Big Loss at Solutia

Solutia(SOI) reported a fat loss in its third quarter Friday and said things aren't likely to improve in the fourth, but investors bid up the penny stock anyway, possibly on a belief the company had distanced itself from insolvency.

Solutia lost $178 million, or $1.70 a share, in the quarter ended Sept. 30, compared with a loss of $6 million, or 6 cents a share, last year. Sales were $578 million, up slightly from last year's $574 million. The latest period included about $300 million of charges for accounting changes, restructuring costs and a settlement related to PCB contaminants in Alabama.

The period was also hurt by an increase in raw materials costs, lower sales volume and extended downtime at a plant in Alvin, Texas. Solutia said it doesn't expect a "meaningful improvement" in fourth-quarter 2003 or first-quarter 2004 operating results, adding it sees no evidence of domestic economic recovery.

The company also said it won't pay any dividends in calendar year 2003 due to the terms of its new $350 million credit facility.

"There is still much to be done to improve the overall operational and financial health of the company," said John Hunter, chief executive.

Despite all that, Solutia shares were recently up 18 cents, or 7.5%, to $2.58.

Thanks to its new credit facility, cash and available borrowings as of Sept. 30 totaled $150 million. Cash and cash equivalents at Sept. 30 were $55 million, compared with $17 million at Dec. 31, 2002. Cash from continuing operations was $45 million in the third quarter, compared with $18 million in the same quarter last year.

Free cash flow was $32 million in the quarter, compared with $1 million last year, which is partially a result of no voluntary contributions to its qualified pension plan, the company said.