<PAGE>

======================================================================

                             FORM 10-Q

                 SECURITIES AND EXCHANGE COMMISSION

                      WASHINGTON, D.C. 20549

(MARK ONE)
    [X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
                  SECURITIES EXCHANGE ACT OF 1934
         FOR THE QUARTERLY PERIOD ENDED SEPTEMBER 30, 2002

                                 OR

    [ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
                  SECURITIES EXCHANGE ACT OF 1934

COMMISSION FILE NUMBER 001-13255
                       ---------

                            SOLUTIA INC.
                            ------------
       (EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)

            DELAWARE                           43-1781797
            --------                           ----------
(STATE OR OTHER JURISDICTION OF   (I.R.S. EMPLOYER IDENTIFICATION NO.)
 INCORPORATION OR ORGANIZATION)

   575 MARYVILLE CENTRE DRIVE, P.O. BOX 66760,
   -------------------------------------------
             ST. LOUIS, MISSOURI                          63166-6760
             -------------------                          ----------
    (ADDRESS OF PRINCIPAL EXECUTIVE OFFICES)              (ZIP CODE)

                           (314) 674-1000
                           --------------
        (REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE)

    INDICATE BY CHECK MARK WHETHER THE REGISTRANT (1) HAS FILED ALL
REPORTS TO BE FILED BY SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934 DURING THE PRECEDING TWELVE MONTHS (OR FOR SUCH
SHORTER PERIOD THAT THE REGISTRANT WAS REQUIRED TO FILE SUCH
REPORTS), AND (2) HAS BEEN SUBJECT TO SUCH FILING REQUIREMENTS FOR
THE PAST 90 DAYS. YES  X  NO
                      ---    ---

    INDICATE THE NUMBER OF SHARES OUTSTANDING OF EACH OF THE
ISSUER'S CLASSES OF COMMON STOCK, AS OF THE LATEST PRACTICABLE DATE.

                                                   OUTSTANDING AT
               CLASS                             SEPTEMBER 30, 2002
               -----                             ------------------

   COMMON STOCK, $0.01 PAR VALUE                 104,777,018 SHARES
   -----------------------------                 ------------------

======================================================================


<PAGE>
<PAGE>

                   PART I. FINANCIAL INFORMATION

ITEM 1. FINANCIAL STATEMENTS

<TABLE>
                                                 SOLUTIA INC.

                                  STATEMENT OF CONSOLIDATED INCOME (LOSS)
                              (DOLLARS IN MILLIONS, EXCEPT PER SHARE AMOUNTS)

<CAPTION>
                                                            THREE MONTHS                  NINE MONTHS
                                                         ENDED SEPTEMBER 30,          ENDED SEPTEMBER 30,
                                                         -------------------         ---------------------
                                                         2002          2001           2002           2001
                                                         -----         -----         ------         ------
<S>                                                      <C>           <C>           <C>            <C>
NET SALES..........................................      $ 718         $ 690         $2,108         $2,174
Cost of goods sold.................................        598           561          1,729          1,789
                                                         -----         -----         ------         ------
GROSS PROFIT.......................................        120           129            379            385
Marketing expenses.................................         48            40            137            131
Administrative expenses............................         38            40            109            114
Technological expenses.............................         17            16             48             48
Amortization expense...............................        --              9              2             25
                                                         -----         -----         ------         ------
OPERATING INCOME...................................         17            24             83             67
Equity earnings from affiliates--net of tax........          5             9             17             21
Interest expense...................................        (32)          (22)           (76)           (66)
Other income (expense)--net........................          3            (3)            12             34
                                                         -----         -----         ------         ------
INCOME (LOSS) BEFORE INCOME TAXES..................         (7)            8             36             56
Income taxes (benefit).............................         (7)            1             (1)            14
                                                         -----         -----         ------         ------
INCOME BEFORE CUMULATIVE EFFECT OF CHANGE IN
  ACCOUNTING PRINCIPLE.............................      $ --          $   7         $   37         $   42
CUMULATIVE EFFECT OF CHANGE IN ACCOUNTING
  PRINCIPLE........................................        --            --            (167)           --
                                                         -----         -----         ------         ------
NET INCOME (LOSS)..................................      $ --          $   7         $ (130)        $   42
                                                         =====         =====         ======         ======
BASIC EARNINGS (LOSS) PER SHARE:
INCOME BEFORE CUMULATIVE EFFECT OF CHANGE IN
  ACCOUNTING PRINCIPLE.............................      $ --          $0.07         $ 0.35         $ 0.41
CUMULATIVE EFFECT OF CHANGE IN ACCOUNTING
  PRINCIPLE........................................        --            --           (1.59)           --
                                                         -----         -----         ------         ------
BASIC EARNINGS (LOSS) PER SHARE....................      $ --          $0.07         $(1.24)        $ 0.41
                                                         =====         =====         ======         ======
DILUTED EARNINGS (LOSS) PER SHARE:
INCOME BEFORE CUMULATIVE EFFECT OF CHANGE IN
  ACCOUNTING PRINCIPLE.............................      $ --          $0.07         $ 0.35         $ 0.40
CUMULATIVE EFFECT OF CHANGE IN ACCOUNTING
  PRINCIPLE........................................        --            --           (1.59)           --
                                                         -----         -----         ------         ------
DILUTED EARNINGS (LOSS) PER SHARE..................      $ --          $0.07         $(1.24)        $ 0.40
                                                         =====         =====         ======         ======
Weighted average equivalent shares (in millions):
    Basic..........................................      104.8         104.0          104.7          103.7
    Effect of dilutive securities:
        Common share equivalents--common shares
          issuable upon exercise of outstanding
          stock options and warrants...............        --            1.2            0.3            1.3
                                                         -----         -----         ------         ------
    Diluted........................................      104.8         105.2          105.0          105.0
                                                         =====         =====         ======         ======

<CAPTION>
                          STATEMENT OF CONSOLIDATED COMPREHENSIVE INCOME (LOSS)
                                          (DOLLARS IN MILLIONS)

                                                            THREE MONTHS                 NINE MONTHS
                                                         ENDED SEPTEMBER 30,          ENDED SEPTEMBER 30,
                                                         -------------------         ---------------------
                                                         2002          2001           2002           2001
                                                         -----         -----         ------         ------
<S>                                                      <C>           <C>           <C>            <C>
NET INCOME (LOSS)..................................      $  --         $   7         $ (130)        $   42
OTHER COMPREHENSIVE INCOME (LOSS):
Currency translation adjustments...................         (8)           48             74            (12)
Minimum pension liability adjustments, net of
  tax..............................................       (123)          --            (123)           --
Net unrealized gain (loss) on derivative
  instruments, net of tax..........................          1           --               1             (2)
Net realized (gain) loss on derivative instruments,
  net of tax.......................................        --              1              1             (1)
                                                         -----         -----         ------         ------
COMPREHENSIVE INCOME (LOSS)........................      $(130)        $  56         $ (177)        $   27
                                                         =====         =====         ======         ======

See accompanying Notes to Consolidated Financial Statements.
</TABLE>

                                 1


<PAGE>
<PAGE>

<TABLE>
                                          SOLUTIA INC.

                         STATEMENT OF CONSOLIDATED FINANCIAL POSITION
                        (DOLLARS IN MILLIONS, EXCEPT PER SHARE AMOUNTS)


<CAPTION>
                                                                  SEPTEMBER 30,       DECEMBER 31,
                                                                      2002                2001
                                                                  -------------       ------------
<S>                                                                  <C>                 <C>
                           ASSETS

CURRENT ASSETS:
Cash and cash equivalents...................................         $   19              $   23
Restricted cash.............................................            155                 --
Trade receivables, net of allowance of $18 in 2002 and $22
  in 2001...................................................            395                 352
Miscellaneous receivables...................................            109                 105
Prepaid expenses............................................             17                  15
Deferred income tax benefit.................................            123                 123
Inventories.................................................            323                 303
                                                                     ------              ------
TOTAL CURRENT ASSETS........................................          1,141                 921
PROPERTY, PLANT AND EQUIPMENT:
Land........................................................             62                  58
Buildings...................................................            437                 425
Machinery and equipment.....................................          3,077               3,006
Construction in progress....................................             48                  51
                                                                     ------              ------
Total property, plant and equipment.........................          3,624               3,540
Less accumulated depreciation...............................          2,493               2,397
                                                                     ------              ------
NET PROPERTY, PLANT AND EQUIPMENT...........................          1,131               1,143
INVESTMENTS IN AFFILIATES...................................            241                 313
GOODWILL, net...............................................            321                 386
IDENTIFIED INTANGIBLE ASSETS, net...........................             73                 194
LONG-TERM DEFERRED INCOME TAX BENEFIT.......................            301                 254
OTHER ASSETS................................................            305                 197
                                                                     ------              ------
TOTAL ASSETS................................................         $3,513              $3,408
                                                                     ======              ======
           LIABILITIES AND SHAREHOLDERS' DEFICIT

CURRENT LIABILITIES:
Accounts payable............................................         $  248              $  233
Wages and benefits..........................................             54                  56
Postretirement liabilities..................................             94                  82
Miscellaneous liabilities...................................            348                 362
Short-term debt.............................................            303                 683
                                                                     ------              ------
TOTAL CURRENT LIABILITIES...................................          1,047               1,416
LONG-TERM DEBT..............................................          1,102                 627
POSTRETIREMENT LIABILITIES..................................          1,203                 947
OTHER LIABILITIES...........................................            430                 531
SHAREHOLDERS' DEFICIT:
Common stock (authorized, 600,000,000 shares, par value
    $0.01)
  Issued: 118,400,635 shares in 2002 and 2001...............              1                   1
  Additional contributed capital............................             19                 --
  Treasury stock, at cost (13,623,617 shares in 2002 and
    13,921,604 shares in 2001)..............................           (250)               (257)
Net deficiency of assets at spinoff.........................           (113)               (113)
Unearned ESOP shares........................................            --                   (1)
Accumulated other comprehensive loss........................           (191)               (144)
Reinvested earnings.........................................            265                 401
                                                                     ------              ------
SHAREHOLDERS' DEFICIT.......................................           (269)               (113)
                                                                     ------              ------
TOTAL LIABILITIES AND SHAREHOLDERS' DEFICIT.................         $3,513              $3,408
                                                                     ======              ======

See accompanying Notes to Consolidated Financial Statements.
</TABLE>

                                 2


<PAGE>
<PAGE>

<TABLE>
                                    SOLUTIA INC.

                        STATEMENT OF CONSOLIDATED CASH FLOW
                               (DOLLARS IN MILLIONS)

<CAPTION>
                                                                  NINE MONTHS ENDED
                                                                    SEPTEMBER 30,
                                                                  ------------------
                                                                  2002          2001
                                                                  -----         ----
<S>                                                               <C>          <C>
INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS

OPERATING ACTIVITIES:
Net income (loss)...........................................      $(130)       $  42
Adjustments to reconcile to Cash From Operations:
    Cumulative effect of change in accounting principle.....        167          --
    Depreciation and amortization...........................        114          136
    Amortization of deferred credits........................        (11)         (10)
    Amortization of deferred debt issuance costs and debt
      discount..............................................          9            1
    Restructuring expenses and other unusual items..........         18          --
    Net pretax gains from asset disposals...................         (6)         (34)
    Changes in assets and liabilities:
        Income and deferred taxes...........................         46           (3)
        Trade receivables...................................        (43)          (6)
        Inventories.........................................        (20)          18
        Accounts payable....................................         17         (106)
        Other assets and liabilities........................        (74)         (84)
                                                                  -----        -----
CASH FROM OPERATIONS........................................         87          (46)
                                                                  -----        -----
INVESTING ACTIVITIES:
Property, plant and equipment purchases.....................        (51)         (65)
Acquisition and investment payments, net of cash acquired...        (32)         (32)
Property disposals and investment proceeds, net.............        107           36
                                                                  -----        -----
CASH FROM INVESTING ACTIVITIES..............................         24          (61)
                                                                  -----        -----
FINANCING ACTIVITIES:
Net change in short-term debt obligations...................       (107)          94
Proceeds from issuance of long-term debt obligations........        182          --
Restricted cash for repayment of October 2002 maturities....       (150)         --
Issuance of stock warrants..................................         19          --
Common stock issued under employee stock plans..............          2           11
Deferred debt issuance costs................................        (46)          (2)
Other financing activities..................................        (15)         --
                                                                  -----        -----
CASH FROM FINANCING ACTIVITIES..............................       (115)         103
                                                                  -----        -----
DECREASE IN CASH AND CASH EQUIVALENTS.......................         (4)          (4)

CASH AND CASH EQUIVALENTS:
BEGINNING OF YEAR...........................................         23           19
                                                                  -----        -----
END OF PERIOD...............................................      $  19        $  15
                                                                  =====        =====

See accompanying Notes to Consolidated Financial Statements.
</TABLE>

                                 3


<PAGE>
<PAGE>

                            SOLUTIA INC.

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                       (DOLLARS IN MILLIONS)

1. BASIS OF PRESENTATION

    Solutia Inc. and its subsidiaries make and sell a variety of
high-performance chemical-based materials. Solutia is a world leader
in performance films for laminated safety glass and after-market
applications; resins and additives for high-value coatings; process
development and scale-up services for pharmaceutical fine chemicals;
specialties such as water treatment chemicals, heat transfer fluids
and aviation hydraulic fluid and an integrated family of nylon
products including high-performance polymers and fibers.

    These financial statements should be read in conjunction with
the audited financial statements and notes to consolidated financial
statements included in Solutia's 2001 Annual Report on Form 10-K,
filed with the Securities and Exchange Commission on March 7, 2002.
A summary of our critical accounting policies is presented on page
13 of our most recent Form 10-K. There have been no material changes
in the accounting policies followed by Solutia during fiscal year
2002 except for those changes described in Note 6.

    The accompanying unaudited consolidated financial statements
reflect all adjustments that, in the opinion of management, are
necessary to present fairly the financial position, results of
operations, comprehensive income (loss), and cash flows for the
interim periods reported. Such adjustments are of a normal,
recurring nature. The results of operations for the three-month and
nine-month periods ended September 30, 2002, are not necessarily
indicative of the results to be expected for the full year.

    Certain reclassifications to prior year's financial information
have been made to conform to the 2002 presentation.

2. ACQUISITIONS

    On May 31, 2002, Solutia acquired Axio Research Corporation
(Axio) for approximately $5 million, which was financed with cash
from operations. Axio is a contract research organization providing
clinical trial design and data management to a wide range of clients
including pharmaceutical, biotechnology and medical device companies
as well as academic and government research groups. Axio will
complement the Pharmaceutical service offering within the Specialty
Products segment. The allocation of the purchase price to assets and
liabilities acquired resulted in current assets of $1 million,
non-current assets of $1 million, goodwill of $4 million and current
liabilities of $1 million. Axio's results of operations were
included in Solutia's results of operations from the acquisition
date and were not material to Solutia's consolidated results of
operations for the nine month period ended September 30, 2002.

3. RESTRUCTURING RESERVES

    As part of the integration of Vianova Resins with Solutia's
resins businesses, Solutia identified excess production capacity for
certain Solutia resins products that allowed for the consolidation
of production facilities. As a result, Solutia decided to exit its
operations at the Port Plastics site in Addyston, Ohio. An
$8 million ($5 million aftertax) charge to cost of goods sold was
recorded in the second quarter of 2000 to carry out the exit plan.
The charge included $2 million to write down plant assets to their
fair value of approximately $1 million, $2 million of dismantling
costs and $4 million of estimated costs for which Solutia is
contractually obligated under an operating agreement. Fair value of
plant assets was determined by discounting future cash flows using
an appropriate discount rate based on the Company's cost of capital.
Under the operating agreement, Solutia was required to provide
24 months notice of intent to exit and to pay contractually obligated
costs for an additional 18 months thereafter to a third-party
operator. Solutia provided notice of intent to exit on June 30,
2000, and exited the site in June of 2002. The contractually
obligated costs represent direct manufacturing, overhead, utilities
and severance. The financial impact was not material to Solutia as
production was shifted to other production facilities.

                                 4


<PAGE>
<PAGE>

    The following table summarizes the second quarter 2000
restructuring charge and amounts utilized to carry out those plans:

<TABLE>
<CAPTION>
                                                        SHUTDOWN OF        ASSET WRITE-       OTHER
                                                         FACILITIES           DOWNS           COSTS        TOTAL
                                                        -----------        ------------       -----        -----
<S>                                                     <C>                <C>                <C>          <C>
     Balance at January 1, 2000...................          $--                $--             $--          $--
          Charges taken...........................             2                  2               4            8
          Amounts utilized........................           --                  (2)            --            (2)
                                                            ----               ----            ----         ----
    Balance at December 31, 2000..................             2                --                4            6
        Amounts utilized..........................           --                 --              --           --
                                                            ----               ----            ----         ----
    Balance at December 31, 2001..................             2                --                4            6
        Amounts utilized..........................           --                 --              --           --
                                                            ----               ----            ----         ----
    Balance at March 31, 2002.....................             2                --                4            6
        Amounts utilized..........................           --                 --              --           --
                                                            ----               ----            ----         ----
    Balance at June 30, 2002......................             2                --                4            6
        Amounts utilized..........................            (1)               --              --            (1)
                                                            ----               ----            ----         ----
    BALANCE AT SEPTEMBER 30, 2002.................          $  1               $--             $  4         $  5
                                                            ====               ====            ====         ====
</TABLE>

4. INVENTORY VALUATION

    The components of inventories as of September 30, 2002, and
December 31, 2001, were as follows:

<TABLE>
<CAPTION>
                                                 SEPTEMBER 30,       DECEMBER 31,
                                                     2002                2001
                                                 -------------       ------------
<S>                                              <C>                 <C>
Finished goods.............................          $ 225              $ 209
Goods in process...........................            108                107
Raw materials and supplies.................            102                100
                                                     -----              -----
Inventories, at FIFO cost..................            435                416
Excess of FIFO over LIFO cost..............           (112)              (113)
                                                     -----              -----
TOTAL......................................          $ 323              $ 303
                                                     =====              =====
</TABLE>

5. CONTINGENCIES

    Because of the size and nature of its business, Solutia is a
party to numerous legal proceedings. Most of these proceedings have
arisen in the ordinary course of business and involve claims for
money damages. In addition, at the time of the spinoff, Solutia
assumed from the former Monsanto Company (now known as Pharmacia
Corporation), under a distribution agreement, liabilities related to
specified legal proceedings. As a result, although Pharmacia remains
a defendant, Solutia is required to manage the litigation and
indemnify Pharmacia for costs, expenses and judgments arising from
the litigation. Such matters arise out of the normal course of
business and relate to product liability, government regulation,
including environmental issues, employee relations and other issues.
Certain of the lawsuits and claims seek damages in significant
amounts. Although the results of litigation cannot be predicted with
certainty, management's belief is that the final outcome of such
litigation, except as noted below, will not have a material adverse
effect on Solutia's consolidated financial position, liquidity or
profitability in any one year.

    Solutia's Annual Report on Form 10-K for the year ended December
31, 2001, describes four consolidated cases, sometimes referred to
as Abernathy v. Monsanto or Bowie v. Monsanto, which have been in
trial in Circuit Court for Etowah County, Alabama. The trial court
departed from its announced schedule and did not submit the issue of
compensatory damages for the 17 Phase I trial plaintiffs to the jury
for determination. If damages are awarded against Solutia in these
cases, it would appeal on all available grounds. Solutia believes
that it has meritorious grounds for appeal; however, there can be no
guarantee any such appeal would be successful. Also, in order to
appeal any lower court judgment, Solutia would be required to post a
surety bond. Such a bond is often required to be collateralized.

                                 5


<PAGE>
<PAGE>

    Pharmacia is our co-defendant in the Abernathy or Bowie cases.
Pharmacia has agreed to obtain a surety bond if it is able to do so
on commercially reasonable terms if needed and if Solutia does not
obtain the bond. If Pharmacia obtains an appeal bond without
providing collateral, any decisions regarding management or
settlement of this litigation would be jointly controlled by
Solutia, Pharmacia, and Monsanto (the new company which Pharmacia
spun off on August 13, 2002) with each company having an equal vote.
If such a bond is required to be secured by collateral, Solutia
would have the right to provide the collateral and control any
settlement decisions regarding these cases. If Solutia does not
provide the required collateral, then Monsanto would have the option
to provide the collateral and would then control any settlement
decisions regarding these cases. If Monsanto does not provide the
required collateral, then Pharmacia would provide the necessary
collateral and would assume control of any settlement decisions in
these cases.

    Management does not believe that the ultimate resolution of the
matters related to Anniston, Alabama will have a material adverse
impact on its consolidated financial position or liquidity. However,
it is possible that a resolution of these cases may have a material
adverse impact on Solutia's net income in a given year, although it
is impossible at this time to estimate the range or amount of any
such liability.

    In connection with the agreement described above relating to
obtaining an appeal bond in the Abernathy v. Monsanto litigation, if
one is necessary, Solutia has agreed to an amendment, dated as of
July 1, 2002, to the distribution agreement with Pharmacia. The
amendment provides that Solutia accepts the substitution of Monsanto
in place of Pharmacia as the entity that will, generally, in the
first instance, perform many of the obligations of Pharmacia under
the distribution agreement. Pharmacia, however, has agreed to remain
primarily liable under the distribution agreement for the
performance of those obligations. The amendment to the distribution
agreement also provides that Solutia will indemnify Monsanto with
respect to the liabilities assumed by Solutia under the distribution
agreement.

6. GOODWILL AND OTHER INTANGIBLE ASSETS

    Effective January 1, 2002, Solutia adopted Statement of
Financial Accounting Standards (SFAS) No. 142, "Goodwill and Other
Intangible Assets." In accordance with SFAS No. 142, Solutia
discontinued the amortization of goodwill and identifiable
intangible assets that have indefinite useful lives. Intangible
assets that have finite useful lives will continue to be amortized
over their useful lives. Goodwill will be assessed annually for
impairment. This statement also required certain intangible assets
that did not meet the criteria for recognition apart from goodwill,
to be subsumed into goodwill. During the quarter ended March 31,
2002, Solutia subsumed into goodwill $74 million of intangible
assets net of related deferred tax liabilities representing
assembled workforce and noncontractual customer relationships that
did not meet the separability criteria under SFAS No. 141, "Business
Combinations."

    Net income (loss) and earnings (loss) per share for the three
and nine months ended September 30, 2002 and 2001, adjusted to
exclude the non-amortization provisions of SFAS No. 142, net of tax,
are as follows:

<TABLE>
<CAPTION>
                                                                    THREE MONTHS             NINE MONTHS
                                                                        ENDED                   ENDED
                                                                    SEPTEMBER 30,           SEPTEMBER 30,
                                                                  -----------------       ------------------
                                                                  2002        2001         2002        2001
                                                                  ----        ----         ----        ----
<S>                                                               <C>         <C>         <C>          <C>
Net income (loss):
     Income before cumulative effect of change in accounting
       principle............................................      $ --        $  7        $  37        $ 42
     Goodwill amortization..................................        --           6          --           16
     Subsumed intangible assets amortization................        --           2          --            5
     Equity method goodwill amortization....................        --         --           --            1
     Trademark amortization.................................        --           1          --            2
     Cumulative effect of change in accounting principle....        --         --          (167)        --
                                                                  -----       ----        -----        ----
ADJUSTED NET INCOME (LOSS)..................................      $ --        $ 16        $(130)       $ 66
                                                                  =====       ====        =====        ====
</TABLE>

                                 6


<PAGE>
<PAGE>

<TABLE>
<CAPTION>
                                                                    THREE MONTHS             NINE MONTHS
                                                                        ENDED                   ENDED
                                                                    SEPTEMBER 30,           SEPTEMBER 30,
                                                                  -----------------       ------------------
                                                                  2002        2001         2002        2001
                                                                  ----        ----         ----        ----
<S>                                                               <C>         <C>         <C>          <C>
Basic earnings (loss) per share:
    Income before cumulative effect of change in accounting
      principle.............................................      $ --        $0.07       $ 0.35       $0.41
    Goodwill amortization...................................        --         0.06          --         0.16
    Subsumed intangible assets amortization.................        --         0.02          --         0.05
    Equity method goodwill amortization.....................        --          --           --         0.01
    Trademark amortization..................................        --         0.01          --         0.02
    Cumulative effect of change in accounting principle.....        --          --         (1.59)        --
                                                                  -----       -----       ------       -----
ADJUSTED BASIC EARNINGS (LOSS) PER SHARE....................      $ --        $0.16       $(1.24)      $0.65
                                                                  =====       =====       ======       =====

<CAPTION>
                                                                    THREE MONTHS             NINE MONTHS
                                                                        ENDED                   ENDED
                                                                    SEPTEMBER 30,           SEPTEMBER 30,
                                                                  -----------------       ------------------
                                                                  2002        2001         2002        2001
                                                                  -----       -----       ------       -----
<S>                                                               <C>         <C>         <C>          <C>
Diluted earnings (loss) per share:
    Income before cumulative effect of change in accounting
      principle.............................................      $ --        $0.07       $ 0.35       $0.40
    Goodwill amortization...................................        --         0.06          --         0.16
    Subsumed intangible assets amortization.................        --         0.02          --         0.05
    Equity method goodwill amortization.....................        --          --           --         0.01
    Trademark amortization..................................        --         0.01          --         0.02
    Cumulative effect of change in accounting principle.....        --          --         (1.59)        --
                                                                  -----       -----       ------       -----
ADJUSTED DILUTED EARNINGS (LOSS) PER SHARE..................      $ --        $0.16       $(1.24)      $0.64
                                                                  =====       =====       ======       =====
</TABLE>

    Identified intangible assets are as follows:

<TABLE>
<CAPTION>
                                                              GROSS         SEPTEMBER 30, 2002           NET
                                                            CARRYING            ACCUMULATED           CARRYING
                                                              VALUE            AMORTIZATION             VALUE
                                                            --------        ------------------        --------
<S>                                                         <C>             <C>                       <C>
Amortized intangible assets:
     Contractual customer relationships...............         $26                 $ (4)                 $22
     Patents..........................................           7                   (2)                   5
     Employment agreements............................           5                   (2)                   3
     Other............................................           6                   (4)                   2
                                                               ---                 ----                  ---
TOTAL AMORTIZED INTANGIBLE ASSETS.....................         $44                 $(12)                 $32
                                                               ---                 ----                  ---
Unamortized intangible assets:
    Trademarks........................................         $47                 $ (6)                 $41
                                                               ---                 ----                  ---
TOTAL UNAMORTIZED INTANGIBLE ASSETS...................         $47                 $ (6)                 $41
                                                               ---                 ----                  ---
TOTAL IDENTIFIED INTANGIBLE ASSETS....................         $91                 $(18)                 $73
                                                               ===                 ====                  ===
</TABLE>

                                 7


<PAGE>

<TABLE>
<CAPTION>
                                                              GROSS         DECEMBER 31, 2001           NET
                                                            CARRYING           ACCUMULATED           CARRYING
                                                              VALUE            AMORTIZATION            VALUE
                                                            --------        -----------------        --------
<S>                                                         <C>             <C>                      <C>
Intangible assets:
    Customer relationships............................        $149                 $(14)               $135
    Trademarks........................................          45                   (6)                 39
    Assembled workforce...............................          10                   (2)                  8
    Patents...........................................           7                   (2)                  5
    Employment agreements.............................           5                  --                    5
    Other.............................................           6                   (4)                  2
                                                              ----                 ----                ----
TOTAL INTANGIBLE ASSETS...............................        $222                 $(28)               $194
                                                              ====                 ====                ====
</TABLE>

    The Company's second quarter acquisition of Axio (see Note 2),
resulted in goodwill of approximately $4 million. Intangible asset
amortization expense was less than $1 million for the quarter ended
September 30, 2002, and $2 million for the nine months ended
September 30, 2002. As a result of adoption of SFAS No. 142, there
have been no changes to amortizable lives or methods, except for
trademarks, which have indefinite lives as defined under the new
standard. Trademarks are associated with products and tradenames of
the Company and are expected to provide benefits beyond the
foreseeable future. Amortization expense for the net carrying amount
of intangible assets is estimated to be $3 million in 2002,
$3 million in 2003, $3 million in 2004, $3 million in 2005 and
$3 million in 2006.

    Goodwill as allocated by reportable segment is as follows:

<TABLE>
<CAPTION>
                                                       PERFORMANCE        SPECIALTY       INTEGRATED
                                                          FILMS           PRODUCTS           NYLON          TOTAL
                                                       -----------        ---------       ----------        -----
<S>                                                        <C>              <C>              <C>            <C>
Gross goodwill, December 31, 2001................          $ 84             $ 347            $--            $ 431
Accumulated amortization.........................           (11)              (34)            --              (45)
                                                           ----             -----            ----           -----
Net goodwill, December 31, 2001..................          $ 73             $ 313            $--            $ 386
Intangible assets and related accounts subsumed:
    Noncontractual customer relationships........           --                114             --              114
    Assembled workforce..........................           --                  8             --                8
    Deferred tax liabilities.....................           --                (48)            --              (48)
Goodwill acquired................................           --                  4             --                4
Impairment loss..................................           --               (167)            --             (167)
Translation......................................           --                 24             --               24
                                                           ----             -----            ----           -----
Goodwill, September 30, 2002.....................          $ 73             $ 248            $--            $ 321
                                                           ====             =====            ====           =====
</TABLE>

    Fair value measurements of the reporting units were estimated
by a third-party specialist utilizing both an income and market
multiple approach. Based on this analysis, Solutia recorded an
impairment loss of $167 million during the first quarter of 2002 for
the Resins and Additives business in the Specialty Products segment
due to declining estimates of future results given current economic
and market conditions. The goodwill impairment charge is
non-deductible for tax purposes and is reflected as the cumulative
effect of change in accounting principle in the accompanying
statement of consolidated income (loss).

7. INVESTMENTS IN AFFILIATES

    During the first quarter of 2002, Solutia sold its 50 percent
interest in the Advanced Elastomer Systems joint venture to
ExxonMobil Chemical Company, a division of Exxon Mobil Corporation
and Exxon Chemical Asset Management Partnership, a subsidiary of
Exxon Mobil Corporation for approximately $102 million. The sale
resulted in a gain of $5 million ($3 million aftertax).

                                 8


<PAGE>
<PAGE>

8. DEBT OBLIGATIONS

  Amended Credit Facility

    On July 25, 2002, Solutia and its bank syndicate amended
Solutia's revolving credit facility. The amendment extends the
maturity of the facility until August 2004. It also reduces the
facility from $800 million to $600 million and separates the
facility into a $300 million term loan and a $300 million revolving
credit facility. The term loan has scheduled payment obligations as
follows: $25 million at December 31, 2002; $50 million at December
31, 2003; $25 million at June 30, 2004; and the remainder at
maturity.

    Borrowings under the amended credit facility bear interest at a
floating rate based on LIBOR, plus an applicable margin. The margin
for LIBOR loans is 5.75 percent and will increase by 50 basis points
in July 2003 and an additional 50 basis points in January 2004. A
premium in the amount of 2 percent of the principal repaid on the
term loan will apply until July 25, 2003, and a premium of 1 percent
will apply to such principal payments thereafter.

    At September 30, 2002, Solutia had borrowings outstanding under the
amended credit facility of $127 million. In addition, the Company had
$56 million of letters of credit outstanding under this facility at
September 30, 2002.

    In September 2002, Solutia negotiated an amendment to its
amended credit facility which reduced the amount of debt outstanding
as defined in the credit agreement for purposes of the leverage
covenant ratio. Solutia deposited approximately $155 million from
the proceeds of the Senior Secured Notes offering which occurred in
July 2002 with the trustee for the $150 million of 6.5 percent notes
due October 15, 2002, to pay the principal and interest at maturity.
However, the principal amount of the 6.5 percent notes due October
15, 2002, was still considered outstanding debt under the amended
credit facility. The amendment eliminated the $150 million of
6.5 percent notes due October 15, 2002, from consideration in the
leverage covenant ratio. Without the amendment, Solutia would not
have been in compliance with the leverage coverage ratio.

  Senior Secured Notes

    On July 9, 2002, SOI Funding Corp. ("SOI Funding"), a special
purpose entity, offered 223,000 units (the "Units"), comprising
$223 million aggregate principal amount of its 11.25 percent Senior
Secured Notes (the "Notes") due 2009 and warrants to purchase a
total of 5,533,522 shares of Solutia's common stock.

    The Units were offered and sold only to "Qualified Institutional
Buyers" as defined under Rule 144A under the Securities Act of 1933
(the "Act"), and outside the United States in accordance with
Regulation S under the Act. Cash proceeds from the sale of the Units
net of estimated fees were approximately $193 million. These net
offering proceeds were placed in escrow pending Solutia's amendment
of its credit facilities, as described under "Amended Credit
Facility" above, and assumption of SOI Funding's obligations under
the Notes. Both of these events occurred on July 25, 2002, at which
time the net offering proceeds were released to Solutia. Solutia
deposited approximately $155 million of the proceeds with the
trustee for the $150 million of 6.5 percent notes due October 15,
2002 to pay the principal and interest at maturity, which is
reflected as restricted cash in the statement of consolidated
financial position at September 30, 2002. The remaining proceeds
were used to pay fees, expenses and other costs related to the
amended credit facility, cash collateralize existing letters of
credit and repay a portion of borrowings under Solutia's amended
credit facility.

    Each warrant entitles the holder to purchase 24.814 shares of
Solutia's common stock at an exercise price of $7.59 per share,
subject to adjustment under certain circumstances. The warrants will
be exercisable at any time after their separation from the Notes and
before their expiration on July 15, 2009.

    Solutia recorded the Notes and warrants based on their estimated
relative fair value at the time of their issuance. Accordingly,
Solutia recorded $182 million for the value of the Notes and
$19 million for the value of the warrants. The discount associated with
this offering, which includes the value given to the warrants, will
be non-deductible for income tax purposes.

    Solutia has filed a registration statement with the Securities
and Exchange Commission for the purposes of exchanging the Notes
issued under Rule 144A under the Act for notes which will be
available to be traded freely.

                                 9


<PAGE>
<PAGE>

    Solutia's obligations and the obligations of its subsidiary
borrowers under the amended credit facility and the Notes are
guaranteed by CPFilms Inc., Monchem International, Inc., Monchem,
Inc., Solutia Systems, Inc. and each of Solutia's subsequently
acquired or organized domestic subsidiaries, subject to certain
exceptions. In addition, Solutia Inc. guarantees the payment of
amounts due from subsidiary borrowers under the amended credit
facility. The Notes and the guarantees are secured by either first
or second priority liens on all of the domestic collateral securing
Solutia's bank obligations.

9. CONSOLIDATING CONDENSED FINANCIAL STATEMENTS

    CPFilms, Inc., Monchem International, Inc., Monchem, Inc., and
Solutia Systems, Inc., wholly-owned subsidiaries of the Company (the
"Guarantors"), are guarantors of the amended credit facility and the
Notes (see Note 8). The Guarantors fully and unconditionally
guarantee the Notes on a joint and several basis. The following
consolidating condensed financial statements present, in separate
columns, financial information for: Solutia Inc. on a parent only
basis carrying its investment in subsidiaries under the equity
method; Guarantors on a combined, or where appropriate, consolidated
basis, carrying investments in subsidiaries who do not guarantee the
debt (the "Non-Guarantors") under the equity method; Non-Guarantors
on a combined, or where appropriate, consolidated basis; eliminating
adjustments; and consolidated totals as of September 30, 2002 and
December 31, 2001, and for the three and nine months ended September
30, 2002 and 2001. The eliminating adjustments primarily reflect
intercompany transactions, such as interest income and expense,
accounts receivable and payable, advances, short and long-term debt,
royalties and profit in inventory eliminations. The Company has not
presented separate financial statements and other disclosures
concerning the Guarantors as such information is not material and
would substantially duplicate disclosures included elsewhere in this
report.

                                 10


<PAGE>
<PAGE>

<TABLE>
                                                       SOLUTIA INC.

                                           CONSOLIDATING STATEMENT OF INCOME
                                         THREE MONTHS ENDED SEPTEMBER 30, 2002
                                                (DOLLARS IN MILLIONS)

<CAPTION>
                                   PARENT ONLY                            NON-                             CONSOLIDATED
                                   SOLUTIA INC.       GUARANTORS       GUARANTORS       ELIMINATIONS       SOLUTIA INC.
                                   ------------       ----------       ----------       ------------       ------------
<S>                                <C>                <C>              <C>              <C>                <C>
NET SALES....................         $ 470              $40              $331             $(123)             $ 718
Cost of goods sold...........           446               14               266              (128)               598
                                      -----              ---              ----             -----              -----
GROSS PROFIT.................            24               26                65                 5                120
Marketing expenses...........            30                5                13               --                  48
Administrative expenses......            24                1                11                 2                 38
Technological expenses.......            14                1                 2               --                  17
Amortization expense.........           --               --                --                --                 --
                                      -----              ---              ----             -----              -----
OPERATING INCOME (LOSS)......           (44)              19                39                 3                 17
Equity earnings from
  affiliates--net of tax.....            77               23                 1               (96)                 5
Interest expense.............           (48)              (2)              (33)               51                (32)
Other income--net............            (1)              31                26               (53)                 3
                                      -----              ---              ----             -----              -----
INCOME BEFORE INCOME TAXES...           (16)              71                33               (95)                (7)
Income taxes (benefit).......           (16)             --                  9               --                  (7)
                                      -----              ---              ----             -----              -----
NET INCOME...................         $ --               $71              $ 24             $ (95)             $ --
                                      =====              ===              ====             =====              =====

<CAPTION>
                                 CONSOLIDATING STATEMENT OF COMPREHENSIVE INCOME (LOSS)
                                         THREE MONTHS ENDED SEPTEMBER 30, 2002
                                                 (DOLLARS IN MILLIONS)

                                   PARENT ONLY                            NON-                             CONSOLIDATED
                                   SOLUTIA INC.       GUARANTORS       GUARANTORS       ELIMINATIONS       SOLUTIA INC.
                                   ------------       ----------       ----------       ------------       ------------
<S>                                   <C>                <C>              <C>              <C>                <C>
NET INCOME...................         $ --               $71              $ 24             $ (95)             $ --
OTHER COMPREHENSIVE INCOME
  (LOSS):
Currency translation
  adjustments................            (8)              (7)              --                  7                 (8)
Minimum pension liability
  adjustments, net of tax....          (123)             --                --                --                (123)
Net unrealized gain on
  derivative instruments, net
  of tax.....................             1              --                --                --                   1
                                      -----              ---              ----             -----              -----
COMPREHENSIVE INCOME (LOSS)..         $(130)             $64              $ 24             $ (88)             $(130)
                                      =====              ===              ====             =====              =====
</TABLE>

                                 11


<PAGE>
<PAGE>

<TABLE>
                                                      SOLUTIA INC.

                                           CONSOLIDATING STATEMENT OF INCOME
                                         THREE MONTHS ENDED SEPTEMBER 30, 2001
                                                  (DOLLARS IN MILLIONS)

<CAPTION>
                                   PARENT ONLY                            NON-                             CONSOLIDATED
                                   SOLUTIA INC.       GUARANTORS       GUARANTORS       ELIMINATIONS       SOLUTIA INC.
                                   ------------       ----------       ----------       ------------       ------------
<S>                                <C>                <C>              <C>              <C>                <C>
NET SALES....................          $469              $ 34             $305             $(118)              $690
Cost of goods sold...........           416                13              252              (120)               561
                                       ----              ----             ----             -----               ----
GROSS PROFIT.................            53                21               53                 2                129
Marketing expenses...........            36                 4              --                --                  40
Administrative expenses......            26                 1               13               --                  40
Technological expenses.......            12                 1                3               --                  16
Amortization expense.........             1                 1                7               --                   9
                                       ----              ----             ----             -----               ----
OPERATING INCOME (LOSS)......           (22)               14               30                 2                 24
Equity earnings from
  affiliates--net of tax.....            66                14              --                (71)                 9
Interest expense.............           (39)               (1)             (35)               53                (22)
Other income--net............             2                29               22               (56)                (3)
                                       ----              ----             ----             -----               ----
INCOME BEFORE INCOME TAXES...             7                56               17               (72)                 8
Income taxes (benefit).......           --                --                 1               --                   1
                                       ----              ----             ----             -----               ----
NET INCOME...................          $  7              $ 56             $ 16             $ (72)              $  7
                                       ====              ====             ====             =====               ====

<CAPTION>
                                       CONSOLIDATING STATEMENT OF COMPREHENSIVE INCOME
                                            THREE MONTHS ENDED SEPTEMBER 30, 2001
                                                     (DOLLARS IN MILLIONS)

                                   PARENT ONLY                            NON-                             CONSOLIDATED
                                   SOLUTIA INC.       GUARANTORS       GUARANTORS       ELIMINATIONS       SOLUTIA INC.
                                   ------------       ----------       ----------       ------------       ------------
<S>                                    <C>               <C>              <C>              <C>                 <C>
NET INCOME...................          $  7              $ 56             $ 16             $ (72)              $  7
OTHER COMPREHENSIVE INCOME:
Currency translation
  adjustments................            48                44               10               (54)                48
Net realized (gain) loss on
  derivative instruments, net
  of tax.....................             1               --               --                --                   1
                                       ----              ----             ----             -----               ----
COMPREHENSIVE INCOME.........          $ 56              $100             $ 26             $(126)              $ 56
                                       ====              ====             ====             =====               ====
</TABLE>

                                 12


<PAGE>
<PAGE>

<TABLE>
                                                      SOLUTIA INC.

                                        CONSOLIDATING STATEMENT OF INCOME (LOSS)
                                          NINE MONTHS ENDED SEPTEMBER 30, 2002
                                                 (DOLLARS IN MILLIONS)

<CAPTION>
                                   PARENT ONLY                            NON-                             CONSOLIDATED
                                   SOLUTIA INC.       GUARANTORS       GUARANTORS       ELIMINATIONS       SOLUTIA INC.
                                   ------------       ----------       ----------       ------------       ------------
<S>                                   <C>                <C>             <C>               <C>                <C>
NET SALES....................         $1,397             $123            $ 965             $(377)             $2,108
Cost of goods sold...........          1,277               51              788              (387)              1,729
                                      ------             ----            -----             -----              ------
GROSS PROFIT.................            120               72              177                10                 379
Marketing expenses...........             87               14               36               --                  137
Administrative expenses......             68                5               36               --                  109
Technological expenses.......             39                2                7               --                   48
Amortization expense.........            --               --                 2               --                    2
                                      ------             ----            -----             -----              ------
OPERATING INCOME (LOSS)......            (74)              51               96                10                  83
Equity earnings (loss) from
  affiliates--net of tax.....             32             (116)               1               100                  17
Interest expense.............           (123)              (5)             (90)              142                 (76)
Other income--net............             13               83               70              (154)                 12
                                      ------             ----            -----             -----              ------
INCOME (LOSS) BEFORE INCOME
  TAXES......................           (152)              13               77                98                  36
Income taxes (benefit).......            (23)             --                23                (1)                 (1)
                                      ------             ----            -----             -----              ------
Income (Loss) Before
  Cumulative Effect of Change
  in Accounting Principle....           (129)              13               54                99                  37
Cumulative Effect of Change
  in Accounting Principle....             (1)             --              (166)              --                 (167)
                                      ------             ----            -----             -----              ------
NET INCOME (LOSS)............         $ (130)            $ 13            $(112)            $  99              $ (130)
                                      ======             ====            =====             =====              ======

<CAPTION>
                                CONSOLIDATING STATEMENT OF COMPREHENSIVE INCOME (LOSS)
                                         NINE MONTHS ENDED SEPTEMBER 30, 2002
                                                (DOLLARS IN MILLIONS)

                                   PARENT ONLY                            NON-                             CONSOLIDATED
                                   SOLUTIA INC.       GUARANTORS       GUARANTORS       ELIMINATIONS       SOLUTIA INC.
                                   ------------       ----------       ----------       ------------       ------------
<S>                                   <C>                <C>             <C>               <C>                <C>
NET INCOME (LOSS)............         $ (130)            $ 13            $(112)            $  99              $ (130)
OTHER COMPREHENSIVE INCOME
  (LOSS):
Currency translation
  adjustments................             74               74               13               (87)                 74
Minimum pension liability
  adjustments, net of tax....           (123)             --               --                --                 (123)
Net unrealized gain on
  derivative instruments, net
  of tax.....................              1              --               --                --                    1
Net realized loss on
  derivative instruments, net
  of tax.....................              1              --               --                --                    1
                                      ------             ----            -----             -----              ------
COMPREHENSIVE INCOME (LOSS)..         $ (177)            $ 87            $ (99)            $  12              $ (177)
                                      ======             ====            =====             =====              ======
</TABLE>

                                 13


<PAGE>
<PAGE>

<TABLE>
                                                      SOLUTIA INC.

                                           CONSOLIDATING STATEMENT OF INCOME
                                          NINE MONTHS ENDED SEPTEMBER 30, 2001
                                                 (DOLLARS IN MILLIONS)

<CAPTION>
                                   PARENT ONLY                            NON-                             CONSOLIDATED
                                   SOLUTIA INC.       GUARANTORS       GUARANTORS       ELIMINATIONS       SOLUTIA INC.
                                   ------------       ----------       ----------       ------------       ------------
<S>                                   <C>                <C>              <C>              <C>                <C>
NET SALES....................         $1,475             $114             $963             $(378)             $2,174
Cost of goods sold...........          1,334               47              796              (388)              1,789
                                      ------             ----             ----             -----              ------
GROSS PROFIT.................            141               67              167                10                 385
Marketing expenses...........            109               13                9               --                  131
Administrative expenses......             72                5               37               --                  114
Technological expenses.......             39                2                7               --                   48
Amortization expense.........             (5)               4               26               --                   25
                                      ------             ----             ----             -----              ------
OPERATING INCOME (LOSS)......            (74)              43               88                10                  67
Equity earnings from
  affiliates--net of tax.....            222               61              --               (262)                 21
Interest expense.............           (113)              (5)            (104)              156                 (66)
Other income
  (expense)--net.............             (8)              96              113              (167)                 34
                                      ------             ----             ----             -----              ------
INCOME BEFORE INCOME TAXES...             27              195               97              (263)                 56
Income taxes (benefit).......            (15)             --                29               --                   14
                                      ------             ----             ----             -----              ------
NET INCOME...................         $   42             $195             $ 68             $(263)             $   42
                                      ======             ====             ====             =====              ======

<CAPTION>
                                  CONSOLIDATING STATEMENT OF COMPREHENSIVE INCOME
                                       NINE MONTHS ENDED SEPTEMBER 30, 2001
                                              (DOLLARS IN MILLIONS)

                                   PARENT ONLY                            NON-                             CONSOLIDATED
                                   SOLUTIA INC.       GUARANTORS       GUARANTORS       ELIMINATIONS       SOLUTIA INC.
                                   ------------       ----------       ----------       ------------       ------------
<S>                                   <C>                <C>              <C>              <C>                <C>
NET INCOME...................         $   42             $195             $ 68             $(263)             $   42
OTHER COMPREHENSIVE INCOME:
Currency translation
  adjustments................            (12)             (18)              (7)               25                 (12)
Net unrealized (loss) on
  derivative instruments, net
  of tax.....................             (2)             --               --                --                   (2)
Net realized (gain) loss on
  derivative instruments, net
  of tax.....................             (1)             --               --                --                   (1)
                                      ------             ----             ----             -----              ------
COMPREHENSIVE INCOME.........         $   27             $177             $ 61             $(238)             $   27
                                      ======             ====             ====             =====              ======
</TABLE>

                                 14


<PAGE>
<PAGE>

<TABLE>
                                                      SOLUTIA INC.

                                              CONSOLIDATING BALANCE SHEET
                                                  SEPTEMBER 30, 2002
                                                (DOLLARS IN MILLIONS)

<CAPTION>
                                                PARENT ONLY                      NON-                       CONSOLIDATED
                                                SOLUTIA INC.    GUARANTORS    GUARANTORS    ELIMINATIONS    SOLUTIA INC.
                                                ------------    ----------    ----------    ------------    ------------
<S>                                             <C>             <C>           <C>           <C>             <C>
ASSETS
CURRENT ASSETS:
Cash and cash equivalents...................       $    3         $  --         $   16        $   --           $   19
Restricted cash.............................          155            --            --             --              155
Trade receivables, net......................           12            180           203            --              395
Intercompany receivables....................          (49)           602           174           (727)            --
Miscellaneous receivables...................           83              1            25            --              109
Prepaid expenses............................           14            --              3            --               17
Deferred income tax benefit.................           98             (1)           19              7             123
Inventories.................................          162             22           159            (20)            323
                                                   ------         ------        ------        -------          ------
    TOTAL CURRENT ASSETS....................          478            804           599           (740)          1,141
PROPERTY, PLANT AND EQUIPMENT:
Land........................................           17            --             45            --               62
Buildings...................................          272             24           141            --              437
Machinery and equipment.....................        2,534             65           478            --            3,077
Construction in progress....................           22              9            17            --               48
                                                   ------         ------        ------        -------          ------
Total property, plant and equipment.........        2,845             98           681            --            3,624
Less accumulated depreciation...............        2,114             18           361            --            2,493
                                                   ------         ------        ------        -------          ------
NET PROPERTY, PLANT AND EQUIPMENT...........          731             80           320            --            1,131
INVESTMENTS IN AFFILIATES...................        3,159             98            29         (3,045)            241
GOODWILL....................................          --              72           249            --              321
IDENTIFIED INTANGIBLE ASSETS, NET...........            2             26            45            --               73
LONG-TERM DEFERRED INCOME TAX BENEFIT.......          284            --             17            --              301
INTERCOMPANY ADVANCES.......................          128          2,158         2,157         (4,443)            --
OTHER ASSETS................................          272            --             33            --              305
                                                   ------         ------        ------        -------          ------
    TOTAL ASSETS............................       $5,054         $3,238        $3,449        $(8,228)         $3,513
                                                   ======         ======        ======        =======          ======
LIABILITIES AND SHAREHOLDERS' EQUITY
  (DEFICIT)
CURRENT LIABILITIES:
Accounts payable............................       $  171         $   10        $   67        $   --           $  248
Intercompany payables.......................          405            145           177           (727)            --
Wages and benefits..........................           24            --             30            --               54
Postretirement liabilities..................           93            --              1            --               94
Miscellaneous accruals......................          188             12           148            --              348
Short-term debt.............................          302            --              1            --              303
Intercompany short-term debt................          270             25           298           (593)            --
                                                   ------         ------        ------        -------          ------
TOTAL CURRENT LIABILITIES...................        1,453            192           722         (1,320)          1,047
LONG-TERM DEBT..............................          781            --            321            --            1,102
INTERCOMPANY LONG-TERM DEBT.................        1,630            103         2,117         (3,850)            --
POSTRETIREMENT LIABILITIES..................        1,173            --             30            --            1,203
OTHER LIABILITIES...........................          286              1           143            --              430
SHAREHOLDERS' EQUITY (DEFICIT):
Common stock................................            1            --            --             --                1
    Net (deficiency) excess of assets at
      spinoff and subsidiary capital........         (113)         2,942           116         (3,058)           (113)
    Additional contributed capital..........           19            --            --             --               19
    Treasury stock..........................         (250)           --            --             --             (250)
Accumulated other comprehensive loss........         (191)           --            --             --             (191)
Reinvested earnings.........................          265            --            --             --              265
                                                   ------         ------        ------        -------          ------
TOTAL SHAREHOLDERS' EQUITY (DEFICIT)........         (269)         2,942           116         (3,058)           (269)
                                                   ------         ------        ------        -------          ------
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY
  (DEFICIT).................................       $5,054         $3,238        $3,449        $(8,228)         $3,513
                                                   ======         ======        ======        =======          ======
</TABLE>

                                 15


<PAGE>
<PAGE>

<TABLE>
                                                       SOLUTIA INC.

                                               CONSOLIDATING BALANCE SHEET
                                                    DECEMBER 31, 2001
                                                  (DOLLARS IN MILLIONS)

<CAPTION>
                                                PARENT ONLY                      NON-                       CONSOLIDATED
                                                SOLUTIA INC.    GUARANTORS    GUARANTORS    ELIMINATIONS    SOLUTIA INC.
                                                ------------    ----------    ----------    ------------    ------------
<S>                                                <C>            <C>           <C>           <C>              <C>
ASSETS
CURRENT ASSETS:
Cash and cash equivalents...................       $    3         $    1        $   19        $    --          $   23
Trade receivables, net......................           (5)           178           179             --             352
Intercompany receivables....................        2,899          3,354           133          (6,386)           --
Miscellaneous receivables...................           77            --             28             --             105
Prepaid expenses............................           12            --              3             --              15
Deferred income tax benefit.................           95            --             21               7            123
Inventories.................................          160             23           138             (18)           303
                                                   ------         ------        ------        --------         ------
    TOTAL CURRENT ASSETS....................        3,241          3,556           521          (6,397)           921
PROPERTY, PLANT AND EQUIPMENT:
Land........................................           18            --             40             --              58
Buildings...................................          274             22           129             --             425
Machinery and equipment.....................        2,527             51           428             --           3,006
Construction in progress....................           18             20            13             --              51
                                                   ------         ------        ------        --------         ------
Total property, plant and equipment.........        2,837             93           610             --           3,540
Less accumulated depreciation...............        2,070             14           313             --           2,397
                                                   ------         ------        ------        --------         ------
NET PROPERTY, PLANT AND EQUIPMENT...........          767             79           297             --           1,143
INVESTMENTS IN AFFILIATES...................        3,139            206            26          (3,058)           313
GOODWILL, NET...............................            2             72           312             --             386
IDENTIFIED INTANGIBLE ASSETS, NET...........            3             26           165             --             194
LONG-TERM DEFERRED INCOME TAX BENEFIT.......          242            --             12             --             254
INTERCOMPANY ADVANCES.......................          128          2,010         1,812          (3,950)           --
OTHER ASSETS................................          166            --             31             --             197
                                                   ------         ------        ------        --------         ------
    TOTAL ASSETS............................       $7,688         $5,949        $3,176        $(13,405)        $3,408
                                                   ======         ======        ======        ========         ======
LIABILITIES AND SHAREHOLDERS' EQUITY
  (DEFICIT)
CURRENT LIABILITIES:
Accounts payable............................       $  160         $    8        $   65        $    --          $  233
Intercompany payables.......................        3,271          2,995           120          (6,386)           --
Wages and benefits..........................           26            --             30             --              56
Postretirement liabilities..................           81            --              1             --              82
Miscellaneous accruals......................          210             11           141             --             362
Short-term debt.............................          683            --            --              --             683
Intercompany short-term debt................          189             31           112            (332)           --
                                                   ------         ------        ------        --------         ------
TOTAL CURRENT LIABILITIES...................        4,620          3,045           469          (6,718)         1,416
LONG-TERM DEBT..............................          448            --            179             --             627
INTERCOMPANY LONG-TERM DEBT.................        1,494             45         2,080          (3,619)           --
POSTRETIREMENT LIABILITIES..................          921            --             26             --             947
OTHER LIABILITIES...........................          318              6           207             --             531
SHAREHOLDERS' EQUITY (DEFICIT):
Common stock................................            1            --            --              --               1
    Net (deficiency) excess of assets at
      spinoff and subsidiary capital........         (113)         2,853           215          (3,068)          (113)
    Treasury stock..........................         (257)           --            --              --            (257)
Unearned ESOP shares........................           (1)           --            --              --              (1)
Accumulated other comprehensive loss........         (144)           --            --              --            (144)
Reinvested earnings.........................          401            --            --              --             401
                                                   ------         ------        ------        --------         ------
TOTAL SHAREHOLDERS' EQUITY (DEFICIT)........         (113)         2,853           215          (3,068)          (113)
                                                   ------         ------        ------        --------         ------
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY
  (DEFICIT).................................       $7,688         $5,949        $3,176        $(13,405)        $3,408
                                                   ======         ======        ======        ========         ======
</TABLE>

                                 16


<PAGE>
<PAGE>

<TABLE>
                                                    SOLUTIA INC.

                                   CONSOLIDATING CONDENSED STATEMENT OF CASH FLOW
                                       NINE MONTHS ENDED SEPTEMBER 30, 2002
                                               (DOLLARS IN MILLIONS)

<CAPTION>
                                            PARENT ONLY                      NON-                       CONSOLIDATED
                                            SOLUTIA INC.    GUARANTORS    GUARANTORS    ELIMINATIONS    SOLUTIA INC.
                                            ------------    ----------    ----------    ------------    ------------
<S>                                            <C>            <C>           <C>             <C>            <C>
CASH FROM OPERATIONS....................       $(109)         $ 131         $  65           $--            $  87
                                               -----          -----         -----           ----           -----

INVESTING ACTIVITIES:
Property, plant and equipment
  purchases.............................         (27)            (5)          (19)           --              (51)
Acquisition and investment payments, net
  of cash acquired......................         (32)           --            --             --              (32)
Property disposals and investment
  proceeds..............................         108            --             (1)           --              107
                                               -----          -----         -----           ----           -----
CASH FROM INVESTING ACTIVITIES..........          49             (5)          (20)           --               24
                                               -----          -----         -----           ----           -----

FINANCING ACTIVITIES:
Net change in short-term debt
  obligations...........................        (106)           --             (1)           --             (107)
Proceeds from issuance of long-term debt
  obligations...........................          57            --            125            --              182
Restricted cash for repayment of October
  2002 maturities.......................        (150)           --            --             --             (150)
Issuance of stock warrants..............          19            --            --             --               19
Common stock issued under employee stock
  plans.................................           2            --            --             --                2
Deferred debt issuance costs............         (46)           --            --             --              (46)
Other financing activities..............         (15)           --            --             --              (15)
Changes in investments and advances from
  (to) affiliates.......................         299           (127)         (172)           --              --
                                               -----          -----         -----           ----           -----
CASH FROM FINANCING ACTIVITIES..........          60           (127)          (48)           --             (115)
                                               -----          -----         -----           ----           -----

DECREASE IN CASH AND CASH EQUIVALENTS...         --              (1)           (3)           --               (4)
CASH AND CASH EQUIVALENTS:
BEGINNING OF YEAR.......................           3              1            19            --               23
                                               -----          -----         -----           ----           -----
END OF PERIOD...........................       $   3          $ --          $  16           $--            $  19
                                               =====          =====         =====           ====           =====
</TABLE>

                                 17


<PAGE>
<PAGE>

<TABLE>
                                                   SOLUTIA INC.

                                   CONSOLIDATING CONDENSED STATEMENT OF CASH FLOW
                                       NINE MONTHS ENDED SEPTEMBER 30, 2001
                                               (DOLLARS IN MILLIONS)

<CAPTION>
                                            PARENT ONLY                      NON-                       CONSOLIDATED
                                            SOLUTIA INC.    GUARANTORS    GUARANTORS    ELIMINATIONS    SOLUTIA INC.
                                            ------------    ----------    ----------    ------------    ------------
<S>                                            <C>             <C>           <C>            <C>             <C>
CASH FROM OPERATIONS....................       $(206)          $140          $ 20           $--             $(46)
                                               -----           ----          ----           ----            ----

INVESTING ACTIVITIES:
Property, plant and equipment
  purchases.............................         (26)            (9)          (30)           --              (65)
Acquisition and investment payments, net
  of cash acquired......................         (32)           --            --             --              (32)
Property disposals and investment
  proceeds..............................           1            --             35            --               36
                                               -----           ----          ----           ----            ----
CASH FROM INVESTING ACTIVITIES..........         (57)            (9)            5            --              (61)
                                               -----           ----          ----           ----            ----

FINANCING ACTIVITIES:
Net change in short-term debt
  obligations...........................          99            --             (5)           --               94
Common stock issued under employee stock
  plans.................................          11            --            --             --               11
Deferred debt issuance costs............          (2)           --            --             --               (2)
Changes in investments and advances from
  (to) affiliates.......................         147           (131)          (16)           --              --
                                               -----           ----          ----           ----            ----
CASH FROM FINANCING ACTIVITIES..........         255           (131)          (21)           --              103
                                               -----           ----          ----           ----            ----

INCREASE (DECREASE) IN CASH AND CASH
  EQUIVALENTS...........................          (8)           --              4            --               (4)
CASH AND CASH EQUIVALENTS:
BEGINNING OF YEAR.......................          11            --              8            --               19
                                               -----           ----          ----           ----            ----
END OF PERIOD...........................       $   3           $--           $ 12           $--             $ 15
                                               =====           ====          ====           ====            ====
</TABLE>



10. PENSION

         During the third quarter of 2002, Solutia recorded a $13 million
($8 million aftertax) non-cash pension settlement loss as required by SFAS
No. 88, "Employers' Accounting for Settlements and Curtailments of Defined
Benefit Pension Plans and for Termination Benefits," because of the
significant amount of lump sum distributions from the qualified pension plan
in 2002. In order to account for the settlement, Solutia was required to
remeasure its benefit obligations and fair value of plan assets as of the
interim date of September 30, 2002. The Company's annual measurement date is
December 31.

         As a result of the decline in the fair value of our plan assets,
and, to a lesser extent, higher benefit obligations, the amount of pension
plan underfunding in the qualified pension plan increased to $475 million as
of September 30, 2002. In accordance with SFAS No. 87, "Employers Accounting
for Pension," Solutia recorded a non-cash minimum pension liability of
$272 million, an increase in intangible assets of $75 million, an aftertax
charge to shareholders' deficit of $123 million and a related deferred tax
asset as of September 30, 2002.


11. SUBSEQUENT EVENTS

    Solutia's Report on Form 10-K for the year ended December 31, 2001,
described a judicial proceeding, Fluor Daniel Corporation v. Solutia Inc.
This case involved a construction dispute between Solutia and Fluor Daniel
Corporation, the main contractor for construction of an acrylonitrile
manufacturing facility located at our Chocolate Bayou plant in Alvin, Texas.
On September 13, 2002, a jury awarded a verdict against Solutia. The case
was settled October 11, 2002, with Solutia agreeing to pay Fluor $20 million
over a three-year period, of which


                                  18


<PAGE>
<PAGE>

$15 million was recognized as property, plant and equipment in the statement
of consolidated financial position and $5 million ($3 million aftertax)
was recognized as a charge in the statement of consolidated net income
(loss) as of September 30, 2002, and for the three and nine months ended
September 30, 2002.

    Solutia's Report on Form 10-K for the year ended December 31, 2001,
described a judicial proceeding, Commonwealth of Pennsylvania Department of
General Services, et al. v. United States Mineral Products Company, et al.,
a case pending in the Commonwealth Court of the Commonwealth of Pennsylvania
against Pharmacia (the former Monsanto Company). The Commonwealth is seeking
recovery of costs it allegedly incurred for testing, monitoring, cleanup,
demolition and relocation caused by alleged presence of low levels of
polychlorinated biphenyls (PCB's) in the Transportation and Safety Building
in Harrisburg, Pennsylvania as well as the cost of constructing a new
building on the site. On October 17, 2002, the trial judge entered orders
denying Solutia's motions seeking entry of a verdict in Pharmacia's favor or
a new trial and entered a monetary judgment of $59.5 million including
prejudgment interest of $14.5 million. Solutia intends to appeal this
judgment as a matter of right to the Pennsylvania Supreme Court, and has 30
days from entry of the orders to file its notice of appeal. Solutia believes
that the defenses in this case are meritorious and will continue to defend
this action vigorously.

    While posting a bond is not required to prosecute an appeal, under
Pennsylvania law, a bond in the amount of 120% of the judgment, or $71.4
million in this case, must be posted in order to stay execution of the
judgment against Pharmacia while an appeal is pending. Solutia has informed
Pharmacia and Monsanto Company that it will not post an appeal bond, but has
agreed to provide to Monsanto collateral having a present cash value of $20
million to secure a portion of Monsanto's obligations with respect to the
bond. In addition, Solutia has agreed to reimburse or pay directly all of
Monsanto's out-of-pocket expenses incurred in connection with obtaining the
bond. Although arrangements have not yet been finalized. Monsanto has
informed Solutia that it intends to post the bond and contribute any
additional collateral required in order to secure the bond. As a result of
Monsanto providing collateral required to secure the appeal bond, we
anticipate that Monsanto would assume control of any settlement decisions.

    While the outcome of litigation cannot be predicted with certainty,
management does not believe that the final outcome of this matter will have
a material adverse impact on Solutia's consolidated financial position or
liquidity. However, it is possible that a resolution of this matter may have
a material adverse impact on Solutia's net income in a given year, although
it is impossible at this time to estimate the range or amount of any such
impact.


12. SEGMENT DATA

    Solutia's management is organized around four strategic business
platforms: Performance Films, Resins and Additives, Specialties and
Integrated Nylon. Resins and Additives and Specialties have been
aggregated into the Specialty Products reportable segment because of
their similar economic characteristics, as well as their similar
products and services, production processes, types of customers and
methods of distribution. Solutia's reportable segments and their
major products are as follows:

<TABLE>
<CAPTION>
      PERFORMANCE FILMS                   SPECIALTY PRODUCTS                   INTEGRATED NYLON
      -----------------                   ------------------                   ----------------
<S>                                 <C>                                 <C>
SAFLEX(R) plastic interlayer        Resins and additives,               Nylon intermediate "building
                                      including ALFTALAT(R)               block" chemicals
KEEPSAFE(R), SAFLEX                   polyester resins,
  INSIDE(R) (in Europe only)          RESIMENE(R) and MAPRENAL(R)       Merchant polymer and nylon
  and KEEPSAFE MAXIMUM(R)             crosslinkers, SYNTHACRYL(R)         extrusion polymers,
  glass for residential               acrylic resins and GELVA(R)         including VYDYNE(R) and
  security and hurricane              pressure-sensitive adhesives        ASCEND(R)
  protection windows

LLUMAR(R), VISTA(R) and             Industrial products, including      Carpet fibers, including the
  GILA(R) professional and            THERMINOL(R) heat transfer          WEAR-DATED(R) and
  after-market window films           fluids, DEQUEST(R) water            ULTRON VIP(R) brands
                                      treatment chemicals,
VANCEVA(TM) design, enhanced          SKYDROL(R) hydraulic fluids       Industrial nylon fibers
  security and sound                  and SKYKLEEN(R) cleaning
  attenuation films                   fluids for aviation and
                                      chlorobenzenes

Conductive and anti-reflective      Pharmaceutical services,            ACRILAN(R) acrylic fibers for
  coated films and deep-dyed          including process research,         apparel, upholstery fabrics,
  films                               process development                 craft yarns and other
                                      services, scale-up                  applications
                                      capabilities and small scale
                                      manufacturing for the
                                      pharmaceutical industry
</TABLE>

    Accounting policies of the segments are the same as those used
in the preparation of Solutia's consolidated financial statements.
Solutia evaluates the performance of its operating segments based on
segment earnings before interest expense and income taxes (EBIT),
which includes marketing, administrative, technological, and
amortization expenses and other non-recurring charges such as
restructuring and asset impairment charges that


                                19


<PAGE>
<PAGE>

can be directly attributable to the operating segment. Certain expenses
and other items that are managed outside of the segments are excluded.
These unallocated items consist primarily of corporate expenses, equity
earnings (loss) from affiliates, interest expense, other income--net
and expense items, and certain non-recurring items such as gains and
losses on asset dispositions and restructuring charges that are not
directly attributable to the operating segment. Solutia accounts for
intersegment sales at agreed upon transfer prices. Intersegment
sales are eliminated in consolidation. Segment assets consist
primarily of customer receivables, raw materials and finished goods
inventories, fixed assets, goodwill and identified intangible assets
directly associated with the production processes of the segment
(direct fixed assets). Segment depreciation and amortization are
based upon direct tangible and intangible assets. Unallocated assets
consist primarily of deferred taxes, certain investments in equity
affiliates and indirect fixed assets.

    Segment data for the three and nine months ended September 30,
2002, and 2001, were as follows:

<TABLE>
<CAPTION>
                                                               THREE MONTHS ENDED SEPTEMBER 30,
                                       ---------------------------------------------------------------------------------
                                                       2002                                         2001
                                       ------------------------------------         ------------------------------------
                                        NET        INTERSEGMENT      PROFIT          NET        INTERSEGMENT
                                       SALES          SALES          (LOSS)         SALES          SALES          PROFIT
                                       -----       ------------      ------         -----       ------------      ------
<S>                                    <C>             <C>            <C>           <C>             <C>            <C>
SEGMENT:
  Performance Films................    $  151          $--            $ 24          $  144          $--            $ 18
  Specialty Products...............       239           --              17             218           --               7
  Integrated Nylon (a).............       328           --              (2)            328           --              20
                                       ------          ----           ----          ------          ----           ----
SEGMENT TOTALS.....................       718           --              39             690           --              45
RECONCILIATION TO CONSOLIDATED
 TOTALS:
  Corporate expenses (b)...........                                    (21)                                         (21)
  Equity earnings from
    affiliates.....................                                      5                                            9
  Interest expense.................                                    (32)                                         (22)
  Other income (expense)--net......                                      2                                           (3)
CONSOLIDATED TOTALS:
                                       ------          ----                         ------          ----
  NET SALES........................    $  718          $--                          $  690          $--
                                       ======          ====           ----          ======          ====           ----
  INCOME BEFORE INCOME TAXES.......                                   $ (7)                                        $  8
                                                                      ====                                         ====

<CAPTION>
                                                                NINE MONTHS ENDED SEPTEMBER 30,
                                       ---------------------------------------------------------------------------------
                                                       2002                                         2001
                                       ------------------------------------         ------------------------------------
                                        NET        INTERSEGMENT                      NET        INTERSEGMENT
                                       SALES          SALES          PROFIT         SALES          SALES          PROFIT
                                       -----       ------------      ------         -----       ------------      ------
SEGMENT:
<S>                                    <C>             <C>            <C>           <C>             <C>            <C>
  Performance Films................    $  448          $--            $ 64          $  454          $--            $ 54
  Specialty Products (c)...........       697             1             58             703           --              70
  Integrated Nylon (a).............       964           --              17           1,017           --              24
                                       ------          ----           ----          ------          ----           ----
SEGMENT TOTALS.....................     2,109           --             139           2,174           --             148
RECONCILIATION TO CONSOLIDATED
 TOTALS:
  Sales eliminations...............        (1)           (1)                           --            --
  Corporate expenses (b)...........                                    (53)                                         (47)
  Equity earnings from
    affiliates.....................                                     16                                           21
  Interest expense.................                                    (76)                                         (66)
  Other income--net (d)............                                     10                                          --
CONSOLIDATED TOTALS:
                                       ------          ----                         ------          ----
  NET SALES........................    $2,108          $--                          $2,174          $--
                                       ======          ====           ----          ======          ====           ----
  INCOME BEFORE INCOME TAXES.......                                   $ 36                                         $ 56
                                                                      ====                                         ====
<FN>

(a)     Integrated Nylon's profit (loss) for the three and nine months ended September 30, 2002, includes a charge resulting
        from the resolution of a construction dispute with the contractor of its acrylonitrile plant in Alvin, Texas
        ($5 million pretax, $3 million aftertax).

(b)     Corporate expenses for the three and nine months ended September 30, 2002, include a pension settlement loss
        as required by SFAS No. 88, "Employers' Accounting for Settlements and Curtailments of Defined Benefit
        Pension Plans and for Termination Benefits" ($13 million pretax, $8 million aftertax).



                                 20


<PAGE>
<PAGE>

(c)     Specialty Products profit for the nine months ended September 30, 2001, includes a gain from an insurance
        settlement associated with the explosion and fire that destroyed the Vianova printing inks and phenolics
        production facility in Wiesbaden, Germany ($28 million pretax, $17 million aftertax).

(d)     Other income--net for the nine months ended September 30, 2002, includes a gain from the sale of Solutia's
        50 percent interest in the Advanced Elastomer Systems joint venture to ExxonMobil Chemical Company, a division
        of Exxon Mobil Corporation and Exxon Chemical Asset Management Partnership, a subsidiary of Exxon Mobil
        Corporation ($5 million pretax, $3 million aftertax).
</TABLE>

ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
        AND RESULTS OF OPERATIONS

    This section includes forward-looking statements within the meaning of
Section 27A of the Securities Act of 1933 and Section 21E of the Securities
Exchange Act of 1934. These forward-looking statements include all
statements regarding expected future financial position, results of
operations, profitability, cash flows and liquidity. Important factors that
could cause actual results to differ materially from the expectations
reflected in the forward-looking statements herein include, among others,
general economic, business and market conditions, raw material and energy
pricing, currency fluctuations, interest rate fluctuations, increased
competitive and/or customer pressure, ability to divest existing businesses,
exposure to product liability and other litigation and cost of environmental
remediation, gain or loss of significant customers, labor relations,
disruption of operations, customer acceptance of new products, posting an
appeal bond, changes in accounting principles generally accepted in the
United States of America and ability to implement cost reduction initiatives
in a timely manner.

CRITICAL ACCOUNTING POLICIES

    A summary of our critical accounting policies is presented on
page 13 of our 2001 Annual Report on Form 10-K filed with the
Securities and Exchange Commission on March 7, 2002.

RESULTS OF OPERATIONS--THREE MONTHS ENDED SEPTEMBER 30, 2002,
COMPARED WITH THE THREE MONTHS ENDED SEPTEMBER 30, 2001

    Net sales for the third quarter of 2002 increased by 4 percent
as compared with the third quarter of 2001. Sales increases reflect
favorable currency exchange rate fluctuations and modestly higher
volumes and average selling prices.

  Performance Films

    Net sales for the third quarter of 2002 in the Performance Films
segment increased by 5 percent over the same period of the prior
year. Net sales increased primarily because of favorable currency
exchange rate fluctuations and higher sales volumes. Net sales were
positively affected by the strengthening euro and Australian dollar
in relation to the U.S. dollar. Higher CPFilms' window film sales
were partially offset by decreased demand for SAFLEX(R) plastic
interlayer products. Sales volumes for SAFLEX(R) plastic interlayer
products were down primarily due to lower sales to a large customer,
partially offset by increased volumes in the Asia Pacific and North
America markets. Saflex sales volumes will be negatively impacted by
lower sales to this customer for the remainder of 2002.

    Performance Films' segment profit for the three-month period
ended September 30, 2002, increased 33 percent over the three-month
period ended September 30, 2001, primarily because of lower raw
material costs, lower amortization expense due to the adoption of
SFAS No. 142 and lower personnel expense associated with
restructuring activities carried out during 2001. The impact of
significantly lower sales volumes to the large Saflex customer on
segment profitability was and is expected to continue to be mostly
offset by higher sales of SAFLEX(R) plastic interlayer products to
other glass laminators, improved product mix and cost reductions.

  Specialty Products

    Net sales in the Specialty Products segment for the third
quarter of 2002 increased 10 percent over the comparable quarter of
2001. The increase in net sales was primarily caused by the
favorable impact of currency

                                 21


<PAGE>
<PAGE>

exchange rate fluctuations due to the strengthening euro in relation to the
U.S. dollar. To a lesser extent, net sales were positively impacted by
increased sales of DEQUEST(R) water treatment chemicals over the prior year
period.

    Segment profit for the quarter ended September 30, 2002,
increased more than 100 percent over the year-ago quarter. Profit
increased primarily from lower amortization expense due to the
adoption of SFAS No. 142, lower raw material costs and lower
personnel expense associated with restructuring activities carried
out during 2001.

  Integrated Nylon

    The Integrated Nylon segment's net sales for the three-month
period ended September 30, 2002, were even with the third quarter of
2001. Increased selling prices experienced during the quarter were
offset by decreased sales volumes. Carpet fiber and intermediate
chemicals experienced increased selling prices partially offset by
decreased selling prices in nylon plastics and polymers and nylon
industrial. Increased sales volumes in nylon plastics and polymers
and ACRILAN(R) acrylic fibers were more than offset by decreased
volumes in intermediate chemicals, nylon industrial products and
nylon carpet fiber.

    Segment profit for Integrated Nylon segment for the quarter
ended September 30, 2002, decreased more than 100 percent from the
third quarter of 2001. Excluding a charge of $5 million ($3 million
aftertax) resulting from the resolution of a construction dispute
with the contractor for the acrylonitrile plant in Alvin, Texas,
segment profit decreased 85 percent. The decrease in segment
profitability resulted primarily from higher raw material costs of
propylene and cyclohexane, the loss of approximately $8 million from
the temporary shutdown of the Chocolate Bayou Intermediates facility
during the third quarter of 2002 because of flooding, partially
offset by lower personnel expense associated with restructuring
activities carried out during 2001.

  Operating Income

    Operating income for the third quarter of 2002 decreased to
$17 million from $24 million in the third quarter of 2001. Excluding
a charge of $5 million ($3 million aftertax) recorded in the
Integrated Nylon segment for the three months ended September 30,
2002, resulting from the resolution of a construction dispute with
the contractor for the acrylonitrile plant in Alvin, Texas, a
$13 million ($8 million aftertax) pension settlement loss as required
by SFAS No. 88, "Employers' Accounting for Settlements and Curtailments
of Defined Benefit Pension Plans and for Termination Benefits,"
recorded in corporate expenses for the three months ended September
30, 2002, and the effects of amortization expense from operating
results in the third quarter of 2001 associated with the adoption of
SFAS No. 142 (see Note 6), operating income in the third quarter of
2002 increased $2 million from the prior year. The increase in
operating income was primarily driven by favorable currency exchange
rate fluctuations and lower personnel costs resulting from
restructuring activities carried out during 2001, partially offset
by the aforementioned manufacturing outage, higher raw material
costs and higher marketing and technological spending.

  Equity Earnings from Affiliates--net of tax

    Equity earnings from affiliates were $5 million in the third
quarter of 2002 compared to $9 million in the comparable quarter in
2001. Excluding the loss of income from the sale of Solutia's
50 percent interest in the Advanced Elastomer Systems joint venture
which occurred in the first quarter of 2002, equity earnings
decreased approximately $1 million from the prior year.

RESULTS OF OPERATIONS--NINE MONTHS ENDED SEPTEMBER 30, 2002,
COMPARED WITH NINE MONTHS ENDED SEPTEMBER 30, 2001

    Net sales for the nine-month period ended September 30, 2002,
decreased by 3 percent as compared with the nine-month period ended
September 30, 2001. Sales decreases reflect lower average selling
prices and lower volumes partially offset by favorable currency
exchange rate fluctuations.


                                 22


<PAGE>
<PAGE>

  Performance Films

    Performance Films' net sales for the first nine months of 2002
decreased 1 percent in comparison to the first nine months of 2001.
Net sales decreased primarily because of lower average selling
prices than those of the year-ago period due to competitive pricing
pressures, partially offset by higher sales volumes and favorable
currency exchange rate fluctuations primarily due to the
strengthening euro and Australian dollar in relation to the U.S.
dollar. Higher CPFilms' window film sales were partially offset by
decreased demand for SAFLEX(R) plastic interlayer products due to
significantly lower sales to a large customer and lower specialty
films sales into the electronic display market. Sales volumes will
be negatively impacted by lower sales to this customer for the
remainder of 2002.

    Performance Films' segment profit for the nine months ended
September 30, 2002, increased 19 percent from the comparable
year-ago period because of lower raw material costs, lower
amortization expense due to the adoption of SFAS No. 142, lower
marketing, administrative and technological spending and lower
personnel expense associated with restructuring activities carried
out during 2001. The impact of significantly lower sales volumes to
the large Saflex customer on segment profitability was mostly offset
by higher sales of SAFLEX(R) plastic interlayer products to other
glass laminators, improved product mix and cost reductions.

  Specialty Products

    Net sales in the Specialty Products segment decreased 1 percent
for the nine months ended September 30, 2002, over the comparable
period of the prior year. The decrease in net sales was primarily
caused by lower average selling prices than those of the year-ago
period because of pricing pressures, partially offset by favorable
currency exchange rate fluctuations primarily due to the
strengthening euro in relation to the U.S. dollar.

    Segment profit for the nine-month period ended September 30,
2002, decreased 17 percent as compared to the nine-month period
ended June 30, 2001. Excluding a gain of $28 million ($17 million
aftertax) recorded in the first quarter of 2001 from an insurance
settlement, segment profit increased 38 percent primarily due to
lower amortization expense due to the adoption of SFAS No. 142,
lower raw material costs and lower personnel expense associated with
restructuring activities carried out during 2001.

  Integrated Nylon

    The Integrated Nylon segment's net sales for the nine months
ended September 30, 2002, decreased 5 percent as compared with the
nine months ended September 30, 2001, primarily due to declines in
average selling prices in almost all businesses in this segment and
moderate declines in sales volumes from the comparable prior-year
period. The effects of a weak U.S. economy continue to unfavorably
impact average selling prices and volumes in comparison with 2001.
In addition, price decreases in intermediate chemicals also resulted
from contracts with formula pricing tied to raw material costs.
Further, an unfavorable product mix was experienced in carpet fiber.

    Integrated Nylon's segment profit for the nine months ended
September 30, 2002, decreased 29 percent from the comparable period
of 2001. Excluding a charge of $5 million ($3 million aftertax)
resulting from the resolution of a construction dispute with the
contractor of the acrylonitrile plant in Alvin, Texas, segment
profit decreased 8 percent. The decrease resulted primarily from the
effects of lower net sales in the segment partially offset by lower
raw material and energy prices and lower personnel expense associated
with restructuring activities carried out during 2001. Also, segment
profitability was negatively affected by approximately $14 million
due to unscheduled outages at the Chocolate Bayou Intermediates
facility during the second and third quarters of 2002.

  Operating Income

    Operating income for the first nine months of 2002 increased to
$83 million from $67 million in the first nine months of 2001.
Excluding a charge of $5 million ($3 million aftertax) recorded in
the Integrated Nylon segment for the nine months ended September 30,
2002, resulting from the resolution of a construction dispute with
the contractor for the acrylonitrile plant in Alvin, Texas, a
$13 million ($8 million aftertax) pension settlement loss as required
by SFAS No. 88, "Employers' Accounting for Settlements and Curtailments
of Defined Benefit Pension Plans and for Termination Benefits,"
recorded in corporate expenses for the nine months ended September 30,
                                 23


<PAGE>
<PAGE>

2002, and the effects of amortization expense from operating results
for the nine months ended September 30, 2001, associated with the
adoption of SFAS No. 142 (see Note 6), operating income for the nine
months ended September 30, 2002, increased $11 million from the
prior year. The increase in operating income was primarily
driven by the lower raw material and energy costs, favorable
currency exchange rate fluctuations and lower personnel costs
resulting from restructuring activities carried out during 2001,
partially offset by the aforementioned manufacturing outages.

  Equity Earnings from Affiliates--net of tax

    Equity earnings from affiliates were $17 million in the nine
months ended September 30, 2002, compared to $21 million from the
same period of 2001. Excluding the loss of income from the sale of
Solutia's 50 percent interest in the Advanced Elastomer Systems
joint venture during the first quarter of 2002, equity earnings
increased by $4 million. The increase is primarily due to higher
earnings from the Astaris joint venture.

  Other Income--Net

    Other income--net for the nine months ended September 30, 2002,
was $12 million compared to $34 million for the same period in 2001.
The nine months ended September 30, 2002, includes a $5 million
($3 million aftertax) gain from the sale of Solutia's 50 percent
interest in the Advanced Elastomer Systems joint venture. The nine
months ended September 30, 2001, includes a $28 million gain
($17 million aftertax) from an insurance settlement. Excluding these
gains from both periods, other income for the nine months ended
September 30, 2002, was $7 million compared to $6 million for the
same period in 2001.

  Cumulative Effect of Change in Accounting Principle

    Effective January 1, 2002, Solutia adopted SFAS No. 142,
"Goodwill and Other Intangible Assets." In accordance with SFAS
No. 142, Solutia discontinued the amortization of goodwill and
identifiable intangible assets that have indefinite useful lives.
Intangible assets that have finite useful lives will continue to be
amortized over their useful lives. Goodwill will be assessed
annually for impairment. This statement also required certain
intangible assets that did not meet the criteria for recognition
apart from goodwill, to be subsumed into goodwill. During the
quarter ended March 31, 2002, Solutia subsumed into goodwill
$74 million of intangible assets net of related deferred tax
liabilities representing assembled workforce and noncontractual
customer relationships that did not meet the separability criteria
under SFAS No. 141, "Business Combinations."

    Fair value measurements of the reporting units were estimated by
a third-party specialist utilizing both an income and market
multiple approach. Based on this analysis, Solutia recorded an
impairment loss of $167 million for the Resins and Additives
business in the Specialty Products segment due to declining
estimates of future results given current economic and market
conditions. The goodwill impairment charge is non-deductible for tax
purposes and is reflected as the cumulative effect of change in
accounting principle in the accompanying statement of consolidated
income (loss).

FINANCIAL CONDITION AND LIQUIDITY

    Cash generated from operations was $87 million for the nine months
ended September 30, 2002, compared to cash used in operations of $46 million
for the nine months ended September 30, 2001. The improvement was primarily
attributable to a $60 million income tax refund received during the first
quarter of 2002, a $21 million dividend received during the second quarter
of 2002 from the Flexsys joint venture, stronger operating earnings and
lower severance payments.

    Solutia's working capital at September 30, 2002, increased to
$94 million from negative $495 million at December 31, 2001. Excluding
restricted cash, working capital was negative $61 million at September 30,
2002. The increase in the working capital position primarily resulted from
the Company's refinancing activities completed during the third quarter of
2002, which moved approximately $275 million from short-term debt to
long-term debt and reduced borrowings under the revolving credit facility by
$107 million.

    On September 30, 2002, Solutia's debt obligations totaled
$1,405 million, including the $150 million of 6.5 percent notes due in October
of 2002, borrowings under the amended credit facility with a syndicate of

                                 24


<PAGE>
<PAGE>

commercial banks, notes, indenture and debentures. The weighted average
interest rate on Solutia's total debt outstanding at September 30, 2002,
was approximately 7.7 percent. In addition, the Company had $56 million
of letters of credit outstanding under the amended credit facility at
September 30, 2002.

    At September 30, 2002, debt classified as short term debt totaled
$303 million, consisting primarily of borrowings of $127 million from
the $300 million revolving credit facility, a $25 million amortization
payment from the $300 million term loan and $150 million of 6.5 percent
notes due in October of 2002.

  AMENDED CREDIT FACILITY

    On July 25, 2002, Solutia and its bank syndicate amended
Solutia's revolving credit facility. The amendment extends the
maturity of the facility until August 2004. It also reduces the
facility from $800 million to $600 million and separates the
facility into a $300 million term loan and a $300 million revolving
credit facility. The term loan has scheduled payment obligations as
follows: $25 million at December 31, 2002; $50 million at December
31, 2003; $25 million at June 30, 2004; and the remainder at
maturity. The amended credit facility requires the Company to cash
collateralize certain outstanding letters of credit. Fees, expenses
and other costs associated with the amended credit facility and cash
collateralization of letters of credit totaled $61 million. The amended
credit facility is available for working capital and other general
corporate purposes.

    In September 2002, Solutia negotiated an amendment to its
amended credit facility which reduced the amount of debt outstanding
as defined in the credit agreement for purposes of the leverage
covenant ratio. Solutia deposited approximately $155 million from
the proceeds of the Senior Secured Notes offering which occurred in
July 2002 with the trustee for the $150 million of 6.5 percent notes
due October 15, 2002, to pay the principal and interest at maturity.
However, the principal amount of the 6.5 percent notes due October
15, 2002, was still considered outstanding debt under the amended
credit facility. The amendment eliminated the $150 million of
6.5 percent notes due October 15, 2002, from consideration in the
leverage covenant ratio. Without the amendment, Solutia would not
have been in compliance with the leverage coverage ratio.

    Guarantees

    Solutia's obligations and the obligations of its subsidiary
borrowers under the amended credit facility are guaranteed by
CPFilms Inc., Monchem International, Inc., Monchem, Inc., Solutia
Systems, Inc. (the "Subsidiary Guarantors") and each of Solutia's
subsequently acquired or organized domestic subsidiaries, subject to
certain exceptions. In addition, Solutia Inc. guarantees the payment
of amounts due from subsidiary borrowers under the amended credit
facility.

    Collateral

    Borrowings under the amended credit facility as well as the
beneficiaries of the Astaris support agreement, the lessee under the
co-generation facility at Pensacola, Florida and holders of certain
designated letters of credit are secured by (1) liens on all of
Solutia Inc.'s inventory and receivables and those of the Subsidiary
Guarantors, (2) pledges of 100 percent of the stock of Monchem, Inc.
and Solutia Systems, Inc. and 65 percent of the voting stock and
100 percent of all other stock of Monchem International, Inc.,
(3) liens on intercompany debt of and held by Monchem, Inc., Monchem
International, Inc. and Solutia Systems, Inc., (4) pledges of
65 percent of the voting stock (and 100 percent of all other stock)
of Solutia Europe, S.A./N.V. and Solutia U. K. Holdings Limited,
(5) a lien on certain principal properties, (6) a lien on certain
intellectual property; and (7) liens on property, plant and
equipment, inventory, receivables and certain intellectual property
of four European subsidiaries. The aggregate amount of Solutia's
obligations entitled to the benefit of the lien on such principal
properties is limited to 15 percent of its net tangible assets, as
determined at the date that the lien was granted.

    In addition, borrowings under the amended credit facility are
secured by liens shared equally and ratably with the holders of
Solutia's outstanding publicly traded notes and senior secured notes
described below. These include a lien on (1) certain other principal
properties, (2) 100 percent of the stock of CPFilms Inc., and
(3) pledges of intercompany debt of CPFilms Inc; and a
second-priority lien shared equally and ratably on the principal
properties on which the banks have a first priority lien. The
amended credit facility also contains customary representations and
warranties and affirmative and negative covenants.


                                 25


<PAGE>
<PAGE>

    Interest

    Borrowings under the amended credit facility bear interest at a
floating rate based on LIBOR, plus an applicable margin. The margin
for LIBOR loans is 5.75 percent and will increase by 50 basis points
in July 2003 and an additional 50 basis points in January 2004. A
premium in the amount of 2 percent of the principal repaid on the
term loan will apply until July 25, 2003, and a premium of 1 percent
will apply to such principal payments thereafter.

    Covenants

    The amended credit facility requires Solutia to meet certain
financial tests, including, but not limited to, maximum leverage and
minimum interest coverage ratios. In addition, the amended credit
facility contains certain covenants which, among other things, limit
the incurrence of additional debt, aggregate capital expenditures,
guarantees, liens, investments, asset sales, dividends, restricted
payments, acquisitions, mergers and consolidations, change of
business, transactions with affiliates, prepayments of debt,
repurchases of stock and redemptions of certain other indebtedness
and other matters customarily restricted in such agreements.

  SENIOR SECURED NOTES

    On July 9, 2002, Solutia completed a private placement of
223,000 units consisting of $223 million of senior secured 7-year
notes and warrants to purchase 5,533,522 shares of common stock at
an exercise price of $7.59 per share. The 7-year notes were issued
by SOI Funding Corp., a special purpose entity, and the offering
resulted in cash proceeds, net of estimated fees, of $193 million,
which were placed in escrow pending amendment of Solutia's credit
facility, as described under "Amended Credit Facility" above and
assumption of SOI Funding Corp.'s obligations under the notes. Both
of these events occurred on July 25, 2002, at which time the net
offering proceeds were released from escrow. Solutia deposited
approximately $155 million of the proceeds with the trustee for the
$150 million of 6.5 percent notes due October 15, 2002, to pay the
principal and interest at maturity, which is reflected as restricted
cash in the statement of consolidated financial position at
September 30, 2002. The remaining proceeds were used to pay fees,
expenses and other costs related to the amended credit facility,
cash collateralize existing letters of credit and repay a portion of
borrowings under Solutia's amended credit facility. The discount
associated with this offering, which includes the value given to the
warrants, will be non-deductible for income tax purposes.

    Guarantees

    All of the subsidiaries that guarantee the obligations under
Solutia's amended credit facility will fully and unconditionally
guarantee the notes on a senior joint and several basis. Certain of
Solutia's future domestic subsidiaries will be required to execute
similar guarantees. The subsidiary guarantees will each rank in
right of payment equal to each subsidiary guarantor's existing and
future senior debt.

    Collateral

    The notes and guarantees will be secured by a first-priority
lien (shared with (A) holders of our bank obligations, (B) the
beneficiaries of the Astaris support agreement, (C) the lessee under
the co-generation facility at Pensacola, Florida and (D) holders of
certain designated letters of credit) on the following assets:
(1) certain principal properties, (2) pledges of 100 percent of the
stock of CPFilms Inc., and (3) intercompany debt of CPFilms Inc.;
and a second-priority lien on the following assets: (1) 65 percent
of the voting stock (100 percent of all other stock) of Monchem
International, Inc. and 100 percent of the stock of the remaining
Subsidiary Guarantors, Monchem, Inc. and Solutia Systems, Inc.,
(2) intercompany debt of and held by the Subsidiary Guarantors (other
than CPFilms Inc.), (3) substantially all of Solutia's and the
Subsidiary Guarantors' accounts receivable and inventory and certain
intellectual property, (4) 65 percent of the voting stock (and
100 percent of all other stock) of two foreign subsidiaries, and
(5) certain other production facilities.

    Interest expense, giving effect to the new facilities, is
expected to be approximately $110 million for 2002. Assuming a
constant debt level and current LIBOR rates, interest expense is
expected to be approximately $125 million for 2003. Included in the
2003 estimate for interest expense is approximately $25 million of
amortization of debt discount and issuance costs primarily for the
amended credit facility and the senior secured notes.

                                 26


<PAGE>
<PAGE>

PENSION PLAN FUNDED STATUS

    The majority of Solutia's employees are covered under
noncontributory defined benefit pension plans. The qualified pension
plan is funded in accordance with Solutia's long-range projections
of the plan's financial conditions. These projections take into
account benefits earned and expected to be earned, anticipated
returns on pension plan assets and income tax and other regulations.

    During the third quarter of 2002, Solutia recorded a $13 million
($8 million aftertax) non-cash pension settlement loss as required
by SFAS No. 88, "Employers' Accounting for Settlements and
Curtailments of Defined Benefit Pension Plans and for Termination
Benefits," because of the significant amount of lump sum
distributions from the qualified pension plan in 2002. In order to
account for the settlement, Solutia was required to remeasure its
benefit obligations and fair value of plan assets as of the interim
date of September 30, 2002. The Company's annual measurement date is
December 31.

    As a result of the decline in the fair value of our plan assets,
and, to a lesser extent, higher benefit obligations, the amount of
pension plan underfunding in the qualified pension plan increased to
$475 million as of September 30, 2002. As a result of the underfunded
status of the qualified pension plan and in accordance with SFAS No. 87,
"Employers Accounting for Pension," Solutia recorded a non-cash minimum
pension liability of $272 million, an increase in intangible assets of
$75 million, an aftertax charge to shareholders' deficit of $123 million
and a related deferred tax asset as of September 30, 2002.

    Solutia is actively managing the funding and accounting of the
pension plan in order to meet the requirements of the IRS, the
Pension Benefits Guarantee Corporation (a U.S. federal agency), the
SEC and other interested parties. In the third quarter of 2002,
Solutia made discretionary contributions of $17 million to reduce
the probability of larger contribution requirements in the future
and to utilize available tax benefits. According to IRS funding
rules, Solutia does not expect to be required to make a pension
contribution in 2003. However, future discretionary contributions
will be considered based on actual market returns, pension cost
projections and tax and other financial considerations.

    Solutia will measure the benefit obligations and fair value of
plan assets at its annual measurement date of December 31, 2002.
Changes in interest rates and capital market returns will change the
pension plan's funded status and could be significant, depending
upon the volatility of capital markets.

OTHER

    Solutia's Report on Form 10-K for the year ended December 31, 2001,
described a judicial proceeding, Commonwealth of Pennsylvania Department of
General Services, et al. v. United States Mineral Products Company, et al.,
a case pending in the Commonwealth Court of the Commonwealth of Pennsylvania
against Pharmacia (the former Monsanto Company). The Commonwealth is seeking
recovery of costs it allegedly incurred for testing, monitoring, cleanup,
demolition and relocation caused by alleged presence of low levels of PCB's
in the Transportation and Safety Building in Harrisburg, Pennsylvania as
well as the cost of constructing a new building on the site. On October 17,
2002, the trial judge entered orders denying Solutia's motions seeking entry
of a verdict in Pharmacia's favor or a new trial and entered a monetary
judgment of $59.5 million including prejudgment interest of $14.5 million.
Solutia intends to appeal this judgment as a matter of right to the
Pennsylvania Supreme Court, and has 30 days from entry of the orders to file
its notice of appeal. Solutia believes that the defenses in this case are
meritorious and will continue to defend this action vigorously.

    While posting a bond is not required to prosecute an appeal, under
Pennsylvania law, a bond in the amount of 120% of the judgment, or $71.4
million in this case, must be posted in order to stay execution of the
judgment against Pharmacia while an appeal is pending. Solutia has
informed Pharmacia and Monsanto Company that it will not post an appeal
bond, but has agreed to provide to Monsanto collateral having a present cash
value of $20 million to secure a portion of Monsanto's obligations with
respect to the bond. In addition, Solutia has agreed to reimburse or pay
directly all of Monsanto's out-of-pocket expenses incurred in connection
with obtaining the bond. Although arrangements have not yet been finalized,
Monsanto has informed Solutia that it intends to post the bond and
contribute any additional collateral required in order to secure the bond.
As a result of Monsanto providing collateral required to secure the appeal
bond, we anticipate that Monsanto would assume control of any settlement
decisions.

    During the first quarter of 2002, Solutia sold its 50 percent
interest in the Advanced Elastomer Systems joint venture to
ExxonMobil Chemical Company, a division of Exxon Mobil Corporation
and Exxon Chemical Asset Management Partnership, a subsidiary of
Exxon Mobil Corporation for approximately $102 million. The sale
resulted in a gain of $5 million ($3 million aftertax).

    In 1993, a co-generation facility was constructed at the
Pensacola, Florida manufacturing site to provide the plant with
electricity and steam. Solutia financed the construction by placing
the co-generation facility in a trust that was funded by a syndicate
of commercial banks. Solutia makes monthly operating lease payments
and the lease term is co-terminous with the amended credit facility.


                                 27


<PAGE>
<PAGE>

    In connection with the completion of the external financing
agreement for Astaris which expires in September of 2005, Solutia
contractually agreed to provide Astaris with funding in the event the joint
venture fails to meet certain financial benchmarks. The financial benchmarks
included forecasted earnings that were developed when the joint venture was
formed in April 2000. While the financial performance of Astaris has
improved in the current year, the financial performance has not met the
initial forecasted earnings because of the weak U.S. economy and higher than
expected raw material and electricity costs. As a result of these earnings
shortfalls, the Company has been required to make additional investments to
the joint venture. In 2001, Solutia contributed $31 million to the joint
venture. During the nine months ended September 30, 2002, Solutia has
contributed $27 million to the joint venture under this agreement and
anticipates an additional $2 million contribution during the fourth quarter
of 2002. Solutia and its partner FMC Corporation are evaluating other
financing alternatives for the joint venture. However, if no new financing
arrangements are in place for 2003, Solutia anticipates that required
contributions will be moderately higher for 2003.

    Solutia believes that its cash flow from operations and
available borrowing capacity under the amended credit facility
provide sufficient resources to finance its operations and planned
capital needs for the next 12 months.

RECENTLY ISSUED ACCOUNTING STANDARDS

    In July 2001, the Financial Accounting Standards Board issued
SFAS No. 143, "Accounting for Asset Retirement Obligations." The
statement addresses accounting and reporting requirements for
obligations associated with the retirement of tangible long-lived
assets and the associated asset retirement obligations. SFAS No. 143
is effective for fiscal years beginning after June 15, 2002. Solutia
is evaluating SFAS No. 143 to determine the effects, if any, on its
consolidated financial statements.

    In April 2002, the Financial Accounting Standards Board issued
SFAS No. 145, Rescission of FASB Statements No. 4, 44, and 64,
Amendment of FASB Statement No. 13, and Technical Corrections, which
is effective for fiscal years beginning after May 15, 2002. SFAS 145
addresses the financial accounting and reporting for a number of
areas, including gains and losses derived from the extinguishment of
debt and the treatment of sale-leaseback transactions. Solutia is
evaluating SFAS No. 145 to determine the effects, if any, on its
consolidated financial statements.

    In June 2002, the Financial Accounting Standards Board issued
SFAS No. 146, Accounting for Costs Associated with Exit or Disposal
Activities. SFAS 146 addresses financial accounting and reporting
for costs associated with exit or disposal activities and supercedes
Emerging Issues Task Force (EITF) Issue 94-3, Liability Recognition
for Certain Employee Termination Benefits and Other Costs to Exit an
Activity (including Certain Costs Incurred in a Restructuring). SFAS
146 requires that a liability for a cost associated with an exit or
disposal activity be recognized when the liability is incurred. SFAS
No. 146 also establishes that the liability should initially be
measured and recorded at fair value. The provisions of this
statement are effective for exit or disposal activities that are
initiated after December 31, 2002, with early adoption permitted.
Solutia is evaluating SFAS No. 146 to determine the effects, if any,
on its consolidated financial statements.

ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
        FACTORS

    There have been no material changes in market risk exposures
during the first nine months of 2002 that affect the disclosures
presented in the information appearing under "Derivative Financial
Instruments" on pages 26 and 27 of Solutia's Annual Report on Form
10-K for the year ended December 31, 2001.

ITEM 4. CONTROLS AND PROCEDURES

    Within 90 days prior to the date of this report, Solutia carried
out an evaluation, under the supervision and with the participation
of Solutia's management, including its Chief Executive Officer and
Chief Financial Officer, of the effectiveness of the design and
operation of Solutia's disclosure controls and procedures. Based
upon that evaluation, the Chief Executive Officer and Chief
Financial Officer concluded that Solutia's disclosure controls and
procedures are effective in timely alerting them to material
information relating to Solutia and its consolidated subsidiaries
that is required to be included in Solutia's periodic SEC filings.

    Additionally, there were no significant changes in the internal
controls or in other factors that could significantly affect these controls
subsequent to the date of their evaluation, including any corrective actions
with regard to significant deficiencies and material weaknesses.

                                 28

<PAGE>
<PAGE>

                     PART II. OTHER INFORMATION

ITEM 1. LEGAL PROCEEDINGS

    Solutia's Report on Form 10-K for the year ended December 31,
2001, described a judicial proceeding, Fluor Daniel Corporation v.
Solutia Inc. This case involved a construction dispute between
Solutia and Fluor Daniel Corporation, the main contractor for
construction of an acrylonitrile manufacturing facility located at
our Chocolate Bayou plant in Alvin, Texas. Fluor sought damages of
approximately $70 million based on allegations of delays and
disruption in the construction schedule, change orders, and
entitlement to a bonus under contract provisions. On September 13,
2002, a jury awarded a verdict against Solutia. The case was settled
October 11, 2002, with Solutia agreeing to pay Fluor $20 million
over a three-year period.

    Solutia's Report on Form 10-K for the year ended December 31,
2001, and its Report on Form 10-Q for the quarter ended March 31,
2002, described administrative and judicial proceedings brought by
the U.S. Environmental Protection Agency against Solutia, the former
Monsanto Company (now known as Pharmacia Corporation), and P4
Production L.L.C. that arose out of alleged environmental violations
at a coal coking facility in Rock Springs, Wyoming, currently owned
by P4 Production. The EPA is seeking $2.5 million and injunctive
relief. On July 22, 2002, the United States District Court for the
District of Wyoming denied the companies' petition for certification
of their interlocutory appeal of the denial of their motion for
summary judgment. On August 9, 2002, the United States filed a
motion for summary judgment on the issue of liability. A hearing is
scheduled for November 14, 2002.

    Solutia's Report on Form 10-K for the year ended December 31, 2001,
described a judicial proceeding, Commonwealth of Pennsylvania Department of
General Services, et al. v. United States Mineral Products Company, et al.,
a case pending in the Commonwealth Court of the Commonwealth of Pennsylvania
against Pharmacia (the former Monsanto Company). The Commonwealth is seeking
recovery of costs it allegedly incurred for testing, monitoring, cleanup,
demolition and relocation caused by alleged presence of low levels of PCB's
in the Transportation and Safety Building in Harrisburg, Pennsylvania as
well as the cost of constructing a new building on the site. On October 17,
2002, the trial judge entered orders denying Solutia's motions seeking entry
of a verdict in Pharmacia's favor or a new trial and entered a monetary
judgment of $59.5 million including prejudgment interest of $14.5 million.
Solutia intends to appeal this judgment as a matter of right to the
Pennsylvania Supreme Court, and has 30 days from entry of the orders to file
its notice of appeal. Solutia believes that the defenses in this case are
meritorious and will continue to defend this action vigorously.

    While posting a bond is not required to prosecute an appeal, under
Pennsylvania law, a bond in the amount of 120% of the judgment, or $71.4
million in this case, must be posted in order to stay execution of the
judgment against Pharmacia while an appeal is pending. Solutia has informed
Pharmacia and Monsanto Company that it will not post an appeal bond, but has
agreed to provide to Monsanto collateral having a present cash value of $20
million to secure a portion of Monsanto's obligations with respect to the
bond. In addition, Solutia has agreed to reimburse or pay directly all of
Monsanto's out-of-pocket expenses incurred in connection with obtaining the
bond. Although arrangements have not yet been finalized, Monsanto has
informed Solutia that it intends to post the bond and contribute any
additional collateral required in order to secure the bond. As a result of
Monsanto providing collateral required to secure the appeal bond, we
anticipate that Monsanto would assume control of any settlement decisions.

ITEM 5. OTHER INFORMATION

    Solutia is aware that authorities in the United States, Europe and
Canada are undertaking investigations of past commercial practices in the
rubber chemicals industry. Flexsys, L.P., a 50/50 rubber chemicals joint
venture between Solutia and Akzo Nobel N.V., has been fully cooperating with
the authorities and will continue to do so. In addition, Solutia is aware of
four purported class actions that have now been filed against Flexsys and
other producers of rubber chemicals: Bruce v. Crompton Corporation, et al.
and, Homes v. Crompton Corporation et al. in Superior Court of the State of
California in the County of Los Angeles, Myers v. Crompton Corporation et
al. in the Circuit Court of the Fifteenth Judicial Circuit in and for Palm
Beach County, Florida and Carr v. Crompton Corporation et al. in the
District Court of Lancaster County, Nebraska. Each seeks actual and treble
damages under state law on behalf of all retail purchasers in that state of
tires manufactured using rubber-processing chemicals sold by defendants,
including Flexsys, since 1994.

                                 29


<PAGE>
<PAGE>

ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K

    (a) Exhibits--See the Exhibit Index at page 34 of this report.

    (b) Reports filed on Form 8-K during the quarter ended
September 30, 2002:

        On September 17, 2002, Solutia filed a Form 8-K, containing a
        press to announce the jury's verdict in Fluor Daniel
        Corporation v. Solutia Inc.


                                 30

<PAGE>
<PAGE>

                             SIGNATURE

    Pursuant to the requirements of the Securities Exchange Act of
1934, the Registrant has duly caused this report to be signed on its
behalf by the undersigned thereunto duly authorized.


                                               SOLUTIA INC.
                                   -----------------------------------
                                               (Registrant)


                                        /s/  JAMES M. SULLIVAN
                                   -----------------------------------
                                      (Vice President and Controller)
                                   (On behalf of the Registrant and as
                                      Principal Accounting Officer)

Date: November 14, 2002

                                 31


<PAGE>
<PAGE>

                           CERTIFICATIONS

    I, John C. Hunter III, certify that:

    1. I have reviewed this quarterly report on Form 10-Q of Solutia
       Inc.;

    2. Based on my knowledge, this quarterly report does not contain
       any untrue statement of a material fact or omit to state a
       material fact necessary to make the statements made, in light
       of the circumstances under which such statements were made,
       not misleading with respect to the period covered by this
       quarterly report;

    3. Based on my knowledge, the financial statements, and other
       financial information included in this quarterly report,
       fairly present in all material respects the financial
       condition, results of operations and cash flows of the
       registrant as of, and for, the periods presented in this
       quarterly report;

    4. The registrant's other certifying officers and I are
       responsible for establishing and maintaining disclosure
       controls and procedures (as defined in Exchange Act Rules
       13a-14 and 15d-14) for the registrant and we have:

       a) designed such disclosure controls and procedures to ensure
          that material information relating to the registrant,
          including its consolidated subsidiaries, is made known to
          us by others within those entities, particularly during the
          period in which this quarterly report is being prepared;

       b) evaluated the effectiveness of the registrant's disclosure
          controls and procedures as of a date within 90 days prior
          to the filing date of this quarterly report (the
          "Evaluation Date"); and

       c) presented in this quarterly report our conclusions about
          the effectiveness of the disclosure controls and procedures
          based on our evaluation as of the Evaluation Date;

    5. The registrant's other certifying officers and I have
       disclosed, based on our most recent evaluation, to the
       registrant's auditors and the audit committee of registrant's
       board of directors (or persons performing the equivalent
       function):

       a) all significant deficiencies in the design or operation of
          internal controls which could adversely affect the
          registrant's ability to record, process, summarize and
          report financial data and have identified for the
          registrant's auditors any material weaknesses in internal
          controls; and

       b) any fraud, whether or not material, that involves
          management or other employees who have a significant role
          in the registrant's internal controls; and

    6. The registrant's other certifying officers and I have
       indicated in this quarterly report whether or not there were
       significant changes in internal controls or in other factors
       that could significantly affect internal controls subsequent
       to the date of our most recent evaluation, including any
       corrective actions with regard to significant deficiencies
       and material weaknesses.

    Date: November 14, 2002


                                  /s/  JOHN C. HUNTER III
                     -----------------------------------------------
                                    John C. Hunter III
                     Chairman, President and Chief Executive Officer

                                 32


<PAGE>
<PAGE>

    I, Robert A. Clausen, certify that:

    1. I have reviewed this quarterly report on Form 10-Q of Solutia
       Inc.;

    2. Based on my knowledge, this quarterly report does not contain
       any untrue statement of a material fact or omit to state a
       material fact necessary to make the statements made, in light
       of the circumstances under which such statements were made,
       not misleading with respect to the period covered by this
       quarterly report;

    3. Based on my knowledge, the financial statements, and other
       financial information included in this quarterly report,
       fairly present in all material respects the financial
       condition, results of operations and cash flows of the
       registrant as of, and for, the periods presented in this
       quarterly report;

    4. The registrant's other certifying officers and I are
       responsible for establishing and maintaining disclosure
       controls and procedures (as defined in Exchange Act Rules
       13a-14 and 15d-14) for the registrant and we have:

       a) designed such disclosure controls and procedures to ensure
          that material information relating to the registrant,
          including its consolidated subsidiaries, is made known to
          us by others within those entities, particularly during the
          period in which this quarterly report is being prepared;

       b) evaluated the effectiveness of the registrant's disclosure
          controls and procedures as of a date within 90 days prior
          to the filing date of this quarterly report (the
          "Evaluation Date"); and

       c) presented in this quarterly report our conclusions about
          the effectiveness of the disclosure controls and procedures
          based on our evaluation as of the Evaluation Date;

    5. The registrant's other certifying officers and I have
       disclosed, based on our most recent evaluation, to the
       registrant's auditors and the audit committee of registrant's
       board of directors (or persons performing the equivalent
       function):

       a) all significant deficiencies in the design or operation of
          internal controls which could adversely affect the
          registrant's ability to record, process, summarize and
          report financial data and have identified for the
          registrant's auditors any material weaknesses in internal
          controls; and

       b) any fraud, whether or not material, that involves
          management or other employees who have a significant role
          in the registrant's internal controls; and

    6. The registrant's other certifying officers and I have
       indicated in this quarterly report whether or not there were
       significant changes in internal controls or in other factors
       that could significantly affect internal controls subsequent
       to the date of our most recent evaluation, including any
       corrective actions with regard to significant deficiencies
       and material weaknesses.

    Date: November 14, 2002


                                /s/  ROBERT A. CLAUSEN
                   -------------------------------------------------
                                   Robert A. Clausen
                   Senior Vice President and Chief Financial Officer

                                 33


<PAGE>
<PAGE>

                           EXHIBIT INDEX

    These Exhibits are numbered in accordance with the Exhibit Table
of Item 601 of Regulation S-K.


EXHIBIT
NUMBER                                DESCRIPTION
-------                               -----------

   4          Second Supplemental Indenture, dated as of October 24, 2002,
              among Solutia Inc., the subsidiary guarantors named therein
              and HSBC Bank USA

  10          Amendment No. 1, dated as of September 26, 2002, to Second
              Amended and Restated Credit Agreement dated as of July 25,
              2002, between Solutia Inc., as Borrower, the initial lenders
              named therein, Bank of America, N.A. as Syndication Agent
              and Citibank, N.A., as Administrative Agent

  11          Omitted--Inapplicable; see "Statement of Consolidated Income
              (Loss)" on page 1

  99          Computation of the Ratio of Earnings to Fixed Charges


                                 34