##### 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, 2009
 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
    
    (I.R.S. Employerincorporation or organization)
    
    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
  Title of each class
 o Yes þ No
 o þ
 þ o
 o Yes þ No
 þ
  Large accelerated filer þ
    
    Accelerated filer o
    
    Non-accelerated filer o
    
    Smaller Reporting Company o(Do not check if smaller reporting company)
 o þ
 þ Yes o No
    Portion of Definitive Proxy Statement for Annual Meeting of Stockholders on April 21, 2010
    
    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 INDEXExhibit 10(j)Exhibit 10(k)Exhibit 10(l)Exhibit 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
     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®
BUTVAR®
    
    Laminated window
glassSpecialty intermediate PVB resin
    
    DuPont
Kuraray
Sekisui
    
    Butyraldehyde
Ethanol
Polyvinyl alcohol
Vinyl acetate
monomer
    
    Ghent, Belgium
Springfield, MA
Santo Toribio, Mexico Suzhou, 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®
BUTVAR®
    
    Laminated window glassSpecialty intermediate PVB resin
    
    DuPont
Sekisui
    
    Butyraldehyde
Ethanol
Polyvinyl alcohol
Vinyl acetate monomer
    
    Ghent, Belgium
Santo Toribio, Mexico
Springfield, MA
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
 ® ® ® ®
  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
    
    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
    
    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
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
Monongahela, 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
tires.CAPITAL 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. Sale of Products
    6




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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, 2005Jeffry
N. Quinn, 51
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, 49
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.James R. Voss, 43
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., now owned by
Valero Energy Corp.Robert T. DeBolt, 49
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, 41
Senior Vice President, 
General Counsel, Legal 
and Governmental 
Affairs
    
    
    2008
    
    
    Senior Vice President, General
Counsel, Legal and
Governmental Affairs since
December 2009. Mr. Berra
served as Senior Vice
President, General Counsel and
Chief Administrative Officer
from 2008. Mr. Berra served
as Vice President, Government
Affairs and Communications
from 2006-2008. Mr. Berra
joined Solutia in 2003 as
Assistant General Counsel,
Human Resources, and added
government affairs
responsibilities the following
year. Prior to joining
Solutia, Mr. Berra served as
Corporate Counsel at Premcor
Inc., now owned by Valero
Energy Corp.Timothy J. Spihlman, 38
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.Andrew B. Stroud, Jr., 51
Vice President, Human 
Resources
    
    
    2010
    
    
    Mr. Stroud was Executive Vice
President, DHR International,
a privately held provider of
executive search solutions
from August 2008 until
December 2009, when he joined
Solutia. He was Vice
President, Human Resources for
Insituform Technologies, a
leading worldwide provider of
cured-in place pipe (CIPP) and
other technologies and
services for the
rehabilitation of pipeline
systems. Previously, he
served as Vice President,
Human Resources of Aramark
Corporation, a food services,
facilities management, and
uniform and career apparel
provider from 2004.
Mr. Stroud has over twenty
years of experience in Human
Resources.
  Internet Access to Information
 www.solutia.com www.solutia.com www.sec.gov 1-800-SEC-0330.
  9




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##### Table of Contents



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.
 RISK RELATED TO OUR EMERGENCE FROM BANKRUPTCY
 Because our consolidated financial statements reflect fresh-start accounting adjustments made upon
emergence from bankruptcy, and because of the effects of the transactions that became effective
pursuant to the Plan of Reorganization, financial information in our future financial statements
will not be comparable to our financial information from prior periods.
 Reorganizations Business Combinations
 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.
   10




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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.
    Volatility in the prices of raw materials and energy or their reduced availability could
significantly impact our operating margins.
   11




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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 acquirers 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.
  The utilization of our net deferred tax assets could be substantially limited if we experienced an
ownership change as defined by the Internal Revenue Code.
    12




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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.
    13




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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 and other
locations could cause us to incur material costs and liabilities.
       14




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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
plans.
  Labor disruptions with the unionized portion of our workforce could have a negative effect.
   15




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We may engage in acquisitions that could disrupt our business and harm our operating results or
financial condition.
    Changes in supply-demand balance in the regions and the industries in which we operate may
adversely affect our financial results.
  Failure to make continued improvements in our technology and productivity could hurt our
competitive position .
  
 ITEM 1B.
    
    UNRESOLVED STAFF COMMENTS
  
 ITEM 2.
    
    PROPERTIES
    16




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ITEM 3.
    
    LEGAL PROCEEDINGS
 Litigation
   Legacy Tort Claims Litigation
  Putnam County, West Virginia Litigation.
   17




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Escambia County, Florida Litigation. John Allen, et al. v. Monsanto Company, et al.
 St. Clair County, Illinois Litigation.
   Solutia Inc. Employees Pension Plan Litigation
   18




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Medicare Reimbursement Litigation
 United States of America v. Stricker, et al. Abernathy v. Solutia Inc., et al. Abernathy Abernathy Abernathy Abernathy Abernathy
  Flexsys
Patent and Related Litigation
  United States Civil Patent Infringement Litigation.
 Rubber Chemicals Antitrust Litigation.
 Legal proceedings outside the United States.
 
 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
    
    $
    15.97
    
    
    $
    10.06Second Quarter
    
    $
    15.49
    
    
    $
    11.09Third Quarter
    
    $
    17.29
    
    
    $
    12.38Fourth Quarter
    
    $
    13.61
    
    
    $
    3.64
 2009
    
    High
    
    
    LowFirst Quarter
    
    $
    6.86
    
    
    $
    1.18Second Quarter
    
    $
    6.49
    
    
    $
    2.02Third Quarter
    
    $
    13.76
    
    
    $
    5.64Fourth Quarter
    
    $
    13.05
    
    
    $
    10.68
   Equity Compensation Plan Information
 Number of securities(a)
    
    
    
    
    
    
    remaining available forNumber of securities to be
    
    
    Weighted-average
    
    
    future issuance underissued upon exercise of
    
    
    exercise price of
    
    
    equity compensationoutstanding options,
    
    
    outstanding options,
    
    
    plans (excludingPlan Category
    
    warrants, and rights
    
    
    warrants, and rights
    
    
    securities reflected by (a))Equity compensation plans approved by
security holders
    
    
    
    
    
    
    
    
    
    
    Equity compensation plans not approved
by security holders
    
    
    1,901,959
    
    
    
    17.21
    
    
    
    1,713,528Total
    
    
    1,901,959
    
    
    
    17.21
    
    
    
    1,713,528
  20




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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, 2009
    
    
    0
    
    
    $
    0.00
    
    
    
    0
    
    
    $
    0November 1-30, 2009
    
    
    89
    
    
    $
    11.02
    
    
    
    0
    
    
    $
    0December 1-31, 2009
    
    
    0
    
    
    $
    0.00
    
    
    
    0
    
    
    $
    0Total
    
    
    89
    
    
    $
    11.02
    
    
    
    0
    
    
    $
    0
 (1)
    
    Shares surrendered to the Company by an employee to satisfy individual tax withholding
obligations upon vesting of previously issued shares of restricted common stock.(2)
    
    Average price paid per share reflects the closing price of Solutia common stock on the
business date the shares were surrendered by the employee stockholder to satisfy individual
tax withholding obligations upon vesting of restricted common stock. Stock Performance Graph
  Cumulative Total Returns
 
  21




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ITEM 6.
    
    SELECTED FINANCIAL DATA
 Financial
Summary
 Twelve Months
    
    
    Ten Months
    
    
    Two MonthsEnded
    
    
    Ended
    
    
    Ended
    
    
    Twelve Months Ended(Dollars and shares in millions,
    
    December 31,
    
    
    December 31,
    
    
    February 29,
    
    
    December 31,except per share amounts)
    
    2009
    
    
    2008
    
    
    2008
    
    
    2007
    
    
    2006
    
    
    2005Operating Results:Net Sales
    
    $
    1,667
    
    
    $
    1,775
    
    
    $
    335
    
    
    $
    1,643
    
    
    $
    1,064
    
    
    $
    1,003Gross Profit
    
    $
    470
    
    
    $
    367
    
    
    $
    94
    
    
    $
    383
    
    
    $
    271
    
    
    $
    219As percent of net sales
    
    
    28
    %
    
    
    21
    %
    
    
    28
    %
    
    
    23
    %
    
    
    25
    %
    
    
    22
    %Operating Income (1)
    
    $
    233
    
    
    $
    115
    
    
    $
    49
    
    
    $
    141
    
    
    $
    69
    
    
    $
    19As percent of net sales
    
    
    14
    %
    
    
    6
    %
    
    
    15
    %
    
    
    9
    %
    
    
    6
    %
    
    
    2
    %Income (Loss) from Continuing Operations Before Taxes
    
    $
    74
    
    
    $
    (2
    )
    
    $
    1,464
    
    
    $
    (252
    )
    
    $
    (58
    )
    
    $
    (5
    )Income (Loss) from Continuing
Operations (2)
    
    $
    60
    
    
    $
    (15
    )
    
    $
    1,250
    
    
    $
    (269
    )
    
    $
    (76
    )
    
    $
    (14
    )Income (Loss) from Discontinued Operations, net of tax
    
    $
    (169
    )
    
    $
    (648
    )
    
    $
    204
    
    
    $
    64
    
    
    $
    80
    
    
    $
    26Cumulative Effect of Change in Accounting Principle, net of tax (3)
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (3
    )Net Income attributable to noncontrolling interest
    
    $
    4
    
    
    $
    5
    
    
    
    
    
    
    $
    3
    
    
    $
    2
    
    
    $
    1Net Income (Loss) attributable to Solutia
    
    $
    (113
    )
    
    $
    (668
    )
    
    $
    1.454
    
    
    $
    (208
    )
    
    $
    2
    
    
    $
    8Per
Share Data:Basic and Diluted Earnings (Loss) per Share from Continuing Operations
attributable to Solutia(2)
    
    $
    0.53
    
    
    $
    (0.27
    )
    
    $
    11.96
    
    
    $
    (2.60
    )
    
    $
    (0.75
    )
    
    $
    (0.14
    )Basic Weighted Average Shares Outstanding
    
    
    106.5
    
    
    
    74.7
    
    
    
    104.5
    
    
    
    104.5
    
    
    
    104.5
    
    
    
    104.5Diluted Weighted Average Shares Outstanding
    
    
    106.7
    
    
    
    74.7
    
    
    
    104.5
    
    
    
    104.5
    
    
    
    104.5
    
    
    
    104.5Dividends per Share
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Financial Position  Continuing Operations:Total Assets
    
    $
    3,256
    
    
    $
    3,244
    
    
    $
    3,663
    
    
    $
    1,832
    
    
    $
    1,298
    
    
    $
    1,217Liabilities not Subject to Compromise
    
    $
    2,616
    
    
    $
    2,903
    
    
    $
    3,315
    
    
    $
    2,013
    
    
    $
    1,350
    
    
    $
    926Liabilities Subject to Compromise
    
    $
    
    
    
    $
    
    
    
    $
    
    
    
    $
    1,922
    
    
    $
    1,849
    
    
    $
    2,176Long-Term Debt(4)
    
    $
    1,264
    
    
    $
    1,359
    
    
    $
    1,796
    
    
    $
    359
    
    
    $
    210
    
    
    $
    247Shareholders Equity (Deficit)
    
    $
    600
    
    
    $
    529
    
    
    $
    1,043
    
    
    $
    (1,589
    )
    
    $
    (1,399
    )
    
    $
    (1,429
    )Other
Data from Continuing Operations:Working Capital (5)
    
    $
    484
    
    
    $
    329
    
    
    $
    492
    
    
    $
    (510
    )
    
    $
    (393
    )
    
    $
    (31
    )Interest Expense (6)
    
    $
    159
    
    
    $
    141
    
    
    $
    21
    
    
    $
    134
    
    
    $
    100
    
    
    $
    79Income Tax Expense (7)
    
    $
    14
    
    
    $
    13
    
    
    $
    214
    
    
    $
    17
    
    
    $
    18
    
    
    $
    9Depreciation and Amortization
    
    $
    107
    
    
    $
    89
    
    
    $
    11
    
    
    $
    59
    
    
    $
    46
    
    
    $
    40Capital Expenditures
    
    $
    44
    
    
    $
    84
    
    
    $
    15
    
    
    $
    99
    
    
    $
    55
    
    
    $
    49Employees (Year-End)
    
    
    3,400
    
    
    
    3,700
    
    
    
    3,700
    
    
    
    3,700
    
    
    
    2,900
    
    
    
    3,400
 (1)
    
    Operating income  includes net restructuring (gains)/charges and other
items of $32 million in 2009, $102 million in the ten months ended December 31, 2008 and ($2)
million in the two months ended February 29, 2008, $41 million in 2007, ($7) million in 2006, and
$14 million in 2005.(2)
    
    Income (loss) from continuing operations includes net restructuring charges and
other (gains)/charges of $70 million, or $0.66 per share in 2009, $79 million, or $1.06 per share
in the ten months ended December 31, 2008, ($2) million, or ($0.02) per share in the two months
ended February 29, 2008, $28 million, or $0.27 per share in 2007, $4 million, or $0.04 per share in
2006, and ($37) million, or ($0.35) per share in 2005.(3)
    
    Change in accounting
principle relates to the adoption of FASB Interpretation No. 47
Accounting for Conditional Asset Retirement Obligations  an interpretation of FASB Statement No.
143, guidance currently referenced in ASC 410 Asset Retirement and Environmental Obligations.(4)
    
    Long-term debt excludes $659 million as of December 31, 2007 and $668 million as of
December 31, 2006 and 2005 of debt classified as subject to compromise in accordance with ASC 852
Reorganizations, as a result of our Chapter 11 bankruptcy filing in 2003.(5)
    
    Working capital is defined as total current assets less total current liabilities.(6)
    
    Interest expense includes the recognition of interest on allowed secured claims as
approved by the Bankruptcy Court of $8 million in 2007 and the write-off of debt issuance costs and
debt discount of $38 million in 2009, $1 million in the ten months ended December 31, 2008 and $6
million in 2006 due to either the early repayment or early refinancing of the underlying debt
facilities. In addition, interest expense in all periods is affected by interest expense allocated
to discontinued operations and in all Predecessor periods for unrecorded contractual interest
expense on unsecured debt subject to compromise.(7)
    
    Income tax expense includes an increase (decrease) in valuation allowances of $23
million in 2009, $8 million in the ten months ended December 31, 2008, $(259) million in the two
months ended February 29, 2008, $82 million in 2007, $35 million in 2006, and $18 million in 2005.   22




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##### Table of Contents



ITEM 7.
    
    MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
 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
  Non-U.S. GAAP Financial Measures
    23




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##### Table of Contents



Summary of Significant 2009 Events
 Restructuring and Portfolio Realignment: Ò
  Long-term Capital Structure:
    24




---



##### Table of Contents



Summary Results of Operations:
 Summary of Financial Condition and Liquidity:
 Outlook
       25




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##### 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
   Litigation and Other Contingencies
   26




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##### Table of Contents



Income Taxes
    Impairment of Long-Lived Assets
   27




---



##### Table of Contents



Impairment of Goodwill and Indefinite-Lived Intangible Assets
      Pension and Other Postretirement Benefits
    28




---



##### Table of Contents



Results of Operations
 Consolidated Solutia
 $
    
    
    %Increase
    
    
    IncreaseSuccessor
    
    
    Combined
    
    
    Predecessor
    
    
    (Decrease)
    
    
    (Decrease)2009 vs.
    
    
    2008 vs.
    
    
    2009 vs.
    
    
    2008 vs.(dollars in millions)
    
    2009
    
    
    2008
    
    
    2007
    
    
    2008
    
    
    2007
    
    
    2008
    
    
    2007Net Sales
    
    $
    1,667
    
    
    $
    2,110
    
    
    $
    1,643
    
    
    $
    (443
    )
    
    $
    467
    
    
    
    (21
    )%
    
    
    28
    %Operating Income:Reportable Segment Profit (a)
    
    $
    432
    
    
    $
    328
    
    
    $
    263
    
    
    $
    104
    
    
    $
    65
    
    
    
    32
    %
    
    
    25
    %Unallocated and Other
    
    
    (96
    )
    
    
    (42
    )
    
    
    (27
    )
    
    $
    (54
    )
    
    $
    (15
    )
    
    
    (129
    )%
    
    
    (56
    )%Less: Depreciation and Amortization
    
    
    (107
    )
    
    
    (100
    )
    
    
    (59
    )Less: Equity Earnings from
Affiliates, Other Income, Loss on
Debt Modification and Net Income
Attributable to Noncontrolling
Interest included in Segment Profit
and Unallocated and Other
    
    
    4
    
    
    
    (22
    )
    
    
    (36
    )Operating Income
    
    $
    233
    
    
    $
    164
    
    
    $
    141
    
    
    $
    69
    
    
    $
    23
    
    
    
    42
    %
    
    
    16
    %Net Charges included in Operating Income
    
    $
    (32
    )
    
    $
    (100
    )
    
    $
    (41
    )
 (a)
    
    See Note 19  Segment and Geographic Data  to the accompanying
consolidated financial statements for description of the computation of reportable segment profit.   29




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##### Table of Contents



Summary of Events Affecting Comparability
 Summary of Events Affecting
Comparability
 Saflex
 $
    
    
    %Increase
    
    
    IncreaseSuccessor
    
    
    Combined
    
    
    Predecessor
    
    
    (Decrease)
    
    
    (Decrease)2009 vs.
    
    
    2008 vs.
    
    
    2009 vs.
    
    
    2008 vs.(dollars in millions)
    
    2009
    
    
    2008
    
    
    2007
    
    
    2008
    
    
    2007
    
    
    2008
    
    
    2007Net Sales
    
    $
    690
    
    
    $
    822
    
    
    $
    727
    
    
    $
    (132
    )
    
    $
    95
    
    
    
    (16
    )%
    
    
    13
    %Segment Profit
    
    $
    145
    
    
    $
    94
    
    
    $
    111
    
    
    $
    51
    
    
    $
    (17
    )
    
    
    54
    %
    
    
    (15
    )%Net Charges included in Segment Profit
    
    $
    (14
    )
    
    $
    (47
    )
    
    $
    (2
    )
 ®
  30




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##### Table of Contents



®
 Summary of Events Affecting Comparability
 Summary of Events Affecting Comparability
 CPFilms
 $
    
    
    %Increase
    
    
    IncreaseSuccessor
    
    
    Combined
    
    
    Predecessor
    
    
    (Decrease)
    
    
    (Decrease)2009 vs.
    
    
    2008 vs.
    
    
    2009 vs.
    
    
    2008 vs.(dollars in millions)
    
    2009
    
    
    2008
    
    
    2007
    
    
    2008
    
    
    2007
    
    
    2008
    
    
    2007Net Sales
    
    $
    185
    
    
    $
    236
    
    
    $
    234
    
    
    $
    (51
    )
    
    $
    2
    
    
    
    (22
    )%
    
    
    1
    %Segment Profit
    
    $
    26
    
    
    $
    42
    
    
    $
    58
    
    
    $
    (16
    )
    
    $
    (16
    )
    
    
    (38
    )%
    
    
    (28
    )%Net Charges included in Segment Profit
    
    $
    (7
    )
    
    $
    (13
    )
    
    $
    
  â â
 Summary of Events Affecting Comparability
 Summary of Events Affecting Comparability
  31




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##### Table of Contents



Technical Specialties
 $
    
    
    %Increase
    
    
    IncreaseSuccessor
    
    
    Combined
    
    
    Predecessor
    
    
    (Decrease)
    
    
    (Decrease)2009 vs.
    
    
    2008 vs.
    
    
    2009 vs.
    
    
    2008 vs.(dollars in millions)
    
    2009
    
    
    2008
    
    
    2007
    
    
    2008
    
    
    2007
    
    
    2008
    
    
    2007Net Sales
    
    $
    774
    
    
    $
    1,015
    
    
    $
    646
    
    
    $
    (241
    )
    
    $
    369
    
    
    
    (24
    )%
    
    
    57
    %Segment Profit
    
    $
    261
    
    
    $
    192
    
    
    $
    94
    
    
    $
    69
    
    
    $
    98
    
    
    
    36
    %
    
    
    104
    %Net Gains
(Charges) included
in Segment Profit
    
    $
    14
    
    
    $
    (43
    )
    
    $
    (30
    )
 ® ® ® ® ® ® ® ®
 ® ® ® ® ®
 Summary of Events Affecting Comparability
 Summary of Events Affecting Comparability
  32




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##### Table of Contents



Unallocated and Other
 $
    
    
    %Increase
    
    
    IncreaseSuccessor
    
    
    Combined
    
    
    Predecessor
    
    
    (Decrease)
    
    
    (Decrease)2009 vs.
    
    
    2008 vs.
    
    
    2009 vs.
    
    
    2008 vs.(dollars in millions)
    
    2009
    
    
    2008
    
    
    2007
    
    
    2008
    
    
    2007
    
    
    2008
    
    
    2007Components of Unallocated and OtherOther Operations Segment Profit (Loss)
    
    $
    (12
    )
    
    $
    (2
    )
    
    $
    1Corporate Expenses
    
    
    (46
    )
    
    
    (55
    )
    
    
    (53
    )Share-Based Compensation Expense
    
    
    (17
    )
    
    
    (11
    )
    
    
    Equity Earnings from Affiliates
    
    
    
    
    
    
    
    
    
    
    12Other Unallocated Income (Expense), net
    
    
    (21
    )
    
    
    26
    
    
    
    13Unallocated and Other results
    
    $
    (96
    )
    
    $
    (42
    )
    
    $
    (27
    )
    
    $
    (54
    )
    
    $
    (15
    )
    
    
    (129
    )%
    
    
    (55
    )%Gains (Charges) included in Unallocated
and Other
    
    $
    (25
    )
    
    $
    10
    
    
    $
    5
     33




---



##### Table of Contents



Interest Expense
 $
    
    
    %Increase
    
    
    IncreaseSuccessor
    
    
    Combined
    
    
    Predecessor
    
    
    (Decrease)
    
    
    (Decrease)2009 vs.
    
    
    2008 vs.
    
    
    2009 vs.
    
    
    2008 vs.(dollars in millions)
    
    2009
    
    
    2008
    
    
    2007
    
    
    2008
    
    
    2007
    
    
    2008
    
    
    2007Interest Expense
    
    $
    159
    
    
    $
    162
    
    
    $
    134
    
    
    $
    (3
    )
    
    $
    28
    
    
    
    (2
    )%
    
    
    21
    %Charges included in Interest Expense
    
    $
    (38
    )
    
    $
    (1
    )
    
    $
    (8
    )
    Reorganization Items, net
 $
    
    
    %Increase
    
    
    IncreaseSuccessor
    
    
    Combined
    
    
    Predecessor
    
    
    (Decrease)
    
    
    (Decrease)2009 vs.
    
    
    2008 vs.
    
    
    2009 vs.
    
    
    2008 vs.(dollars in millions)
    
    2009
    
    
    2008
    
    
    2007
    
    
    2008
    
    
    2007
    
    
    2008
    
    
    2007Reorganization Items, net
    
    $
    
    
    
    $
    1,433
    
    
    $
    (298
    )
    
    $
    (1,433
    )
    
    
    1,731
    
    
    
    N.M.
    
    
    
    N.M.
  34




---



##### Table of Contents



Income Tax Expense
 $
    
    
    %Increase
    
    
    IncreaseSuccessor
    
    
    Combined
    
    
    Predecessor
    
    
    (Decrease)
    
    
    (Decrease)2009 vs.
    
    
    2008 vs.
    
    
    2009 vs.
    
    
    2008 vs.(dollars in millions)
    
    2009
    
    
    2008
    
    
    2007
    
    
    2008
    
    
    2007
    
    
    2008
    
    
    2007Income Tax Expense
    
    $
    14
    
    
    $
    227
    
    
    $
    17
    
    
    $
    (213
    )
    
    $
    210
    
    
    
    N.M.
    
    
    
    N.M.Increase (Decrease) in Valuation
Allowance included in Income Tax
Expense
    
    $
    23
    
    
    $
    (251
    )
    
    $
    82
    Discontinued Operations
 $
    
    
    %Increase
    
    
    IncreaseSuccessor
    
    
    Combined
    
    
    Predecessor
    
    
    (Decrease)
    
    
    (Decrease)2009 vs.
    
    
    2008 vs.
    
    
    2009 vs.
    
    
    2008 vs.(dollars in millions)
    
    2009
    
    
    2008
    
    
    2007
    
    
    2008
    
    
    2007
    
    
    2008
    
    
    2007Integrated Nylon business
    
    $
    (170
    )
    
    $
    (445
    )
    
    $
    50Dequest business
    
    
    
    
    
    
    
    
    
    
    19Other
    
    
    1
    
    
    
    1
    
    
    
    (5
    )Income (Loss) from Discontinued
Operations, net of tax
    
    $
    (169
    )
    
    $
    (444
    )
    
    $
    64
    
    
    $
    275
    
    
    $
    (508
    )
    
    
    62
    %
    
    
    N.M.Reorganization items
included in income (loss) from
discontinued operations
    
    $
    
    
    
    $
    212
    
    
    $
    
  35




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##### Table of Contents



®
  ®
  36




---



##### Table of Contents



Summary of Events Affecting Comparability
  2009 Events
 TechnicalIncrease/(Decrease)
    
    Saflex
    
    
    CPFilms
    
    
    Specialties
    
    
    Unallocated/Other
    
    
    ConsolidatedImpact on:Cost of goods sold
    
    $
    (2
    )
    
    $
    
    
    
    $
    (3
    )
    
    $
    (1
    )
    
    $
    (6
    )
(a)3
    
    
    
    1
    
    
    
    1
    
    
    
    1
    
    
    
    6

    (b)5
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    5
    
(c)
    
    
    
    
    
    
    
    (2
    )
    
    
    
    
    
    
    (2
    )
(d)
    
    
    
    
    
    
    
    
    
    
    
    7
    
    
    
    7

    (e)
    
    
    
    4
    
    
    
    
    
    
    
    
    
    
    
    4

    (f)
    
    
    
    
    
    
    
    
    
    
    
    1
    
    
    
    1

    (g)Selling, general and
administrative
expenses
    
    
    (4
    )
    
    
    
    
    
    
    (9
    )
    
    
    (3
    )
    
    
    (16
    )
(a)12
    
    
    
    3
    
    
    
    2
    
    
    
    11
    
    
    
    28

    (b)
    
    
    
    
    
    
    
    
    
    
    
    4
    
    
    
    4

    (e)
    
    
    
    
    
    
    
    1
    
    
    
    
    
    
    
    1

    (h)Research, development
and other operating
expenses
    
    
    (1
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (1
    )
(a)1
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    1
    
(b)
    
    
    
    
    
    
    
    (4
    )
    
    
    
    
    
    
    (4
    )
(i)
    
    
    
    
    
    
    
    
    
    
    
    5
    
    
    
    5

    (j)
    
    
    
    (1
    )
    
    
    
    
    
    
    
    
    
    
    (1
    )
(f)Operating Income Impact
    
    
    (14
    )
    
    
    (7
    )
    
    
    14
    
    
    
    (25
    )
    
    
    (32
    )Interest expense
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (30
    )
    
    
    (30
    )
(k)
    
    
    
    
    
    
    
    
    
    
    
    (8
    )
    
    
    (8
    )
(l)Pre-tax Income
Statement Impact
    
    $
    (14
    )
    
    $
    (7
    )
    
    $
    14
    
    
    $
    (63
    )
    
    
    (70
    )Income tax impact
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (3
    )
(m)After-tax Income
Statement Impact
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    $
    (67
    )
 (a)
    
    Gain related to the reduction in the 2008 annual incentive plan ($23 million pre-tax and $20 million after-tax).(b)
    
    Severance and retraining costs related to the general corporate restructuring ($35 million pre-tax and $29 million after-tax).(c)
    
    Charges related to the closure of the SAFLEX® plastic interlayer production line at the Trenton Facility ($5 million pre-tax
and after-tax).(d)
    
    Net gains related to the closure of the Ruabon Facility ($2 million pre-tax and after-tax).(e)
    
    Net pension plan settlements, as more fully described in Note 13 to the accompanying consolidated financial statements ($11
million pre-tax and after-tax).(f)
    
    Net charges of $3 million related to consolidation of certain European manufacturing and distribution sites ($3 million
pre-tax and after-tax).(g)
    
    Impairment of intangible assets related to the Plastic Products Sale ($1 million pre-tax and after-tax).(h)
    
    Impairment of intangible assets related to the sale of our Thiurams business (Thiurams Sale) ($1 million pre-tax and
after-tax).(i)
    
    Gain on the Thiurams Sale ($4 million pre-tax and $3 million after-tax).(j)
    
    Loss on the Plastic Products Sale ($5 million pre-tax and after-tax).(k)
    
    Charges related to the $300 million pay down on the Term Loan to write-off unamortized debt issuance costs ($30 million
pre-tax and after-tax).(l)
    
    Charges related to the repayment of the German term loan to write-off unamortized debt issuance costs and debt discount ($8
million pre-tax and after-tax).(m)
    
    Income tax expense has been provided on gains and charges at the tax rate in the jurisdiction in which they have been or will
be realized.  37




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##### Table of Contents



2008 Events
 TechnicalIncrease/(Decrease)
    
    Saflex
    
    
    CPFilms
    
    
    Specialties
    
    
    Unallocated/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)1
    
    
    
    
    
    
    
    
    
    
    
    2
    
    
    
    3

    (g)Selling, general and
administrative expenses
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    3
    
    
    
    3

    (g)
    
    
    
    3
    
    
    
    
    
    
    
    
    
    
    
    3

    (h)Research, development and
other operating expenses
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (6
    )
    
    
    (6
)
    (i)Operating Income Impact
    
    
    (47
    )
    
    
    (13
    )
    
    
    (43
    )
    
    
    3
    
    
    
    (100
)Interest expense
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (1
    )
    
    
    (1
)
    (j)Other income, net
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    7
    
    
    
    7

    (k)Reorganization Items, net
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    1,433
    
    
    
    1,433

    (l)Pre-tax Income Statement Impact
    
    $
    (47
    )
    
    $
    (13
    )
    
    $
    (43
    )
    
    $
    1,442
    
    
    
    1,339Income 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)
    
    Restructuring costs related principally to severance and retraining costs ($6 million pre-tax and after-tax).(h)
    
    Write-down of indefinite-lived intangible assets ($3 million pre-tax and $2 million after-tax).(i)
    
    Gain resulting from surplus land sales ($6 million pre-tax and after-tax).(j)
    
    Unamortized debt issuance costs associated with the repayment of the Bridge ($1 million pre-tax and after-tax).(k)
    
    Gain resulting from the settlement of emergence related incentive and professional fees accruals ($7 million pre-tax and after-tax).(l)
    
    Reorganization items, net consist of the following: $104 million charge on the settlement of liabilities subject to compromise,
$1,589 million gain from fresh-start accounting adjustments, and $52 million of professional fees for services provided by debtor
and creditor professionals directly related to our reorganization proceedings ($1,433 million pre-tax and $1,231 million
after-tax).(m)
    
    Income tax expense has been provided on gains and charges at the tax rate in the jurisdiction in which they have been or will be
realized.  38




---



##### Table of Contents



2007 Events
 TechnicalIncrease/(Decrease)
    
    Saflex
    
    
    CPFilms
    
    
    Specialties
    
    
    Unallocated/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 at one of our facilities ($4 million
pre-tax and $3 million after-tax).(c)
    
    Charge resulting from the step-up in basis of Rubber Chemicals inventory in accordance with purchase accounting ($3
million pre-tax and after-tax).(d)
    
    Net pension plan settlements, as more fully described in Note 13 to the accompanying consolidated financial statements
($5 million pre-tax and after-tax  see note (j) below).(e)
    
    Restructuring costs related principally to severance and retraining costs ($4 million pre-tax and $3 million after-tax).(f)
    
    Charge resulting from recognition of interest expense on claims recognized as allowed secured claims through
settlements approved by the Bankruptcy Court ($8 million pre-tax and after-tax  see note (j) below).(g)
    
    Settlement gain, net of legal expenses ($21 million pre-tax and after-tax  see note (j) below).(h)
    
    We recorded a charge of approximately $7 million (pre-tax and after-tax  see note (j) below) to record the write-off
of debt issuance costs and to record the DIP facility as modified at its fair value as of the amendment date.(i)
    
    Reorganization items, net consist of the following: a $224 million net charge from adjustments to record certain
pre-petition claims at estimated amounts of the allowed claims; $67 million of professional fees for services provided
by debtor and creditor professionals directly related to our reorganization proceedings; $9 million of expense
provisions for (i) employee severance costs incurred directly as part of the Chapter 11 reorganization process and (ii)
a retention plan for certain of our employees approved by the Bankruptcy Court; and a $2 million net gain realized from
claim settlements ($298 million pre-tax and after-tax  see note (j) below).(j)
    
    With the exception of items (a), (b), (c) and (e) above, which relate to operations not in reorganization, the above
items are considered to have like pre-tax and after-tax impact as the tax benefit or expense realized from these events
is offset by the change in valuation allowance for U.S. deferred tax assets resulting from uncertainty as to their
recovery due to our Chapter 11 bankruptcy filing. Environmental Matters
   39




---



##### Table of Contents



Derivative Financial Instruments
  Foreign Currency Exchange Rate Risk
   40




---



##### Table of Contents



Interest Rate Risk
  Commodity Price Risk
  Financial Condition and Liquidity
     41




---



##### Table of Contents



Cash Flows  Continuing Operations
  Successor
    
    
    Combined
    
    
    PredecessorTwelve Months
    
    
    Twelve Months
    
    
    Twelve MonthsEnded
    
    
    Ended
    
    
    Ended
    
    
    IncreaseCash Flow Summary  Continuing Operations
    
    December 31,
    
    
    December 31,
    
    
    December 31,
    
    
    (Decrease)(dollars in millions)
    
    2009
    
    
    2008
    
    
    2007
    
    
    2009 vs. 2008
    
    
    2008 vs. 2007Cash provided by (used in) operating
activities before reorganization items
    
    $
    199
    
    
    $
    139
    
    
    $
    (38
    )
    
    $
    60
    
    
    $
    177Cash used in reorganization activities
    
    
    
    
    
    
    (380
    )
    
    
    (80
    )
    
    
    380
    
    
    
    (300
    )Cash provided by (used in) operating activities
    
    
    199
    
    
    
    (241
    )
    
    
    (118
    )
    
    
    440
    
    
    
    (123
    )Cash used in investing activities
    
    
    (28
    )
    
    
    (50
    )
    
    
    (218
    )
    
    
    22
    
    
    
    168Cash provided by (used in) financing activities
    
    
    (19
    )
    
    
    353
    
    
    
    279
    
    
    
    (372
    )
    
    
    74Net change in cash for period attributable
to continuing operations
    
    $
    152
    
    
    $
    62
    
    
    $
    (57
    )
    
    $
    90
    
    
    $
    119
 Operating activities:
   42




---



##### Table of Contents



Investing activities:
 ®
 Financing activities:
  Working Capital  Continuing Operations
  SuccessorWorking Capital  Continuing Operations
    
    December 31,
    
    
    December 31,
    
    
    Increase(dollars in millions)
    
    2009
    
    
    2008
    
    
    (Decrease)Cash and cash equivalents
    
    $
    243
    
    
    $
    32Trade receivables, net
    
    
    268
    
    
    
    227Inventories
    
    
    257
    
    
    
    341Other current assets
    
    
    119
    
    
    
    195Total current assets
    
    $
    887
    
    
    $
    795Accounts payable
    
    $
    169
    
    
    $
    170Accrued liabilities
    
    
    206
    
    
    
    259Short-term debt, including current portion of long-term debt
    
    
    28
    
    
    
    37Total current liabilities
    
    $
    403
    
    
    $
    466Working Capital
    
    $
    484
    
    
    $
    329
    
    
    $
    155
  43




---



##### Table of Contents



Cash Flows  Discontinued Operations
 Successor
    
    
    Combined
    
    
    PredecessorTwelve Months
    
    
    Twelve Months
    
    
    Twelve MonthsEnded
    
    
    Ended
    
    
    Ended
    
    
    IncreaseCash Flow Summary  Discontinued Operations
    
    December 31,
    
    
    December 31,
    
    
    December 31,
    
    
    (Decrease)(dollars in millions)
    
    2009
    
    
    2008
    
    
    2007
    
    
    2009 vs. 2008
    
    
    2008 vs. 2007Cash provided by (used in) operating activities
    
    $
    52
    
    
    $
    (152
    )
    
    $
    67
    
    
    $
    204
    
    
    $
    (219
    )Cash provided by (used in) investing activities
    
    
    7
    
    
    
    (51
    )
    
    
    13
    
    
    
    58
    
    
    
    (64
    )Net change in cash for period attributable
to discontinued operations
    
    $
    59
    
    
    $
    (203
    )
    
    $
    80
    
    
    $
    262
    
    
    $
    (283
    )
  ®
  44




---



##### Table of Contents



Debt Covenants
 Leverage Ratio: Fixed Charge Ratio:
 December 31,
    
    
    March 31,
    
    
    June 30,
    
    
    September 30,
    
    
    December 31,2009
    
    
    2010
    
    
    2010
    
    
    2010
    
    
    2010Actual
    
    
    Covenant
    
    
    Covenant
    
    
    Covenant
    
    
    Covenant
    
    
    CovenantMax Leverage Ratio
    
    
    3.23
    
    
    
    4.50
    
    
    
    4.50
    
    
    
    4.50
    
    
    
    4.50
    
    
    
    4.50Min Fixed Charge Ratio
    
    
    2.70
    
    
    
    1.15
    
    
    
    1.35
    
    
    
    1.35
    
    
    
    1.35
    
    
    
    1.35Max Capital Expenditures
    
    $
    44
    
    
    $
    252
    
    
    
    n.a.
    
    
    
    n.a.
    
    
    
    n.a.
    
    
    $
    306
 Capital
Expenditures
  Pension Contributions
  Off-Balance Sheet Arrangements
  Contingencies
  Commitments
   45




---



##### Table of Contents



Obligations Due by Period (Dollars in Millions)2013-
    
    
    2015 andContractual Obligations
    
    Total
    
    
    2010
    
    
    2011
    
    
    2012
    
    
    2014
    
    
    thereafterShort-Term Debt
    
    $
    16
    
    
    $
    16
    
    
    $
    
    
    
    $
    
    
    
    $
    
    
    
    $
    Long-Term Debt, including current portion
    
    
    1,276
    
    
    
    12
    
    
    
    12
    
    
    
    12
    
    
    
    840
    
    
    
    400Interest Payments Related to Long-Term Debt
    
    
    538
    
    
    
    98
    
    
    
    97
    
    
    
    97
    
    
    
    141
    
    
    
    105Operating Leases
    
    
    52
    
    
    
    11
    
    
    
    9
    
    
    
    8
    
    
    
    11
    
    
    
    13Unconditional Purchase Obligations(a)
    
    
    133
    
    
    
    92
    
    
    
    29
    
    
    
    8
    
    
    
    4
    
    
    
    Standby Letters of Credit(b)
    
    
    49
    
    
    
    43
    
    
    
    5
    
    
    
    1
    
    
    
    
    
    
    
    Postretirement Obligations(c)
    
    
    414
    
    
    
    68
    
    
    
    96
    
    
    
    78
    
    
    
    128
    
    
    
    44Environmental Remediation
    
    
    291
    
    
    
    31
    
    
    
    31
    
    
    
    35
    
    
    
    53
    
    
    
    141Uncertain Tax Positions(d)
    
    
    2
    
    
    
    2
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Total Contractual Obligations
    
    $
    2,771
    
    
    $
    373
    
    
    $
    279
    
    
    $
    239
    
    
    $
    1,177
    
    
    $
    703
 (a)
    
    Unconditional purchase obligations primarily represent minimum non-cancelable future commitments to purchase raw materials and energy.(b)
    
    Standby letters of credit contractually expiring in 2009 are generally anticipated to
be renewed or extended by extensions with existing standby letters of credit providers.(c)
    
    Represents estimated future minimum funding requirements for funded pension plans and
other postretirement plans and estimated future benefit payments for unfunded pension and
other postretirement plans.(d)
    
    In addition to the $2 million reported in the 2010 column and classified as a
current liability, we have $34 million recorded in other liabilities on the Consolidated
Statement of Financial Position for which it is not reasonably possible to predict when it
may be paid. Recently Issued Accounting Standards
  
 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
  Internal Control  Integrated Framework
      48




---



##### Table of Contents



Internal
Control  Integrated Framework .
   
  49




---



##### Table of Contents



SOLUTIA INC.
 
 CONSOLIDATED STATEMENT OF OPERATIONS
 (Dollars and shares in millions, except per share amounts)
 Successor
    
    
    
    PredecessorTwelve Months
    
    
    Ten Months
    
    
    
    Two Months
    
    
    Twelve MonthsEnded
    
    
    Ended
    
    
    
    Ended
    
    
    EndedDecember 31,
    
    
    December 31,
    
    
    
    February 29,
    
    
    December 31,2009
    
    
    2008
    
    
    
    2008
    
    
    2007Net Sales
    
    $
    1,667
    
    
    $
    1,775
    
    
    
    $
    335
    
    
    $
    1,643Cost of goods sold
    
    
    1,197
    
    
    
    1,408
    
    
    
    
    241
    
    
    
    1,260Gross Profit
    
    
    470
    
    
    
    367
    
    
    
    
    94
    
    
    
    383Selling, general and administrative expenses
    
    
    227
    
    
    
    243
    
    
    
    
    42
    
    
    
    218Research, development and other operating expenses, net
    
    
    10
    
    
    
    9
    
    
    
    
    3
    
    
    
    24Operating Income
    
    
    233
    
    
    
    115
    
    
    
    
    49
    
    
    
    141Equity earnings from affiliates
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    12Interest expense (a)
    
    
    (159
    )
    
    
    (141
    )
    
    
    
    (21
    )
    
    
    (134
    )Other income, net
    
    
    
    
    
    
    24
    
    
    
    
    3
    
    
    
    34Loss on debt modification
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (7
    )Reorganization items, net
    
    
    
    
    
    
    
    
    
    
    
    1,433
    
    
    
    (298
    )Income (Loss) from Continuing Operations Before Income Tax
Expense
    
    
    74
    
    
    
    (2
    )
    
    
    
    1,464
    
    
    
    (252
    )Income tax expense
    
    
    14
    
    
    
    13
    
    
    
    
    214
    
    
    
    17Income (Loss) from Continuing Operations
    
    
    60
    
    
    
    (15
    )
    
    
    
    1,250
    
    
    
    (269
    )Income (Loss) from Discontinued Operations, net of tax
    
    
    (169
    )
    
    
    (648
    )
    
    
    
    204
    
    
    
    64Net Income (Loss)
    
    
    (109
    )
    
    
    (663
    )
    
    
    
    1,454
    
    
    
    (205
    )Net Income attributable to noncontrolling interest
    
    
    4
    
    
    
    5
    
    
    
    
    
    
    
    
    3Net Income (Loss) attributable to Solutia
    
    $
    (113
    )
    
    $
    (668
    )
    
    
    $
    1,454
    
    
    $
    (208
    )Basic and Diluted Income (Loss) per Share attributable to Solutia:Income (Loss) from Continuing Operations attributable to Solutia
    
    $
    0.53
    
    
    $
    (0.27
    )
    
    
    $
    11.96
    
    
    $
    (2.60
    )Income (Loss) from Discontinued Operations
    
    
    (1.59
    )
    
    
    (8.67
    )
    
    
    
    1.95
    
    
    
    0.61Net Income (Loss) attributable to Solutia
    
    $
    (1.06
    )
    
    $
    (8.94
    )
    
    
    $
    13.91
    
    
    $
    (1.99
    )
 (a)
    
    Predecessor excludes unrecorded contractual interest expense of $5 in the two months ended
February 29, 2008 and $32 in the year ended December 31, 2007. 
 CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME (LOSS)
(Dollars in millions)
 Successor
    
    
    
    PredecessorTwelve Months
    
    
    Ten Months
    
    
    
    Two Months
    
    
    Twelve MonthsEnded
    
    
    Ended
    
    
    
    Ended
    
    
    EndedDecember 31,
    
    
    December 31,
    
    
    
    February 29,
    
    
    December 31,2009
    
    
    2008
    
    
    
    2008
    
    
    2007Net Income (Loss)
    
    $
    (109
    )
    
    $
    (663
    )
    
    
    $
    1,454
    
    
    $
    (205
    )Other Comprehensive Income (Loss):Currency translation adjustments
    
    
    42
    
    
    
    (97
    )
    
    
    
    32
    
    
    
    31Net unrealized gain (loss) on derivative instruments
    
    
    4
    
    
    
    (26
    )
    
    
    
    
    
    
    
    Realized loss on derivative instruments
    
    
    1
    
    
    
    
    
    
    
    
    
    
    
    
    Pension settlement charge
    
    
    31
    
    
    
    
    
    
    
    
    
    
    
    
    Amortization of prior service gain
    
    
    
    
    
    
    
    
    
    
    
    (3
    )
    
    
    (17
    )Amortization of net actuarial (gain) loss
    
    
    (4
    )
    
    
    
    
    
    
    
    2
    
    
    
    16Actuarial loss arising during the period
    
    
    (25
    )
    
    
    (162
    )
    
    
    
    (64
    )
    
    
    (8
    )Prior service gain arising during the period
    
    
    
    
    
    
    
    
    
    
    
    109Fresh-start accounting adjustment
    
    
    
    
    
    
    
    
    
    
    
    (30
    )
    
    
    Comprehensive Income (Loss)
    
    
    (60
    )
    
    
    (948
    )
    
    
    
    1,500
    
    
    
    (183
    )Comprehensive Income attributable to noncontrolling interest
    
    
    4
    
    
    
    6
    
    
    
    
    
    
    
    
    4Comprehensive Income (Loss) attributable to Solutia
    
    $
    (64
    )
    
    $
    (954
    )
    
    
    $
    1,500
    
    
    $
    (187
    )
   50




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##### Table of Contents



SOLUTIA INC.
 
 CONSOLIDATED STATEMENT OF FINANCIAL POSITION
 (Dollars in millions, except per share amounts)
 SuccessorDecember 31,
    
    
    December 31,2009
    
    
    2008ASSETSCurrent Assets:Cash and cash equivalents
    
    $
    243
    
    
    $
    32Trade receivables, net of allowances of $2 in 2009 and $0 in 2008
    
    
    268
    
    
    
    227Miscellaneous receivables
    
    
    82
    
    
    
    110Inventories
    
    
    257
    
    
    
    341Prepaid expenses and other assets
    
    
    37
    
    
    
    85Assets of discontinued operations
    
    
    10
    
    
    
    490Total Current Assets
    
    
    897
    
    
    
    1,285Property, Plant and Equipment,net of accumulated depreciation of
$128 in 2009 and $56 in 2008
    
    
    919
    
    
    
    952Goodwill
    
    
    511
    
    
    
    511Identified Intangible Assets, net
    
    
    803
    
    
    
    823Other Assets
    
    
    136
    
    
    
    163Total Assets
    
    $
    3,266
    
    
    $
    3,734LIABILITIES AND SHAREHOLDERS EQUITYCurrent Liabilities:Accounts payable
    
    $
    169
    
    
    $
    170Accrued liabilities
    
    
    206
    
    
    
    259Short-term debt, including current portion of long-term debt
    
    
    28
    
    
    
    37Liabilities of discontinued operations
    
    
    50
    
    
    
    302Total Current Liabilities
    
    
    453
    
    
    
    768Long-Term Debt
    
    
    1,264
    
    
    
    1,359Postretirement Liabilities
    
    
    411
    
    
    
    465Environmental Remediation Liabilities
    
    
    260
    
    
    
    279Deferred Tax Liabilities
    
    
    179
    
    
    
    202Other Liabilities
    
    
    99
    
    
    
    132Commitments and Contingencies (Note 17)Shareholders Equity:Common stock at $0.01 par value; (500,000,000 shares authorized,
121,869,293 and 94,392,772 shares issued in 2009 and 2008, respectively)
    
    
    1
    
    
    
    1Additional contributed capital
    
    
    1,612
    
    
    
    1,474Treasury shares, at cost (430,203 and 77,132 in 2009 and 2008, respectively)
    
    
    (2
    )
    
    
    Accumulated other comprehensive loss
    
    
    (237
    )
    
    
    (286
    )Accumulated deficit
    
    
    (781
    )
    
    
    (668
    )Total Shareholders Equity attributable to Solutia
    
    
    593
    
    
    
    521Equity attributable to noncontrolling interest
    
    
    7
    
    
    
    8Total Shareholders Equity
    
    
    600
    
    
    
    529Total Liabilities and Shareholders Equity
    
    $
    3,266
    
    
    $
    3,734
   51




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##### Table of Contents



SOLUTIA INC.
 
 CONSOLIDATED STATEMENT OF CASH FLOWS
 (Dollars in millions)
 Successor
    
    
    
    PredecessorTwelve Months
    
    
    Ten Months
    
    
    
    Two Months
    
    
    Twelve MonthsEnded
    
    
    Ended
    
    
    
    Ended
    
    
    EndedDecember 31,
    
    
    December 31,
    
    
    
    February 29,
    
    
    December 31,2009
    
    
    2008
    
    
    
    2008
    
    
    2007INCREASE
(DECREASE) IN CASH AND CASH EQUIVALENTS:OPERATING ACTIVITIES:Net income (loss)
    
    $
    (109
    )
    
    $
    (663
    )
    
    
    $
    1,454
    
    
    $
    (205
    )Adjustments to reconcile net income (loss) to net cash provided by (used in) operations:(Income) Loss from discontinued operations, net of tax
    
    
    169
    
    
    
    648
    
    
    
    
    (204
    )
    
    
    (64
    )Depreciation and amortization
    
    
    107
    
    
    
    89
    
    
    
    
    11
    
    
    
    59Revaluation of assets and liabilities, net of tax
    
    
    
    
    
    
    
    
    
    
    
    (1,383
    )
    
    
    Discharge of claims and liabilities, net of tax
    
    
    
    
    
    
    
    
    
    
    
    100
    
    
    
    Other reorganization items, net
    
    
    
    
    
    
    
    
    
    
    
    52
    
    
    
    298Pension obligation related expense less than contributions
    
    
    (72
    )
    
    
    (39
    )
    
    
    
    (18
    )
    
    
    (143
    )Other postretirement benefit obligation related expense less than contributions
    
    
    (12
    )
    
    
    (13
    )
    
    
    
    (6
    )
    
    
    (39
    )Deferred income taxes
    
    
    1
    
    
    
    (21
    )
    
    
    
    5
    
    
    
    (13
    )Amortization of debt issuance costs
    
    
    20
    
    
    
    15
    
    
    
    
    
    
    
    
    3Equity earnings from affiliates
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (12
    )(Gain) Loss on sale of other assets
    
    
    2
    
    
    
    (8
    )
    
    
    
    
    
    
    
    Other (gains) charges including restructuring expenses
    
    
    68
    
    
    
    97
    
    
    
    
    (2
    )
    
    
    35Other, net
    
    
    2
    
    
    
    
    
    
    
    
    
    
    
    
    Changes in assets and liabilities, net of acquisitions and divestitures:Income taxes payable
    
    
    (7
    )
    
    
    (7
    )
    
    
    
    5
    
    
    
    14Trade receivables
    
    
    (43
    )
    
    
    91
    
    
    
    
    (24
    )
    
    
    (34
    )Inventories
    
    
    80
    
    
    
    (7
    )
    
    
    
    (34
    )
    
    
    (5
    )Accounts payable
    
    
    14
    
    
    
    (31
    )
    
    
    
    31
    
    
    
    12Restricted cash to fund payment of legacy liabilities
    
    
    28
    
    
    
    18
    
    
    
    
    
    
    
    
    Environmental remediation liabilities
    
    
    (18
    )
    
    
    (18
    )
    
    
    
    (1
    )
    
    
    Other assets and liabilities
    
    
    (31
    )
    
    
    4
    
    
    
    
    (2
    )
    
    
    56Cash Provided by (Used in) Continuing Operations before Reorganization Activities
    
    
    199
    
    
    
    155
    
    
    
    
    (16
    )
    
    
    (38
    )Reorganization Activities:Establishment of VEBA retiree trust
    
    
    
    
    
    
    
    
    
    
    
    (175
    )
    
    
    Establishment of restricted cash for environmental remediation and other legacy payments
    
    
    
    
    
    
    
    
    
    
    
    (46
    )
    
    
    Payment for allowed secured and administrative claims
    
    
    
    
    
    
    
    
    
    
    
    (79
    )
    
    
    Professional service fees
    
    
    
    
    
    
    (31
    )
    
    
    
    (31
    )
    
    
    (72
    )Other reorganization and emergence related payments
    
    
    
    
    
    
    (1
    )
    
    
    
    (17
    )
    
    
    (8
    )Cash Used in Reorganization Activities
    
    
    
    
    
    
    (32
    )
    
    
    
    (348
    )
    
    
    (80
    )Cash Provided by (Used in) OperationsContinuing Operations
    
    
    199
    
    
    
    123
    
    
    
    
    (364
    )
    
    
    (118
    )Cash Provided by (Used in) OperationsDiscontinued Operations
    
    
    52
    
    
    
    (104
    )
    
    
    
    (48
    )
    
    
    67Cash Provided by (Used in) Operations
    
    
    251
    
    
    
    19
    
    
    
    
    (412
    )
    
    
    (51
    )INVESTING ACTIVITIES:Property, plant and equipment purchases
    
    
    (44
    )
    
    
    (84
    )
    
    
    
    (15
    )
    
    
    (99
    )Acquisition and investment payments
    
    
    (2
    )
    
    
    (4
    )
    
    
    
    
    
    
    
    (131
    )Restricted cash
    
    
    9
    
    
    
    
    
    
    
    
    
    
    
    
    4Investment proceeds and property disposals
    
    
    9
    
    
    
    53
    
    
    
    
    
    
    
    
    8Cash Used in Investing ActivitiesContinuing Operations
    
    
    (28
    )
    
    
    (35
    )
    
    
    
    (15
    )
    
    
    (218
    )Cash Provided by (Used in) Investing ActivitiesDiscontinued Operations
    
    
    7
    
    
    
    (37
    )
    
    
    
    (14
    )
    
    
    13Cash Used in Investing Activities
    
    
    (21
    )
    
    
    (72
    )
    
    
    
    (29
    )
    
    
    (205
    )FINANCING ACTIVITIES:Net change in lines of credit
    
    
    (14
    )
    
    
    25
    
    
    
    
    
    
    
    
    14Proceeds from long-term debt obligations
    
    
    470
    
    
    
    
    
    
    
    
    1,600
    
    
    
    75Net change in long-term revolving credit facilities
    
    
    (181
    )
    
    
    (5
    )
    
    
    
    190
    
    
    
    (61
    )Proceeds from stock issuances
    
    
    119
    
    
    
    422
    
    
    
    
    250
    
    
    
    Proceeds from short-term debt obligations
    
    
    22
    
    
    
    
    
    
    
    
    
    
    
    
    325Payment of short-term debt obligations
    
    
    (17
    )
    
    
    
    
    
    
    
    (966
    )
    
    
    (53
    )Payment of long-term debt obligations
    
    
    (386
    )
    
    
    (437
    )
    
    
    
    (366
    )
    
    
    (4
    )Payment of debt obligations subject to compromise
    
    
    
    
    
    
    
    
    
    
    
    (221
    )
    
    
    Debt issuance costs
    
    
    (25
    )
    
    
    (1
    )
    
    
    
    (136
    )
    
    
    (11
    )Purchase of treasury shares
    
    
    (2
    )
    
    
    
    
    
    
    
    
    
    
    
    Other, net
    
    
    (5
    )
    
    
    (2
    )
    
    
    
    
    
    
    
    (6
    )Cash Provided by (Used in) Financing Activities
    
    
    (19
    )
    
    
    2
    
    
    
    
    351
    
    
    
    279INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS
    
    
    211
    
    
    
    (51
    )
    
    
    
    (90
    )
    
    
    23CASH AND CASH EQUIVALENTS:Beginning of period
    
    
    32
    
    
    
    83
    
    
    
    
    173
    
    
    
    150End of period
    
    $
    243
    
    
    $
    32
    
    
    
    $
    83
    
    
    $
    173
   52




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##### Table of Contents



SOLUTIA INC.
 
 CONSOLIDATED STATEMENT OF SHAREHOLDERS EQUITY (DEFICIT)
 (Dollars in millions)
 Equity attributable to SolutiaNet
    
    
    
    
    
    
    Accumulated
    
    
    
    
    
    
    EquityAdditional
    
    
    Deficiency
    
    
    
    
    
    
    Other
    
    
    
    
    
    
    Attributable to
    
    
    TotalCommon
    
    
    Contributed
    
    
    of Assets at
    
    
    Treasury
    
    
    Comprehensive
    
    
    Accumulated
    
    
    Noncontrolling
    
    
    ShareholdersStock
    
    
    Capital
    
    
    Spinoff
    
    
    Stock
    
    
    Loss
    
    
    Deficit
    
    
    Interest
    
    
    Equity (Deficit)Predecessor, January 1, 2007
    
    $
    1
    
    
    $
    56
    
    
    $
    (113
    )
    
    $
    (251
    )
    
    $
    (67
    )
    
    $
    (1,031
    )
    
    $
    4
    
    
    $
    (1,430
    )Comprehensive income:Net income (loss)
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (208
    )
    
    
    3
    
    
    
    (205
    )Accumulated currency adjustments
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    30
    
    
    
    
    
    
    
    1
    
    
    
    31Amortization 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
    
    
    
    
    
    
    
    
    
    
    
    16Dividends attributable to noncontrolling interest
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (2
    )
    
    
    (2
    )Effect of adopting certain provisions of ASC 740
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (3
    )
    
    
    
    
    
    
    (3
    )Predecessor, December 31, 2007
    
    
    1
    
    
    
    56
    
    
    
    (113
    )
    
    
    (251
    )
    
    
    (46
    )
    
    
    (1,242
    )
    
    
    6
    
    
    
    (1,589
    )Comprehensive income:Net income
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    1,454
    
    
    
    
    
    
    
    1,454Accumulated currency adjustments
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    32
    
    
    
    
    
    
    
    
    
    
    
    32Actuarial loss arising during the period
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (64
    )
    
    
    
    
    
    
    
    
    
    
    (64
    )Amortization of actuarial loss
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    2
    
    
    
    
    
    
    
    
    
    
    
    2Prior service gain arising during the period
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    109
    
    
    
    
    
    
    
    
    
    
    
    109Amortization of prior service gain
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (3
    )
    
    
    
    
    
    
    
    
    
    
    (3
    )Fresh-start elimination
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (30
    )
    
    
    
    
    
    
    
    
    
    
    (30
    )Fresh-start elimination
    
    
    
    
    
    
    (56
    )
    
    
    113
    
    
    
    251
    
    
    
    
    
    
    
    (212
    )
    
    
    
    
    
    
    96Cancellation of old common stock
    
    
    (1
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (1
    )Predecessor, February 29, 2008
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    6
    
    
    
    6Issuance of new common stock
    
    
    1
    
    
    
    1,036
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    1,037Successor, February 29, 2008
    
    
    1
    
    
    
    1,036
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    6
    
    
    
    1,043Comprehensive income:Net income (loss)
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (668
    )
    
    
    5
    
    
    
    (663
    )Accumulated currency adjustments
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (98
    )
    
    
    
    
    
    
    1
    
    
    
    (97
    )Actuarial loss arising during the period, net
of tax of $4
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (162
    )
    
    
    
    
    
    
    
    
    
    
    (162
    )Net unrealized loss on derivative instruments
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (26
    )
    
    
    
    
    
    
    
    
    
    
    (26
    )Dividends attributable to noncontrolling interest
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (5
    )
    
    
    (5
    )Investment attributable to noncontrolling interest
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    1
    
    
    
    1Issuance of common stock
    
    
    
    
    
    
    425
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    425Share-based compensation expense
    
    
    
    
    
    
    13
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    13Successor, December 31, 2008
    
    
    1
    
    
    
    1,474
    
    
    
    
    
    
    
    
    
    
    
    (286
    )
    
    
    (668
    )
    
    
    8
    
    
    
    529Comprehensive income:Net income (loss)
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (113
    )
    
    
    4
    
    
    
    (109
    )Accumulated currency adjustments
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    42
    
    
    
    
    
    
    
    
    
    
    
    42Net unrealized gain on derivative instruments
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    4
    
    
    
    
    
    
    
    
    
    
    
    4Realized loss on derivative instruments
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    1
    
    
    
    
    
    
    
    
    
    
    
    1Pension settlement charge
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    31
    
    
    
    
    
    
    
    
    
    
    
    31Actuarial loss arising during the year, net of
tax of $(6)
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (25
    )
    
    
    
    
    
    
    
    
    
    
    (25
    )Amortization of net actuarial gain
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (4
    )
    
    
    
    
    
    
    
    
    
    
    (4
    )Dividends attributable to noncontrolling interest
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (5
    )
    
    
    (5
    )Issuance of common stock
    
    
    
    
    
    
    119
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    119Treasury stock purchases
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (2
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (2
    )Share-based compensation expense
    
    
    
    
    
    
    19
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    19Successor, December 31, 2009
    
    $
    1
    
    
    $
    1,612
    
    
    $
    
    
    
    $
    (2
    )
    
    $
    (237
    )
    
    $
    (781
    )
    
    $
    7
    
    
    $
    600
   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 and Basis for Presentation
     Reorganizations
  2. Fresh-Start Accounting
 Business Combinations Income Taxes
   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)
    Predecessor
    
    
    
    
    
    
    
    
    
    SuccessorRevaluation ofFebruary 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
    
    
    
    87
    
    
    
    2
    (d)
    
    
    386Total Current Liabilities
    
    
    1,863
    
    
    
    (981
    )
    
    
    17
    
    
    
    899Long-Term Debt
    
    
    386
    
    
    
    1,410
    (b)
    
    
    
    
    
    
    1,796Postretirement Liabilities
    
    
    86
    
    
    
    282
    (a)
    
    
    
    
    
    
    368Environmental Remediation Liabilities
    
    
    55
    
    
    
    207
    (a)
    
    
    29
    (d)
    
    
    291Deferred Tax Liabilities
    
    
    47
    
    
    
    (12
    ) (a)
    
    
    194
    (d)
    
    
    229Other Liabilities
    
    
    77
    
    
    
    34
    (a)
    
    
    7
    (d)
    
    
    118Total Liabilities not Subject to Compromise
    
    
    2,514
    
    
    
    940
    
    
    
    247
    
    
    
    3,701Liabilities 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) attributable to Solutia Inc.
    
    
    (1,688
    )
    
    
    1,064
    
    
    
    1,661
    
    
    
    1,037Equity attributable to noncontrolling interest
    
    
    6
    
    
    
    
    
    
    
    
    
    
    
    6Total Shareholders Equity (Deficit)
    
    
    (1,682
    )
    
    
    1,064
    
    
    
    1,661
    
    
    
    1,043Total Liabilities and Shareholders Equity (Deficit)
    
    $
    2,794
    
    
    $
    42
    
    
    $
    1,908
    
    
    $
    4,744
 (a)
    
    To record the discharge and payment of liabilities subject to
compromise, payment of accrued post-petition interest, the
re-establishment of liabilities to be retained by Successor, the
defeasance of a substantial amount of our postretirement
liabilities and the establishment of a fund restricted to the
payment of certain Legacy Liabilities.(b)
    
    To record the extinguishment of Predecessor debt and the write-off
of any related unamortized debt financing costs and the
establishment of Successor debt financing and related financing
costs pursuant to our financing agreements.  55




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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)
 (c)
    
    To record the net effect of discharge of claims and liabilities
subject to compromise, gain on the revaluation of assets and
liabilities, cancellation of Predecessor common stock, close out
of remaining equity balances of Predecessor in accordance with
fresh-start accounting, and the issuance of Successor common stock
and warrants to purchase common stock.(d)
    
    To adjust assets and liabilities to fair value.(e)
    
    The goodwill of Predecessor has been eliminated and the
reorganization value in excess of amounts allocable to identified
tangible and intangible assets has been classified as goodwill. Reorganization Items, net
   PredecessorTwo Months
    
    
    Twelve MonthsEnded
    
    
    EndedFebruary 29,
    
    
    December 31,2008
    
    
    2007Discharge of claims and liabilities (a)
    
    $
    (104
    )
    
    $
    Revaluation of assets and liabilities (b)
    
    
    1,589
    
    
    
    Professional fees (c)
    
    
    (52
    )
    
    
    (67
    )Severance and employee retention costs (d)
    
    
    
    
    
    
    (9
    )Adjustments to allowed claim amounts (e)
    
    
    
    
    
    
    (224
    )Settlements of pre-petition claims (f)
    
    
    
    
    
    
    2Total Reorganization Items, net
    
    $
    1,433
    
    
    $
    (298
    )
 (a)
    
    The discharge of claims and liabilities primarily relates to allowed general, unsecured claims in our Chapter 11 Case, such as
(1) claims due to the rejection or modification of certain executory contracts, (2) claims relating to changes in
postretirement healthcare benefits and the rejection of our non-qualified retirement plans, and (3) claims relating to the
restructuring of financing arrangements.(b)
    
    We revalued our assets and liabilities at estimated fair value as a result of fresh-start accounting. This resulted in a
$1,801 pre-tax gain, of which $212 is recognized in income (loss) from discontinued operations on the Consolidated Statement of
Operations, primarily reflecting the fair value of newly recognized intangible assets, the elimination of our LIFO reserve and
the increase in the fair value of tangible property and equipment.(c)
    
    Professional fees for services provided by debtor and creditor professionals directly related to our reorganization proceedings.(d)
    
    Expense provisions related to (i) employee severance costs incurred directly as part of the Chapter 11 reorganization process
and (ii) a retention plan for certain of our employees approved by the Bankruptcy Court.(e)
    
    Adjustments to record certain pre-petition claims at estimated amounts of the allowed claims.(f)
    
    Represents the difference between the settlement amount of certain pre-petition obligations and the corresponding amounts
previously recorded.  3. Significant Accounting Policies
 Basis of Consolidation
   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)
 Use of Estimates
  Cash and Cash Equivalents
  Trade Receivables
  Inventory Valuation
    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
   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)
  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
   Self-Insurance and Insurance Recoveries
   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)
  Foreign Currency Translation
  Derivative Financial Instruments
    Revenue Recognition
  Shipping and Handling Costs
  Distribution Costs
  Income Taxes
   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)
  Earnings (Loss) per Share
  Share-Based Compensation
 .
 Recently Issued and Adopted Accounting Standards
 Fair Value
Measurements and Disclosures (Topic 820): Improving Disclosures about Fair Value Measurements Fair Value Measurements and Disclosures
 Fair Value Measurements and Disclosures (Topic
820): Investments in Certain Entities that Calculate Net Asset Value per Share
  Subsequent Events
 Financial Instruments
  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)
 Derivatives and Hedging
  Compensation  Retirement
Benefits
 Consolidation
 4. Acquisitions and Divestitures
 Acquisitions
  ®
    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)
 Divestitures
 ®
   Successor
    
    
    PredecessorTwelve Months
    
    
    Ten Months
    
    
    Two Months
    
    
    Twelve MonthsEnded
    
    
    Ended
    
    
    Ended
    
    
    EndedDecember 31,
    
    
    December 31,
    
    
    February 29,
    
    
    December 31,2009
    
    
    2008
    
    
    2008
    
    
    2007Integrated Nylon:Net sales
    
    $
    370
    
    
    $
    1,462
    
    
    $
    318
    
    
    $
    1,892Income (Loss) before income taxes
    
    $
    (187
    )
    
    $
    (648
    )
    
    $
    204
    
    
    $
    52Income tax expense (benefit)
    
    
    (17
    )
    
    
    1
    
    
    
    
    
    
    
    2Income (Loss) from discontinued operations
    
    $
    (170
    )
    
    $
    (649
    )
    
    $
    204
    
    
    $
    50Water Treatment Phosphonates Business:Net sales
    
    $
    
    
    
    $
    
    
    
    $
    
    
    
    $
    43Income before income taxes
    
    $
    
    
    
    $
    
    
    
    $
    
    
    
    $
    34Income tax expense
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    15Income from discontinued operations
    
    $
    
    
    
    $
    
    
    
    $
    
    
    
    $
    19Resins, Additives, and Adhesives Business:Income tax expense (benefit)
    
    $
    (1
    )
    
    $
    (1
    )
    
    $
    
    
    
    $
    5Income (Loss) from discontinued operations
    
    $
    1
    
    
    $
    1
    
    
    $
    
    
    
    $
    (5
    )
    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)
  SuccessorDecember 31,
    
    
    December 31,2009
    
    
    2008Assets:Trade receivables, net
    
    $
    
    
    
    $
    75Miscellaneous receivables
    
    
    10
    
    
    
    15Inventories
    
    
    
    
    
    
    336Prepaid expenses and other assets
    
    
    
    
    
    
    15Property, plant and equipment, net
    
    
    
    
    
    
    41Other assets
    
    
    
    
    
    
    8Assets of discontinued operations
    
    $
    10
    
    
    $
    490Liabilities:Accounts payable
    
    $
    29
    
    
    $
    101Accrued liabilities
    
    
    21
    
    
    
    54Environmental remediation liabilities
    
    
    
    
    
    
    9Other liabilities
    
    
    
    
    
    
    57Postretirement liabilities
    
    
    
    
    
    
    81Liabilities of discontinued operations
    
    $
    50
    
    
    $
    302
  ®
  5.
Impairment of Long-Lived Assets and Restructuring Reserves
  Cologne Facility Closure
   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)
 General Corporate
  Technical
    
    
    UnallocatedSaflex
    
    
    CPFilms
    
    
    Specialties
    
    
    and Other
    
    
    TotalYear Ended December 31, 2009:Cost of goods sold
    
    $
    3
    
    
    $
    1
    
    
    $
    1
    
    
    $
    1
    
    
    $
    6Selling, general and administrative expenses
    
    
    12
    
    
    
    3
    
    
    
    2
    
    
    
    10
    
    
    
    27Research, development and other operating
expenses, net
    
    
    1
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    1Total
    
    $
    16
    
    
    $
    4
    
    
    $
    3
    
    
    $
    11
    
    
    $
    34Cumulative through December 31, 2009:Cost of goods sold
    
    $
    3
    
    
    $
    1
    
    
    $
    1
    
    
    $
    1
    
    
    $
    6Selling, general and administrative expenses
    
    
    12
    
    
    
    3
    
    
    
    2
    
    
    
    13
    
    
    
    30Research, development and other operating
expenses, net
    
    
    1
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    1Total
    
    $
    16
    
    
    $
    4
    
    
    $
    3
    
    
    $
    14
    
    
    $
    37
  Trenton Sheet Facility Closure
 ®
 Impairment
    
    
    
    
    
    
    Otherof Long-Lived
    
    
    Employment
    
    
    RestructuringAssets
    
    
    Reductions
    
    
    Costs
    
    
    TotalYear Ended December 31, 2009:Charges taken
    
    $
    
    
    
    $
    4
    
    
    $
    1
    
    
    $
    5Cumulative through December 31, 2009:Charges taken
    
    $
    8
    
    
    $
    6
    
    
    $
    1
    
    
    $
    15
   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)
 Ruabon Facility Closure
  Future
    
    
    
    
    
    
    OtherContractual
    
    
    Employment
    
    
    RestructuringPayments
    
    
    Reductions
    
    
    Costs
    
    
    TotalYear Ended December 31, 2009:Charges taken
    
    $
    
    
    
    $
    2
    
    
    $
    1
    
    
    $
    3Changes in estimates (a)
    
    
    (5
    )
    
    
    
    
    
    
    
    
    
    
    (5
    )Total
    
    $
    (5
    )
    
    $
    2
    
    
    $
    1
    
    
    $
    (2
    )Cumulative through December 31, 2009:Charges taken
    
    $
    10
    
    
    $
    9
    
    
    $
    4
    
    
    $
    23Changes in estimates (a)
    
    
    (5
    )
    
    
    
    
    
    
    
    
    
    
    (5
    )Total
    
    $
    5
    
    
    $
    9
    
    
    $
    4
    
    
    $
    18
 (a)
    
    We reduced the future contractual payment reserve by $5 due to a
renegotiation of the lease and operating agreement with our third
party operator. The new lease and operating agreement, which is
effective from September 1, 2009 through December 31, 2013, reduced
the services to be provided and increased certain fees allowing the
contract to provide an economic benefit.  Plastic Products Manufacturing Relocation
  Flexsys Integration
  Other Rubber Chemical Impairment
   Chapter 11 Reorganization
   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)
 Restructuring Summary
  Future
    
    
    
    
    
    
    Impairment of
    
    
    OtherContractual
    
    
    Employment
    
    
    Long-Lived
    
    
    RestructuringPayments
    
    
    Reductions
    
    
    Assets
    
    
    Costs
    
    
    TotalPredecessorBalance at January 1, 2008
    
    $
    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
    )Change in estimates
    
    
    2
    
    
    
    (2
    )
    
    
    
    
    
    
    
    
    
    
    Currency fluctuations
    
    
    (2
    )
    
    
    (1
    )
    
    
    
    
    
    
    
    
    
    
    (3
    )Balance at December 31, 2008
    
    
    10
    
    
    
    10
    
    
    
    
    
    
    
    
    
    
    
    20Charges taken
    
    
    1
    
    
    
    40
    
    
    
    
    
    
    
    2
    
    
    
    43Amounts utilized
    
    
    (4
    )
    
    
    (37
    )
    
    
    
    
    
    
    (2
    )
    
    
    (43
    )Changes in estimates
    
    
    (5
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (5
    )Currency fluctuations
    
    
    
    
    
    
    2
    
    
    
    
    
    
    
    
    
    
    
    2Balance at December 31, 2009
    
    $
    2
    
    
    $
    15
    
    
    $
    
    
    
    $
    
    
    
    $
    17
  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
    
    
    $
    511Balance at December 31, 2009
    
    $
    205
    
    
    $
    159
    
    
    $
    147
    
    
    $
    511
 Identified Intangible Assets
  SuccessorDecember 31, 2009
    
    
    December 31, 2008Estimated
    
    
    
    
    
    
    
    
    
    
    
    
    
    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
    
    $
    491
    
    
    $
    (34
    )
    
    $
    457
    
    
    23 to 27
    
    $
    486
    
    
    $
    (15
    )
    
    $
    471Technology
    
    5 to 26
    
    
    202
    
    
    
    (19
    )
    
    
    183
    
    
    5 to 26
    
    
    199
    
    
    
    (9
    )
    
    
    190Trade names
    
    25
    
    
    13
    
    
    
    (1
    )
    
    
    12
    
    
    25
    
    
    13
    
    
    
    (--
    )
    
    
    13Patents
    
    13
    
    
    5
    
    
    
    (1
    )
    
    
    4
    
    
    13
    
    
    4
    
    
    
    (--
    )
    
    
    4Indefinite-lived intangible assets:Trademarks
    
    
    
    
    147
    
    
    
    
    
    
    
    147
    
    
    
    
    
    145
    
    
    
    
    
    
    
    145Total Identified Intangible Assets
    
    
    
    $
    858
    
    
    $
    (55
    )
    
    $
    803
    
    
    
    
    $
    847
    
    
    $
    (24
    )
    
    $
    823
  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)
  SuccessorTwelve Months
    
    
    Ten MonthsEnded
    
    
    EndedDecember 31,
    
    
    December 31,2009
    
    
    2008Cost of goods sold
    
    $
    10
    
    
    $
    9Selling, general and administrative expenses
    
    $
    20
    
    
    $
    16
   7.
Investments in Affiliates
  PredecessorTwelve MonthsEndedDecember 31,2007Results of Operations:Net Sales
    
    $
    207Gross Profit
    
    $
    50Operating income
    
    $
    34Net income
    
    $
    25
 8.
Detail of Certain Balance Sheet Accounts
  SuccessorDecember 31,
    
    
    December 31,Inventories
    
    2009
    
    
    2008Finished goods
    
    $
    138
    
    
    $
    195Goods in process
    
    
    47
    
    
    
    59Raw materials and supplies
    
    
    71
    
    
    
    87Inventories, at FIFO cost
    
    
    256
    
    
    
    341Excess of LIFO over FIFO cost
    
    
    1
    
    
    
    Total Inventories
    
    $
    257
    
    
    $
    341
  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)
   SuccessorDecember 31,
    
    
    December 31,Property, Plant and Equipment
    
    2009
    
    
    2008Land
    
    $
    33
    
    
    $
    34Leasehold improvements
    
    
    10
    
    
    
    9Buildings
    
    
    211
    
    
    
    203Machinery and equipment
    
    
    758
    
    
    
    727Construction in progress
    
    
    35
    
    
    
    35Total property, plant and equipment
    
    
    1,047
    
    
    
    1,008Less accumulated depreciation
    
    
    (128
    )
    
    
    (56
    )Total
    
    $
    919
    
    
    $
    952
  SuccessorDecember 31,
    
    
    December 31,Accrued Liabilities
    
    2009
    
    
    2008Wages and benefits
    
    $
    24
    
    
    $
    57Foreign currency and interest rate hedge agreements
    
    
    7
    
    
    
    36Restructuring reserves
    
    
    13
    
    
    
    19Environmental remediation liabilities
    
    
    31
    
    
    
    30Accrued income taxes payable
    
    
    19
    
    
    
    15Accrued selling expenses
    
    
    20
    
    
    
    16Other
    
    
    92
    
    
    
    86Total Accrued Liabilities
    
    $
    206
    
    
    $
    259
 9.
Income Taxes
  Successor
    
    
    PredecessorTwelve Months
    
    
    Ten Months
    
    
    Two Months
    
    
    Twelve MonthsEnded
    
    
    Ended
    
    
    Ended
    
    
    EndedDecember 31,
    
    
    December 31,
    
    
    February 29,
    
    
    December 31,2009
    
    
    2008
    
    
    2008
    
    
    2007United States
    
    $
    (53
    )
    
    $
    (40
    )
    
    $
    1,094
    
    
    $
    (307
    )Outside United States
    
    
    127
    
    
    
    38
    
    
    
    370
    
    
    
    55Total
    
    $
    74
    
    
    $
    (2
    )
    
    $
    1,464
    
    
    $
    (252
    )
  Successor
    
    
    PredecessorTwelve Months
    
    
    Ten Months
    
    
    Two Months
    
    
    Twelve MonthsEnded
    
    
    Ended
    
    
    Ended
    
    
    EndedDecember 31,
    
    
    December 31,
    
    
    February 29,
    
    
    December 31,2009
    
    
    2008
    
    
    2008
    
    
    2007Current:U.S. federal
    
    $
    
    
    
    $
    
    
    
    $
    
    
    
    $
    U.S. state
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Outside United States
    
    
    26
    
    
    
    21
    
    
    
    15
    
    
    
    3226
    
    
    
    21
    
    
    
    15
    
    
    
    32Deferred:U.S. federal
    
    
    
    
    
    
    (1
    )
    
    
    
    
    
    
    (10
    )U.S. state
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Outside United States
    
    
    (12
    )
    
    
    (7
    )
    
    
    199
    
    
    
    (5
    )(12
    )
    
    
    (8
    )
    
    
    199
    
    
    
    (15
    )Total
    
    $
    14
    
    
    $
    13
    
    
    $
    214
    
    
    $
    17
  68




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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
    
    
    PredecessorTwelve Months
    
    
    Ten Months
    
    
    Two Months
    
    
    Twelve MonthsEnded
    
    
    Ended
    
    
    Ended
    
    
    EndedDecember 31,
    
    
    December 31,
    
    
    February 29,
    
    
    December 31,Dollars in millions
    
    2009
    
    
    2008
    
    
    2008
    
    
    2007Income Tax at federal statutory rate
    
    $
    26
    
    
    $
    (1
    )
    
    $
    513
    
    
    $
    (88
    )Increase (reduction) in income taxes due to:U.S. state income taxes
    
    
    (3
    )
    
    
    (6
    )
    
    
    7
    
    
    
    (9
    )Taxes related to foreign earnings
    
    
    (23
    )
    
    
    14
    
    
    
    51
    
    
    
    8Valuation allowances
    
    
    23
    
    
    
    8
    
    
    
    (259
    )
    
    
    82Income from equity affiliates
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (3
    )Surrendered losses from equity affiliate (a)
    
    
    
    
    
    
    
    
    
    
    (4
    )
    
    
    (4
    )Reorganization items
    
    
    
    
    
    
    
    
    
    
    (107
    )
    
    
    17Tax contingency adjustment
    
    
    (8
    )
    
    
    1
    
    
    
    10
    
    
    
    10Other
    
    
    (1
    )
    
    
    (3
    )
    
    
    3
    
    
    
    4Income tax expense
    
    $
    14
    
    
    $
    13
    
    
    $
    214
    
    
    $
    17
 (a)
    
    During the Predecessor periods ended February 29, 2008 and December 31, 2007, a
non-consolidated equity affiliate surrendered a prior year loss that was used to
offset a foreign subsidiarys taxable income in the United Kingdom.   SuccessorDecember 31,
    
    
    December 31,2009
    
    
    2008Postretirement benefits
    
    $
    138
    
    
    $
    163Environmental liabilities
    
    
    111
    
    
    
    115Inventory
    
    
    
    
    
    
    5Insurance reserves
    
    
    14
    
    
    
    16Miscellaneous accruals
    
    
    13
    
    
    
    16Equity affiliates
    
    
    24
    
    
    
    4Net operating losses
    
    
    559
    
    
    
    488Tax credit carryforward
    
    
    131
    
    
    
    55Accrued allowed claims
    
    
    
    
    
    
    14Other
    
    
    23
    
    
    
    60Total Deferred Tax Assets
    
    
    1,013
    
    
    
    936Less: Valuation allowances
    
    
    (753
    )
    
    
    (572
    )Deferred Tax Assets Less Valuation Allowances
    
    
    260
    
    
    
    364Intangible Assets
    
    
    (284
    )
    
    
    (287
    )Property
    
    
    (68
    )
    
    
    (149
    )Undistributed
earnings
    
    
    (46
    )
    
    
    (90
    )Inventory
    
    
    (3
    )
    
    
    Other
    
    
    (9
    )
    
    
    (9
    )Total Deferred Tax Liabilities
    
    
    (410
    )
    
    
    (535
    )Net Deferred Tax Liabilities
    
    $
    (150
    )
    
    $
    (171
    )
  69




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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,
    
    
    December 31,2009
    
    
    2008Deferred Tax Assets:Prepaid expenses and other assets
    
    $
    8
    
    
    $
    21Other assets
    
    
    21
    
    
    
    11Total
    
    $
    29
    
    
    $
    32Deferred Tax Liabilities:Accrued liabilities
    
    $
    
    
    
    $
    1Deferred tax liabilities
    
    
    179
    
    
    
    202Total
    
    $
    179
    
    
    $
    203
  Net Operating Loss and Valuation Allowance
   Unrecognized Tax Benefits
     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)
  TotalPredecessorBalance at January 1, 2007
    
    $
    101Gross increases  tax positions in prior periods
    
    
    16Gross increases  current period tax positions
    
    
    24Settlements
    
    
    (1
    )Lapse of statute of limitations
    
    
    (4
    )Balance at December 31, 2007
    
    
    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
    
    
    148Gross increases  tax positions in prior periods
    
    
    5Gross decreases  tax positions in prior periods
    
    
    (12
    )Gross increases  current period tax positions
    
    
    12Lapse of statute of limitations
    
    
    (9
    )Balance at December 31, 2009
    
    $
    144
  10. Debt Obligations
     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)
   SuccessorDecember 31,
    
    
    December 31,2009
    
    
    2008Term Loan, due 2014
    
    $
    876
    
    
    $
    1,188Revolver, due 2013
    
    
    
    
    
    
    1832017 Notes
    
    
    400
    
    
    
    Total principal amount
    
    
    1,276
    
    
    
    1,371Less current portion of long-term debt
    
    
    (12
    )
    
    
    (12
    )Total
    
    $
    1,264
    
    
    $
    1,359
    st
   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)
  Maryville Notes
  11. Derivatives and Risk Management
  Foreign Currency Exchange Rate Risk
   Interest Rate Risk
  Commodity Price Risk
   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)
  Asset Derivatives
    
    
    Liability DerivativesConsolidated Statement
    
    
    
    
    
    Consolidated Statementof Financial Position
    
    
    
    
    
    of Financial PositionPresentation
    
    Fair Value
    
    
    Presentation
    
    Fair ValueDerivative not designated as hedging instruments:Interest rate contracts
    
    Miscellaneous Receivables
    
    $
    
    
    
    Accrued Liabilities
    
    $
    6Other Assets
    
    
    
    
    
    Other Liabilities
    
    
    14Total interest rate contracts
    
    
    
    
    
    
    
    
    
    
    20Foreign exchange contracts
    
    Miscellaneous Receivables
    
    
    2
    
    
    Accrued Liabilities
    
    
    1Total
    
    
    
    $
    2
    
    
    
    
    $
    21
   Amount of Gain Recognized inConsolidated Statement of OperationsSuccessorPresentation of Gain Recognized in
    
    Twelve Months EndedConsolidated Statement of Operations
    
    December 31, 2009Derivatives not designated as hedging instruments:Interest rate contracts
    
    Interest expense
    
    $
    Foreign exchange contracts
    
    Other income, net
    
    
    18Commodity contracts
    
    Income (Loss) from Discontinued Operations, net of tax
    
    
    1Total
    
    
    
    $
    19
 12.
Financial Instruments and Risk Management
  Fair Value Measurements at December 31, 2009Quoted Prices in
    
    
    
    
    
    
    SignificantActive Markets for
    
    
    Significant Other
    
    
    UnobservableIdentical Assets
    
    
    Observable Inputs
    
    
    InputsTotal
    
    
    (Level 1)
    
    
    (Level 2)
    
    
    (Level 3)Assets:Derivatives  Foreign Exchange (a)
    
    $
    2
    
    
    $
    
    
    
    $
    2
    
    
    $
    Total
    
    $
    2
    
    
    $
    
    
    
    $
    2
    
    
    $
    Liabilities:Derivatives  Foreign Exchange (a)
    
    $
    1
    
    
    $
    
    
    
    $
    1
    
    
    $
    Derivatives  Interest Rates (b)
    
    
    20
    
    
    
    
    
    
    
    20
    
    
    
    Total
    
    $
    21
    
    
    $
    
    
    
    $
    21
    
    
    $
    
  74




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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.   13. Pension Plans and Other Postretirement Benefits
      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)
 Net Periodic Cost
  Pension BenefitsSuccessor
    
    
    PredecessorTwelve Months
    
    
    Ten Months
    
    
    Two Months
    
    
    Twelve MonthsEnded
    
    
    Ended
    
    
    Ended
    
    
    EndedDecember 31,
    
    
    December 31,
    
    
    February 29,
    
    
    December 31,2009
    
    
    2008
    
    
    2008
    
    
    2007Service costs for benefits earned
    
    $
    2
    
    
    $
    3
    
    
    $
    1
    
    
    $
    5Interest costs on benefit obligation
    
    
    59
    
    
    
    50
    
    
    
    11
    
    
    
    63Assumed return on plan assets
    
    
    (57
    )
    
    
    (56
    )
    
    
    (13
    )
    
    
    (75
    )Prior service costs
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    1Actuarial net loss
    
    
    3
    
    
    
    
    
    
    
    2
    
    
    
    12Special termination benefits
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    4Settlement charges
    
    
    11
    
    
    
    
    
    
    
    1
    
    
    
    5Total
    
    $
    18
    
    
    $
    (3
    )
    
    $
    2
    
    
    $
    15
 Healthcare and Other BenefitsSuccessor
    
    
    PredecessorTwelve Months
    
    
    Ten Months
    
    
    Two Months
    
    
    Twelve MonthsEnded
    
    
    Ended
    
    
    Ended
    
    
    EndedDecember 31,
    
    
    December 31,
    
    
    February 29,
    
    
    December 31,2009
    
    
    2008
    
    
    2008
    
    
    2007Service costs for benefits earned
    
    $
    5
    
    
    $
    4
    
    
    $
    1
    
    
    $
    4Interest costs on benefit obligation
    
    
    13
    
    
    
    13
    
    
    
    4
    
    
    
    26Assumed return on plan assets
    
    
    (6
    )
    
    
    (5
    )
    
    
    
    
    
    
    Prior service gains
    
    
    
    
    
    
    
    
    
    
    (3
    )
    
    
    (18
    )Actuarial net (gain) loss
    
    
    (8
    )
    
    
    (3
    )
    
    
    
    
    
    
    5Total
    
    $
    4
    
    
    $
    9
    
    
    $
    2
    
    
    $
    17
  Healthcare and OtherPension Benefits
    
    
    BenefitsRecognized net actuarial (gain) loss
    
    $
    11
    
    
    $
    (6
    )
 Curtailments and Settlements
   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)
 Actuarial Assumptions
  Pension BenefitsSuccessor
    
    
    PredecessorTwelve Months
    
    
    Ten Months
    
    
    Two Months
    
    
    Twelve MonthsEnded
    
    
    Ended
    
    
    Ended
    
    
    EndedDecember 31,
    
    
    December 31,
    
    
    February 29,
    
    
    December 31,2009
    
    
    2008
    
    
    2008
    
    
    2007Discount rate
    
    
    6.25
    %
    
    
    5.75
    %
    
    
    6.00
    %
    
    
    5.75
    %Expected return on plan assets
    
    
    8.50
    %
    
    
    8.50
    %
    
    
    8.50
    %
    
    
    8.75
    %Rate of compensation increase (a)
    
    
    3.50
    %
    
    
    4.25
    %
    
    
    4.25
    %
    
    
    4.00
    %
 (a)
    
    The rate of compensation increase in all periods relates specifically to our foreign
pension plans. The rate of compensation increase is not applicable to the valuation of
U.S. pension plans due to the cessation of future benefit accruals in prior years for
participants in the U.S. pension plans. Healthcare and Other BenefitsSuccessor
    
    
    PredecessorTwelve Months
    
    
    Ten Months
    
    
    Two Months
    
    
    Twelve MonthsEnded
    
    
    Ended
    
    
    Ended
    
    
    EndedDecember 31,
    
    
    December 31,
    
    
    February 29,
    
    
    December 31,2009
    
    
    2008
    
    
    2008
    
    
    2007Discount rate
    
    
    6.25
    %
    
    
    5.50
    %
    
    
    5.75
    %
    
    
    5.75
    %Expected return on plan assets
    
    
    3.50
    %
    
    
    3.50
    %
    
    
    N/A
    
    
    
    N/AAssumed trend rate for healthcare costs
    
    
    8.50
    %
    
    
    9.00
    %
    
    
    9.00
    %
    
    
    8.00
    %Ultimate trend rate for healthcare costs
    
    
    5.00
    %
    
    
    5.00
    %
    
    
    5.00
    %
    
    
    5.00
    %
   1-Percentage-
    
    
    1-Percentage-Point Increase
    
    
    Point DecreaseEffect on postretirement benefit obligation
    
    $
    1
    
    
    $
    (1
    )
  Benefit Obligations
  Pension BenefitsSuccessor
    
    
    PredecessorDecember 31,
    
    
    December 31,
    
    
    February 29,2009
    
    
    2008
    
    
    2008Changes in Benefit ObligationBenefit obligation as of beginning of period
    
    $
    1,010
    
    
    $
    1,164
    
    
    $
    1,180Service costs
    
    
    2
    
    
    
    3
    
    
    
    1Interest cost
    
    
    59
    
    
    
    50
    
    
    
    11Contributions
    
    
    1
    
    
    
    1
    
    
    
    Actuarial (gains) losses
    
    
    115
    
    
    
    (42
    )
    
    
    (3
    )Foreign currency
    
    
    18
    
    
    
    (67
    )
    
    
    Benefits paid
    
    
    (155
    )
    
    
    (99
    )
    
    
    (25
    )Other
    
    
    (6
    )
    
    
    
    
    
    
    Benefit obligation at end of period
    
    $
    1,044
    
    
    $
    1,010
    
    
    $
    1,164Accumulated Benefit Obligation
    
    $
    1,012
    
    
    $
    993
    
    
    $
    1,139
  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 BenefitsSuccessor
    
    
    PredecessorDecember 31,
    
    
    December 31,
    
    
    February 29,2009
    
    
    2008
    
    
    2008Changes in Benefit ObligationBenefit obligation as of beginning of period
    
    $
    236
    
    
    $
    312
    
    
    $
    434Service costs
    
    
    5
    
    
    
    4
    
    
    
    1Interest cost
    
    
    13
    
    
    
    13
    
    
    
    4Contributions
    
    
    23
    
    
    
    19
    
    
    
    2Actuarial gains
    
    
    (7
    )
    
    
    (54
    )
    
    
    (2
    )Foreign currency
    
    
    1
    
    
    
    (2
    )
    
    
    Plan amendments
    
    
    
    
    
    
    
    
    
    
    (109
    )Federal subsidy on benefits paid
    
    
    2
    
    
    
    5
    
    
    
    1Benefits paid
    
    
    (56
    )
    
    
    (61
    )
    
    
    (19
    )Benefit obligation at end of period
    
    $
    217
    
    
    $
    236
    
    
    $
    312
  Pension BenefitsSuccessor
    
    
    PredecessorDecember 31,
    
    
    December 31,
    
    
    February 29,2009
    
    
    2008
    
    
    2008Discount rate
    
    
    5.25
    %
    
    
    6.25
    %
    
    
    5.75
    %Rate of compensation increase (a)
    
    
    4.50
    %
    
    
    3.50
    %
    
    
    4.25
    %
 (a)
    
    The rate of compensation increase for all periods relates specifically to our foreign
pension plans. The rate of compensation increase is not applicable to the valuation of
U.S. pension plans due to the cessation of future benefit accruals in prior years for
participants in the U.S. pension plans. Healthcare and Other BenefitsSuccessor
    
    
    PredecessorDecember 31,
    
    
    December 31,
    
    
    February 29,2009
    
    
    2008
    
    
    2008Discount rate
    
    
    4.75
    %
    
    
    6.25
    %
    
    
    5.50
    %Assumed trend rate for healthcare costs
    
    
    8.00
    %
    
    
    8.50
    %
    
    
    9.00
    %Ultimate trend rate for healthcare costs
    
    
    5.00
    %
    
    
    5.00
    %
    
    
    5.00
    %
 Plan Assets
  Pension BenefitsSuccessor
    
    
    PredecessorDecember 31,
    
    
    December 31,
    
    
    February 29,2009
    
    
    2008
    
    
    2008Changes in Fair Value of Plan AssetsFair value of plan assets at beginning of period
    
    $
    619
    
    
    $
    933
    
    
    $
    1,000Actual return on plan assets
    
    
    131
    
    
    
    (194
    )
    
    
    (59
    )Contributions
    
    
    77
    
    
    
    38
    
    
    
    17Foreign currency
    
    
    15
    
    
    
    (59
    )
    
    
    Benefits paid
    
    
    (155
    )
    
    
    (99
    )
    
    
    (25
    )Other
    
    
    (6
    )
    
    
    
    
    
    
    Fair value of plan assets at end of period
    
    $
    681
    
    
    $
    619
    
    
    $
    933
  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 BenefitsSuccessor
    
    
    PredecessorDecember 31,
    
    
    December 31,
    
    
    February 29,2009
    
    
    2008
    
    
    2008Changes in Fair Value of Plan AssetsFair value of plan assets at beginning of period
    
    $
    173
    
    
    $
    195
    
    
    $
    Actual return on plan assets
    
    
    10
    
    
    
    (7
    )
    
    
    Contributions
    
    
    45
    
    
    
    41
    
    
    
    195Federal subsidy on benefits paid
    
    
    2
    
    
    
    5
    
    
    
    Benefits paid
    
    
    (56
    )
    
    
    (61
    )
    
    
    Fair value of plan assets at end of period
    
    $
    174
    
    
    $
    173
    
    
    $
    195
   Pension Benefits
    
    
    Healthcare and Other BenefitsQuoted
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    QuotedPrices in
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Prices inActive
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    ActiveMarkets
    
    
    Significant
    
    
    
    
    
    
    
    
    
    
    Markets
    
    
    Significantfor
    
    
    Other
    
    
    Significant
    
    
    
    
    
    
    for
    
    
    Other
    
    
    SignificantIdentical
    
    
    Observable
    
    
    Unobservable
    
    
    
    
    
    
    Identical
    
    
    Observable
    
    
    UnobservableAssets
    
    
    Inputs
    
    
    Inputs
    
    
    
    
    
    
    Assets
    
    
    Inputs
    
    
    InputsTotal
    
    
    (Level 1)
    
    
    (Level 2)
    
    
    (Level 3)
    
    
    Total
    
    
    (Level 1)
    
    
    (Level 2)
    
    
    (Level 3)Equity Securities:Common collective trusts (a)
    
    $
    396
    
    
    $
    
    
    
    $
    396
    
    
    $
    
    
    
    $
    
    
    
    $
    
    
    
    $
    
    
    
    $
    Solutia common stock
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    15
    
    
    
    15
    
    
    
    
    
    
    
    Debt Securities:Common collective trusts (a)
    
    
    172
    
    
    
    
    
    
    
    172
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Corporate bonds (b)
    
    
    30
    
    
    
    
    
    
    
    30
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Federal agencies (c)
    
    
    3
    
    
    
    
    
    
    
    3
    
    
    
    
    
    
    
    40
    
    
    
    
    
    
    
    40
    
    
    
    Asset-backed securities (d)
    
    
    14
    
    
    
    
    
    
    
    14
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Other Types of Investments:Cash and cash equivalents (e)
    
    
    45
    
    
    
    3
    
    
    
    42
    
    
    
    
    
    
    
    119
    
    
    
    
    
    
    
    119
    
    
    
    Multi-asset common collective trusts (f)
    
    
    19
    
    
    
    
    
    
    
    19
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Private equity funds (g)
    
    
    2
    
    
    
    
    
    
    
    
    
    
    
    2
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Total Investments
    
    $
    681
    
    
    $
    3
    
    
    $
    676
    
    
    $
    2
    
    
    $
    174
    
    
    $
    15
    
    
    $
    159
    
    
    $
    
 (a)
    
    Common collective trusts are comprised of shares or units in commingled funds that are not
publicly traded. The underlying assets in these funds (primarily equity and fixed income
securities) are valued using a market approach with either unadjusted quotes in active markets
(Level 1) or quoted prices for similar assets or other observable inputs (Level 2).(b)
    
    Corporate bonds consist of fixed income securities issued by U.S. and non-U.S. corporations.
These assets are valued using a bid evaluation process with bid data provided by independent
pricing sources.(c)
    
    Federal agency securities consist of bills, notes, bonds, and other fixed income securities
issued directly by the U.S. Treasury or other government-sponsored enterprises. These assets are
valued using a bid evaluation process with bid data provided by independent pricing sources.(d)
    
    Asset backed securities are comprised of securities collateralized by a specified pool of
underlying assets. These assets are valued using a bid evaluation process with bid data provided
by independent pricing sources.(e)
    
    Cash equivalents consist of money market accounts valued at $1.00 per unit.(f)
    
    Multi-asset common collective trusts are comprised of equity securities, bonds, mututal funds
and term deposits. These investments are valued at the net asset value per share mulitplied by the
number of shares held as of the measurement date.(g)
    
    Private equity funds represent limited partnership interests which are valued by the general
partners based on the underlying assets in each fund. Changes in fair value for the twelve months
ended December 31, 2009 for these assets were comprised of unrealized losses of less than $1.  79




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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)
  Pension Benefits
 Successor2010 Target
    
    
    December 31,
    
    
    December 31,Asset Category
    
    Allocation
    
    
    2009
    
    
    2008Equity securities
    
    
    69
    %
    
    
    58
    %
    
    
    64
    %Debt securities
    
    
    30
    
    
    
    32
    
    
    
    35Cash and cash equivalents
    
    
    
    
    
    
    7
    
    
    
    Other
    
    
    1
    
    
    
    3
    
    
    
    1Total
    
    
    100
    %
    
    
    100
    %
    
    
    100
    %
  Healthcare and Other Benefits
 Successor2010 Target
    
    
    December 31,
    
    
    December 31,Asset Category
    
    Allocation
    
    
    2009
    
    
    2008Cash and cash equivalents
    
    
    54
    %
    
    
    68
    %
    
    
    69
    %Debt securities
    
    
    41
    
    
    
    23
    
    
    
    28Solutia common stock
    
    
    5
    
    
    
    9
    
    
    
    3Total
    
    
    100
    %
    
    
    100
    %
    
    
    100
    %
  Funded Status
  Pension Benefits
    
    
    Healthcare and Other BenefitsSuccessor
    
    
    SuccessorDecember 31,
    
    
    December 31,
    
    
    December 31,
    
    
    December 31,2009
    
    
    2008
    
    
    2009
    
    
    2008Fair value of plan assets
    
    $
    681
    
    
    $
    619
    
    
    $
    174
    
    
    $
    173Projected benefit obligation
    
    
    1,044
    
    
    
    1,010
    
    
    
    217
    
    
    
    236Funded Status
    
    $
    (363
    )
    
    $
    (391
    )
    
    $
    (43
    )
    
    $
    (63
    )
 Pension Benefits
    
    
    Healthcare and Other BenefitsSuccessor
    
    
    SuccessorDecember 31,
    
    
    December 31,
    
    
    December 31,
    
    
    December 31,2009
    
    
    2008
    
    
    2009
    
    
    2008Long-term asset
    
    $
    3
    
    
    $
    10
    
    
    $
    
    
    
    $
    Current liability
    
    $
    
    
    
    $
    
    
    
    $
    (3
    )
    
    $
    (4
    )Long-term liability
    
    $
    (366
    )
    
    $
    (401
    )
    
    $
    (40
    )
    
    $
    (59
    )Accumulated other comprehensive loss:Net actuarial (gain) loss
    
    $
    212
    
    
    $
    205
    
    
    $
    (41
    )
    
    $
    (39
    )
  80




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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)
  Projected Benefit Obligation
    
    
    Accumulated BenefitExceeds the Fair
    
    
    Obligation Exceeds the FairValue of Plan Assets
    
    
    Value of Plan AssetsSuccessor
    
    
    SuccessorDecember 31,
    
    
    December 31,
    
    
    December 31,
    
    
    December 31,2009
    
    
    2008
    
    
    2009
    
    
    2008Projected benefit obligation
    
    $
    949
    
    
    $
    940
    
    
    $
    943
    
    
    $
    940Accumulated benefit obligation
    
    $
    922
    
    
    $
    923
    
    
    $
    917
    
    
    $
    923Fair value of plan assets
    
    $
    583
    
    
    $
    539
    
    
    $
    578
    
    
    $
    539
   Estimated Future Benefit Payments
  Pension
    
    
    Healthcare andBenefits
    
    
    Other Benefits2010
    
    $
    98
    
    
    $
    392011
    
    
    94
    
    
    
    372012
    
    
    101
    
    
    
    332013
    
    
    104
    
    
    
    302014
    
    
    85
    
    
    
    262015-2019
    
    
    355
    
    
    
    68
  14. Employee Savings Plans
  15. Share-Based Compensation
   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)
  Stock Options
    SuccessorDecember 31,
    
    
    December 31,2009
    
    
    2008Expected volatility
    
    
    35.4
    %
    
    
    26.1
    %Expected term (in years)
    
    
    6
    
    
    
    6Risk-free rate
    
    
    2.30
    %
    
    
    4.24
    %Weighted-average grant date fair value
    
    $
    4.44
    
    
    $
    5.91
  Weighted-Weighted
    
    
    Average-Average
    
    
    Remaining
    
    
    AggregateExercise
    
    
    Contractual
    
    
    IntrinsicOptions
    
    
    Price
    
    
    Life
    
    
    Value (a)Outstanding at February 29, 2008
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Granted
    
    
    2,946,544
    
    
    $
    17.29
    
    
    
    
    
    
    
    Exercised
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Forfeited or expired
    
    
    (183,834
    )
    
    
    17.23
    
    
    
    
    
    
    
    Outstanding at December 31, 2008
    
    
    2,762,710
    
    
    $
    17.29
    
    
    
    9.2
    
    
    $
    Vested or Expected to Vest at December 31, 2008
    
    
    2,369,734
    
    
    $
    17.29
    
    
    
    9.2
    
    
    $
    Exercisable at December 31, 2008
    
    
    54,333
    
    
    $
    17.33
    
    
    
    9.2
    
    
    $
    Outstanding at December 31, 2008
    
    
    2,762,710
    
    
    $
    17.29
    
    
    
    9.2
    
    
    
    Granted
    
    
    20,000
    
    
    
    11.64
    
    
    
    
    
    
    
    Exercised
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Forfeited or expired
    
    
    (880,751
    )
    
    
    17.30
    
    
    
    
    
    
    
    Outstanding at December 31, 2009
    
    
    1,901,959
    
    
    $
    17.21
    
    
    
    8.2
    
    
    $
    Vested or Expected to Vest at December 31, 2009
    
    
    1,883,896
    
    
    $
    17.24
    
    
    
    8.2
    
    
    $
    Exercisable at December 31, 2009
    
    
    637,721
    
    
    $
    17.28
    
    
    
    8.2
    
    
    $
    
 (a)
    
    Intrinsic value for stock options is calculated based on the
difference between the exercise price of the underlying awards and
the quoted market price of our common stock as of the reporting
date. If the exercise price of the underlying awards is higher
than the quoted market price of our common stock as of the
reporting date, the intrinsic value of the award is $0.  82




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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)
  Restricted Stock Awards
   Weighted-AverageGrant Date FairShares
    
    
    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
    
    
    $
    16.24Granted
    
    
    2,417,859
    
    
    
    8.10Vested
    
    
    (825,029
    )
    
    
    15.54Forfeited
    
    
    (116,069
    )
    
    
    14.21Outstanding at December 31, 2009
    
    
    2,896,301
    
    
    $
    9.71
  Other Stock Awards
   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)
 16. Capital Stock
       17. Commitments and Contingencies
 Commitments
  .
 Contingencies
 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)
  Legacy Tort Claims Litigation
  Putnam County, West Virginia Litigation.
  Escambia County, Florida Litigation. John Allen, et al. v. Monsanto Company, et al.
 St. Clair County, Illinois Litigation.
    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)
 Solutia Inc. Employees Pension Plan Litigation
 
 Medicare Reimbursement Litigation
 United States of America v. Stricker, et al. Abernathy v. Solutia Inc., et al. Abernathy Abernathy Abernathy Abernathy Abernathy
  Environmental Liabilities
    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)
  TotalPredecessorBalance at December 31, 2007
    
    $
    71Charges taken
    
    
    257Amounts utilized
    
    
    (1
    )Balance at February 29, 2008
    
    
    327SuccessorCharges taken
    
    
    7Amounts utilized (a)
    
    
    (22
    )Currency fluctuations
    
    
    (3
    )Balance at December 31, 2008
    
    
    309Charges taken
    
    
    10Amounts utilized (a)
    
    
    (29
    )Currency fluctuations
    
    
    1Balance at December 31, 2009
    
    $
    291
 SuccessorDecember 31, 2009
    
    
    December 31, 2008Environmental Remediation Liabilities, current
    
    $
    31
    
    
    $
    30Environmental Remediation Liabilities, long-term
    
    
    260
    
    
    
    279Total
    
    $
    291
    
    
    $
    309
 (a)
    
    For the twelve months and ten months ended December 31, 2009 and 2008, allowable
expenditures of $28 and $18, respectively, were reimbursed to us by a special purpose
entity established with proceeds of stock issued by us on the Effective Date.   Anniston,
Alabama:
  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)
 Sauget,
Illinois:
 W.
G. Krummrich Site:
  Environmental Agency Enforcement Actions
   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)
 18. Supplemental Data
  Successor
    
    
    PredecessorTwelve Months
    
    
    Ten Months
    
    
    Two Months
    
    
    Twelve MonthsEnded
    
    
    Ended
    
    
    Ended
    
    
    EndedDecember 31,
    
    
    December 31,
    
    
    February 29,
    
    
    December 31,Income Statement:
    
    2009
    
    
    2008
    
    
    2008
    
    
    2007Raw material and energy costs
    
    $
    581
    
    
    $
    820
    
    
    $
    179
    
    
    $
    627Employee compensation and benefits
    
    $
    308
    
    
    $
    338
    
    
    $
    70
    
    
    $
    342Depreciation expense
    
    $
    74
    
    
    $
    61
    
    
    $
    10
    
    
    $
    52Amortization of capitalized computer software
    
    $
    3
    
    
    $
    3
    
    
    $
    1
    
    
    $
    5Taxes other than income
    
    $
    98
    
    
    $
    75
    
    
    $
    15
    
    
    $
    65Rent expense
    
    $
    19
    
    
    $
    17
    
    
    $
    3
    
    
    $
    13Provision for doubtful accounts (net of recoveries)
    
    $
    2
    
    
    $
    
    
    
    $
    
    
    
    $
    --Research and development
    
    $
    14
    
    
    $
    16
    
    
    $
    3
    
    
    $
    26Interest expense:Total interest cost
    
    $
    160
    
    
    $
    144
    
    
    $
    22
    
    
    $
    139Less capitalized interest
    
    
    1
    
    
    
    3
    
    
    
    1
    
    
    
    5Net interest expense
    
    $
    159
    
    
    $
    141
    
    
    $
    21
    
    
    $
    134Cash Flow:Cash payments for interest
    
    $
    100
    
    
    $
    114
    
    
    $
    43
    
    
    $
    122Cash payments for income taxes
    
    $
    19
    
    
    $
    23
    
    
    $
    4
    
    
    $
    20Non-Cash Investing Activities:Capital expenditures included in accounts payable
    
    $
    2
    
    
    $
    14
    
    
    $
    10
    
    
    $
    16
  19. Segment and Geographic Data
   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
  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
    
    
    PredecessorTwelve Months
    
    
    Ten Months
    
    
    Two Months
    
    
    Twelve MonthsEnded
    
    
    Ended
    
    
    Ended
    
    
    EndedDecember 31, 2009
    
    
    December 31, 2008
    
    
    February 29, 2008
    
    
    December 31, 2007Net
    
    
    Profit
    
    
    Net
    
    
    Profit
    
    
    Net
    
    
    Profit
    
    
    Net
    
    
    ProfitSales
    
    
    (Loss)
    
    
    Sales
    
    
    (Loss)
    
    
    Sales
    
    
    (Loss)
    
    
    Sales
    
    
    (Loss)Segment:Saflex
    
    $
    690
    
    
    $
    145
    
    
    $
    697
    
    
    $
    78
    
    
    $
    125
    
    
    $
    16
    
    
    $
    727
    
    
    $
    111CPFilms
    
    
    185
    
    
    
    26
    
    
    
    197
    
    
    
    33
    
    
    
    39
    
    
    
    9
    
    
    
    234
    
    
    
    58Technical Specialties
    
    
    774
    
    
    
    261
    
    
    
    851
    
    
    
    152
    
    
    
    164
    
    
    
    40
    
    
    
    646
    
    
    
    94Reportable Segment totals
    
    
    1,649
    
    
    
    432
    
    
    
    1,745
    
    
    
    263
    
    
    
    328
    
    
    
    65
    
    
    
    1,607
    
    
    
    263Unallocated and Other
    
    
    18
    
    
    
    (96
    )
    
    
    30
    
    
    
    (40
    )
    
    
    7
    
    
    
    (2
    )
    
    
    36
    
    
    
    (27
    )Total
    
    
    1,667
    
    
    
    336
    
    
    
    1,775
    
    
    
    223
    
    
    
    335
    
    
    
    63
    
    
    
    1,643
    
    
    
    236Reconciliation to consolidated totals:Depreciation and Amortization
    
    
    
    
    
    
    (107
    )
    
    
    
    
    
    
    (89
    )
    
    
    
    
    
    
    (11
    )
    
    
    
    
    
    
    (59
    )Interest expense
    
    
    
    
    
    
    (159
    )
    
    
    
    
    
    
    (141
    )
    
    
    
    
    
    
    (21
    )
    
    
    
    
    
    
    (134
    )Reorganization items, net
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    1,433
    
    
    
    
    
    
    
    (298
    )Net income attributable to noncontrolling interest
    
    
    
    
    
    
    4
    
    
    
    
    
    
    
    5
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    3Consolidated totals:Net sales
    
    $
    1,667
    
    
    
    
    
    
    $
    1,775
    
    
    
    
    
    
    $
    335
    
    
    
    
    
    
    $
    1,643Income(Loss) from Continuing Operations Before
Income Tax Expense
    
    
    
    
    
    $
    74
    
    
    
    
    
    
    $
    (2
    )
    
    
    
    
    
    $
    1,464
    
    
    
    
    
    
    $
    (252
    )
 Successor
    
    
    PredecessorTwelve Months Ended
    
    
    Ten Months Ended
    
    
    Two Months Ended
    
    
    Twelve Months EndedDecember 31, 2009
    
    
    December 31, 2008
    
    
    February 28, 2007
    
    
    December 31, 2007Depreciation
    
    
    
    
    
    
    Depreciation
    
    
    
    
    
    
    Depreciation
    
    
    
    
    
    
    DepreciationCapital
    
    
    and
    
    
    Capital
    
    
    and
    
    
    Capital
    
    
    and
    
    
    Capital
    
    
    andExpenditures
    
    
    Amortization
    
    
    Expenditures
    
    
    Amortization
    
    
    Expenditures
    
    
    Amortization
    
    
    Expenditures
    
    
    AmortizationSegment:Saflex
    
    $
    29
    
    
    $
    48
    
    
    $
    52
    
    
    $
    40
    
    
    $
    7
    
    
    $
    5
    
    
    $
    59
    
    
    $
    25CPFilms
    
    
    3
    
    
    
    19
    
    
    
    8
    
    
    
    15
    
    
    
    2
    
    
    
    1
    
    
    
    11
    
    
    
    10Technical Specialties
    
    
    11
    
    
    
    36
    
    
    
    17
    
    
    
    28
    
    
    
    3
    
    
    
    4
    
    
    
    20
    
    
    
    17Reportable Segment totals
    
    
    43
    
    
    
    103
    
    
    
    77
    
    
    
    83
    
    
    
    12
    
    
    
    10
    
    
    
    90
    
    
    
    52Unallocated and Other
    
    
    1
    
    
    
    4
    
    
    
    7
    
    
    
    6
    
    
    
    3
    
    
    
    1
    
    
    
    9
    
    
    
    7Total
    
    $
    44
    
    
    $
    107
    
    
    $
    84
    
    
    $
    89
    
    
    $
    15
    
    
    $
    11
    
    
    $
    99
    
    
    $
    59
 Successor2009
    
    
    2008Assets by Segment:Saflex
    
    $
    1,305
    
    
    $
    1,322CPFilms
    
    
    598
    
    
    
    619Technical Specialties
    
    
    903
    
    
    
    925Reportable Segment totals
    
    
    2,806
    
    
    
    2,866Reconciliation to consolidated totals:Discontinued Operations
    
    
    10
    
    
    
    490Unallocated and Other
    
    
    450
    
    
    
    378Consolidated totals
    
    $
    3,266
    
    
    $
    3,734
  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
    
    
    ConsolidatedSaflex
    
    
    CPFilms
    
    
    Specialties
    
    
    and Other
    
    
    TotalsSuccessorTwelve Months Ended December 31, 2009U.S.
    
    $
    124
    
    
    $
    105
    
    
    $
    184
    
    
    $
    4
    
    
    $
    417Europe
    
    
    343
    
    
    
    28
    
    
    
    197
    
    
    
    11
    
    
    
    579Asia Pacific
    
    
    128
    
    
    
    37
    
    
    
    282
    
    
    
    2
    
    
    
    449Rest of World
    
    
    95
    
    
    
    15
    
    
    
    111
    
    
    
    1
    
    
    
    222$
    690
    
    
    $
    185
    
    
    $
    774
    
    
    $
    18
    
    
    $
    1,667SuccessorTen 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
    
    
    $
    1,643
   Technical
    
    
    Unallocated
    
    
    ConsolidatedSaflex
    
    
    CPFilms
    
    
    Specialties
    
    
    and Other
    
    
    TotalsSuccessorDecember 31, 2009U.S.
    
    $
    151
    
    
    $
    83
    
    
    $
    84
    
    
    $
    7
    
    
    $
    325Europe
    
    
    213
    
    
    
    1
    
    
    
    160
    
    
    
    3
    
    
    
    377Asia Pacific
    
    
    40
    
    
    
    
    
    
    
    98
    
    
    
    
    
    
    
    138Rest of World
    
    
    51
    
    
    
    
    
    
    
    28
    
    
    
    
    
    
    
    79$
    455
    
    
    $
    84
    
    
    $
    370
    
    
    $
    10
    
    
    $
    919SuccessorDecember 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
    
    
    $
    952
  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. Earnings (Loss) Per Share
  Successor
    
    
    PredecessorTwelve Months
    
    
    Ten Months
    
    
    Two Months
    
    
    Twelve MonthsEnded
    
    
    Ended
    
    
    Ended
    
    
    EndedDecember 31,
    
    
    December 31,
    
    
    February 29,
    
    
    December 31,(Shares in millions)
    
    2009
    
    
    2008
    
    
    2008
    
    
    2007Consolidated Statement of Operations Results:Income (Loss) from Continuing Operations
    
    $
    60
    
    
    $
    (15
    )
    
    $
    1,250
    
    
    $
    (269
    )Less Net Income attributable to noncontrolling interest
    
    
    4
    
    
    
    5
    
    
    
    
    
    
    
    3Income (Loss) from Continuing Operations attributable to Solutia
    
    $
    56
    
    
    $
    (20
    )
    
    $
    1,250
    
    
    $
    (272
    )Income (Loss) from Discontinued Operations
    
    
    (169
    )
    
    
    (648
    )
    
    
    204
    
    
    
    64Net Income (Loss) attributable to Solutia
    
    $
    (113
    )
    
    $
    (668
    )
    
    $
    1,454
    
    
    $
    (208
    )Weighted-average number of shares outstanding used for basic earnings (loss) per share
    
    
    106.5
    
    
    
    74.7
    
    
    
    104.5
    
    
    
    104.5Non-vested restricted shares
    
    
    0.2
    
    
    
    
    
    
    
    
    
    
    
    Stock options
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Warrants
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Weighted-average number of shares outstanding and common equivalent shares used for diluted earnings (loss) per share
    
    
    106.7
    
    
    
    74.7
    
    
    
    104.5
    
    
    
    104.5
  SuccessorTwelve Months
    
    
    Ten MonthsEnded
    
    
    Ended(Shares in millions)
    
    December 31, 2009
    
    
    December 31, 2008Non-vested restricted shares
    
    
    1.0
    
    
    
    1.4Stock options
    
    
    2.4
    
    
    
    2.8Warrants
    
    
    4.5
    
    
    
    4.5
 21. Quarterly Data  Unaudited
 SuccessorFirst
    
    
    Second
    
    
    Third
    
    
    Fourth2009
    
    Quarter
    
    
    Quarter
    
    
    Quarter
    
    
    QuarterNet Sales
    
    $
    339
    
    
    $
    410
    
    
    $
    448
    
    
    $
    470Gross Profit
    
    $
    81
    
    
    $
    122
    
    
    $
    136
    
    
    $
    131Income (Loss) from Continuing Operations
attributable to Solutia
    
    $
    (4
    )
    
    $
    24
    
    
    $
    29
    
    
    $
    7Loss from Discontinued Operations, net of tax
    
    
    (155
    )
    
    
    (14
    )
    
    
    
    
    
    
    Net Income (Loss) attributable to Solutia
    
    $
    (159
    )
    
    $
    10
    
    
    $
    29
    
    
    $
    7Basic/Diluted Income (Loss) per share:Income (Loss) from Continuing Operations
attributable to Solutia
    
    $
    (0.04
    )
    
    $
    0.25
    
    
    $
    0.24
    
    
    $
    0.06Loss from Discontinued Operations, net of tax
    
    
    (1.66
    )
    
    
    (0.15
    )
    
    
    
    
    
    
    Net Income (Loss) attributable to Solutia
    
    $
    (1.70
    )
    
    $
    0.10
    
    
    $
    0.24
    
    
    $
    0.06
  92




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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
    
    
    SuccessorTwo Months
    
    
    One MonthEnded
    
    
    EndedFebruary 29,
    
    
    March 31,
    
    
    Second
    
    
    Third
    
    
    Fourth2008
    
    2008
    
    
    2008
    
    
    Quarter
    
    
    Quarter
    
    
    QuarterNet Sales
    
    $
    335
    
    
    $
    182
    
    
    $
    577
    
    
    $
    587
    
    
    $
    429Gross Profit
    
    $
    94
    
    
    $
    26
    
    
    $
    101
    
    
    $
    156
    
    
    $
    84Income (Loss) from Continuing
Operations attributable to Solutia
    
    $
    1,250
    
    
    $
    (16
    )
    
    $
    (6
    )
    
    $
    21
    
    
    $
    (19
    )Income (Loss) from Discontinued Operations, net of tax
    
    
    204
    
    
    
    (14
    )
    
    
    (10
    )
    
    
    (28
    )
    
    
    (596
    )Net Income (Loss) attributable to Solutia
    
    $
    1,454
    
    
    $
    (30
    )
    
    $
    (16
    )
    
    $
    (7
    )
    
    $
    (615
    )Basic/Diluted Income (Loss) per share:Income (Loss) from Continuing Operations attributable to Solutia
    
    $
    11.96
    
    
    $
    (0.27
    )
    
    $
    (0.10
    )
    
    $
    0.28
    
    
    $
    (0.20
    )Income (Loss) from Discontinued Operations, net of tax
    
    
    1.95
    
    
    
    (0.23
    )
    
    
    (0.17
    )
    
    
    (0.37
    )
    
    
    (6.40
    )Net Income (Loss) attributable to Solutia
    
    $
    13.91
    
    
    $
    (0.50
    )
    
    $
    (0.27
    )
    
    $
    (0.09
    )
    
    $
    (6.60
    )
     93




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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
 22. Condensed Consolidating Financial Statements
 Financial Statements of Guarantors and
Issuers of Guaranteed Securities Registered or Being Registered,
   94




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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)
 Condensed Consolidating Statement of Operations
Twelve Months Ended December 31, 2009
 Parent-Only
    
    
    
    
    
    
    Non-
    
    
    
    
    
    
    ConsolidatedSolutia
    
    
    Guarantors
    
    
    Guarantors
    
    
    Eliminations
    
    
    SolutiaNet Sales
    
    $
    399
    
    
    $
    352
    
    
    $
    1,506
    
    
    $
    (590
    )
    
    $
    1,667Cost of goods sold
    
    
    345
    
    
    
    229
    
    
    
    1,237
    
    
    
    (614
    )
    
    
    1,197Gross Profit
    
    
    54
    
    
    
    123
    
    
    
    269
    
    
    
    24
    
    
    
    470Selling, general, and administrative expenses
    
    
    80
    
    
    
    58
    
    
    
    89
    
    
    
    
    
    
    
    227Research, development and other operating expenses, net
    
    
    12
    
    
    
    3
    
    
    
    (5
    )
    
    
    
    
    
    
    10Operating Income (Loss)
    
    
    (38
    )
    
    
    62
    
    
    
    185
    
    
    
    24
    
    
    
    233Equity earnings from affiliates
    
    
    196
    
    
    
    73
    
    
    
    
    
    
    
    (269
    )
    
    
    Interest expense
    
    
    (159
    )
    
    
    (1
    )
    
    
    (154
    )
    
    
    155
    
    
    
    (159
    )Other income, net
    
    
    42
    
    
    
    67
    
    
    
    74
    
    
    
    (183
    )
    
    
    Income from Continuing Operations Before Income Tax
Expense
    
    
    41
    
    
    
    201
    
    
    
    105
    
    
    
    (273
    )
    
    
    74Income tax expense
    
    
    
    
    
    
    
    
    
    
    14
    
    
    
    
    
    
    
    14Income from Continuing Operations
    
    
    41
    
    
    
    201
    
    
    
    91
    
    
    
    (273
    )
    
    
    60Loss from discontinued operations, net of tax
    
    
    (154
    )
    
    
    
    
    
    
    (15
    )
    
    
    
    
    
    
    (169
    )Net Income (Loss)
    
    
    (113
    )
    
    
    201
    
    
    
    76
    
    
    
    (273
    )
    
    
    (109
    )Net Income attributable to noncontrolling interest
    
    
    
    
    
    
    
    
    
    
    4
    
    
    
    
    
    
    
    4Net Income (Loss) attributable to Solutia
    
    $
    (113
    )
    
    $
    201
    
    
    $
    72
    
    
    $
    (273
    )
    
    $
    (113
    )
  95




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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)
 Condensed Consolidating Statement of Operations
Ten Months Ended December 31, 2008
 Parent-Only
    
    
    
    
    
    
    Non-
    
    
    
    
    
    
    ConsolidatedSolutia
    
    
    Guarantors
    
    
    Guarantors
    
    
    Eliminations
    
    
    SolutiaNet Sales
    
    $
    427
    
    
    $
    385
    
    
    $
    1,615
    
    
    $
    (652
    )
    
    $
    1,775Cost of goods sold
    
    
    399
    
    
    
    257
    
    
    
    1,438
    
    
    
    (686
    )
    
    
    1,408Gross Profit
    
    
    28
    
    
    
    128
    
    
    
    177
    
    
    
    34
    
    
    
    367Selling, general, and administrative expenses
    
    
    89
    
    
    
    63
    
    
    
    91
    
    
    
    
    
    
    
    243Research, development and other operating expenses, net
    
    
    6
    
    
    
    3
    
    
    
    
    
    
    
    
    
    
    
    9Operating Income (Loss)
    
    
    (67
    )
    
    
    62
    
    
    
    86
    
    
    
    34
    
    
    
    115Equity earnings from affiliates
    
    
    189
    
    
    
    116
    
    
    
    
    
    
    
    (305
    )
    
    
    Interest expense
    
    
    (142
    )
    
    
    
    
    
    
    (161
    )
    
    
    162
    
    
    
    (141
    )Other income, net
    
    
    43
    
    
    
    50
    
    
    
    128
    
    
    
    (197
    )
    
    
    24Reorganization items, net
    
    
    (27
    )
    
    
    (45
    )
    
    
    72
    
    
    
    
    
    
    
    Income (Loss) from Continuing Operations Before Income
Tax Expense (Benefit)
    
    
    (4
    )
    
    
    183
    
    
    
    125
    
    
    
    (306
    )
    
    
    (2
    )Income tax expense (benefit)
    
    
    
    
    
    
    (1
    )
    
    
    15
    
    
    
    (1
    )
    
    
    13Income (Loss) from Continuing Operations
    
    
    (4
    )
    
    
    184
    
    
    
    110
    
    
    
    (305
    )
    
    
    (15
    )Income (Loss) from discontinued operations, net of tax
    
    
    (664
    )
    
    
    (2
    )
    
    
    18
    
    
    
    
    
    
    
    (648
    )Net Income (Loss)
    
    
    (668
    )
    
    
    182
    
    
    
    128
    
    
    
    (305
    )
    
    
    (663
    )Net Income attributable to noncontrolling interest
    
    
    
    
    
    
    
    
    
    
    5
    
    
    
    
    
    
    
    5Net Income (Loss) attributable to Solutia
    
    $
    (668
    )
    
    $
    182
    
    
    $
    123
    
    
    $
    (305
    )
    
    $
    (668
    )
  96




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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)
 Condensed Consolidating Statement of Operations
Two Months Ended February 29, 2008
 Parent-Only
    
    
    
    
    
    
    Non-
    
    
    
    
    
    
    ConsolidatedSolutia
    
    
    Guarantors
    
    
    Guarantors
    
    
    Eliminations
    
    
    SolutiaNet Sales
    
    $
    102
    
    
    $
    79
    
    
    $
    301
    
    
    $
    (147
    )
    
    $
    335Cost of goods sold
    
    
    76
    
    
    
    47
    
    
    
    256
    
    
    
    (138
    )
    
    
    241Gross Profit
    
    
    26
    
    
    
    32
    
    
    
    45
    
    
    
    (9
    )
    
    
    94Selling, general, and administrative expenses
    
    
    18
    
    
    
    9
    
    
    
    15
    
    
    
    
    
    
    
    42Research, development and other operating expenses, net
    
    
    3
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    3Operating Income
    
    
    5
    
    
    
    23
    
    
    
    30
    
    
    
    (9
    )
    
    
    49Equity earnings from affiliates
    
    
    913
    
    
    
    377
    
    
    
    
    
    
    
    (1,290
    )
    
    
    Interest expense
    
    
    (16
    )
    
    
    (2
    )
    
    
    (18
    )
    
    
    15
    
    
    
    (21
    )Other income (loss), net
    
    
    (7
    )
    
    
    2
    
    
    
    14
    
    
    
    (6
    )
    
    
    3Reorganization items, net
    
    
    381
    
    
    
    524
    
    
    
    528
    
    
    
    
    
    
    
    1,433Income from Continuing Operations Before Income Tax Expense
    
    
    1,276
    
    
    
    924
    
    
    
    554
    
    
    
    (1,290
    )
    
    
    1,464Income tax expense
    
    
    27
    
    
    
    14
    
    
    
    173
    
    
    
    
    
    
    
    214Income from Continuing Operations
    
    
    1,249
    
    
    
    910
    
    
    
    381
    
    
    
    (1,290
    )
    
    
    1,250Income (Loss) from discontinued operations, net of tax
    
    
    205
    
    
    
    
    
    
    
    (1
    )
    
    
    
    
    
    
    204Net Income
    
    
    1,454
    
    
    
    910
    
    
    
    380
    
    
    
    (1,290
    )
    
    
    1,454Net Income attributable to noncontrolling interest
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Net Income attributable to Solutia
    
    $
    1,454
    
    
    $
    910
    
    
    $
    380
    
    
    $
    (1,290
    )
    
    $
    1,454
  97




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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)
 Consolidating Statement of Operations
Twelve Months Ended December 31, 2007
 Parent-Only
    
    
    
    
    
    
    Non-
    
    
    
    
    
    
    ConsolidatedSolutia
    
    
    Guarantors
    
    
    Guarantors
    
    
    Eliminations
    
    
    SolutiaNet Sales
    
    $
    480
    
    
    $
    361
    
    
    $
    1,322
    
    
    $
    (520
    )
    
    $
    1,643Cost of goods sold
    
    
    433
    
    
    
    214
    
    
    
    1,149
    
    
    
    (536
    )
    
    
    1,260Gross Profit
    
    
    47
    
    
    
    147
    
    
    
    173
    
    
    
    16
    
    
    
    383Selling, general, and administrative expenses
    
    
    91
    
    
    
    48
    
    
    
    79
    
    
    
    
    
    
    
    218Research, development and other operating expenses, net
    
    
    16
    
    
    
    5
    
    
    
    3
    
    
    
    
    
    
    
    24Operating Income (Loss)
    
    
    (60
    )
    
    
    94
    
    
    
    91
    
    
    
    16
    
    
    
    141Equity earnings (loss) from affiliates
    
    
    136
    
    
    
    21
    
    
    
    (1
    )
    
    
    (144
    )
    
    
    12Interest expense
    
    
    (111
    )
    
    
    (5
    )
    
    
    (85
    )
    
    
    67
    
    
    
    (134
    )Other income, net
    
    
    54
    
    
    
    19
    
    
    
    46
    
    
    
    (85
    )
    
    
    34Loss on debt modification
    
    
    (7
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (7
    )Reorganization items, net
    
    
    (295
    )
    
    
    (2
    )
    
    
    (1
    )
    
    
    
    
    
    
    (298
    )Income (Loss) from Continuing Operations Before Income Tax Expense (Benefit)
    
    
    (283
    )
    
    
    127
    
    
    
    50
    
    
    
    (146
    )
    
    
    (252
    )Income tax expense (benefit)
    
    
    (9
    )
    
    
    
    
    
    
    27
    
    
    
    (1
    )
    
    
    17Income (Loss) from Continuing Operations
    
    
    (274
    )
    
    
    127
    
    
    
    23
    
    
    
    (145
    )
    
    
    (269
    )Income (Loss) from discontinued operations, net of tax
    
    
    66
    
    
    
    (2
    )
    
    
    
    
    
    
    
    
    
    
    64Net Income (Loss)
    
    
    (208
    )
    
    
    125
    
    
    
    23
    
    
    
    (145
    )
    
    
    (205
    )Net Income attributable to noncontrolling interest
    
    
    
    
    
    
    
    
    
    
    3
    
    
    
    
    
    
    
    3Net Income (Loss) attributable to Solutia
    
    $
    (208
    )
    
    $
    125
    
    
    $
    20
    
    
    $
    (145
    )
    
    $
    (208
    )
  98




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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)
 Condensed Consolidating Balance Sheet
December 31, 2009
 Parent-Only
    
    
    
    
    
    
    Non-
    
    
    
    
    
    
    ConsolidatedSolutia
    
    
    Guarantors
    
    
    Guarantors
    
    
    Eliminations
    
    
    SolutiaASSETSCurrent Assets:Cash and cash equivalents
    
    $
    104
    
    
    $
    1
    
    
    $
    138
    
    
    $
    
    
    
    $
    243Trade receivables, net
    
    
    27
    
    
    
    44
    
    
    
    197
    
    
    
    
    
    
    
    268Intercompany receivables
    
    
    188
    
    
    
    357
    
    
    
    326
    
    
    
    (871
    )
    
    
    Miscellaneous receivables
    
    
    7
    
    
    
    2
    
    
    
    73
    
    
    
    
    
    
    
    82Inventories
    
    
    65
    
    
    
    39
    
    
    
    184
    
    
    
    (31
    )
    
    
    257Prepaid expenses and other current assets
    
    
    24
    
    
    
    1
    
    
    
    7
    
    
    
    5
    
    
    
    37Assets of discontinued operations
    
    
    10
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    10Total Current Assets
    
    
    425
    
    
    
    444
    
    
    
    925
    
    
    
    (897
    )
    
    
    897Property, Plant and Equipment, net
    
    
    182
    
    
    
    142
    
    
    
    595
    
    
    
    
    
    
    
    919Investments in Affiliates
    
    
    2,064
    
    
    
    421
    
    
    
    52
    
    
    
    (2,537
    )
    
    
    Goodwill
    
    
    150
    
    
    
    191
    
    
    
    170
    
    
    
    
    
    
    
    511Identified Intangible Assets, net
    
    
    194
    
    
    
    320
    
    
    
    289
    
    
    
    
    
    
    
    803Intercompany Advances
    
    
    153
    
    
    
    552
    
    
    
    1,259
    
    
    
    (1,964
    )
    
    
    Other Assets
    
    
    92
    
    
    
    4
    
    
    
    40
    
    
    
    
    
    
    
    136Total Assets
    
    $
    3,260
    
    
    $
    2,074
    
    
    $
    3,330
    
    
    $
    (5,398
    )
    
    $
    3,266LIABILITIES AND SHAREHOLDERS EQUITYCurrent Liabilities:Accounts payable
    
    $
    48
    
    
    $
    13
    
    
    $
    108
    
    
    $
    
    
    
    $
    169Intercompany payables
    
    
    578
    
    
    
    18
    
    
    
    275
    
    
    
    (871
    )
    
    
    Accrued liabilities
    
    
    85
    
    
    
    9
    
    
    
    121
    
    
    
    (9
    )
    
    
    206Short-term debt, including current portion of long-term debt
    
    
    12
    
    
    
    
    
    
    
    16
    
    
    
    
    
    
    
    28Intercompany short-term debt
    
    
    
    
    
    
    
    
    
    
    778
    
    
    
    (778
    )
    
    
    Liabilities of discontinued operations
    
    
    50
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    50Total Current Liabilities
    
    
    773
    
    
    
    40
    
    
    
    1,298
    
    
    
    (1,658
    )
    
    
    453Long-Term Debt
    
    
    1,264
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    1,264Intercompany Long-Term Debt
    
    
    19
    
    
    
    23
    
    
    
    1,144
    
    
    
    (1,186
    )
    
    
    Postretirement Liabilities
    
    
    304
    
    
    
    3
    
    
    
    104
    
    
    
    
    
    
    
    411Environmental Remediation Liabilities
    
    
    242
    
    
    
    1
    
    
    
    17
    
    
    
    
    
    
    
    260Deferred Tax Liabilities
    
    
    20
    
    
    
    10
    
    
    
    149
    
    
    
    
    
    
    
    179Other Liabilities
    
    
    45
    
    
    
    7
    
    
    
    47
    
    
    
    
    
    
    
    99Shareholders Equity:Common stock
    
    
    1
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    1Additional contributed capital
    
    
    1,612
    
    
    
    1,990
    
    
    
    564
    
    
    
    (2,554
    )
    
    
    1,612Treasury stock
    
    
    (2
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (2
    )Accumulated other comprehensive loss
    
    
    (237
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (237
    )Accumulated deficit
    
    
    (781
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (781
    )Total Shareholders Equity attributable to Solutia
    
    
    593
    
    
    
    1,990
    
    
    
    564
    
    
    
    (2,554
    )
    
    
    593Equity attributable to noncontrolling interest
    
    
    
    
    
    
    
    
    
    
    7
    
    
    
    
    
    
    
    7Total Shareholders Equity
    
    
    593
    
    
    
    1,990
    
    
    
    571
    
    
    
    (2,554
    )
    
    
    600Total Liabilities and Shareholders Equity
    
    $
    3,260
    
    
    $
    2,074
    
    
    $
    3,330
    
    
    $
    (5,398
    )
    
    $
    3,266
  99




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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)
 Condensed Consolidating Balance Sheet
December 31, 2008
 Parent-Only
    
    
    
    
    
    
    Non-
    
    
    
    
    
    
    ConsolidatedSolutia
    
    
    Guarantors
    
    
    Guarantors
    
    
    Eliminations
    
    
    SolutiaASSETSCurrent Assets:Cash and cash equivalents
    
    $
    
    
    
    $
    1
    
    
    $
    31
    
    
    $
    
    
    
    $
    32Trade receivables, net
    
    
    
    
    
    
    66
    
    
    
    161
    
    
    
    
    
    
    
    227Intercompany receivables
    
    
    41
    
    
    
    405
    
    
    
    207
    
    
    
    (653
    )
    
    
    Miscellaneous receivables
    
    
    12
    
    
    
    2
    
    
    
    96
    
    
    
    
    
    
    
    110Inventories
    
    
    85
    
    
    
    54
    
    
    
    230
    
    
    
    (28
    )
    
    
    341Prepaid expenses and other assets
    
    
    29
    
    
    
    1
    
    
    
    49
    
    
    
    6
    
    
    
    85Assets of discontinued operations
    
    
    345
    
    
    
    63
    
    
    
    82
    
    
    
    
    
    
    
    490Total Current Assets
    
    
    512
    
    
    
    592
    
    
    
    856
    
    
    
    (675
    )
    
    
    1,285Property, Plant and Equipment, net
    
    
    198
    
    
    
    150
    
    
    
    604
    
    
    
    
    
    
    
    952Investments in Affiliates
    
    
    2,149
    
    
    
    353
    
    
    
    436
    
    
    
    (2,938
    )
    
    
    Goodwill
    
    
    150
    
    
    
    191
    
    
    
    170
    
    
    
    
    
    
    
    511Identified Intangible Assets, net
    
    
    202
    
    
    
    332
    
    
    
    289
    
    
    
    
    
    
    
    823Intercompany Advances
    
    
    214
    
    
    
    510
    
    
    
    1,440
    
    
    
    (2,164
    )
    
    
    Other Assets
    
    
    118
    
    
    
    5
    
    
    
    40
    
    
    
    
    
    
    
    163Total Assets
    
    $
    3,543
    
    
    $
    2,133
    
    
    $
    3,835
    
    
    $
    (5,777
    )
    
    $
    3,734LIABILITIES AND SHAREHOLDERS EQUITYCurrent Liabilities:Accounts payable
    
    $
    81
    
    
    $
    12
    
    
    $
    77
    
    
    $
    
    
    
    $
    170Intercompany payables
    
    
    429
    
    
    
    1
    
    
    
    222
    
    
    
    (652
    )
    
    
    Accrued liabilities
    
    
    88
    
    
    
    13
    
    
    
    170
    
    
    
    (12
    )
    
    
    259Short-term debt, including current portion of long-term debt
    
    
    14
    
    
    
    
    
    
    
    23
    
    
    
    
    
    
    
    37Intercompany short-term debt
    
    
    3
    
    
    
    
    
    
    
    633
    
    
    
    (636
    )
    
    
    Liabilities of discontinued operations
    
    
    298
    
    
    
    
    
    
    
    4
    
    
    
    
    
    
    
    302Total Current Liabilities
    
    
    913
    
    
    
    26
    
    
    
    1,129
    
    
    
    (1,300
    )
    
    
    768Long-Term Debt
    
    
    1,351
    
    
    
    
    
    
    
    8
    
    
    
    
    
    
    
    1,359Intercompany Long-Term Debt
    
    
    5
    
    
    
    23
    
    
    
    1,511
    
    
    
    (1,539
    )
    
    
    Post Retirement Liabilities
    
    
    384
    
    
    
    3
    
    
    
    78
    
    
    
    
    
    
    
    465Environmental Remediation Liabilities
    
    
    264
    
    
    
    1
    
    
    
    14
    
    
    
    
    
    
    
    279Deferred Tax Liabilities
    
    
    37
    
    
    
    11
    
    
    
    154
    
    
    
    
    
    
    
    202Other Liabilities
    
    
    68
    
    
    
    8
    
    
    
    56
    
    
    
    
    
    
    
    132Shareholders Equity:Common stock
    
    
    1
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    1Additional contributed capital
    
    
    1,474
    
    
    
    2,061
    
    
    
    877
    
    
    
    (2,938
    )
    
    
    1,474Accumulated other comprehensive loss
    
    
    (286
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (286
    )Accumulated deficit
    
    
    (668
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (668
    )Total Shareholders Equity attributable to Solutia
    
    
    521
    
    
    
    2,061
    
    
    
    877
    
    
    
    (2,938
    )
    
    
    521Equity attributable to noncontrolling interest
    
    
    
    
    
    
    
    
    
    
    8
    
    
    
    
    
    
    
    8Total Shareholders Equity
    
    
    521
    
    
    
    2,061
    
    
    
    885
    
    
    
    (2,938
    )
    
    
    529Total Liabilities and Shareholders Equity
    
    $
    3,543
    
    
    $
    2,133
    
    
    $
    3,835
    
    
    $
    (5,777
    )
    
    $
    3,734
  100




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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)
 Condensed Consolidating Statement of Cash Flows
Twelve Months ended December 31, 2009
 Parent-Only
    
    
    
    
    
    
    Non-
    
    
    
    
    
    
    ConsolidatedSolutia
    
    
    Guarantors
    
    
    Guarantors
    
    
    Eliminations
    
    
    SolutiaCash Provided by (Used in) Operations
    
    $
    (274
    )
    
    $
    247
    
    
    $
    278
    
    
    $
    
    
    
    $
    251INVESTING ACTIVITIES:Property, plant and equipment purchases
    
    
    (18
    )
    
    
    (5
    )
    
    
    (27
    )
    
    
    
    
    
    
    (50
    )Acquisition and investment payments
    
    
    
    
    
    
    (2
    )
    
    
    
    
    
    
    
    
    
    
    (2
    )Restricted cash investments
    
    
    9
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    9Investment proceeds and property disposals
    
    
    16
    
    
    
    
    
    
    
    6
    
    
    
    
    
    
    
    22Cash Provided by (Used in) Investing Activities
    
    
    7
    
    
    
    (7
    )
    
    
    (21
    )
    
    
    
    
    
    
    (21
    )FINANCING ACTIVITIES:Net change in lines of credit
    
    
    (3
    )
    
    
    
    
    
    
    (11
    )
    
    
    
    
    
    
    (14
    )Proceeds from short-term debt obligations
    
    
    
    
    
    
    
    
    
    
    22
    
    
    
    
    
    
    
    22Payments of short-term debt obligations
    
    
    
    
    
    
    
    
    
    
    (17
    )
    
    
    
    
    
    
    (17
    )Proceeds from long-term debt obligations
    
    
    400
    
    
    
    
    
    
    
    70
    
    
    
    
    
    
    
    470Payments of long-term debt obligations
    
    
    (312
    )
    
    
    
    
    
    
    (74
    )
    
    
    
    
    
    
    (386
    )Net change in long-term revolving credit facility
    
    
    (175
    )
    
    
    
    
    
    
    (6
    )
    
    
    
    
    
    
    (181
    )Debt issuance costs
    
    
    (25
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (25
    )Proceeds from stock issuance
    
    
    119
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    119Purchase of treasury shares
    
    
    (2
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (2
    )Other, net
    
    
    
    
    
    
    
    
    
    
    (5
    )
    
    
    
    
    
    
    (5
    )Changes in investments and advances from (to) affiliates
    
    
    369
    
    
    
    (240
    )
    
    
    (129
    )
    
    
    
    
    
    
    Cash Provided by (Used in) Financing Activities
    
    
    371
    
    
    
    (240
    )
    
    
    (150
    )
    
    
    
    
    
    
    (19
    )Increase in Cash and Cash Equivalents
    
    
    104
    
    
    
    
    
    
    
    107
    
    
    
    
    
    
    
    211CASH AND CASH EQUIVALENTS:Beginning of year
    
    
    
    
    
    
    1
    
    
    
    31
    
    
    
    
    
    
    
    32End of year
    
    $
    104
    
    
    $
    1
    
    
    $
    138
    
    
    $
    
    
    
    $
    243
  101




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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)
 Condensed Consolidating Statement of Cash Flows
Ten Months Ended December 31, 2008
 Parent-Only
    
    
    
    
    
    
    Non-
    
    
    
    
    
    
    ConsolidatedSolutia
    
    
    Guarantors
    
    
    Guarantors
    
    
    Eliminations
    
    
    SolutiaCash Provided by (Used In) Operations
    
    $
    (386
    )
    
    $
    240
    
    
    $
    165
    
    
    $
    
    
    
    $
    19INVESTING ACTIVITIES:Property, plant and equipment purchases
    
    
    (64
    )
    
    
    (10
    )
    
    
    (46
    )
    
    
    
    
    
    
    (120
    )Acquisition and investment payments
    
    
    
    
    
    
    (4
    )
    
    
    
    
    
    
    
    
    
    
    (4
    )Investment proceeds and property disposals
    
    
    52
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    52Cash Used In Investing Activities
    
    
    (12
    )
    
    
    (14
    )
    
    
    (46
    )
    
    
    
    
    
    
    (72
    )FINANCING ACTIVITIES:Net change in lines of credit
    
    
    3
    
    
    
    
    
    
    
    22
    
    
    
    
    
    
    
    25Net change in long-term revolving credit facilities
    
    
    (15
    )
    
    
    
    
    
    
    10
    
    
    
    
    
    
    
    (5
    )Proceeds from stock issuance
    
    
    422
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    422Payment of long-term debt obligations
    
    
    (437
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (437
    )Debt issuance costs
    
    
    
    
    
    
    
    
    
    
    (1
    )
    
    
    
    
    
    
    (1
    )Other, net
    
    
    
    
    
    
    
    
    
    
    (2
    )
    
    
    
    
    
    
    (2
    )Changes in investments and advances from (to) affiliates
    
    
    413
    
    
    
    (234
    )
    
    
    (179
    )
    
    
    
    
    
    
    Cash Provided by (Used In) Financing Activities
    
    
    386
    
    
    
    (234
    )
    
    
    (150
    )
    
    
    
    
    
    
    2Decrease in Cash and Cash Equivalents
    
    
    (12
    )
    
    
    (8
    )
    
    
    (31
    )
    
    
    
    
    
    
    (51
    )CASH AND CASH EQUIVALENTS:Beginning of period
    
    
    12
    
    
    
    9
    
    
    
    62
    
    
    
    
    
    
    
    83End of period
    
    $
    
    
    
    $
    1
    
    
    $
    31
    
    
    $
    
    
    
    $
    32
  102




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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)
 Condensed Consolidating Statement of Cash Flows
Two Months Ended February 29, 2008
 Parent-Only
    
    
    
    
    
    
    Non-
    
    
    
    
    
    
    ConsolidatedSolutia
    
    
    Guarantors
    
    
    Guarantors
    
    
    Eliminations
    
    
    SolutiaCash Provided by (Used In) Operations
    
    $
    (328
    )
    
    $
    52
    
    
    $
    (136
    )
    
    $
    
    
    
    $
    (412
    )INVESTING ACTIVITIES:Property, plant and equipment purchases
    
    
    (18
    )
    
    
    (3
    )
    
    
    (8
    )
    
    
    
    
    
    
    (29
    )Cash Used In Investing Activities
    
    
    (18
    )
    
    
    (3
    )
    
    
    (8
    )
    
    
    
    
    
    
    (29
    )FINANCING ACTIVITIES:Proceeds from long-term debt obligations
    
    
    1,600
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    1,600Net change in long-term revolving credit facilities
    
    
    190
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    190Proceeds from stock issuance
    
    
    250
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    250Payment of short-term debt obligations
    
    
    (951
    )
    
    
    
    
    
    
    (15
    )
    
    
    
    
    
    
    (966
    )Payment of long-term debt obligations
    
    
    
    
    
    
    
    
    
    
    (366
    )
    
    
    
    
    
    
    (366
    )Payment of debt obligations subject to compromise
    
    
    (221
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (221
    )Debt issuance costs
    
    
    (135
    )
    
    
    
    
    
    
    (1
    )
    
    
    
    
    
    
    (136
    )Changes in investments and advances from (to) affiliates
    
    
    (374
    )
    
    
    (48
    )
    
    
    422
    
    
    
    
    
    
    
    Cash Provided by (Used In) Financing Activities
    
    
    359
    
    
    
    (48
    )
    
    
    40
    
    
    
    
    
    
    
    351Increase (Decrease) in Cash and Cash Equivalents
    
    
    13
    
    
    
    1
    
    
    
    (104
    )
    
    
    
    
    
    
    (90
    )CASH AND CASH EQUIVALENTS:Beginning of period
    
    
    (1
    )
    
    
    8
    
    
    
    166
    
    
    
    
    
    
    
    173End of period
    
    $
    12
    
    
    $
    9
    
    
    $
    62
    
    
    $
    
    
    
    $
    83
  103




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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)
 Condensed Consolidating Statement of Cash Flows
Twelve Months Ended December 31, 2007
 Parent-Only
    
    
    
    
    
    
    Non-
    
    
    
    
    
    
    ConsolidatedSolutia
    
    
    Guarantors
    
    
    Guarantors
    
    
    Eliminations
    
    
    SolutiaCash Provided by (Used In) Operations
    
    $
    (209
    )
    
    $
    85
    
    
    $
    73
    
    
    $
    
    
    
    $
    (51
    )INVESTING ACTIVITIES:Property, plant and equipment purchases
    
    
    (69
    )
    
    
    (14
    )
    
    
    (68
    )
    
    
    
    
    
    
    (151
    )Acquisition and investment payments
    
    
    (10
    )
    
    
    (64
    )
    
    
    (56
    )
    
    
    
    
    
    
    (130
    )Restricted cash
    
    
    
    
    
    
    
    
    
    
    4
    
    
    
    
    
    
    
    4Investment proceeds and property disposals
    
    
    45
    
    
    
    
    
    
    
    27
    
    
    
    
    
    
    
    72Cash Used In Investing Activities
    
    
    (34
    )
    
    
    (78
    )
    
    
    (93
    )
    
    
    
    
    
    
    (205
    )FINANCING ACTIVITIES:Net changes in lines of credit
    
    
    
    
    
    
    
    
    
    
    14
    
    
    
    
    
    
    
    14Proceeds from short-term debt obligations
    
    
    325
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    325Payment of short-term obligations
    
    
    (53
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (53
    )Proceeds from long-term debt obligations
    
    
    
    
    
    
    
    
    
    
    75
    
    
    
    
    
    
    
    75Payment of long-term debt obligations
    
    
    
    
    
    
    
    
    
    
    (4
    )
    
    
    
    
    
    
    (4
    )Net change in long-term revolving credit facilities
    
    
    30
    
    
    
    
    
    
    
    (91
    )
    
    
    
    
    
    
    (61
    )Debt issuance costs
    
    
    (7
    )
    
    
    
    
    
    
    (4
    )
    
    
    
    
    
    
    (11
    )Other, net
    
    
    (6
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (6
    )Changes in investments and advances from (to) affiliates
    
    
    (70
    )
    
    
    (13
    )
    
    
    83
    
    
    
    
    
    
    
    Cash Provided by (Used in) Financing Activities
    
    
    219
    
    
    
    (13
    )
    
    
    73
    
    
    
    
    
    
    
    279Increase (Decrease) in Cash and Cash Equivalents
    
    
    (24
    )
    
    
    (6
    )
    
    
    53
    
    
    
    
    
    
    
    23CASH AND CASH EQUIVALENTS:Beginning of year
    
    
    23
    
    
    
    14
    
    
    
    113
    
    
    
    
    
    
    
    150End of year
    
    $
    (1
    )
    
    $
    8
    
    
    $
    166
    
    
    $
    
    
    
    $
    173
  104




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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
      Internal
Control-Integrated Framework
  
 ITEM 9B.
    
    OTHER INFORMATION
   105




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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
   106




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##### Table of Contents



PART IV
 
 ITEM 15.
    
    EXHIBITS AND FINANCIAL STATEMENT SCHEDULE
  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, 2009, 2008
and 2007
  3.
    
    ExhibitsSee the Exhibit Index beginning at page 110 of this report. For a
listing of all management contracts and compensatory plans or arrangements required to
be filed as exhibits to this report, see the exhibits listed under (Exhibit Nos.10(a)
through 10(l), 10(n) and 10(o). The following exhibits listed in the Exhibit Index are
filed with this Form 10-K:
 10
    (j)
    
    Amended and Restated Employment Agreement by and between Solutia Inc. and Robert T. DeBolt10
    (k)
    
    Executive Separation Pay Plan10
    (l)
    
    Letter Agreement between Paul J. Berra, III and Solutia Inc. dated February 25, 200921
    
    
    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
  107




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##### Table of Contents



SIGNATURES
  SOLUTIA INC.By:
    /s/ Timothy J. SpihlmanTimothy J. SpihlmanVice President and Controller

(Principal Accounting Officer)   Signature
    
    Title
    
    Date/s/ Jeffry N. Quinn

Jeffry N. Quinn
    
    President, Chief Executive
Officer and 
Chairman of the
Board 
(Principal Executive
Officer)
    
    February 17, 2010/s/ James M. Sullivan

James M. Sullivan
    
    Executive Vice President
and 
Chief Financial Officer

(Principal Financial
Officer)
    
    February 17, 2010/s/ Timothy J. Spihlman

Timothy J. Spihlman
    
    Vice President and
Controller 
(Principal
Accounting Officer)
    
    February 17, 2010* Eugene I. Davis
    
    Director
    
    February 17, 2010* Robert K. deVeer, Jr.
    
    Director
    
    February 17, 2010* James P. Heffernan
    
    Director
    
    February 17, 2010* W. Thomas Jagodinski
    
    Director
    
    February 17, 2010* William T. Monahan
    
    Director
    
    February 17, 2010* Robert A. Peiser
    
    Director
    
    February 17, 2010* Gregory C. Smith
    
    Director
    
    February 17, 2010
 *
    
    Paul J. Berra, III, by signing his name hereto, does sign this document on behalf of the
above noted individuals, pursuant to powers of attorney duly executed by such individuals which
have been filed as an Exhibit to this Form 10-K. /s/  Paul J. Berra, IIIPaul J. Berra, III, Attorney-in-Fact  108




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##### Table of Contents



SCHEDULE II
 SOLUTIA INC.
 VALUATION AND QUALIFYING ACCOUNTS
FOR THE TWELVE MONTHS ENDED DECEMBER 31, 2009, TEN MONTHS ENDED DECEMBER 31, 2008,
TWO MONTHS ENDED FEBRUARY 29, 2008 AND TWELVE MONTHS ENDED DECEMBER 31, 2007
  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:Twelve Months Ended December 31, 2009Valuation accounts for doubtful
receivables
    
    $
    
    
    
    $
    2
    
    
    $
    
    
    
    $
    
    
    
    $
    2Restructuring reserves
    
    
    20
    
    
    
    43
    
    
    
    (3
    )
    
    
    43
    
    
    
    17Ten 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
    
    
    
    8
  109




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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)
    
    Certificate of Designation, Preferences and Rights of Series A Preferred Stock. (incorporated by reference to Exhibit
3.1 to Solutias Current Report on Form 8-K filed on July 27, 2009)3
    (c)
    
    Amended and Restated Bylaws of Solutia Inc. (incorporated by reference to Exhibit 3.2 to Solutias Form 8-K filed on
March 4, 2008)4
    (a)
    
    382 Rights Agreement, dated as of July 27, 2009, between Solutia Inc. and American Stock Transfer & Trust Company, LLC,
which includes the Form of Certificate Designation, Preferences and Rights of Series A Participating Preferred Stock as
Exhibit A and the Summary of Rights as Exhibit C. (incorporated by reference to Exhibit 3.1 to Solutias Current Report
on Form 8-K filed July 27, 2009)4
    (b)
    
    Indenture dated October 15, 2009 by and between Solutia Inc., the subsidiary guarantors parties thereto and the Trustee.
(incorporated by reference to Exhibit 4.1 to Solutias Current Report on Form 8-K filed October 16, 2009)4
    (c)
    
    First Supplemental Indenture to the Indenture dated October 15, 2009, by and between Solutia Inc., the subsidiary
guarantors parties thereto and the Trustee. (incorporated by reference to Exhibit 4.2 to Solutias Current Report on
Form 8-K filed October 16, 2009)4
    (d)
    
    Form of Non-Qualified Stock Option Agreement pursuant to the Solutia Inc. 2007 Management Long-Term Incentive Plan
(incorporated by reference to Exhibit 4.1 to Solutias Form 10-Q for the first quarter ended March 31, 2008)4
    (e)
    
    Form of Restricted Stock Award Agreement Pursuant To The Solutia Inc. 2007 Management Long-Term Incentive Plan
(incorporated by reference to Exhibit 4.2 to Solutias Form 10-Q for the quarter ended March 31, 2008)4
    (f)
    
    Form of Restricted Stock Unit Award Agreement Pursuant To The Solutia Inc. 2007 Management Long-Term Incentive Plan
(incorporated by reference to Exhibit 4.3 to Solutias Form 10-Q for the quarter ended March 31, 2008)4
    (g)
    
    Registration Rights Agreement, dated as of November 19, 2007, by and among Solutia Inc. and the holders party thereto
(incorporated by reference to Exhibit 4.1 to Solutias Form 8-K filed March 5, 2008)4
    (h)
    
    Solutia Inc. 2007 Management Long-Term Incentive Plan (incorporated by reference to Exhibit 4(c) to Solutias
registration statement on Form S-8 filed February 28, 2008)4
    (i)
    
    Solutia Inc. 2007 Non-Employee Director Stock Compensation Plan (incorporated by reference to Exhibit 4(d) to Solutias
registration statement on Form S-8 filed February 28, 2008)4
    (j)
    
    Warrant Agreement, dated as of February 28, 2008, by and between Solutia Inc. and American Stock Transfer and Trust
Company, as Warrant Agent (incorporated by reference to Exhibit 4.1 to 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)
    
    2007 Solutia Annual Incentive Program. (incorporated by reference to Exhibit 10.1 of Solutias Form 8-K filed on March
17, 2007)10
    (d)
    
    Amended 2008 Solutia Inc. Annual Incentive Plan. (incorporated by reference to Exhibit 10(f) to Solutias Form 10-K for
the year ended December 31, 2008)10
    (e)
    
    Amended and Restated Employment Agreement by and between Solutia Inc. and Jeffry N. Quinn. (incorporated by reference to
Exhibit 10(g) to Solutias Form 10-K for the year ended December 31, 2008)
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Exhibit No.
    
    Description10
    (f)
    
    Amended and Restated Employment Agreement by and between Solutia Inc. and Kent J. Davies. (incorporated by reference to
Exhibit 10(h) to Solutias Form 10-K for the year ended December 31, 2008)10
    (g)
    
    Amended and Restated Employment Agreement by and between Solutia Inc. and Luc De Temmerman. (incorporated by reference
to Exhibit 10(i) to Solutias Form 10-K for the year ended December 31, 2008)10
    (h)
    
    Amended and Restated Employment Agreement by and between Solutia Inc. and James M. Sullivan. (incorporated by reference
to Exhibit 10(k) to Solutias Form 10-K for the year ended December 31, 2008)10
    (i)
    
    Amended and Restated Employment Agreement by and between Solutia Inc. and James R. Voss. (incorporated by reference to
Exhibit 10(l) to Solutias Form 10-K for the year ended December 31, 2008)10
    (j)
    
    Amended and Restated Employment Agreement by and between Solutia Inc. and Robert T. DeBolt.10
    (k)
    
    Executive Separation Pay Plan10
    (l)
    
    Letter Agreement between Paul J. Berra, III and Solutia Inc. dated February 25, 200910
    (m)
    
    Transaction Agreement, dated as of March 31, 2009, by and between Solutia Inc., NyCo LLC, SK Capital Partners II, L.P.
and SK Titan Holdings LLC. (incorporated by reference to Exhibit 10.1 to Solutias Current Report on Form 8-K filed
April 1, 2009)10
    (n)
    
    Solutia Inc. Annual Incentive Plan. (incorporated by reference to Exhibit 10.6 to 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 Plan. (incorporated by reference to Exhibit 10(p) to Solutias
Form 10-K for the year ended December 31, 2008)10
    (q)
    
    Solutia Inc. Non-Employee Director Deferred Compensation Plan Form of Deferral Election Form. (incorporated by reference
to Exhibit 10(q) to Solutias Form 10-K for the year ended December 31, 2008)10
    (r)
    
    Transaction agreement by and among Akzo Nobel Chemicals International B.V., Akzo Nobel Chemicals Inc., Akzo Nobel N.V.,
Flexsys Holding B.V., Flexsys America LP, Flexsys Rubber Chemicals Ltd. and Solutia Inc. (incorporated by reference to
Exhibit 10(rr) of Solutias Form 10-K for the year ended December 31,2006)10
    (s)
    
    Works council side letter by and among Akzo Nobel N.V., Akzo Nobel Chemicals International B.V., Flexsys America LP,
Flexsys Rubber Chemicals Ltd. and Solutia Inc., dated as of February 27, 2007 (incorporated by reference to Exhibit
10(ss) of Solutias Form 10-K for the year ended December 31, 2006)10
    (t)
    
    Amended and Restated Monsanto Settlement Agreement dated as of February 28, 2008 among Solutia Inc., Monsanto Company
and SFC LLC (incorporated by reference to Exhibit 10.1 to Solutias Form 8-K filed March 5, 2008)10
    (u)
    
    Pharmacia Indemnity Agreement, dated as of February 28, 2008, by and between Solutia Inc. and Pharmacia Corporation
(incorporated by reference to Exhibit 10.2 to Solutias Form 8-K filed March 5, 2008)10
    (v)
    
    First Amended and Restated Retiree Settlement Agreement dated as of July 10, 2007 among Solutia Inc. and the claimants
set forth therein (incorporated by reference to Exhibit 10.3 to Solutias Form 8-K filed March 5, 2008)10
    (w)
    
    2008 Retiree Welfare Plan (incorporated by reference to Exhibit 10.4 to Solutias Form 8-K filed March 5, 2008)10
    (x)
    
    First Amendment dated as of October 15, 2009 to the Credit Agreement dated as of February 28, 2008 among Solutia Inc.,
the lending institutions party thereto and Citibank, N.A., as administrative agent for the lenders. (incorporated by
reference to Exhibit 10.3 to Solutias Current Report on Form 8-K filed October 16, 2009)10
    (y)
    
    Credit Agreement (Term Loan), dated as of February 28, 2008, by and among Solutia Inc., the lender parties thereto,
Citibank, N.A., as Administrative Agent and Collateral Agent, Goldman Sachs Credit Partners L.P., as Syndication Agent,
Deutsche Bank AG New York Branch, as Documentation Agent, and Citigroup Global Markets Inc., Goldman Sachs Credit
Partners L.P. and Deutsche Bank Securities Inc., as Joint Lead Arrangers and as Joint Bookrunners (incorporated by
reference to Exhibit 10.1 to Solutias Form 8-K filed March 4, 2008)10
    (z)
    
    First Amendment dated as of May 29, 2009 to the Credit Agreement, dated as of February 28, 2008, among Solutia Inc.,
Solutia Europe SPRL/BVBA, Flexsys SA/NV, and Citibank, N.A., as administrative agent for the lenders. (incorporated by
reference to Exhibit 10.1 to Solutias Current Report on Form 8-K filed October 16, 2009)
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Exhibit No.
    
    Description10
    (aa)
    
    Second Amendment dated as of October 15, 2009 to the Credit Agreement, dated as of February 28, 2008 to Credit Agreement
dated as of May 29, 2009 among Solutia Inc., Solutia Europe SPRL/BVBA, Flexsys SA/NV, and Citibank, N.A., as
administrative agent for the lenders. (incorporated by reference to Exhibit 10.2 to Solutias Current Report on Form 8-K
filed October 16, 2009)10
    (bb)
    
    Credit Agreement (Asset Based Revolving Credit Facility), dated as of February 28, 2008, by and among Solutia Inc.,
Solutia Europe SA/NV and Flexsys SA/NV, the lender parties thereto, Citibank, N.A., as Administrative Agent and
Collateral Agent, Citibank International PLC, as European Collateral Agent, Deutsche Bank AG New York Branch, as
Syndication Agent, Goldman Sachs Credit Partners L.P., as Documentation Agent, and Citigroup Global Markets Inc.,
Goldman Sachs Credit Partners L.P. and Deutsche Bank Securities Inc., as Joint Lead Arrangers and as Joint Bookrunners
(incorporated by reference to Exhibit 10.2 to Solutias Form 8-K filed March 4, 2008)10
    (cc)
    
    Credit Agreement (Bridge Facility), dated as of February 28, 2008, by and among Solutia Inc., the lender parties
thereto, Citibank, N.A., as Administrative Agent, Goldman Sachs Credit Partners L.P., as Syndication Agent, Deutsche
Bank AG New York Branch, as Documentation Agent, and Citigroup Global Markets Inc., Goldman Sachs Credit Partners L.P.
and Deutsche Bank Securities Inc., as Joint Lead Arrangers and as Joint Bookrunners (incorporated by reference to
Exhibit 10.3 to Solutias Form 8-K filed March 4, 2008)10
    (dd)
    
    Guarantee Agreement, dated as of February 28, 2008, by and among certain subsidiaries of Solutia Inc. party hereto, as
Guarantors, and Citibank, N.A., as Collateral Agent (Term Loan) (incorporated by reference to Exhibit 10.4 to Solutias
Form 8-K filed March 4, 2008)10
    (ee)
    
    Security Agreement, dated as of February 28, 2008, by and among Solutia Inc., the subsidiaries party thereto, as
Grantors, and Citibank N.A., as Collateral Agent (Term Loan) (incorporated by reference to Exhibit 10.5 to Solutias
Form 8-K filed March 4, 2008)10
    (ff)
    
    Pledge Agreement, dated as of February 28, 2008, by and among Solutia Inc., the subsidiaries party thereto, as Pledgors,
and Citibank N.A., as Collateral Agent (Term Loan) (incorporated by reference to Exhibit 10.6 to Solutias Form 8-K
filed March 4, 2008)10
    (gg)
    
    Guarantee Agreement, dated as of February 28, 2008, by and among certain subsidiaries of Solutia Inc. party hereto, as
Guarantors, and Citibank, N.A., as Collateral Agent (ABL Facility) (incorporated by reference to Exhibit 10.7 to
Solutias Form 8-K filed March 4, 2008)10
    (hh)
    
    Security Agreement, dated as of February 28, 2008, by and among Solutia Inc., the subsidiaries party thereto, as
Grantors, and Citibank N.A., as Collateral Agent (ABL Facility) (incorporated by reference to Exhibit 10.8 to Solutias
Form 8-K filed March 4, 2008)10
    (ii)
    
    Pledge Agreement, dated as of February 28, 2008, by and among Solutia Inc., the subsidiaries party thereto, as Pledgors,
and Citibank N.A., as Collateral Agent (ABL Facility) (incorporated by reference to Exhibit 10.9 to Solutias Form 8-K
filed March 4, 2008)10
    (jj)
    
    Intercreditor Agreement, dated as of February 28, 2008, by and among Solutia Inc., each of the subsidiaries from time to
time party thereto, Citibank, N.A., in its capacity as administrative agent and collateral agent for the holders of the
Term Loan Obligations, and Citibank, N.A., in its capacity as administrative agent and collateral agent for the holders
of the Revolving Credit Obligations (incorporated by reference to Exhibit 10.11 to Solutias Form 8-K filed March 4,
2008)10
    (kk)
    
    Joinder Agreement Supplement No. 1 dated as of May 5, 2008, to the Security Agreement (ABL) (incorporated by reference
to Exhibit 10.1 of Solutias Form 10-Q for the quarter ended June 30, 2008)10
    (ll)
    
    Joinder Agreement Supplement No. 1 dated as of May 5, 2008, to the Security Agreement (Term) (incorporated by reference
to Exhibit 10.2 of Solutias Form 10-Q for the quarter ended June 30, 2008)10
    (mm)
    
    Joinder Agreement Supplement No. 1 dated as of May 5, 2008, to the Guarantee Agreement (ABL) (incorporated by reference
to Exhibit 10.3 of 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 Guarantee Agreement (Term) (incorporated by reference
to Exhibit 10.4 of Solutias Form 10-Q for the quarter ended June 30, 2008)10
    (oo)
    
    Intercreditor Agreement Joinder dated as of May 5, 2008 (incorporated by reference to Exhibit 10.6 of Solutias Form
10-Q for the quarter ended June 30, 2008)11
    
    
    OmittedInapplicable; see Consolidated Statement of Operations on page 50.12

    
    
    Omitted  Inapplicable
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Exhibit No.
    
    Description14
    
    
    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 Firm24
    (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
  113