    December 31,Asset Category
    
    Allocation
    
    
    2008
    
    
    2007Equity securities
    
    
    69
    %
    
    
    64
    %
    
    
    67
    %Debt securities
    
    
    30
    
    
    
    35
    
    
    
    32Other
    
    
    1
    
    
    
    1
    
    
    
    1Total
    
    
    100
    %
    
    
    100
    %
    
    
    100
    %
  Healthcare and Other Benefits
 Successor2009 Target
    
    
    December 31,Asset Category
    
    Allocation
    
    
    2008Cash and cash equivalents
    
    
    32
    %
    
    
    69
    %Debt securities
    
    
    63
    
    
    
    28Solutia New Common Stock
    
    
    5
    
    
    
    3Total
    
    
    100
    %
    
    
    100
    %
   80




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##### Table of Contents



SOLUTIA INC.
 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(Dollars in millions, except per share amounts or otherwise noted)
 Funded Status
 Employers Accounting for Defined
Benefit Pension and Other Postretirement Plans
 Pension Benefits
    
    
    Healthcare and Other BenefitsSuccessor
    
    
    Predecessor
    
    
    Successor
    
    
    PredecessorDecember 31,
    
    
    December 31,
    
    
    December 31,
    
    
    December 31,2008
    
    
    2007
    
    
    2008
    
    
    2007Fair value of plan assets
    
    $
    629
    
    
    $
    1,002
    
    
    $
    173
    
    
    $
    Projected benefit obligation
    
    
    1,101
    
    
    
    1,270
    
    
    
    236
    
    
    
    434Funded Status
    
    $
    (472
    )
    
    $
    (268
    )
    
    $
    (63
    )
    
    $
    (434
    )
 Pension Benefits
    
    
    Healthcare and Other BenefitsSuccessor
    
    
    Predecessor
    
    
    Successor
    
    
    PredecessorDecember 31,
    
    
    December 31,
    
    
    December 31,
    
    
    December 31,2008
    
    
    2007
    
    
    2008
    
    
    2007Long-term asset
    
    $
    10
    
    
    $
    20
    
    
    $
    
    
    
    $
    Current liability
    
    
    
    
    
    
    
    
    
    
    (4
    )
    
    
    (72
    )Long-term liability
    
    
    (482
    )
    
    
    (288
    )
    
    
    (59
    )
    
    
    (362
    )Accumulated other
comprehensive loss:Net actuarial (gain)/loss
    
    
    205
    
    
    
    177
    
    
    
    (39
    )
    
    
    22Prior service (gain)/cost
    
    
    
    
    
    
    1
    
    
    
    
    
    
    
    (70
    )
  Projected Benefit Obligation
    
    
    Accumulated BenefitExceeds the Fair
    
    
    Obligation Exceeds the FairValue of Plan Assets
    
    
    Value of Plan AssetsSuccessor
    
    
    Predecessor
    
    
    Successor
    
    
    PredecessorDecember 31,
    
    
    December 31,
    
    
    December 31,
    
    
    December 31,2008
    
    
    2007
    
    
    2008
    
    
    2007Projected benefit obligation
    
    $
    1,032
    
    
    $
    1,145
    
    
    $
    1,032
    
    
    $
    1,104Accumulated benefit obligation
    
    
    1,015
    
    
    
    1,119
    
    
    
    1,015
    
    
    
    1,085Fair value of plan assets
    
    
    549
    
    
    
    857
    
    
    
    549
    
    
    
    822
   Estimated Future Benefit Payments
  Pension
    
    
    Healthcare andBenefits
    
    
    Other Benefits2009
    
    $
    115
    
    
    $
    422010
    
    
    107
    
    
    
    402011
    
    
    105
    
    
    
    382012
    
    
    102
    
    
    
    342013
    
    
    97
    
    
    
    302014-2018
    
    
    418
    
    
    
    86
   81




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##### Table of Contents



SOLUTIA INC.
 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(Dollars in millions, except per share amounts or otherwise noted)
 13. Employee Savings Plans
  14. Share-Based Compensation
 Predecessor
  Successor
   Stock Options
    82




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##### Table of Contents



SOLUTIA INC.
 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(Dollars in millions, except per share amounts or otherwise noted)
  SuccessorDecember 31,2008Expected volatility
    
    
    26.1
    %Expected term (in years)
    
    
    6Risk-free rate
    
    
    4.24
    %Weighted-average grant date fair value
    
    $
    5.91
  Weighted-Weighted-
    
    
    Average
    
    
    AggregateAverage
    
    
    Remaining
    
    
    IntrinsicOptions
    
    
    Exercise Price
    
    
    Contractual 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
    
    
    $
    
 (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.  Restricted Stock Awards
   Weighted-AverageShares
    
    
    Grant Date Fair ValueOutstanding at February 29, 2008
    
    
    
    
    
    
    Granted
    
    
    1,554,975
    
    
    $
    16.19Vested
    
    
    (96,568
    )
    
    
    15.24Forfeited
    
    
    (38,867
    )
    
    
    17.05Outstanding at December 31, 2008
    
    
    1,419,540
    
    
    $
    16.24
   83




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##### Table of Contents



SOLUTIA INC.
 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(Dollars in millions, except per share amounts or otherwise noted)
 15. Capital Stock
    16. Commitments and Contingencies
 Commitments
  .
 Contingencies
 Litigation
   Legacy
Tort Claims Litigation
  Putnam County, West Virginia litigation.
  84




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##### Table of Contents



SOLUTIA INC.
 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(Dollars in millions, except per share amounts or otherwise noted)
  Escambia County, Florida Litigation. John Allen, et al. v. Monsanto Company, et al.
  Solutia Inc. Employees Pension Plan Litigation
 Davis, et al. v. Solutia, Inc. Employees Pension Plan Hammond, et al. v. Solutia, Inc. Employees Pension Plan Walker et al. v. The
Monsanto Pension Plan, et al.) Donaldson v. Pharmacia Cash Balance Pension Plan, et
al.
   Environmental Liabilities
    85




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##### Table of Contents



SOLUTIA INC.
 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(Dollars in millions, except per share amounts or otherwise noted)
  TotalPredecessorBalance at December 31, 2007
    
    $
    71Charges taken
    
    
    257Amounts utilized
    
    
    (1
    )Currency fluctuations
    
    
    Balance at February 29, 2008
    
    
    327SuccessorCharges taken
    
    
    7Amounts utilized (a)
    
    
    (22
    )Currency fluctuations
    
    
    (3
    )Balance at December 31, 2008
    
    $
    309Environmental Remediation Liabilities, current
    
    $
    30Environmental Remediation Liabilities, long-term
    
    
    279Balance at December 31, 2008
    
    $
    309
 (a)
    
    For the ten months ended December 31, 2008, allowable expenditures of $18 were
reimbursed to us by a special purpose entity established with proceeds of stock issued
by us on the Effective Date.   Anniston, Alabama:
  86




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##### Table of Contents



SOLUTIA INC.
 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(Dollars in millions, except per share amounts or otherwise noted)
 Sauget, Illinois:
 W. G. Krummrich Site:
   87




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##### Table of Contents



SOLUTIA INC.
 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(Dollars in millions, except per share amounts or otherwise noted)
 17. Supplemental Data
  Successor
    
    
    PredecessorTen Months
    
    
    Two Months
    
    
    Twelve Months
    
    
    Twelve MonthsEnded
    
    
    Ended
    
    
    Ended
    
    
    EndedDecember 31,
    
    
    February 29,
    
    
    December 31,
    
    
    December 31,Income Statement:
    
    2008
    
    
    2008
    
    
    2007
    
    
    2006Raw material and energy costs
    
    $
    820
    
    
    $
    179
    
    
    $
    627
    
    
    $
    498Employee compensation and benefits
    
    
    338
    
    
    
    70
    
    
    
    342
    
    
    
    316Depreciation expense
    
    
    61
    
    
    
    10
    
    
    
    52
    
    
    
    41Amortization of capitalized computer software
    
    
    3
    
    
    
    1
    
    
    
    5
    
    
    
    4Taxes other than income
    
    
    75
    
    
    
    15
    
    
    
    65
    
    
    
    47Rent expense
    
    
    17
    
    
    
    3
    
    
    
    13
    
    
    
    12Provision for doubtful accounts (net of recoveries)
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    1Research and development
    
    
    16
    
    
    
    3
    
    
    
    26
    
    
    
    20Interest expense:Total interest cost
    
    $
    135
    
    
    $
    18
    
    
    $
    117
    
    
    $
    81Less capitalized interest
    
    
    3
    
    
    
    1
    
    
    
    5
    
    
    
    4Net interest expense
    
    $
    132
    
    
    $
    17
    
    
    $
    112
    
    
    $
    77Cash Flow:Cash payments for interest
    
    $
    103
    
    
    $
    40
    
    
    $
    101
    
    
    $
    75Cash payments for income taxes
    
    
    23
    
    
    
    4
    
    
    
    20
    
    
    
    3Non-Cash Investing Activities:Capital expenditures included in accounts payable
    
    $
    14
    
    
    $
    10
    
    
    $
    16
    
    
    $
    10
  18. Segment and Geographic Data
 Disclosures about Segments of an Enterprise and Related Information,
  88




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##### Table of Contents



SOLUTIA INC.
 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(Dollars in millions, except per share amounts or otherwise noted)
  Reportable Segment
    
    ProductsSaflex
    
    
    
    SAFLEX® plastic interlayer
    
    Specialty intermediate Polyvinyl Butyral resin and
plasticizerCPFilms
    
    
    
    LLUMAR®, VISTA®, GILA® and FORMULA ONE PERFORMANCE
AUTOMOTIVE FILMS® professional and retail window films
    
    Other enhanced polymer films for industrial customersTechnical 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
   Successor
    
    
    PredecessorTen Months
    
    
    Two Months
    
    
    Twelve Months
    
    
    Twelve MonthsEnded
    
    
    Ended
    
    
    Ended
    
    
    EndedDecember 31,
    
    
    February 29,
    
    
    December 31,
    
    
    December 31,2008
    
    
    2008
    
    
    2007
    
    
    2006Net
    
    
    Profit
    
    
    Net
    
    
    Profit
    
    
    Net
    
    
    Profit
    
    
    Net
    
    
    ProfitSales
    
    
    (Loss)
    
    
    Sales
    
    
    (Loss)
    
    
    Sales
    
    
    (Loss)
    
    
    Sales
    
    
    (Loss)Segment:Saflex
    
    $
    697
    
    
    $
    78
    
    
    $
    125
    
    
    $
    16
    
    
    $
    727
    
    
    $
    111
    
    
    $
    663
    
    
    $
    106CPFilms
    
    
    197
    
    
    
    33
    
    
    
    39
    
    
    
    9
    
    
    
    234
    
    
    
    58
    
    
    
    214
    
    
    
    50Technical Specialties
    
    
    851
    
    
    
    152
    
    
    
    164
    
    
    
    40
    
    
    
    646
    
    
    
    94
    
    
    
    146
    
    
    
    23Reportable Segment totals
    
    
    1,745
    
    
    
    263
    
    
    
    328
    
    
    
    65
    
    
    
    1,607
    
    
    
    263
    
    
    
    1,023
    
    
    
    179Unallocated and Other
    
    
    30
    
    
    
    (43
    )
    
    
    7
    
    
    
    (4
    )
    
    
    36
    
    
    
    (33
    )
    
    
    41
    
    
    
    (27
    )Total
    
    
    1,775
    
    
    
    220
    
    
    
    335
    
    
    
    61
    
    
    
    1,643
    
    
    
    230
    
    
    
    1,064
    
    
    
    152Reconciliation to consolidated totals:Depreciation and Amortization
    
    
    
    
    
    
    (89
    )
    
    
    
    
    
    
    (11
    )
    
    
    
    
    
    
    (59
    )
    
    
    
    
    
    
    (46
    )Interest expense
    
    
    
    
    
    
    (132
    )
    
    
    
    
    
    
    (17
    )
    
    
    
    
    
    
    (112
    )
    
    
    
    
    
    
    (77
    )Reorganization items, net
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    1,433
    
    
    
    
    
    
    
    (298
    )
    
    
    
    
    
    
    (71
    )Consolidated totals:Net sales
    
    $
    1,775
    
    
    
    
    
    
    $
    335
    
    
    
    
    
    
    $
    1,643
    
    
    
    
    
    
    $
    1,064Income(Loss) from Continuing
Operations Before Income Taxes
    
    
    
    
    
    $
    (1
    )
    
    
    
    
    
    $
    1,466
    
    
    
    
    
    
    $
    (239
    )
    
    
    
    
    
    $
    (42
    )
  89




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##### Table of Contents



SOLUTIA INC.
 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(Dollars in millions, except per share amounts or otherwise noted)
 Successor
    
    
    PredecessorTen Months
    
    
    Two Months
    
    
    Twelve Months
    
    
    Twelve MonthsEnded
    
    
    Ended
    
    
    Ended
    
    
    EndedDecember 31,
    
    
    February 29,
    
    
    December 31,
    
    
    December 31,2008
    
    
    2008
    
    
    2007
    
    
    2006Depreciation
    
    
    
    
    
    
    Depreciation
    
    
    
    
    
    
    Depreciation
    
    
    
    
    
    
    DepreciationCapital
    
    
    and
    
    
    Capital
    
    
    and
    
    
    Capital
    
    
    and
    
    
    Capital
    
    
    andExpenditures
    
    
    Amortization
    
    
    Expenditures
    
    
    Amortization
    
    
    Expenditures
    
    
    Amortization
    
    
    Expenditures
    
    
    AmortizationSegment:Saflex
    
    $
    52
    
    
    $
    40
    
    
    $
    7
    
    
    $
    5
    
    
    $
    59
    
    
    $
    25
    
    
    $
    37
    
    
    $
    26CPFilms
    
    
    8
    
    
    
    15
    
    
    
    2
    
    
    
    1
    
    
    
    11
    
    
    
    10
    
    
    
    6
    
    
    
    8Technical Specialties
    
    
    17
    
    
    
    28
    
    
    
    3
    
    
    
    4
    
    
    
    20
    
    
    
    17
    
    
    
    5
    
    
    
    3Reportable Segment totals
    
    
    77
    
    
    
    83
    
    
    
    12
    
    
    
    10
    
    
    
    90
    
    
    
    52
    
    
    
    48
    
    
    
    37Unallocated and Other
    
    
    7
    
    
    
    6
    
    
    
    3
    
    
    
    1
    
    
    
    9
    
    
    
    7
    
    
    
    7
    
    
    
    9Total
    
    $
    84
    
    
    $
    89
    
    
    $
    15
    
    
    $
    11
    
    
    $
    99
    
    
    $
    59
    
    
    $
    55
    
    
    $
    46
 Successor
    
    
    Predecessor2008
    
    
    2007Assets by Segment:Saflex
    
    $
    1,322
    
    
    $
    525CPFilms
    
    
    619
    
    
    
    255Technical Specialties
    
    
    925
    
    
    
    635Reportable Segment totals
    
    
    2,866
    
    
    
    1,415Reconciliation to consolidated totals:Discontinued Operations
    
    
    490
    
    
    
    808Unallocated and Other Operations
    
    
    378
    
    
    
    417Consolidated totals
    
    $
    3,734
    
    
    $
    2,640
  Technical
    
    
    Unallocated and
    
    
    ConsolidatedSaflex
    
    
    CPFilms
    
    
    Specialties
    
    
    Other
    
    
    TotalsSuccessorTen Months Ended December 31, 2008U.S.
    
    $
    134
    
    
    $
    99
    
    
    $
    203
    
    
    $
    9
    
    
    $
    445Europe
    
    
    336
    
    
    
    45
    
    
    
    239
    
    
    
    16
    
    
    
    636Asia Pacific
    
    
    113
    
    
    
    31
    
    
    
    287
    
    
    
    2
    
    
    
    433Rest of World
    
    
    114
    
    
    
    22
    
    
    
    122
    
    
    
    3
    
    
    
    261$
    697
    
    
    $
    197
    
    
    $
    851
    
    
    $
    30
    
    
    $
    1,775PredecessorTwo Months Ended February 29, 2008U.S.
    
    $
    26
    
    
    $
    20
    
    
    $
    40
    
    
    $
    2
    
    
    $
    88Europe
    
    
    62
    
    
    
    9
    
    
    
    51
    
    
    
    4
    
    
    
    126Asia Pacific
    
    
    19
    
    
    
    6
    
    
    
    50
    
    
    
    
    
    
    
    75Rest of World
    
    
    18
    
    
    
    4
    
    
    
    23
    
    
    
    1
    
    
    
    46$
    125
    
    
    $
    39
    
    
    $
    164
    
    
    $
    7
    
    
    $
    335Twelve Months Ended December 31,
2007U.S.
    
    $
    145
    
    
    $
    124
    
    
    $
    161
    
    
    $
    13
    
    
    $
    443Europe
    
    
    346
    
    
    
    51
    
    
    
    186
    
    
    
    19
    
    
    
    602Asia Pacific
    
    
    115
    
    
    
    35
    
    
    
    204
    
    
    
    2
    
    
    
    356Rest of World
    
    
    121
    
    
    
    24
    
    
    
    95
    
    
    
    2
    
    
    
    242$
    727
    
    
    $
    234
    
    
    $
    646
    
    
    $
    36
    
    
    $
    1,643Twelve Months Ended December 31,
2006U.S.
    
    $
    155
    
    
    $
    121
    
    
    $
    38
    
    
    $
    12
    
    
    $
    326Europe
    
    
    296
    
    
    
    46
    
    
    
    36
    
    
    
    24
    
    
    
    402Asia Pacific
    
    
    91
    
    
    
    27
    
    
    
    54
    
    
    
    3
    
    
    
    175Rest of World
    
    
    121
    
    
    
    20
    
    
    
    18
    
    
    
    2
    
    
    
    161$
    663
    
    
    $
    214
    
    
    $
    146
    
    
    $
    41
    
    
    $
    1,064
   90




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##### Table of Contents



SOLUTIA INC.
 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(Dollars in millions, except per share amounts or otherwise noted)
  Technical
    
    
    Unallocated and
    
    
    ConsolidatedSaflex
    
    
    CPFilms
    
    
    Specialties
    
    
    Other
    
    
    TotalsSuccessorDecember 31, 2008U.S.
    
    $
    161
    
    
    $
    87
    
    
    $
    82
    
    
    $
    18
    
    
    $
    348Europe
    
    
    209
    
    
    
    4
    
    
    
    140
    
    
    
    29
    
    
    
    382Asia Pacific
    
    
    42
    
    
    
    
    
    
    
    103
    
    
    
    
    
    
    
    145Rest of World
    
    
    54
    
    
    
    
    
    
    
    23
    
    
    
    
    
    
    
    77$
    466
    
    
    $
    91
    
    
    $
    348
    
    
    $
    47
    
    
    $
    952PredecessorDecember 31, 2007U.S.
    
    $
    83
    
    
    $
    82
    
    
    $
    49
    
    
    $
    52
    
    
    $
    266Europe
    
    
    83
    
    
    
    7
    
    
    
    106
    
    
    
    9
    
    
    
    205Asia Pacific
    
    
    38
    
    
    
    
    
    
    
    67
    
    
    
    
    
    
    
    105Rest of World
    
    
    29
    
    
    
    
    
    
    
    14
    
    
    
    
    
    
    
    43$
    233
    
    
    $
    89
    
    
    $
    236
    
    
    $
    61
    
    
    $
    619
 19. Earnings (Loss) Per Share
  Successor
    
    
    PredecessorTen Months
    
    
    Two Months
    
    
    Twelve Months
    
    
    Twelve MonthsEnded
    
    
    Ended
    
    
    Ended
    
    
    EndedDecember 31,
    
    
    February 29,
    
    
    December 31,
    
    
    December 31,2008
    
    
    2008
    
    
    2007
    
    
    2006Consolidated Statement of Operations Results:Income (Loss) from continuing operations
    
    $
    (14
    )
    
    $
    1,252
    
    
    $
    (256
    )
    
    $
    (60
    )Income (Loss) from discontinued operations
    
    
    (654
    )
    
    
    202
    
    
    
    48
    
    
    
    62Net income (loss)
    
    $
    (668
    )
    
    $
    1,454
    
    
    $
    (208
    )
    
    $
    2Weighted-average number of shares
outstanding used for basic earnings (loss)
per share
    
    
    74.7
    
    
    
    104.5
    
    
    
    104.5
    
    
    
    104.5Non-vested restricted shares
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Stock options
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Warrants
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Weighted-average number of shares
outstanding and common equivalent shares
used for diluted earnings (loss) per share
    
    
    74.7
    
    
    
    104.5
    
    
    
    104.5
    
    
    
    104.5
   91




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##### Table of Contents



SOLUTIA INC.
 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(Dollars in millions, except per share amounts or otherwise noted)
 20. Quarterly Data  Unaudited
 Predecessor
    
    
    SuccessorTwo Months
    
    
    One MonthEnded
    
    
    EndedFebruary 29,
    
    
    March 31,
    
    
    Second
    
    
    Third
    
    
    Fourth2008(a)
    
    2008
    
    
    2008
    
    
    Quarter
    
    
    Quarter
    
    
    QuarterNet Sales
    
    $
    335
    
    
    $
    182
    
    
    $
    577
    
    
    $
    587
    
    
    $
    429Gross Profit
    
    
    93
    
    
    
    26
    
    
    
    100
    
    
    
    155
    
    
    
    83Income
(Loss) from Continuing Operations
    
    
    1,252
    
    
    
    (16
    )
    
    
    (4
    )
    
    
    23
    
    
    
    (17
    )Income (Loss) from Discontinued
Operations, net of tax
    
    
    202
    
    
    
    (14
    )
    
    
    (12
    )
    
    
    (30
    )
    
    
    (598
    )Net Income (Loss)
    
    
    1,454
    
    
    
    (30
    )
    
    
    (16
    )
    
    
    (7
    )
    
    
    (615
    )Basic/Diluted Income (Loss) per share:Income
(Loss) from Continuing Operations
    
    $
    11.98
    
    
    $
    (0.27
    )
    
    $
    (0.07
    )
    
    $
    0.30
    
    
    $
    (0.18
    )Income (Loss) from Discontinued
Operations, net of tax
    
    
    1.93
    
    
    
    (0.23
    )
    
    
    (0.20
    )
    
    
    (0.39
    )
    
    
    (6.42
    )Net Income (Loss)
    
    
    13.91
    
    
    
    (0.50
    )
    
    
    (0.27
    )
    
    
    (0.09
    )
    
    
    (6.60
    )
 PredecessorFirst
    
    
    Second
    
    
    Third
    
    
    Fourth2007(a)
    
    Quarter
    
    
    Quarter
    
    
    Quarter
    
    
    QuarterNet Sales
    
    $
    276
    
    
    $
    421
    
    
    $
    454
    
    
    $
    492Gross Profit
    
    
    78
    
    
    
    102
    
    
    
    112
    
    
    
    88Income
(Loss) from Continuing Operations
    
    
    (11
    )
    
    
    23
    
    
    
    (142
    )
    
    
    (126
    )Income
(Loss) from Discontinued Operations, net of tax
    
    
    3
    
    
    
    33
    
    
    
    31
    
    
    
    (19
    )Net Income (Loss)
    
    
    (8
    )
    
    
    56
    
    
    
    (111
    )
    
    
    (145
    )Basic/Diluted Income (Loss) per share:Income
(Loss) from Continuing Operations
    
    $
    (0.10
    )
    
    $
    0.21
    
    
    $
    (1.36
    )
    
    $
    (1.21
    )Income
(Loss) from Discontinued Operations, net of tax
    
    
    0.03
    
    
    
    0.32
    
    
    
    0.30
    
    
    
    (0.18
    )Net Income (Loss)
    
    
    (0.07
    )
    
    
    0.53
    
    
    
    (1.06
    )
    
    
    (1.39
    )
 (a)
    
    Amounts have been adjusted from prior filing to present the Integrated Nylon business as a
discontinued operation as further described in Note 4.    92




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##### Table of Contents



SOLUTIA INC.
 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(Dollars in millions, except per share amounts or otherwise noted)
  Earnings per Share
  93




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##### Table of Contents



ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE
  
 ITEM 9A. CONTROLS AND PROCEDURES
 Evaluation of Disclosure Controls and Procedures
  Managements Report on Internal Control over Financial Reporting
 MANAGEMENT REPORT
      Internal
Control-Integrated Framework
  
 ITEM 9B. OTHER INFORMATION
   94




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##### Table of Contents



PART III
 
 ITEM 10. DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE
  
 ITEM 11. EXECUTIVE COMPENSATION
  
 ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER
MATTERS
  
 ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR INDEPENDENCE
  
 ITEM 14. PRINCIPAL ACCOUNTANT FEES AND SERVICES
   95




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##### Table of Contents



PART IV
 
 ITEM 15. EXHIBITS AND FINANCIAL STATEMENT SCHEDULE
 (a)
    
    Documents filed as part of this Form 10-K:1.
    
    Financial StatementsSee 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, 2008, 2007
and 2006
 IIValuation and Qualifying Accounts
 3.
    
    ExhibitsSee the
Exhibit Index beginning at page 99 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(o) on pages 99 and 100) of the Exhibit Index. The following exhibits listed
in the Exhibit Index are filed with this Form 10-K:
 10
    (f)
    
    Amended 2008 Solutia Inc. Annual Incentive Plan10
    (g)
    
    Amended and Restated Employment Agreement by and between Solutia Inc. and Jeffry N. Quinn10
    (h)
    
    Amended and Restated Employment Agreement by and between Solutia Inc. and Kent J. Davies10
    (i)
    
    Amended and Restated Employment Agreement by and between Solutia Inc. and Luc De Temmerman10
    (j)
    
    Amended and Restated Employment Agreement by and between Solutia Inc. and Rosemary L. Klein10
    (k)
    
    Amended and Restated Employment Agreement by and between Solutia Inc. and James M. Sullivan10
    (l)
    
    Amended and Restated Employment Agreement by and between Solutia Inc. and James R. Voss10
    (p)
    
    Solutia Inc. Non-Employee Director Deferred Compensation Plan10
    (q)
    
    Solutia Inc. Non-Employee Director Deferred Compensation Plan 2009 Deferral Election Form12
    
    
    Computation of the Ratio of Earnings to Fixed Charges21
    
    
    Subsidiaries of the Registrant23
    
    
    Consent of Independent Registered Public Accounting Firm24
    (a)
    
    Powers of Attorney24
    (b)
    
    Certified copy of board resolution authorizing Form 10-K filing using powers of attorney31
    (a)
    
    Certification of Chief Executive Officer Pursuant to Section 302 of the Sarbanes-Oxley Act of 200231
    (b)
    
    Certification of Chief Financial Officer Pursuant to Section 302 of the Sarbanes-Oxley Act of 200232
    (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 200232
    (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
  96




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SIGNATURES
  SOLUTIA INC.By:
    /s/ Timothy J. SpihlmanTimothy J. SpihlmanVice President and Controller
(Principal Accounting Officer)   Signature
    
    Title
    
    Date/s/ Jeffry N. Quinn
    
    President, Chief Executive
Officer and
    
    February 19, 2009Jeffry N. Quinn
    
    Chairman of the Board (Principal Executive
Officer)/s/ James M. Sullivan
    
    Executive Vice President
and
    
    February 19, 2009James M. Sullivan
    
    Chief Financial
Officer(Principal Financial Officer)/s/ Timothy J. Spihlman
    
    Vice President and
Controller
    
    February 19, 2009Timothy J. Spihlman
    
    (Principal Accounting Officer)* Eugene I. Davis
    
    Director
    
    February 19, 2009* Robert K. deVeer, Jr.
    
    Director
    
    February 19, 2009* James P. Heffernan
    
    Director
    
    February 19, 2009*
W. Thomas Jagodinski
    
    Director
    
    February 19, 2009* William T. Monahan
    
    Director
    
    February 19, 2009* J. Patrick Mulcahy
    
    Director
    
    February 19, 2009* Robert A. Peiser
    
    Director
    
    February 19, 2009* Gregory C. Smith
    
    Director
    
    February 19, 2009
 *
    
    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, IIIPaul J. Berra, III, Attorney-in-Fact  97




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##### Table of Contents



SCHEDULE II
 SOLUTIA INC.
 VALUATION AND QUALIFYING ACCOUNTS
FOR THE TEN MONTHS ENDED DECEMBER 31, 2008, TWO MONTHS ENDED FEBRUARY 29, 2008 AND
YEARS ENDED DECEMBER 31, 2007 AND 2006
 (Dollars in Millions)
 COLUMN A
    
    COLUMN B
    
    
    COLUMN C
    
    
    COLUMN D
    
    
    COLUMN EAdditions(1)Balance at
    
    
    Charged to
    
    
    (2)beginning of
    
    
    costs and
    
    
    Charged to
    
    
    
    
    
    
    Balance at endDescription
    
    year
    
    
    expenses
    
    
    other accounts
    
    
    Deductions
    
    
    of periodSuccessor:Ten Months Ended December 31, 2008Valuation accounts for doubtful receivables
    
    $
    
    
    
    $
    
    
    
    $
    
    
    
    $
    
    
    
    $
    Restructuring reserves
    
    
    8
    
    
    
    26
    
    
    
    
    
    
    
    14
    
    
    
    20Predecessor:Two Months Ended February 29, 2008Valuation accounts for doubtful receivables
    
    $
    2
    
    
    $
    
    
    
    $
    (2
    )
    
    $
    
    
    
    $
    Restructuring reserves
    
    
    8
    
    
    
    1
    
    
    
    
    
    
    
    1
    
    
    
    8Year Ended December 31, 2007Valuation accounts for doubtful receivables
    
    $
    2
    
    
    $
    
    
    
    $
    
    
    
    $
    
    
    
    $
    2Restructuring reserves
    
    
    5
    
    
    
    8
    
    
    
    12
    
    
    
    17
    
    
    
    8Year Ended December 31, 2006Valuation accounts for doubtful receivables
    
    $
    2
    
    
    $
    1
    
    
    $
    (1
    )
    
    $
    
    
    
    $
    2Restructuring reserves
    
    
    4
    
    
    
    12
    
    
    
    
    
    
    
    11
    
    
    
    5
  98




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##### Table of Contents



EXHIBIT INDEX
  Exhibit No.
    
    Description2
    
    
    Debtors Fifth Amended Joint Plan of Reorganization Pursuant to Chapter 11 of the Bankruptcy
Code (incorporated by reference to Exhibit 99.2 of Solutias 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 Solutias Form 8-K filed on March 4, 2008)3
    (b)
    
    Amended and Restated Bylaws of Solutia Inc. (incorporated by reference to Exhibit 3.2 to
Solutias Form 8-K filed on March 4, 2008)4
    (a)
    
    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 Solutias Form 10-Q for
the first quarter ended March 31, 2008)4
    (b)
    
    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 Solutias Form 10-Q for
the quarter ended March 31, 2008)4
    (c)
    
    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 Solutias Form 10-Q for
the quarter ended March 31, 2008)4
    (d)
    
    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 Solutias Form 8-K
filed March 5, 2008)4
    (e)
    
    Registration Rights Agreement, dated as of February 28, 2008, by and between Solutia Inc. and
Monsanto Company (incorporated by reference to Exhibit 4.2 to Solutias Form 8-K filed March
5, 2008)4
    (f)
    
    Solutia Inc. 2007 Management Long-Term Incentive Plan (incorporated by reference to
Exhibit 4(c) to Solutias registration statement on Form S-8 filed February 28, 2008)4
    (g)
    
    Solutia Inc. 2007 Non-Employee Director Stock Compensation Plan (incorporated by reference to
Exhibit 4(d) to Solutias registration statement on Form S-8 filed February 28, 2008)4
    (h)
    
    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 Solutias 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 Solutias 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 Solutias Form 8-K filed January 18, 2005)10
    (c)
    
    Retention Agreement, dated as of June 17, 2004, by and between Solutia Inc. and Rosemary L.
Klein (incorporated by reference to Exhibit 10(aa) of Solutias Form 10-K for the year ended
December 31, 2004)10
    (d)
    
    Form of Retention Agreement between Solutia Inc. and Key Employees (incorporated by
reference to Exhibit 10(bb) of Solutias Form 10-K for the year ended December 31, 2004)10
    (e)
    
    2007 Solutia Annual Incentive Program (incorporated by reference to Exhibit 10.1 of
Solutias Form 8-K filed on March 17, 2007)10
    (f)
    
    Amended 2008 Solutia Inc. Annual Incentive Plan10
    (g)
    
    Amended and Restated Employment Agreement by and between Solutia Inc. and Jeffry N. Quinn10
    (h)
    
    Amended and Restated Employment Agreement by and between Solutia Inc. and Kent J. Davies10
    (i)
    
    Amended and Restated Employment Agreement by and between Solutia Inc. and Luc De Temmerman10
    (j)
    
    Amended and Restated Employment Agreement by and between Solutia Inc. and Rosemary L. Klein10
    (k)
    
    Amended and Restated Employment Agreement by and between Solutia Inc. and James M. Sullivan10
    (l)
    
    Amended and Restated Employment Agreement by and between Solutia Inc. and James R. Voss
  99




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Exhibit No.
    
    Description10
    (m)
    
    Amended and Restated Employment Agreement by and between Solutia Inc. and Jonathon P. Wright
(incorporated by reference to Exhibit 10.8 of Solutias Form 8-K filed on March 17, 2007)10
    (n)
    
    Solutia Inc. Annual Incentive Plan (incorporated by reference to Exhibit 10.6 to Solutias
Form 8-K filed March 5, 2008)10
    (o)
    
    Solutia Inc. Savings and Investment Restoration Plan (incorporated by reference to Exhibit
10.7 of Solutias Form 10-Q for the quarter ended June 30, 2008)10
    (p)
    
    Solutia Inc. Non-Employee Director Deferred Compensation Plan10
    (q)
    
    Solutia Inc. Non-Employee Director Deferred Compensation Plan 2009 Deferral Election Form10
    (r)
    
    Asset Purchase Agreement between Solutia Inc. and Thermphos Trading GmbH dated as of March
11, 2007 (incorporated by reference to Exhibit 10.1 of Solutias Form 8-K filed on May 5,
2007)10
    (s)
    
    Amendment to Asset Purchase Agreement between Solutia Inc. and Thermphos Trading GmbH dated
as of March 13, 2007 (incorporated by reference to Exhibit 10.2 of Solutias Form 8-K filed on
May 5, 2007)10
    (t)
    
    Second Amendment to Asset Purchase Agreement between Solutia Inc. and Thermphos Trading GmbH
dated as of May 31, 2007 (incorporated by reference to Exhibit 10.3 of Solutias Form 8-K
filed on May 5, 2007)10
    (u)
    
    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 Solutias
Form 10-K for the year ended December 31,2006)10
    (v)
    
    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 Solutias Form 10-K for the year
ended December 31,2006)10
    (w)
    
    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
Solutias Form 8-K filed March 5, 2008)10
    (x)
    
    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 Solutias Form 8-K
filed March 5, 2008)10
    (y)
    
    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 Solutias Form 8-K filed March 5, 2008)10
    (z)
    
    2008 Retiree Welfare Plan (incorporated by reference to Exhibit 10.4 to Solutias Form 8-K
filed March 5, 2008)10
    (aa)
    
    Limited Liability Company Agreement of SFC LLC, dated as of February 28, 2008, between SFC
LLC and its sole member (incorporated by reference to Exhibit 10.5 to Solutias Form 8-K filed
March 5, 2008)10
    (bb)
    
    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 Solutias Form 8-K filed March 4, 2008)10
    (cc)
    
    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 Solutias Form 8-K filed March
4, 2008)10
    (dd)
    
    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 Solutias Form 8-K filed March 4, 2008)
  100




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Exhibit No.
    
    Description10
    (ee)
    
    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 Solutias Form 8-K filed March 4, 2008)10
    (ff)
    
    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 Solutias Form 8-K filed March 4, 2008)10
    (gg)
    
    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 Solutias Form 8-K filed March 4, 2008)10
    (hh)
    
    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 Solutias Form 8-K filed March 4,
2008)10
    (ii)
    
    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 Solutias Form 8-K filed March 4, 2008)10
    (jj)
    
    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 Solutias Form 8-K filed March 4, 2008)10
    (kk)
    
    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 (Bridge
Facility) (incorporated by reference to Exhibit 10.10 to Solutias Form 8-K filed March 4,
2008)10
    (ll)
    
    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 Solutias
Form 8-K filed March 4, 2008)10
    (mm)
    
    Joinder Agreement Supplement No. 1 dated as of May 5, 2008, to the Security Agreement (ABL)
(incorporated by reference to Exhibit 10.1 of Solutias 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 Security Agreement (Term)
(incorporated by reference to Exhibit 10.2 of Solutias Form 10-Q for the quarter ended June
30, 2008)10
    (oo)
    
    Joinder Agreement Supplement No. 1 dated as of May 5, 2008, to the Guarantee Agreement (ABL)
(incorporated by reference to Exhibit 10.3 of Solutias Form 10-Q for the quarter ended June
30, 2008)10
    (pp)
    
    Joinder Agreement Supplement No. 1 dated as of May 5, 2008, to the Guarantee Agreement
(Term) (incorporated by reference to Exhibit 10.4 of Solutias Form 10-Q for the quarter ended
June 30, 2008)10
    (qq)
    
    Joinder Agreement Supplement No. 1 dated as of May 5, 2008, to the Guarantee Agreement
(Bridge) (incorporated by reference to Exhibit 10.5 of Solutias Form 10-Q for the quarter
ended June 30, 2008)10
    (rr)
    
    Intercreditor Agreement Joinder dated as of May 5, 2008 (incorporated by reference to
Exhibit 10.6 of Solutias Form 10-Q for the quarter ended June 30, 2008)11
    
    
    OmittedInapplicable; see Consolidated Statement of Operations on page 50.12
    
    
    Computation of the Ratio of Earnings to Fixed Charges14
    
    
    Solutia Inc. Code of Ethics for Senior Financial Officers as amended (incorporated by
reference to Exhibit 14 of Solutias Form 10-K for the year ended December 31, 2006)16
    
    
    OmittedInapplicable18
    
    
    OmittedInapplicable21
    
    
    Subsidiaries of the Registrant22
    
    
    OmittedInapplicable23
    
    
    Consent of Independent Registered Public Accounting Firm
  101




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Exhibit No.
    
    Description24
    (a)
    
    Powers of Attorney24
    (b)
    
    Certified copy of board resolution authorizing Form 10-K filing utilizing powers of attorney31
    (a)
    
    Certification of Chief Executive Officer Pursuant to Section 302 of the Sarbanes-Oxley Act of 200231
    (b)
    
    Certification of Chief Financial Officer Pursuant to Section 302 of the Sarbanes-Oxley Act of 200232
    (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 200232
    (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
  102