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

                                UNITED STATES
                     SECURITIES AND EXCHANGE COMMISSION

                           WASHINGTON, D.C. 20549

                                  FORM 10-K

(MARK ONE)

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

                 FOR THE FISCAL YEAR ENDED DECEMBER 31, 2001
                                           -----------------

                                     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
     INCORPORATION OR ORGANIZATION)               IDENTIFICATION NO.)

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

         SECURITIES REGISTERED PURSUANT TO SECTION 12(b) OF THE ACT:


                                                      NAME OF EACH EXCHANGE
      TITLE OF EACH CLASS                              ON WHICH REGISTERED
      -------------------                             ---------------------

$.01 PAR VALUE COMMON STOCK                          NEW YORK STOCK EXCHANGE
PREFERRED STOCK PURCHASE RIGHTS                      NEW YORK STOCK EXCHANGE

         SECURITIES REGISTERED PURSUANT TO SECTION 12(g) OF THE ACT:

                                    NONE
                                    ----
                              (TITLE OF CLASS)

    INDICATE BY CHECK MARK WHETHER THE REGISTRANT: (1) HAS FILED ALL REPORTS
REQUIRED TO BE FILED BY SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT
OF 1934 DURING THE PRECEDING 12 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. [X] YES [ ] NO

    INDICATE BY CHECK MARK IF DISCLOSURE OF DELINQUENT FILERS PURSUANT TO
ITEM 405 OF REGULATION S-K IS NOT CONTAINED HEREIN, AND WILL NOT BE
CONTAINED, TO THE BEST OF REGISTRANT'S KNOWLEDGE, IN DEFINITIVE PROXY OR
INFORMATION STATEMENTS INCORPORATED BY REFERENCE IN PART III OF THIS FORM
10-K OR ANY AMENDMENT TO THIS FORM 10-K. [X]

    STATE THE AGGREGATE MARKET VALUE OF THE VOTING AND NON-VOTING COMMON
EQUITY HELD BY NON-AFFILIATES OF THE REGISTRANT: APPROXIMATELY
$636.07 MILLION ON FEBRUARY 25, 2002.

    INDICATE THE NUMBER OF SHARES OUTSTANDING OF EACH OF THE REGISTRANT'S
CLASSES OF COMMON STOCK, AS OF THE LATEST PRACTICABLE DATE:
104,604,349 SHARES OF COMMON STOCK, $.01 PAR VALUE, OUTSTANDING AS OF THE
CLOSE OF BUSINESS ON FEBRUARY 25, 2002.

                     DOCUMENTS INCORPORATED BY REFERENCE

    PORTIONS OF SOLUTIA INC.'S NOTICE OF ANNUAL MEETING OF STOCKHOLDERS AND
PROXY STATEMENT DATED MARCH 14, 2002 (PART III OF FORM 10-K).

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

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            CAUTIONARY STATEMENT ABOUT FORWARD-LOOKING STATEMENTS

    We make statements in this Annual Report on Form 10-K that are
considered forward-looking statements under the federal securities laws. We
consider all statements regarding anticipated or future matters, including
the following, to be forward-looking statements:

    * our expected future financial position, liquidity, results of
      operations, profitability and cash flows;

    * dividends and share repurchases;

    * financing plans;

    * business strategy;

    * budgets;

    * projected cost reductions;

    * results of litigation;

    * plans and objectives of management for future operations;

    * competitive position;

    * growth opportunities for existing products and services;

    * price increases;

    * benefits from new technology; and

    * effect of changes in accounting due to recently issued accounting
      standards.

    These statements are not guarantees of our future performance. They
represent our estimates and assumptions only on the date we made them. There
are risks, uncertainties and other important factors that could cause our
actual performance or achievements to be materially different from those we
may project. These risks, uncertainties and factors include:

    * general economic, business and market conditions, which affect us
      because some of our customers are in cyclical businesses;

    * customer acceptance of new products;

    * efficacy of new technology and facilities;

    * shortages or pricing of raw materials and energy;

    * ability to implement cost reduction initiatives in a timely manner;

    * lower prices for our products or a decline in our market share due to
      competition or price pressure by customers;

    * currency fluctuations;

    * ability to acquire and integrate new businesses or divest existing
      businesses;

    * exposure to product liability and other litigation and cost of
      environmental remediation; and

    * changes in U.S. and foreign laws and regulations.

                                   PART I

ITEM 1. BUSINESS.

    Solutia Inc. and its subsidiaries make and sell a variety of high-
performance chemical-based materials. Using our world-class skills, we
create solutions for industrial and individual consumers in household goods,
construction, vehicles, industrial products and pharmaceuticals. We have
organized our business in three segments: Performance Films, Specialty
Products and Integrated Nylon.

    Our Performance Films segment manufactures SAFLEX(R) plastic interlayer,
which is used to make laminated glass for windshields. This product is also
marketed to the automotive industry for side and rear windows, both under
the product category of Enhanced Protective Glass and under the VANCEVA(TM)
brand design systems. We also brand plastic interlayer under the
KEEPSAFE(R), KEEPSAFE MAXIMUM(R) and VANCEVA(TM) marks for architectural
applications. In addition, we produce custom-coated window films, branded as
LLUMAR(R) and VISTA(R), for after-market automotive and architectural
applications; and industrial films for use in high-tech electronic display
applications.

    Our Specialty Products segment produces a variety of branded resins and
additives used to produce high performance coatings for various materials
such as metal, wood and plastic; and adhesives. We provide process research,
process development and scale-up services for the pharmaceutical industry.
In addition, we produce specialty chemicals such as DEQUEST(R) water
treatment chemicals, THERMINOL(R) heat transfer fluids and SKYDROL(R)
aviation hydraulic fluids.

    Our Integrated Nylon segment produces an integrated family of nylon
products, including VYDYNE(R) and ASCEND(R) nylon polymers; nylon fibers
such as WEAR-DATED(R) and ULTRON VIP(R) brands used in carpet; ACRILAN(R)
acrylic fibers; and chemical intermediates.

    Solutia was incorporated in Delaware in April 1997 as a wholly-owned
subsidiary of the former Monsanto Company (now known as Pharmacia
Corporation). By September 1, 1997, most of Monsanto's chemical businesses
were transferred to Solutia. On that date,


                                 1

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<PAGE>
Monsanto distributed all of the outstanding shares of Solutia common stock
as a dividend to Monsanto's stockholders, and Solutia became an independent
publicly-held company. We refer to this event as the "spinoff" in this document.

RECENT DEVELOPMENTS

    In January 2002, we signed an agreement to sell our 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 $100 million. We expect the sale to close during the first
quarter of 2002 and result in a modest gain.

    In November 2001, we amended our $800 million revolving credit facility
and terminated our $250 million credit facility. Four of our domestic
subsidiaries are guarantors of the amended facility. Borrowings under the
amended facility are secured by liens on our inventory and receivables and
those of our material domestic subsidiaries and one foreign subsidiary,
pledges of 65 percent of the voting stock of two foreign subsidiaries, and a
lien on specified principal properties. The aggregate amount of our
obligations entitled to the benefit of the lien on the specified properties
will not exceed $236 million. The lenders under certain other facilities
have the right to share in this collateral.

SEGMENTS; PRINCIPAL PRODUCTS

    Our three business segments are:

    * Performance Films;

    * Specialty Products; and

    * Integrated Nylon.

    The tabular and narrative information contained in Note 17 of "Notes to
Consolidated Financial Statements" appearing on pages 50 and 51 is
incorporated by reference into this section.

                                 2

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<TABLE>
<CAPTION>
PERFORMANCE FILMS SEGMENT

                                            Major End-Use
Major End-Use                               Products &                                  Major Raw
Markets               Major Products        Applications          Major Competitors     Materials             Major Plants
----------------------------------------------------------------------------------------------------------------------------------
<S>                   <C>                   <C>                   <C>                   <C>                   <C>
CONSTRUCTION AND      Polyvinyl butyral     Products to increase  DuPont; HT Troplast   Butyraldehyde;        Ghent, Belgium;
HOME FURNISHINGS      for KEEPSAFE(R),      the safety,                                 ethanol; polyvinyl    Springfield, MA;
                      SAFLEX INSIDE(R)      security, sound                             alcohol; vinyl        Trenton, MI;
                      (used in Europe) and  attenuation, energy                         acetate monomer;      Martinsville, VA
                      KEEPSAFE MAXIMUM(R)   efficiency and                              polyester film
                      laminated window      ultraviolet
                      glass;                protection of
                      VANCEVA(TM) design    architectural glass
                      films; LLUMAR(R)      for residential       Materials Science
                      and VISTA(R)          and commercial        Corp. (MSC); Lintec;
                      professional window   structures;           3M
                      films and GILA(R)     after-market films
                      retail window films   for solar control,
                                            security and safety
----------------------------------------------------------------------------------------------------------------------------------
VEHICLES              SAFLEX(R) plastic     Products to increase  DuPont; Sekisui       Butyraldehyde;        Ghent, Belgium;
                      interlayer for        the safety,                                 ethanol; polyvinyl    Springfield, MA;
                      windshields and for   security, sound                             alcohol; vinyl        Trenton, MI;
                      side and rear         attenuation and                             acetate monomer;      Martinsville, VA
                      windows of vehicles;  ultraviolet                                 polyester film
                      VANCEVA(TM) design    protection of
                      films;                automotive glass
                      LLUMAR(R),                                  MSC; Lintec; Madico;
                      FORMULAONE                                  3M
                      PERFORMANCE
                      AUTOMOTIVE FILMS(R)
                      and GILA(R) retail
                      window films
----------------------------------------------------------------------------------------------------------------------------------
INDUSTRIAL            Industrial films;     Window films for      3M; Lintec; MSC;      Ethanol;              Martinsville, VA
APPLICATIONS          release liners and    architectural and     Southwall; Rexam      formaldehyde; maleic
                      deep-dyed films       automotive                                  anhydride; melamine;
                                            applications                                polyester film
----------------------------------------------------------------------------------------------------------------------------------
ELECTRONICS           Performance films;    Computer              3M; Lintec; MSC;      Ethanol;              Martinsville, VA;
                      conductive and        touch-screens;        Southwall; Sheldahl   formaldehyde; maleic  Canoga Park, CA
                      anti-reflective       electroluminescent                          anhydride; melamine;
                      coated films          displays for                                polyester film
                                            hand-held
                                            electronics and
                                            watches; cathode ray
                                            tube and LCD
                                            monitors
----------------------------------------------------------------------------------------------------------------------------------

                                 3


<PAGE>
<PAGE>

<CAPTION>
SPECIALTY PRODUCTS SEGMENT

                                            Major End-Use
Major End-Use                               Products &                                  Major Raw
Markets               Major Products        Applications          Major Competitors     Materials             Major Plants
-----------------------------------------------------------------------------------------------------------------------------------
<S>                   <C>                   <C>                   <C>                   <C>                   <C>
CAPITAL EQUIPMENT     THERMINOL(R) heat     Heat transfer         Dow Chemical Co.;     Benzene; phenol;      Alvin, TX;
                      transfer fluids;      fluids; water         Nippon Steel          phosphorus            Anniston, AL;
                      DEQUEST(R) water      treatment; oil field  Chemical Co.;         trichloride           Newport, Wales (U.K.)
                      treatment chemicals   chemicals             Rhodia; Bayer
-----------------------------------------------------------------------------------------------------------------------------------
INDUSTRIAL            MODAFLOW(R) flow and  Coatings and          Cytec Industries;     Acrylate esters;      Springfield, MA;
APPLICATIONS          leveling agents;      adhesives; caulks     Neste                 butanol;              Rayong, Thailand;
                      RESIMENE(R)           and sealants;                               formaldehyde;         Frankfurt-
                      crosslinkers;         paints; coated                              melamine; benzene;    Fechenheim, Germany;
                      MAPRENAL(R) and       fabric; wire and                            chlorine              Romano d'Ezzelino,
                      MADURIT(R) resins;    cable; liquid         Akzo Nobel; Bayer;                          Italy; Sauget, IL;
                      GELVA(R) pressure     coating systems;      National Starch                             Anniston, AL; Ghent,
                      sensitive adhesives;  fiberboard;                                                       Belgium; Trenton, MI
                      chlorobenzenes        technical laminates;
                                            paper coatings;
                                            packaging; medical
                                            devices; tapes and
                                            graphic arts;
                                            herbicides
-----------------------------------------------------------------------------------------------------------------------------------
AVIATION/             SKYDROL(R) aviation   Hydraulic fluids for  ExxonMobil            Phosphorus            St. Louis, MO
TRANSPORTATION        hydraulic fluids;     commercial aircraft;                        oxychloride;
                      SKYKLEEN(R) aviation  environmentally                             methanol
                      solvents              friendly solvents
                                            for aviation
                                            maintenance
-----------------------------------------------------------------------------------------------------------------------------------
VEHICLES              MODAFLOW(R) flow and  Coatings and          Cytec Industries;     Acrylate esters;      Springfield, MA;
                      leveling agents;      adhesives; caulks     DSM; Cray             butanol;              Frankfurt-
                      RESIMENE(R)           and sealants;         Valley/Total; UCB     formaldehyde;         Fechenheim, Hamburg;
                      crosslinkers;         paints; coated                              melamine; methanol;   and Wiesbaden,
                      VIACRYL(R),           fabric; wire and                            terephthalic acid;    Germany; Rayong,
                      MACRYNAL(R),          cable; automotive,                          polyethylene          Thailand; Romano
                      VIALKYD(R),           industrial and                                                    d'Ezzelino, Italy;
                      DUROXYN(R),           decorative coatings;                                              Ghent, Belgium;
                      VIAKTIN(R),           environmentally                                                   St. Louis, MO
                      VIAMIN(R) and         friendly coatings;
                      HOSTAFLEX(R) resins;  spray suppression on
                      RESYDROL(R)           trucks
                      waterborne resins;
                      ALFTALAT(R),
                      SYNTHACRYL(R) and
                      VIAKTIN(R) solid
                      resins; CLEAR
                      PASS(R) and SPRAY
                      GUARD(R) truck mud
                      flap liners
-----------------------------------------------------------------------------------------------------------------------------------
CONSTRUCTION AND      ASTROTURF(R) and      Entrance matting      Elecster; Fichet;     Polyethylene          St. Louis, MO;
HOME FURNISHINGS      CLEAN MACHINE(R)                            HBN-Teknik                                  Ghent, Belgium
                      door mats
----------------------------------------------------------------------------------------------------------------------------------
PHARMACEUTICALS       Services for process  New pharmaceuticals   Rhodia ChiRex;                              Aarau, Bubendorf and
                      research and                                Albany Molecular                            Friborg, Switzerland
                      development,                                Research; Pharma-
                      small scale-up                              Eco; Evotec
                      manufacturing and
                      small volume
                      licensed production
----------------------------------------------------------------------------------------------------------------------------------

                                 4



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<CAPTION>
INTEGRATED NYLON SEGMENT


                                            Major End-Use
Major End-Use                               Products &                                  Major Raw
Markets               Major Products        Applications          Major Competitors     Materials             Major Plants
----------------------------------------------------------------------------------------------------------------------------------
<S>                   <C>                   <C>                   <C>                   <C>                   <C>
CONSTRUCTION AND      Nylon carpet staple;  WEAR-DATED(R)         DuPont; Honeywell;    Acrylonitrile;        Pensacola, FL;
HOME FURNISHINGS      nylon bulk            residential and       BASF                  ammonia;              Greenwood, SC;
                      continuous filament;  ULTRON VIP(R)                               cyclohexane;          Decatur and
                      ACRILAN(R) acrylic    commercial carpet;                          propylene             Foley, AL
                      fiber; ASCEND(R)      WEAR-DATED(R)
                      nylon polymer         upholstery fabrics;
                                            blankets; non-woven
                                            reinforcement and
                                            linings
----------------------------------------------------------------------------------------------------------------------------------
PERSONAL PRODUCTS     ACRILAN(R) acrylic    Sweaters; knit        Acordis; DuPont;      Acrylonitrile;        Pensacola, FL;
                      fiber; ASCEND(R)      apparel; half-hose;   Radici                ammonia;              Decatur, AL;
                      nylon polymer         active wear; craft                          cyclohexane;          Greenwood, SC
                                            yarns; hand-knit                            propylene
                                            yarns; apparel;
                                            dental floss;
                                            intimate apparel
----------------------------------------------------------------------------------------------------------------------------------
VEHICLES              Nylon filament;       Tires; brakes;        Acordis; DuPont;      Acrylonitrile;        Pensacola, FL;
                      VYDYNE(R) nylon       convertible tops;     Rhodia; Asahi         ammonia;              Decatur, AL;
                      molding resins;       automotive interior,  Chemical; DUSA        cyclohexane;          Greenwood, SC
                      ASCEND(R) nylon       exterior and                                propylene
                      polymer; ACRILAN(R)   under-the-hood
                      acrylic fiber         molded parts
----------------------------------------------------------------------------------------------------------------------------------
INDUSTRIAL            ACRILAN(R) acrylic    Conveyer belts;       Acordis; DuPont;      Acrylonitrile;        Pensacola, FL;
APPLICATIONS          fiber; ASCEND(R)      awnings and outdoor   Honeywell; BASF       ammonia;              Decatur, AL;
                      nylon polymer;        furniture; nylon                            cyclohexane;          Greenwood, SC
                      industrial nylon      film cooking bags;                          propylene
                      fiber                 specialized food
                                            packaging
----------------------------------------------------------------------------------------------------------------------------------
INTERMEDIATE          Nylon salt;           Nylon and acrylic     DuPont; Rhodia;       Natural gas;          Decatur, AL;
CHEMICALS             adipic acid;          fiber; nylon and ABS  BASF; Asahi Chemical  propylene;            Alvin, TX;
                      hexamethylenediamine; plastics                                    cyclohexane           Greenwood, SC;
                      acrylonitrile                                                                           Pensacola, FL
----------------------------------------------------------------------------------------------------------------------------------
</TABLE>


                                 5


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PRINCIPAL EQUITY AFFILIATES

    We participate in a number of joint ventures in which we share
management control with other companies. Our equity earnings (loss)
from affiliates were $(13) million in 2001, $35 million in 2000 and
$36 million in 1999. Principal joint ventures include Flexsys, L.P.,
Advanced Elastomer Systems, L.P. and Astaris LLC.

    Flexsys, headquartered in Belgium, is a leading supplier of
process chemicals to the rubber industry. Its product line includes
a number of branded accelerators (SANTOCURE(R), THIOFIDE(R) and
THIOTAX(R)), pre-vulcanization inhibitors (SANTOGARD(R)),
antidegradants and antioxidants (FLECTOL(R) and SANTOWHITE(R)) and
insoluble sulphur (CRYSTEX(R)). Flexsys is a 50/50 joint venture
with Akzo Nobel N.V.

    Advanced Elastomer Systems, headquartered in the United States,
produces and sells thermoplastic elastomers--materials that combine
the processability of thermoplastics and the functional performance
of thermoset rubber products. The joint venture's product lines
include SANTOPRENE(R) thermoplastic rubber and VISTAFLEX(R)
thermoplastic elastomer. Advanced Elastomer Systems is a 50/50 joint
venture with ExxonMobil Chemical Company. For information regarding
the sale of Solutia's interest in this joint venture, see "Recent
Developments" on page 2 above.

    Astaris, headquartered in the United States, sells phosphorus
and phosphate salts. Its product line includes a number of branded
products such as LEVN-LITE(R), PAN-O-LITE(R) and LEVERAGE(R)
phosphate, which are sold into the bakery markets. The business also
services the pharmaceutical, meat and poultry and industrial
marketplaces. Astaris is a 50/50 joint venture with FMC Corporation.

SALE OF PRODUCTS

    We sell our products directly to end users in various
industries, principally by using our own sales force, and, to a
lesser extent, by using distributors. Under a marketing alliance
between Solutia and Dow Plastics, a business unit of The Dow
Chemical Company, Dow markets Solutia's VYDYNE(R) nylon 6,6 molding
resins for injection molding applications worldwide. On March 1,
2002, Solutia and Dow Plastics signed a formal agreement to end the
marketing alliance. Our marketing and distribution practices do not
result in unusual working capital requirements on a consolidated
basis. We maintain inventories of finished goods, goods in process
and raw materials to meet customer requirements and our scheduled
production. In general, we do not manufacture our products against a
backlog of firm orders; we schedule production to meet the level of
incoming orders and the projections of future demand. We are not
generally dependent upon one or a group of customers, and we have no
material contracts with the government of the United States, or any
state or local, or foreign government. In general, our sales are not
subject to seasonality. While no single customer or customer group
accounts for 10 percent or more of our net sales, sales to the
carpet mill industry and the European auto glass industry each
represent a significant portion of our net sales.

COMPETITION

    The global markets in which our chemical businesses operate are
highly competitive. We expect competition from other manufacturers
of the same products and from manufacturers of different products
designed for the same uses as ours to continue in both U.S. and
ex-U.S. markets. Depending on the product involved, we encounter
various types of competition, including price, delivery, service,
performance, product innovation, product recognition and quality.
Overall, we regard our principal product groups as competitive with
many other products of other producers and believe that we are an
important producer of many of these product groups. For information
regarding competition in specific markets, see the charts under
"Segments; Principal Products" above.

RAW MATERIALS AND ENERGY RESOURCES

    We purchase large amounts of commodity raw materials, including
propylene, cyclohexane, benzene and natural gas. We typically
purchase major requirements for key raw materials pursuant to
medium-term contracts. We are not dependent on any one supplier for
a material amount of our raw materials or energy requirements, but
we obtain certain important raw materials from a few major
suppliers. In general, where we have limited sources of raw
materials, we have developed contingency plans to minimize the
effect of any interruption or reduction in supply. For information
about specific raw materials, see the charts under "Segments;
Principal Products" above.

    While temporary shortages of raw materials and energy may
occasionally occur, these items are generally sufficiently available
to cover our current and projected requirements. However, their
continuing availability and price may be affected by unscheduled
plant interruptions and domestic and world market conditions,
political conditions and governmental regulatory actions. The effect
of any future raw material and energy shortages on our business as a
whole or in specific world areas cannot be accurately predicted.

    For additional information on raw materials and energy, see
"Outlook and Economic Conditions" on page 22 below.

                                 6

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PATENTS AND TRADEMARKS

    We own a large number of patents that relate to a wide variety
of products and processes and have pending a substantial number of
patent applications. In addition, we are licensed under a small
number of patents owned by others. We own a considerable number of
established trademarks in many countries under which we market our
products. These patents and trademarks in the aggregate are of
material importance to our operations and to our Performance Films,
Specialty Products and Integrated Nylon segments.

RESEARCH AND DEVELOPMENT

    Research and development constitute an important part of our
activities. Our expenses for research and development amounted
to approximately $58 million in 2001, $67 million in 2000, and
$58 million in 1999, or about 2 percent of sales on average. We focus
our research and development expenditures on process improvements
and selected product development.

    Our Performance Films segment launched the VANCEVA(TM) brand of
Advanced Solutions for Glass(TM) products to meet the needs of the
architectural and automotive markets. In addition, this segment
added several new products to its line of solar control and security
films for aftermarket applications. Our Specialty Products segment
developed low temperature vapor phase heat transfer fluid for
processing of temperature sensitive polymers and developed
biodegradable chelates and scale inhibitors to meet market needs for
more environmentally friendly products. Our Integrated Nylon segment
introduced a new wear-resistant staple fiber system for carpet under
the TRAFFIC CONTROL FIBER SYSTEM(R) brand name. This segment also
introduced a new technology called VYDYNE(R) 2000, offering whiter
and improved grades of VYDYNE(R) engineering thermoplastic resins.

ENVIRONMENTAL MATTERS

    The narrative information appearing under "Environmental
Matters" beginning on page 24 below is incorporated here by
reference.

EMPLOYEE RELATIONS

    On December 31, 2001, we had approximately 9,170 employees
worldwide. In general, satisfactory relations have prevailed between
our employees and us. We use self-directed work teams, incentive
programs and other initiatives to keep employees actively involved
in the success of the business. Approximately 25 percent of our
workforce is represented by various labor unions.

INTERNATIONAL OPERATIONS

    Solutia and its subsidiaries are engaged in manufacturing, sales
and research and development in areas outside the United States.
Approximately 43 percent of our consolidated sales in 2001 were made
into markets outside the United States, including Europe, Canada,
Latin America and Asia. Our Performance Films and Specialty Products
segments are particularly dependent on their international
operations. Approximately one-half of the 2001 sales of the
Performance Films segment and two-thirds of the 2001 sales of the
Specialty Products segment were made into markets outside the United
States. Identifiable assets of the non-United States operations
represented approximately 26 percent of total identifiable assets at
December 31, 2001.

    Operations outside the United States are potentially subject to
a number of risks and limitations that are not present in domestic
operations, including trade restrictions, investment regulations,
governmental instability and other potentially detrimental
governmental practices or policies affecting companies doing
business abroad.

    Operations outside the United States are also subject to
fluctuations in currency values. The functional currency of each of
our non-United States operations is the local currency. Exchange
rates between these currencies and U.S. dollars have fluctuated
significantly in recent years and may do so in the future. In
addition, we generate revenue from export sales and operations
conducted outside the United States that may be denominated in
currencies other than the relevant functional currency.

ITEM 2. PROPERTIES.

    Solutia's general offices are located in a leased facility in
St. Louis County, Missouri. Our principal European offices are
located in Louvain La Neuve, Belgium, on land leased from the
University of Louvain. We also have research laboratories, research
centers and manufacturing locations worldwide. Information about our
major manufacturing locations worldwide and segments that used these
locations on January 1, 2001, appears under "Segments; Principal
Products" in Item 1 of this report and is incorporated here by
reference.

    Our principal plants are suitable and adequate for their use.
Utilization of these facilities varies with seasonal, economic and
other business conditions, but none of our principal plants are
substantially idle. Our facilities generally have sufficient
capacity for existing needs and expected near-term growth. We have
plans in place to expand facilities that we anticipate will reach
capacity in the next two to three years.

                                 7

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<PAGE>
    We own most of our principal plants. However, at Antwerp, Belgium
and Sao Jose dos Campos, Brazil, both of which are Monsanto sites, we
own certain buildings and production equipment and lease the
underlying land. We also lease the land for our Vianova Resins
facilities at Suzano, Brazil and Frankfurt-Fechenheim, Germany from
Clariant. In addition, we lease the buildings for our pharmaceuticals
services unit, including the main production site in Aarau,
Switzerland.

    Monsanto and Solutia have operating agreements with respect to
each of the two Monsanto facilities listed above and Solutia's
Chocolate Bayou facility in Alvin, Texas. Under these operating
agreements, we are the guest and Monsanto is the operator at the
facilities except the Chocolate Bayou facility at which Monsanto is
the guest and we are the operator. The initial term of each of the
operating agreements is 20 years. After the initial term, the
operating agreements continue indefinitely unless either party
terminates on at least 24 months' prior written notice. Each of the
operating agreements also provides that, under certain circumstances,
either the operator or the guest may terminate the operating agreement
before the expiration of its initial term. We operate several
facilities for other third parties, principally within the Chocolate
Bayou; Sauget, Illinois; Pensacola, Florida; Trenton, Michigan and
Newport, Wales (U.K.) sites, under long-term lease and operating
agreements.

    In connection with the amendment in November 2001 of our $800 million
revolving credit facility, we granted mortgages on our facilities located
in Decatur, Alabama; Springfield, Massachusetts; Trenton, Michigan;
Greenwood, South Carolina and Alvin, Texas. The aggregate amount of our
obligations entitled to the benefit of the mortgages on these properties
will not exceed $236 million. The lenders under certain other facilities
have the right to share in this collateral. In addition, there is a
mechanics' lien that Fluor Daniel, a division of Fluor Enterprises, Inc.,
has filed against our Chocolate Bayou (Alvin, Texas) facility in the amount
of approximately $42 million in connection with Fluor Daniel's claim
against us for the alleged non-payment of certain labor and materials
charges relating to the construction of our acrylonitrile facility.

ITEM 3. LEGAL PROCEEDINGS.

    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, we assumed
from the former Monsanto Company (now Pharmacia Corporation), under
an agreement known as the Distribution Agreement, liabilities
related to specified legal proceedings. As a result, although
Monsanto remains the named defendant, we are required to manage the
litigation and indemnify Monsanto for costs, expenses and judgments
arising from the litigation. While the results of litigation cannot
be predicted with certainty, Solutia does not believe, based upon
currently available facts, that the ultimate resolution of any of
these pending matters will have a material adverse effect on
Solutia's financial position or liquidity in any one year. However,
resolution in those cases described below involving the alleged
discharge of polychlorinated biphenyls ("PCBs") from the Anniston,
Alabama plant site may have a material adverse effect 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. The following
paragraphs describe several proceedings to which Solutia is a party
or to which Monsanto is a party and for which Solutia assumed any
liabilities.

ANNISTON, ALABAMA CASES

    On November 15, 1993, Monsanto was named as a defendant in Dyer, et al.
v. Monsanto Company, et al., filed in Circuit Court in St. Clair County,
Alabama, the first of a number of lawsuits in which plaintiffs claim to
have sustained personal injuries or property damage as a result of the
alleged release of polychlorinated biphenyls ("PCBs") and other materials
from its Anniston, Alabama plant site. The following matters are currently
pending or have been resolved as follows:

    (1) Monsanto was one of a number of defendants in two actions,
        one pending in Circuit Court for Talladega County, Alabama,
        the other, in Circuit Court for St. Clair County, Alabama,
        brought on behalf of 107 plaintiffs who are owners of
        property along waterways near the Anniston plant. Plaintiffs
        allege fear of toxic contamination, mental and emotional
        distress, increased risk of disease and fear of cancer as
        well as diminished value of their properties. Plaintiffs in
        these cases opted out of the Dyer case referenced above, a
        certified class of property owners along waterways near the
        Anniston plant. That class action, which was pending in
        Circuit Court for St. Clair County, Alabama, was settled in
        1999. On November 15, 2001, an agreement to settle these
        opt-out cases was reached.

    (2) Monsanto is a defendant in one additional action brought in
        Circuit Court in Shelby County, Alabama on behalf of a
        purported class of property owners farther downstream along
        waterways near the plant. Plaintiffs seek compensatory and
        punitive damages in an unspecified amount for an alleged
        increased risk of physical injury or illness, emotional
        distress caused by fear of future injury or illness, medical
        monitoring and diminishment in the value of their properties
        and their riparian rights. On October 5, 1999, the trial
        court granted Solutia's motion for summary judgment, holding
        that plaintiffs had, in an action not involving Monsanto or
        Solutia, recovered for the damages they claim in this
        action. In addition, the court found that plaintiffs' claims
        were barred by the statute of limitations. Plaintiffs timely
        filed their appeal with the Alabama Supreme Court. On May 4,
        2001, the Alabama Supreme Court

                                 8

<PAGE>
<PAGE>
        issued an opinion affirming in part and reversing in part the order
        of the trial court. The Alabama Supreme Court held that summary
        judgment was properly granted with respect to claims relating to the
        period up to the date of settlement of the previous action. However,
        the Alabama Supreme Court held that plaintiffs were permitted to
        maintain the claims relating to the period from the settlement of
        the prior action until the filing of the instant action.

    (3) Monsanto was the sole defendant in an action in United States
        District Court for the Northern District of Alabama, Hinton vs.
        Monsanto, brought on behalf of a purported class of "[a]ll persons
        who reside, or who at one time did reside, in the areas contaminated
        by the Defendant's Anniston, Alabama plant and were thereby directly
        or indirectly exposed to PCBs." Plaintiffs allege that as a result
        of this exposure, they are at an increased risk of suffering
        personal injuries and seek an injunction mandating medical
        monitoring and funding of a study of the alleged adverse health
        effects of this exposure. On December 27, 2000, the district court
        certified the following question of law to the Alabama Supreme
        Court: "Does a complaint which does not allege any past or present
        personal injury to the plaintiff state a cause of action for medical
        monitoring and study when the plaintiff alleges that he has been
        exposed to hazardous contamination and pollution by the conduct of
        the defendant?" On September 14, 2001, the Alabama Supreme Court
        answered that question in the negative. Finding that under Alabama
        law an injury is required for a cause of action to accrue, the court
        held that in the absence of such injury, no claim exists. On
        October 12, 2001 the district court entered an order dismissing this
        action with prejudice. No appeal was filed, and this matter is
        concluded.

    (4) Monsanto and Solutia were named as defendants in fourteen cases in
        Circuit Court in Calhoun County, Alabama and one case in United
        States District Court for the Northern District of Alabama brought
        on behalf of 3,536 individuals who own or rent homes, own or operate
        businesses, attend churches, or who have otherwise resided or
        visited in neighborhoods near the Anniston plant, and four
        commercial entities which own property near the Anniston plant or
        have conducted business on and near property owned by the plant. One
        of the cases pending in Circuit Court in Calhoun County has been
        brought on behalf of a purported class of all Alabama residents who
        have been exposed to PCBs or other materials allegedly released from
        the Anniston plant. Plaintiffs seek compensatory and punitive
        damages in an unspecified amount or in the amount of $3 million for
        each individual and injunctive relief requiring the Company to
        remove alleged contamination. The individual plaintiffs claim to
        have suffered permanent adverse health effects and fear future
        disease. They assert the need for medical monitoring, diminution in
        the value of their properties in the case of residential and
        commercial property owners and commercial losses in the case of
        business owners. Because of significant pretrial publicity in
        Calhoun County, venue in four of those cases, brought on behalf of
        3,501 plaintiffs, has been transferred to circuit court in Etowah
        County, Alabama. These four cases, sometimes referred to as
        Abernathy vs. Monsanto or Bowie vs. Monsanto, have been consolidated
        for trial. Because of the number of plaintiffs in the consolidated
        action, trial is proceeding in phases. Sixteen individual plaintiffs
        and one business entity were selected by plaintiffs to participate
        in a "Phase I" trial, which began with jury selection on January 7,
        2002. On February 22, 2002, the jury returned a verdict finding
        defendants liable on six legal theories: negligence, wantonness,
        suppression, nuisance, trespass and outrage. We anticipate that the
        issue of compensatory damages for the seventeen Phase I plaintiffs
        will be submitted to the jury on March 5, 2002, and that the jury's
        verdict will be sealed. On February 25, 2002, the court asked the
        jury to determine whether the circumstances in Anniston constitute a
        public nuisance. The jury answered that question in the affirmative.
        On February 26, 2002, the Attorney General of Alabama and the
        district attorneys of Calhoun, Shelby, St. Clair and Talladega
        Counties filed a motion to intervene in this case. The Attorney
        General and the district attorneys are seeking an order directing
        defendants to fund an investigation of the extent of the impact of
        PCBs in those counties, and setting a schedule and procedures for a
        cleanup. On February 28, 2002, the Alabama Department of
        Environmental Management intervened in this action, to assure that
        decisions reached by the court have a sound scientific basis. Venue
        in two additional cases brought of behalf of four plaintiffs in
        Calhoun County has been transferred to circuit court in Jefferson
        County, Alabama. Venue in one additional action brought on behalf of
        two plaintiffs in Calhoun County has been transferred to circuit
        court in Dekalb County, Alabama.

    (5) Monsanto and Solutia were named as defendants in a case filed in
        United States District Court for the Northern District of Alabama on
        behalf of a total of 1,116 plaintiffs, who claimed to be "minor
        children or persons under the age of twenty-one years" who resided
        in "poor areas" near the Anniston plant. Plaintiffs allege they were
        exposed to PCBs and suffer from unspecified physical injuries and
        emotional distress. This case is sometimes referred to as Tolbert
        vs. Monsanto. They seek compensatory and punitive damages in
        unspecified amounts and request medical testing, monitoring and
        treatment, as well as unspecified injunctive relief. On January 28,
        2002, plaintiffs filed an amended complaint that added approximately
        14,000 plaintiffs, bringing the total number of plaintiffs in this
        case to approximately 15,000. Approximately 2,000 of the 14,000
        newly-added plaintiffs had previously been plaintiffs in a case
        filed against Monsanto and Solutia in United States District Court
        for the Northern District of Mississippi on July 24, 2001. That
        action was voluntarily dismissed by plaintiffs on December 11, 2001.
        Plaintiffs in the dismissed Mississippi action claimed to be parents
        or other relatives of the 1,116 plaintiffs in the action in the
        Northern District of Alabama.

    (6) Monsanto and Solutia were named as defendants in an action brought
        in Circuit Court for Calhoun County, Alabama on behalf of a
        purported class of owners of property upon which was deposited soil
        allegedly contaminated with PCBs and taken from the site of

                                 9

<PAGE>
<PAGE>
        a nearby commercial development. In July 2001 plaintiffs advised
        Solutia and the court that they had withdrawn their class action
        allegations. On November 19, 2001, agreement to settle this matter
        was reached.

Solutia believes that there are meritorious defenses to all these
matters, including lack of any physical injury or property damage to
plaintiffs, lack of any imminent or substantial endangerment to
health or the environment and lack of negligence or improper conduct
on the part of Monsanto or Solutia. Solutia also believes that many
of the claims in these cases are barred by the decision of the
Alabama Supreme Court in the Hinton case described above. Solutia is
vigorously defending these actions.

PENNDOT CASE

    Monsanto is one of several defendants added on February 7, 1997,
to Pennsylvania Department of General Services, et al. v. United
States Mineral Products Company, et al., a case then pending in the
Commonwealth Court of Pennsylvania. This action was originally filed
against United States Mineral Products Company in 1990 by the
Commonwealth of Pennsylvania, seeking damages caused by the presence
of asbestos fireproofing in the Transportation and Safety Building
("T & S Building"), which was part of the Commonwealth's Capital
Complex in Harrisburg, Pennsylvania. In June 1994 a fire broke out
in the T & S Building. Testing following the fire revealed the
presence of low levels of PCBs at various locations in the building,
which the Commonwealth alleges necessitated its demolition. The
Commonwealth seeks recovery of costs it allegedly incurred in
testing, monitoring, cleanup, demolition and relocation caused
by the alleged contamination. In addition, the Commonwealth seeks
the cost of constructing a new building on the site of the
T & S Building. Trial of this action commenced with the selection
of a jury in April 1999. On August 23, 2000, the jury returned a verdict
of $90 million against Monsanto. The trial court reduced the verdict
to $45 million to account for a settlement reached with the
Commonwealth by a codefendant during trail. Prejudgment interest in
an amount to be determined by the court will be added to the
verdict. Solutia believes that there are meritorious defenses,
including lack of any hazard or danger to occupants of or visitors
to the T & S Building caused by the presence of PCBs; a
determination by the Pennsylvania Department of Health that the
building was safe for use and occupancy; the failure of the
Commonwealth to act prudently following the fire to mitigate its
alleged damages; the impropriety of using replacement cost as a
measure of damages; and the fact that most of plaintiffs' damages
would have been incurred during the removal of asbestos fireproofing
and the installation of fire sprinklers required to comply with the
1987 Harrisburg Fire Safety Code, and thus cannot be attributed to
the presence of PCBs. Solutia will vigorously pursue its post-trial
and appellate remedies.

OTHER CASES

    Solutia was named as the defendant in Fluor Daniel Corporation
v. Solutia Inc., filed on February 8, 2001, in United States
District Court for the Southern District of Texas, Galveston
Division. Fluor Daniel Corporation ("Fluor") was the main contractor
for construction of a new acrylonitrile manufacturing facility
located at our Chocolate Bayou, Texas facility. Fluor seeks damages
of approximately $65 million to $70 million based on allegations of
delays/disruption in the construction schedule, change orders, and
entitlement to a bonus under contract provisions. Solutia has
asserted a counterclaim against Fluor for approximately $1 million,
based on Fluor's failure to perform according to the plans and
specifications set forth in the contract. Solutia believes it has
meritorious defenses to Fluor's claims, including lack of any
conduct on its part that would constitute disruption or delay, and
Fluor's failure to satisfy contractual requirements for entitlement
to any bonus. Solutia is vigorously defending this matter and
intends to pursue its counterclaim.

    On December 4, 1998, the U.S. Environmental Protection Agency ("EPA")
issued a notice of violation to Solutia, Monsanto and P4 Production,
L.L.C., alleging violations of the Wyoming Environmental Quality Act, the
Wyoming Air Quality Standards & Regulations and a permit issued in 1994
by the Wyoming Department of Environmental Quality to Sweetwater Resources,
Inc., a former subsidiary of Monsanto, for a coal coking facility in
Rock Springs, Wyoming. This facility is currently owned by P4 Production,
a joint venture formed in conjunction with the spinoff of Solutia by
Monsanto, which Pharmacia Corporation now both operates and controls.
Despite the sale of substantially all of Solutia's interest in this joint
venture, we continue to be a party to this litigation. On November 22,
1999, the United States, on behalf of the EPA, demanded $2.5 million
from P4 Production, Solutia and Monsanto as well as injunctive relief
ensuring compliance with the permit requirements. On January 18, 2000,
P4 Production, Solutia and Monsanto filed a complaint for declaratory relief
in the United States District Court for the District of Wyoming against
the EPA. The companies are seeking a determination that the action the
EPA is threatening against them is precluded by the doctrine of res judicata,
among other things, since the issues are the same matters that were
resolved by a June 25, 1999, consent decree between the three companies
and the State of Wyoming. On May 5, 2000, the United States filed its
memorandum in opposition to the companies' motion for summary judgment and
its cross-motion for summary judgment against the companies. Oral argument
on the merits of these motions occurred on June 7, 2000.

RISK MANAGEMENT

    We have evaluated risk retention and insurance levels for
product liability, property damage and other potential areas of
risk. We will continue to devote significant effort to maintaining
and improving safety and internal control programs, which reduce our
exposure to certain risks. We actively participate in the safety and
health Voluntary Protection Program ("VPP") administered by the
Occupational

                                 10

<PAGE>
<PAGE>
Safety and Health Administration ("OSHA") for sites in the United
States, and implemented by Solutia for sites outside the United
States. Currently, ten of our U.S. sites qualify for the OSHA VPP
"Star" designation, a rating designating full compliance. Three of
our ex-U.S. sites, two in Europe and one in Canada, have achieved
the Solutia "Star" designation, which is an internal equivalent to
the OSHA designation.

    Our management decides the amount of insurance coverage to
purchase from unaffiliated companies and the appropriate amount of
risk to retain and/or co-insure based on the cost and availability
of insurance and the likelihood of a loss. Management believes that
the levels of risk that Solutia has retained are consistent with
those of other companies in the chemical industry. There can be no
assurance that we will not incur losses beyond the limits, or
outside the coverage, of our insurance. Solutia does not expect its
consolidated financial position, profitability and liquidity to be
affected materially by the levels of risk retention that it accepts.

ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.

    We did not submit any matters to our security holders during the
fourth quarter of 2001.

                                   PART II

ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER
        MATTERS.

    Our stock is traded principally on the New York Stock Exchange
under the Symbol "SOI."

    The following table shows the high and low sales prices for each
quarter during 2001 and 2000 as reported in the New York Stock
Exchange Composite Transactions.

<TABLE>
<CAPTION>
              2001                      High         Low                          2000                       High         Low
---------------------------------      ------       ------         -----------------------------------      ------       ------
<S>                                    <C>          <C>            <C>                                      <C>          <C>
First Quarter....................      $14.85       $12.06         First Quarter......................      $17.19       $11.63
Second Quarter...................       15.07        12.03         Second Quarter.....................       15.56        11.25
Third Quarter....................       14.14        11.25         Third Quarter......................       15.69        10.38
Fourth Quarter...................       14.28        11.71         Fourth Quarter.....................       13.00        10.88
</TABLE>

    On February 25, 2002, we had 34,367 registered shareholders.

    The declaration and payment of dividends is made at the
discretion of our board of directors. The board's current policy is
to pay cash dividends on an annual basis in December. The annual
dividend paid in 2000 and 2001 was $0.04. We anticipate that the
current four-cent annual dividend will remain unchanged for the
foreseeable future.

                                 11

<PAGE>
<PAGE>
ITEM 6. SELECTED FINANCIAL DATA.

<TABLE>
FINANCIAL SUMMARY

(Dollars in millions, except per share amounts)

<CAPTION>
                                                                2001          2000          1999          1998          1997
OPERATING RESULTS:                                             -------       -------       -------       -------       -------
<S>                                                            <C>           <C>           <C>           <C>           <C>
NET SALES................................................      $ 2,817       $ 3,185       $ 2,830       $ 2,835       $ 2,969
GROSS PROFIT.............................................          429           486           652           750           653
    As percent of net sales..............................           15%           15%           23%           26%           22%
MARKETING, ADMINISTRATIVE, AND TECHNOLOGICAL EXPENSES....          401           429           355           364           363
    As percent of net sales..............................           14%           13%           13%           13%           12%
AMORTIZATION EXPENSE.....................................           34            33             3            --            --
OPERATING INCOME (LOSS)(1)...............................           (6)           24           294           386           290
    As percent of net sales..............................           --             1%           10%           14%           10%
INCOME (LOSS) BEFORE INCOME TAXES........................          (77)           41           303           375           290
NET INCOME (LOSS)(2).....................................          (59)           49           206           249           192
    As percent of net sales..............................           (2)%           2%            7%            9%            6%
SHARE DATA:
BASIC EARNINGS (LOSS) PER SHARE..........................      $ (0.57)      $  0.46       $  1.86       $  2.16       $  1.63
DILUTED EARNINGS (LOSS) PER SHARE........................        (0.57)         0.46          1.80          2.03          1.55
DIVIDENDS PER SHARE......................................         0.04          0.04          0.04          0.04          0.01
COMMON STOCK PRICE:
    HIGH.................................................        15.07         17.19         26.31         32.00         27.75
    LOW..................................................        11.25         10.38         13.50         18.69         18.69
    CLOSE................................................        14.02         12.00         15.44         22.38         26.69
PRICE/EARNINGS RATIO ON YEAR-END STOCK PRICE.............          (25)           26             9            11            17
NUMBER OF REGISTERED SHAREHOLDERS........................       34,668        36,703        39,171        41,864        57,894
YEAR-END SHARES OUTSTANDING (IN MILLIONS)................        104.5         102.9         109.5         112.8         117.4
SHARES REPURCHASED (IN MILLIONS).........................           --           7.7           3.8           6.2           1.6
AVERAGE DAILY TRADING VOLUME
  (IN THOUSANDS).........................................          358           518           458           401         1,053
OTHER DATA:
INTEREST EXPENSE(3)......................................      $    90       $    83       $    40       $    43       $    41
INCOME TAXES (BENEFIT)...................................          (18)           (8)           97           126            98
DEPRECIATION AND AMORTIZATION............................          184           191           151           147           145
TOTAL ASSETS.............................................        3,408         3,581         3,770         2,765         2,768
CAPITAL EXPENDITURES.....................................           94           221           257           158           165
LONG-TERM DEBT...........................................          627           784           802           597           597
EMPLOYEES (YEAR-END).....................................        9,170        10,200        10,600         8,700         8,800

<FN>
---------
(1)     Operating income (loss) includes restructuring charges and other items of $78 million in 2001, $158 million
        in 2000, $61 million in 1999, $1 million in 1998 and $84 million in 1997.

(2)     Net income (loss) includes restructuring charges and other items of $79 million, or $0.76 per share in 2001,
        $74 million, or $0.68 per share in 2000, $38 million, or $0.33 per share in 1999, $1 million, or $0.01 per
        share in 1998 and $53 million, or $0.43 per share, in 1997.

(3)     Monsanto used a centralized approach to cash management and the financing of its operations. As a result,
        cash and cash equivalents and debt were not allocated to Solutia in the historical financial statements.
        Interest expense was allocated to Solutia in its 1997 consolidated financial statements to reflect Solutia's
        pro rata share of the financing structure of Monsanto.
</TABLE>

    See Management's Discussion and Analysis of Financial Condition
and Results of Operations and Financial Condition and Liquidity
under Item 7 for more information.

                                 12

<PAGE>
<PAGE>
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
        RESULTS OF OPERATIONS.

    The following discussion and analysis should be read in
conjunction with the consolidated financial statements and related
notes thereto included in Item 8 of this Form 10-K.

OVERVIEW

    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, including ALFTALAT(R)   Nylon intermediate "building block"
                                       polyester resins, RESIMENE(R) and             chemicals
KEEPSAFE(R), SAFLEX INSIDE(R)          MAPRENAL(R) crosslinkers, SYNTHACRYL(R)
  (in Europe only) and KEEPSAFE        acrylic resins and GELVA(R)
  MAXIMUM(R) glass for residential     pressure-sensitive adhesives
  security and hurricane protection
  windows

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

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

    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 can be directly
attributable to the segment profit/(loss). 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. See
Note 17 to the Consolidated Financial Statements for further
information.

CRITICAL ACCOUNTING POLICIES AND ESTIMATES

    The preparation of financial statements in conformity with
accounting principles generally accepted in the United States of
America requires management to make estimates and assumptions in
certain circumstances that affect amounts reported in the
accompanying consolidated financial statements and related
footnotes. In preparing these financial statements, management has
made its best estimates of certain amounts included in the financial
statements. However, application of these accounting policies
involves the exercise of judgment and use of assumptions as to
future uncertainties and, as a result, actual results could differ
from these estimates. (Solutia's significant accounting policies are
more fully described in Note 1 to the consolidated financial
statements.)

  ENVIRONMENTAL REMEDIATION

    Costs for remediation of waste disposal sites are accrued in the
accounting period in which the obligation is probable and when the
cost is reasonably estimable. Postclosure costs for hazardous and
other waste facilities at operating locations are accrued over the
estimated life of the facility as part of its anticipated closure
cost. Environmental liabilities are not discounted, and they have
not been reduced for any claims for recoveries from insurance or
third parties. In those cases where insurance carriers or
third-party indemnitors have agreed to pay any amounts and
management believes that collectability of such amounts is probable,
the amounts are reflected as receivables in the consolidated
financial statements.

  SELF-INSURANCE

    Solutia maintains self-insurance reserves to cover its estimated
future legal costs and settlements related to workers' compensation,
product, general, auto and operations liability claims that are less
than policy deductible amounts or not covered by insurance. The
Company also has purchased commercial insurance in order to reduce
its exposure to such claims. Self-insured losses are accrued based
upon estimates of the aggregate liability for uninsured claims
incurred using certain actuarial assumptions followed in the
insurance industry and the Company's historical experience.

                                 13

<PAGE>
<PAGE>
  INCOME TAXES

    Solutia accounts for income taxes using the asset and liability
method. Under this method, deferred tax assets and liabilities are
recognized for the future tax consequences of temporary differences
between the carrying amounts and tax bases of assets and liabilities
at enacted rates. Solutia records a valuation allowance to reduce
its deferred tax assets to the amount that is more likely than not
to be realized. While Solutia has considered future taxable income
and ongoing prudent and feasible tax planning strategies in
assessing the need for the valuation allowance, in the event Solutia
were to determine that it would be able to realize its deferred tax
assets in the future in excess of its net recorded amount, an
adjustment to the deferred tax asset would increase income in the
period such determination was made. Likewise, should Solutia
determine that it would not be able to realize all or part of its
net deferred tax asset in the future, an adjustment to the deferred
tax asset would be charged to income in the period such
determination was made.

  IMPAIRMENT OF LONG-LIVED ASSETS

    Impairment tests of long-lived assets are made when conditions
indicate a possible loss. Impairment tests are based on a comparison
of undiscounted cash flows to the recorded value of the asset. If an
impairment is indicated, the asset value is written down to its fair
value based upon market prices or, if not available, upon discounted
cash value, at an appropriate discount rate.

<TABLE>
RESULTS OF OPERATIONS

<CAPTION>
                                                                   2001         2000         1999
(dollars in millions)                                             ------       ------       ------
<S>                                                               <C>          <C>          <C>
Net Sales...................................................      $2,817       $3,185       $2,830
                                                                  ======       ======       ======
Operating Income/(Loss).....................................      $   (6)      $   24       $  294
                                                                  ======       ======       ======
    Charges included in Operating Income/(Loss).............      $  (78)      $ (158)      $  (61)
                                                                  ======       ======       ======
</TABLE>

    Solutia's net sales for 2001 of $2.817 billion were 12 percent
lower than 2000 net sales of $3.185 billion and slightly lower than
1999 net sales of $2.830 billion. A number of events affect the
comparability of 2001 results with those in 2000 and 1999. These
events include the acquisitions of the Vianova Resins Group in
December 1999, CarboGen Holdings AG in February 2000 and AMCIS AG in
March 2000. In addition, Solutia contributed its Phosphorus
Derivatives business to the Astaris joint venture in April 2000 and
sold its Polymer Modifiers business in August 2000. Excluding the
sales associated with the Phosphorus Derivatives and Polymer
Modifiers businesses, net sales for 2001 were down 7 percent from
the comparable period of 2000. The net sales decrease reflected
lower volumes, lower average selling prices and unfavorable currency
exchange rate fluctuations. After adjustments for acquisitions and
divestitures, net sales for 2000 increased 3 percent over net sales
in 1999. The increase reflected higher average selling prices,
partially offset by unfavorable currency exchange rate fluctuations
and lower volumes.

    The operating loss for the year ended December 31, 2001 was
$6 million, compared to 2000 operating income of $24 million and
1999 operating income of $294 million. As indicated in the preceding
table, operating results for each year were affected by various
charges, which are described in greater detail in the following
sections. Excluding the effects of the charges in both 2001 and
2000, the 2001 decline in operating income was primarily caused by
the impact of lower net sales, partially offset by lower raw
material and energy costs and lower administrative and technological
expenses. The decrease in administrative and technological expenses
can be attributed principally to lower personnel costs resulting
from restructuring activities during 2001. Operating income in 2000
decreased 49 percent from operating income in 1999 when charges are
excluded from both years. The decline in 2000 operating income
versus operating income in 1999 was caused by higher raw material
and energy costs that resulted from the sharp increase in
petrochemical and natural gas prices. In addition, higher marketing,
administrative, technological and amortization expenses associated
with acquisitions and the integration of newly acquired companies,
along with spending on growth programs, contributed to the operating
income decline.

<TABLE>
  PERFORMANCE FILMS


<CAPTION>
                                                                  2001       2000       1999
(dollars in millions)                                             ----       ----       ----
<S>                                                               <C>        <C>        <C>
Net Sales...................................................      $591       $692       $669
                                                                  ====       ====       ====
Segment Profit..............................................      $ 61       $106       $126
                                                                  ====       ====       ====
</TABLE>

    Net sales for Performance Films were $591 million in 2001,
compared with $692 million in 2000 and $669 million in 1999. The
15 percent decrease in 2001 net sales over 2000 principally resulted
from the loss of sales from the divestiture of the Polymer Modifiers
business. Excluding the Polymer Modifiers business, net sales
decreased 2 percent from the comparable prior year period. Net sales
were negatively affected by unfavorable currency exchange rate
fluctuations due to the devaluation of the euro and Japanese yen in
relation to the U.S.

                                 14

<PAGE>
<PAGE>
dollar. Also, to a lesser extent, businesses in this segment
achieved lower average selling prices than those of the year-ago
period due to competitive pricing pressures. Sales volumes increased
over the prior-year period because of increased demand for SAFLEX(R)
plastic interlayer products by European and Asian automotive glass
manufacturers and European architectural glass laminators. Partially
offsetting the increases in sales volumes were decreased demand by
North American automotive glass manufacturers and lower specialty
films sales into the electronic display market.

    The Performance Films segment's net sales for 2000 increased
3 percent over 1999 net sales because of the full year's effect of
the CPFilms acquisition and higher volumes in the SAFLEX(R) plastic
interlayer business, partially offset by the loss of sales from the
Polymer Modifiers business and unfavorable currency exchange
movements. Excluding CPFilms and the Polymer Modifiers businesses,
2000 net sales were up slightly from 1999 net sales. Higher
year-over-year volumes in the SAFLEX(R) plastic interlayer business
were driven primarily from increased demand by North American and
European automotive glass manufacturers. Also, to a lesser extent,
businesses in this segment achieved higher average selling prices
than those of the 1999 period. Offsetting the increases in sales
volumes and average selling prices were unfavorable currency
exchange movements due to the devaluation of the euro in relation to
the U.S. dollar.

    Segment profit was $61 million in 2001, versus $106 million in
2000 and $126 million in 1999. The 42 percent decrease in 2001
segment profit compared with 2000 resulted from the loss of income
associated with the sale of the Polymer Modifier business,
unfavorable manufacturing costs primarily associated with production
cutbacks to control inventory, lower selling prices, the impact of
unfavorable currency exchange rate fluctuations and increased
marketing and technological costs associated with growth programs.
This decrease was partially offset by the impact of increased sales
volumes and lower personnel expense associated with restructuring
activities. The 16 percent decrease in 2000 segment profit compared
with 1999 primarily resulted from higher marketing, administrative,
technological and amortization expenses associated with the
acquisition and integration of CPFilms and other growth programs,
increased raw material costs in the SAFLEX(R) plastic interlayer
business and the loss of sales from the divestment of the Polymer
Modifiers business.

<TABLE>
  SPECIALTY PRODUCTS

<CAPTION>
                                                                  2001        2000        1999
(dollars in millions)                                             ----       ------       ----
<S>                                                               <C>        <C>          <C>
Net Sales...................................................      $918       $1,004       $760
                                                                  ====       ======       ====
Segment Profit..............................................      $ 77       $   32       $119
                                                                  ====       ======       ====
    Net (Charges)/Gains included in Segment Profit..........      $ 25       $  (23)      $ --
                                                                  ====       ======       ====
</TABLE>

    Solutia's Specialty Products segment had net sales of
$918 million in 2001, compared with $1.004 billion in 2000 and
$760 million in 1999. The 9 percent decrease in 2001 net sales over
2000 was primarily due to the contribution of the Phosphorus
Derivatives business to the Astaris joint venture. Excluding the
contribution of the Phosphorus Derivatives business, net sales
decreased by 1 percent principally due to lower sales volumes in the
Resins and Additives business because of decreased demand by
European customers and unfavorable currency exchange movements
resulting from the devaluation of the euro in relation to the U.S.
dollar. Partially offsetting these decreases were higher average
selling prices in the Resins and Additives business and a full year
of net sales from the Pharmaceutical Services businesses.

    The 32 percent increase in 2000 net sales over 1999 was due to
the acquisitions of Vianova Resins, CarboGen and AMCIS, partially
offset by the impact of contributing the Phosphorus Derivatives
business to the Astaris joint venture. Excluding the effects of the
acquisitions and the loss of sales associated with the Phosphorous
Derivatives business, net sales declined by 6 percent. Net sales
decreased primarily due to unfavorable currency exchange movements
associated with the devaluation of the euro in relation to the U.S.
dollar, and to a lesser extent, the loss of sales from the Scriptset
line of business which was sold in August 1999.

    Specialty Products' segment profit was $77 million in 2001,
compared with $32 million in 2000 and $119 million in 1999. Segment
profit for 2001 included a fourth quarter charge of $3 million
($2 million aftertax, or $0.02 per share) associated with the
termination of a former CarboGen owner and a first quarter gain from
an insurance settlement of $28 million ($17 million aftertax, or
$0.16 per share) associated with the explosion and fire that
destroyed the Vianova printing inks and phenolics production
facility in Wiesbaden, Germany. Segment profit for 2000 included an
impairment charge of $15 million ($10 million aftertax, or $0.09 per
share) incurred during the fourth quarter to write down
chlorobenzenes' production equipment and a restructuring charge of
$8 million ($5 million aftertax, or $0.05 per share) incurred during
the second quarter related to exiting operations at the Port
Plastics site in Addyston, Ohio. Excluding these items, 2001 segment
profit decreased 5 percent from 2000 due to the loss of income
associated with the Phosphorus Derivatives business, as well as
lower sales volumes and higher raw material costs for the Resins and
Additives business, partially offset by increased profitability
in Pharmaceutical Services. Segment profit in 2000 decreased
73 percent from 1999 profit levels. However, excluding the
2000 charges described above, segment profit in 2000 decreased
54 percent from the prior year primarily because of the loss of
income from the Phosphorus Derivatives business, and higher
marketing, administrative, technological and amortization expenses
associated with the acquisition and integration of Vianova Resins,
CarboGen, and AMCIS.

                                 15

<PAGE>
<PAGE>
<TABLE>
  INTEGRATED NYLON

<CAPTION>
                                                                   2001         2000         1999
(dollars in millions)                                             ------       ------       ------
<S>                                                               <C>          <C>          <C>
Net Sales...................................................      $1,308       $1,490       $1,407
                                                                  ======       ======       ======
Segment Profit/(Loss).......................................      $   11       $  (29)      $  161
                                                                  ======       ======       ======
    Charges included in Segment Profit/(Loss)...............      $  (12)      $ (105)      $  (34)
                                                                  ======       ======       ======
</TABLE>

    Solutia's Integrated Nylon segment had net sales in 2001 of
$1.308 billion, compared with $1.490 billion in 2000 and $1.407 billion
in 1999. The 12 percent decrease in 2001 sales occurred in almost all
businesses in this segment as both volumes and average selling prices
declined. The effects of a slowing U.S. economy had an unfavorable impact
on the Integrated Nylon segment. With the exception of intermediate
chemicals, significant volume declines occurred in all of the segment's
businesses. Carpet fiber sales volumes decreased as carpet mills
continued to manage inventory levels in response to lower retail demand.
Decreased sales volumes of nylon plastics and polymers resulted from
lower shipments of VYDYNE(R) nylon molding resins to Dow Plastics because
of the slowdown in the U.S. automotive industry, and lower global demand
for textile polymers. Sales volumes for nylon industrial products
decreased because of the slowdown in the U.S. automotive industry. Sales
volumes for acrylic fibers decreased in the U.S. because of the slowing
U.S. economy. The effects of lower segment sales were partially offset by
higher sales volumes of merchant acrylonitrile sales to Asian and
European customers. Price decreases in intermediate chemicals were
primarily attributable to contract business with formula pricing tied to
raw material costs. Price decreases in the remaining businesses were due
to competitive pricing pressures.

    The 6 percent increase in this segment's 2000 net sales compared
to 1999 net sales was attributable to the effect of higher average
selling prices in each of the segment's businesses, partially offset
by volume declines in the carpet fiber and nylon plastics and
polymer businesses. The majority of the segment's price increases
were in the carpet fiber and intermediates businesses, and to a
lesser extent, the ACRILAN(R) acrylic fiber business. Considerable
pricing actions were taken in the carpet business during 2000 in
response to rapid raw material and energy cost increases. Price
increases in the intermediates business were primarily attributable
to contract business with formula pricing tied to raw material
costs. ACRILAN(R) acrylic fiber products experienced higher average
selling prices in the export markets because of the economic
recovery in the Asia Pacific region. Despite the increases in
average selling prices, Solutia offset only approximately
40 percent of the raw material cost increases. Carpet fiber sales
volumes decreased in the second half of 2000 as carpet mills reduced
inventory levels in response to lower retail demand. Decreased sales
volumes in the nylon plastics and polymer business resulted from
lower shipments of VYDYNE(R) nylon molding resins to Dow Plastics
and lower demand for textile polymers principally because of the
bankruptcy of a Taiwanese textile polymer customer.

    The Integrated Nylon segment's profit was $11 million in 2001,
compared to a loss of $29 million in 2000 and profit of $161 million in
1999. Segment profitability in 2001 was negatively impacted by charges of
$12 million ($8 million aftertax, or $0.07 per share) incurred during the
fourth quarter to write down certain notes and receivables primarily from
textile fiber customers who have experienced financial difficulties as a
result of the current economic downturn. In addition, the charges
included the write off of certain non-performing assets. Segment
profitability in 2000 was negatively affected by charges of $14 million
($8 million aftertax, or $0.07 per share) to write down certain Asian
investments based upon indicators that the loss in their values was
permanent and $5 million ($3 million aftertax, or $0.03 per share) to
accrue for debt payments under certain loan guarantees associated with
one of the investments incurred during the second quarter, impairment
charges of $76 million ($47 million aftertax, or $0.44 per share) to
write down certain non-performing and non-strategic fiber spinning,
drawing and packaging equipment which supports several of Integrated
Nylon's product lines, and a charge of $10 million ($6 million aftertax,
or $0.06 per share) primarily to reserve for advances and working capital
loans to an Asian equity affiliate incurred during the fourth quarter.
Excluding these items, segment profit for 2001 decreased 70 percent over
2000. The decline resulted primarily from lower net sales in the segment,
higher energy prices and unfavorable manufacturing variances associated
with lower capacity utilization rates. Lower raw material costs and lower
personnel expense associated with restructuring activities partially
offset the decline in segment profit. Low Integrated Nylon sales volumes
will continue to adversely affect profitability over the near term. In
addition to increased energy costs and decreased sales volumes, segment
profitability was also negatively affected by the temporary shutdown of
the Chocolate Bayou Intermediates facility in February 2001 as a result
of a power outage.

    Segment profitability in 2000 declined 118 percent from 1999
levels. However, profitability for both years includes charges that
affect comparability. As previously described, segment profitability
for 2000 includes charges of $105 million ($64 million aftertax, or
$0.60 per share) primarily for asset impairments and write downs.
Segment profitability in 1999 includes a restructuring charge of
$28 million ($18 million aftertax, or $0.16 per share) to exit the
ammonia business and an impairment charge of $6 million ($4 million
aftertax, or $0.03 per share) to write down a bulk continuous
filament spinning machine incurred in the first quarter of 1999.
Excluding these charges in both years, segment profitability in 2000
declined 61 percent. This decline resulted primarily from higher raw
material and energy costs associated with the sharp increase in
petrochemical and natural gas prices throughout 2000. The cost of
propylene, a major feedstock for the segment, increased more than
60 percent over 1999 levels. The cost of cyclohexane, another major
feedstock for the segment, increased

                                 16

<PAGE>
<PAGE>
more than 30 percent over 1999 levels. The cost of natural gas,
which is used as an energy source and also affects the cost of
various raw materials within the segment, increased approximately
80 percent over the year-ago period.

    Under a marketing alliance between Solutia and Dow Plastics, a
business unit of The Dow Chemical Company, Dow markets Solutia's
VYDYNE(R) nylon 6,6 molding resins for injection molding
applications worldwide. On March 1, 2002, Solutia and Dow Plastics
signed a formal agreement to end the marketing alliance. Following a
transition period, Solutia will resume marketing responsibilities
for the nylon molding resins business. The financial impact is not
expected to be material to Solutia's consolidated financial
statements.

<TABLE>
  OPERATING INCOME (LOSS)

<CAPTION>
                                                                  2001        2000        1999
(dollars in millions)                                             ----        -----       ----
<S>                                                              <C>         <C>         <C>
Operating Income/(Loss).....................................      $ (6)       $  24       $294
                                                                  ====        =====       ====
    Charges included in Operating Income/(Loss).............      $(78)       $(158)      $(61)
                                                                  ====        =====       ====
</TABLE>

    Solutia had an operating loss of $6 million in 2001, compared
with operating income of $24 million in 2000 and $294 million in
1999. The decline in operating income since 1999 was primarily the
result of lower segment profit; however, operating income (loss) was
also affected by various charges in all years.

    During the fourth quarter of 2001, Solutia reached agreements with
various state and federal agencies having enforcement authority on the
nature, timing and extent of certain environmental remediation
obligations. As a result, the 2001 operating loss included a fourth
quarter charge of $34 million ($21 million aftertax, or $0.20 per share)
to cost of goods sold to increase environmental reserves. In addition,
Solutia modified its estimates of the aggregate liability for uninsured
product liability claims based upon certain actuarial assumptions and
historical experience. As a result, the 2001 operating loss included a
fourth quarter charge of $20 million ($13 million aftertax, or $0.13 per
share) to cost of goods sold to increase self-insurance reserves. Solutia
also recorded a loss contingency during the fourth quarter of 2001 of
$3 million ($2 million aftertax, or $0.02 per share) to administrative
expenses due to certain unoccupied leased office space.

    As more fully described in the preceding sections, the 2001
operating loss also reflects fourth quarter charges of $9 million
($6 million aftertax, or $0.06 per share) to write down certain
notes primarily associated with textile fiber customers in the
Integrated Nylon segment and $3 million ($2 million aftertax, or
$0.02 per share) for employee termination costs incurred in the
Specialty Products segment.

    During 2001, Solutia reduced its workforce by approximately
700 positions and eliminated more than 750 contractor positions. While
savings from the restructuring program are difficult to estimate,
given the nature of the activities, the corollary benefits achieved
and the timing of the actions taken, the best estimate of the
savings realized during 2001 from Solutia's restructuring actions
was approximately $60 million. These savings were primarily
reflected in cost of goods sold. Solutia expects to receive
approximately $100 million in cumulative savings during 2002 as
compared with 2000, primarily reflected in cost of goods sold, from
reduced employee and contractor expenses. Cash outlays associated
with the restructuring actions were funded from operations.
Approximately 90 percent of the workforce reductions affected North
American business and manufacturing operations, and approximately
10 percent affected European, Asian and Latin American operations
and sales offices. Management positions represented approximately
one-third of the workforce reductions. During the fourth quarter of
2001, Solutia determined that the original provision taken for its
2001 restructuring program was insufficient to cover its total
costs. Actual costs to terminate certain European and North American
management employees and certain employee benefit costs for
involuntary terminations were higher than the original estimates.
As a result, Solutia recorded additional restructuring charges of
$9 million ($6 million aftertax, or $0.06 per share) to cost of
goods sold to cover these higher costs. The restructuring actions
contemplated by this reserve were completed by the end of 2001.
Certain severance payments owed to individuals terminated late in
the fourth quarter of 2001 have been included in accrued liabilities
and will be paid in their entirety during the first quarter of 2002.

    During the first half of 2001, Solutia reduced its workforce by
approximately 70 positions under the Vianova integration plan,
incurring cash outlays associated with its restructuring actions of
approximately $8 million. As a result of these actions, Solutia
realized approximately $3 million in savings during 2001, primarily
reflected in cost of goods sold, from reduced employee expense.

    During the fourth quarter of 2000, Solutia recorded restructuring
charges of $53 million ($33 million aftertax, or $0.31 per share) to cost
of goods sold for costs associated with workforce reductions and the
closure of certain non-strategic facilities. The restructuring was part
of an enterprise-wide cost reduction initiative that was targeted to
achieve $100 million in annual savings. The closure of non-strategic
facilities is not anticipated to have a significant impact on future
operations. The results of this restructuring action were described
previously in this section.

    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
operations at the Port Plastics site in Addyston, Ohio. Solutia
recorded a restructuring charge in the Specialty Products segment of
$8 million ($5 million aftertax, or $0.05 per share) to cost of
goods sold during the second quarter of 2000. The financial impact
will not be material to Solutia as production

                                 17

<PAGE>
<PAGE>
will be shifted to other production facilities. During the second
quarter of 2000, Solutia also recorded an impairment charge of
$6 million ($4 million aftertax, or $0.04 per share) to
administrative expenses for the write down of capitalized software
costs related to the formation of the Astaris joint venture.

    During the fourth quarter of 2000, Solutia recorded to cost of
goods sold impairment charges of $76 million ($47 million aftertax,
or $0.44 per share) primarily to write down certain non-performing
and non-strategic fiber spinning, drawing and packaging equipment
which supports several of Integrated Nylon's product lines. Solutia
also recorded an impairment charge to cost of goods sold in the
Specialty Products segment of $15 million ($10 million aftertax, or
$0.09 per share) for the write down of chlorobenzenes' production
equipment. The impairments were indicated by current period
operating losses and projections of continued losses primarily
because of the noncompetitive cost positions these businesses have
and the competitive market conditions that they face. The carrying
values of the assets were written down as determined by discounting
expected future cash flows, using an appropriate discount rate. The
assumptions used in the cash flow projections were not materially
different from the market conditions experienced in 2000. These
conditions are not expected to improve significantly in the
foreseeable future. The cash flow assumptions included declining
demand and market share combined with decreased operating margins.
Lower operating margins reflect the non-competitive cost position of
these businesses and the impact of lower selling prices associated
with an extremely competitive operating environment. Annual
depreciation charges associated with these assets of approximately
$10 million will no longer be reflected in cost of goods sold.
Solutia will continue to operate these assets as they contribute to
the recovery of fixed costs.

    See Notes 3 and 4 to the Consolidated Financial Statements for
additional information regarding Solutia's restructuring activities
and asset impairments.

    Operating income in 2001 declined $30 million from 2000 levels.
However, when the charges described above are excluded from the
results in each year, operating income declined $110 million. This
decline was caused primarily by the impact of lower net sales,
partially offset by lower raw material and energy costs and lower
administrative and technological expenses. The decrease in
administrative and technological expenses can be attributed
principally to lower personnel costs resulting from restructuring
activities during 2001.

    During February 1999, certain equipment critical to Solutia's
ammonia production process failed. After analyzing the economics of
purchased ammonia versus the cost to repair the equipment, Solutia
decided to exit the ammonia business. A $28 million ($18 million
aftertax, or $0.16 per share) charge to cost of goods sold in the
Integrated Nylon segment was recorded in the first quarter to
complete the exit plan. The charge included $2 million to write down
the assets to their fair value of approximately $4 million,
$4 million of dismantling costs, and $22 million of estimated costs
for which Solutia is contractually obligated under an operating
agreement. The contractually obligated costs represented an estimate
of the direct manufacturing, overhead and utilities that Solutia was
required to pay to a third-party operator during a 36-month
termination period. Ammonia business net sales were $1 million in
1999. Operating income for that period was minimal. During the first
quarter of 2000, Solutia entered into an agreement for the
dismantling of those assets by a third-party and as a result,
transferred the liability for dismantling to the third-party. During
the third quarter of 2000, Solutia reached an agreement with the
plant operator for the final settlement of the contractually
obligated costs. As a result, Solutia transferred the liability for
the contractually obligated costs to accrued liabilities.

    During the first quarter of 1999, an impairment charge of
$6 million ($4 million aftertax, or $0.03 per share) was recorded to
cost of goods sold in the Integrated Nylon segment primarily to
write down a bulk continuous filament spinning machine that was shut
down due to a noncompetitive cost position. The adjusted carrying
value of the machine is $0.5 million. The charge resulted from a
Statement of Financial Accounting Standards (SFAS) No. 121,
"Accounting for the Impairment of Long-Lived Assets and Assets to Be
Disposed Of" review, which indicated that the carrying amount of the
assets exceeded the identifiable, undiscounted cash flows related to
the assets. Fair value of the assets was determined based on
estimates of market prices for the machinery. Operating income
derived from the machinery was minimal for the year ended
December 31, 1999.

    During the first quarter of 1999, Solutia also recorded a
$29 million ($18 million aftertax, or $0.16 per share) charge to
cost of goods sold related to the anticipated settlement of two
lawsuits concerning the alleged discharge of polychlorinated
biphenyls (PCBs) from the Anniston, Alabama, plant site. During the
third quarter of 2000, Solutia paid approximately $23 million for
the settlement of these actions. The remainder of the reserve was
established to cover costs associated with environmental remediation
of the allegedly affected areas.

    During the fourth quarter of 1999, Solutia reversed excess
restructuring reserves due to the completion of the actions at a
lower cost than the 1996 restructuring plan contemplated. A reversal
of $1 million ($1 million aftertax, or $0.01 per share) was made to
eliminate a reserve for headcount reductions after the final stage
of headcount reductions was carried out. A second reversal of
$1 million ($1 million aftertax, or $0.01 per share) was made to
eliminate a reserve recorded to shutdown a non-strategic facility
after that shutdown was completed at a lower cost.

    Operating income in 2000 decreased $270 million from its level
in 1999. However, when the charges described above are excluded from
the results in each year, operating income declined $173 million
from the prior year. This decrease was principally caused by higher
raw

                                 18

<PAGE>
<PAGE>
material and energy costs that resulted from the sharp increase in
petrochemical and natural gas prices. The remainder of the decline
resulted from higher marketing, administrative, technological and
amortization expenses associated with the acquisition and
integration of newly acquired companies and other growth programs.

<TABLE>
  EQUITY EARNINGS (LOSS) FROM AFFILIATES
<CAPTION>
                                                                  2001       2000       1999
(dollars in millions)                                             ----       ----       ----
<S>                                                               <C>        <C>        <C>
Equity Earnings/(Loss) from Affiliates......................      $(13)      $ 35       $36
                                                                  ====       ====       ===
    Charges included in Equity Earnings/(Loss) from
      Affiliates............................................      $(41)      $(15)      $--
                                                                  ====       ====       ===
</TABLE>

    Equity loss from affiliates totaled $13 million in 2001. This
compares to equity earnings from affiliates of $35 million in 2000
and $36 million in 1999. Equity earnings (loss) from affiliates were
affected by various charges in 2001 and 2000. During the fourth
quarter of 2001, the Astaris joint venture recorded charges
associated with the closure of its elemental phosphorus production
facility in Pocatello, Idaho. Solutia's share of these charges was
approximately $37 million ($37 million aftertax, or $0.35 per
share). Also, during the fourth quarter of 2001, the Flexsys joint
venture recorded charges associated with the closure of its 4NDPA
facility in Newport, Wales. Solutia's share of these charges was
approximately $4 million ($4 million aftertax, or $0.04 per share).
During the second quarter of 2000, Flexsys recorded charges
associated with the closure and impairment of certain manufacturing
operations in the United Kingdom. Solutia's share of these charges
was $13 million ($13 million aftertax, or $0.12 per share). In
addition, Astaris recorded charges during the second quarter of 2000
related to the closure of certain of its production facilities.
Solutia's share of these charges was approximately $2 million
($2 million aftertax, or $0.02 per share). Excluding these charges,
equity earnings from affiliates in 2001 decreased because of lower
earnings from the Astaris joint venture primarily resulting from
higher raw material costs. In addition, lower sales volumes at the
Advanced Elastomer Systems and Flexsys joint ventures contributed to
lower earnings.

    The slight decrease in 2000 equity earnings over 1999 was
primarily the result of charges recorded by the Flexsys and Astaris
joint ventures during the second quarter of 2000. Excluding these
charges, equity earnings from affiliates increased primarily because
of the formation and startup of the Astaris joint venture in
April 2000 and improved sales volumes at the Flexsys and Advanced
Elastomer Systems joint ventures.

  SALE OF POLYMER MODIFIERS BUSINESS

    In August 2000, Solutia completed the sale of its Polymer
Modifiers business and related manufacturing facilities to
Ferro Corporation for approximately $130 million. As a result of
this transaction, Solutia recognized a $73 million pretax gain
($46 million aftertax, or $0.43 per share). Solutia's results of
operations included net sales of approximately $90 million in 2000
and $145 million in 1999, and operating income of approximately
$16 million in 2000 and $36 million in 1999, from the Polymer
Modifiers business.

<TABLE>
  OTHER INCOME (EXPENSE)--NET
<CAPTION>
                                                                  2001       2000       1999
(dollars in millions)                                             ----       ----       ----
<S>                                                               <C>        <C>        <C>
Other Income (Expense)--Net.................................      $32        $ (8)      $13
                                                                  ===        ====       ===
    Net (Charges)/Gains included in Other Income
      (Expense)--Net........................................      $20        $(22)      $--
                                                                  ===        ====       ===
</TABLE>

    Other income in 2001 was $32 million. This compares to other expense in
2000 of $8 million and other income in 1999 of $13 million. However, 2001
and 2000 were affected by various gains and charges. During the fourth
quarter of 2001, Solutia recorded charges of $5 million ($3 million
aftertax, or $0.03 per share) to write down an e-commerce investment to its
fair value based upon indicators that the loss in its value was permanent
and $3 million ($2 million aftertax, or $0.02 per share) in the Integrated
Nylon segment to write off certain non-performing assets. During the first
quarter of 2001, Solutia recorded in the Specialty Products segment a
$28 million gain ($17 million aftertax, or $0.16 per share) from an insurance
settlement. During the fourth quarter of 2000, Solutia recorded in the
Integrated Nylon segment a charge of $10 million ($6 million aftertax, or
$0.06 per share) to reserve for advances and working capital loans to an
Asian equity affiliate. During the second quarter of 2000, Solutia recorded
in the Integrated Nylon segment charges of $14 million ($8 million aftertax,
or $0.07 per share) to write down Asian investments based upon indicators
that the loss in their values was permanent, $5 million ($3 million
aftertax, or $0.03 per share) to accrue for debt payments under certain loan
guarantees associated with one of the Asian equity investments, $8 million
($5 million aftertax, or $0.05 per share) associated with the startup and
formation of the Astaris joint venture and a $15 million gain ($9 million
aftertax, or $0.08 per share) resulting from the sale of substantially all
of Solutia's 40 percent interest in P4 Production L.L.C., a phosphorus
manufacturing venture. Excluding these gains and charges from both periods,
other income for 2001 was $12 million compared to other income of
$14 million in 2000.

                                 19

<PAGE>
<PAGE>
  INCOME TAXES

    In July 2000, Germany reduced its corporate tax rate effective
January 1, 2001. In accordance with SFAS No. 109, "Accounting for
Income Taxes," Solutia recognized income of $7 million to income
taxes to record the net effect of the change on deferred income tax
assets and liabilities during the third quarter of 2000. Other items
reducing Solutia's overall effective tax rate include effective tax
planning strategies and a greater percentage of after-tax equity
earnings from affiliates in pretax operating income.

  SUMMARY OF EVENTS AFFECTING COMPARABILITY

    Charges recorded in 2001, 2000 and 1999 and other events
affecting comparability have been summarized in the tables below
(dollars in millions).

<TABLE>
<CAPTION>
                                                                                      2001
                                                 ------------------------------------------------------------------------------
                                                 Performance       Specialty       Integrated       Corporate/        Consoli-
            Increase/(Decrease)                     Films          Products          Nylon            Other            dated
            -------------------                  -----------       ---------       ----------       ----------       ----------
<S>                                              <C>               <C>             <C>              <C>              <C>
Cost of goods sold.........................                           $ 2                                            $  2   (a)
                                                                                                         54            54   (f)
                                                                                                          9             9   (g)
                                                     ---              ---             ---              ----          ----
Total cost of goods sold...................           --                2              --                63            65
Marketing, administrative, technological
  and amortization expenses................                             1                                               1   (a)
                                                                                        9                               9   (c)
                                                                                                          3             3   (h)
                                                     ---              ---             ---              ----          ----
OPERATING INCOME (LOSS)....................           --               (3)             (9)              (66)          (78)
Equity earnings (loss) from affiliates.....                                                             (37)          (37)  (d)
                                                                                                         (4)           (4)  (e)
Other income (expense).....................                            28                                              28   (b)
                                                                                       (3)                             (3)  (c)
                                                                                                         (5)           (5)  (i)
                                                     ---              ---             ---              ----          ----
INCOME (LOSS) BEFORE INCOME TAXES..........           --               25             (12)             (112)          (99)
                                                     ===              ===             ===              ====
Income taxes (benefit).....................                                                                           (20)
                                                                                                                     ----
NET INCOME (LOSS)..........................                                                                          $(79)
                                                                                                                     ====

<FN>
---------
  2001 CHARGES AND OTHER EVENTS


(a)     Charges recorded in the Specialty Products segment related to the termination of a former CarboGen owner
        ($3 million pretax, $2 million aftertax, or $0.02 per share).

(b)     A gain recorded in the Specialty Products segment 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, or $0.16 per share).

(c)     Charges recorded in the Integrated Nylon segment to write down certain notes, primarily from textile fiber
        customers, and to write down certain non-performing assets ($12 million pretax, $8 million aftertax, or
        $0.07 per share).

(d)     Charges for the closure of Astaris' elemental phosphorus production facility in Pocatello, Idaho
        ($37 million pretax, $37 million aftertax, or $0.35 per share).

(e)     Charges for the closure of Flexsys' 4NDPA manufacturing facility in Newport, Wales ($4 million pretax,
        $4 million aftertax, or $0.04 per share).

(f)     Charges to increase environmental and self-insurance reserves ($54 million pretax, $34 million aftertax, or
        $0.33 per share).

(g)     Additional severance charges recorded to cover cost overruns associated with the 2001 restructuring program
        ($9 million pretax, $6 million aftertax, or $0.06 per share).

(h)     A loss contingency due to certain unoccupied leased office space ($3 million pretax, $2 million aftertax, or
        $0.02 per share).

(i)     A charge to write down the value of an e-commerce investment based upon indicators that the loss in its value
        was permanent ($5 million pretax, $3 million aftertax, or $0.03 per share).


                                 20

<PAGE>
<PAGE>

<CAPTION>
                                                                                     2000
                                                -------------------------------------------------------------------------------
                                                Performance       Specialty       Integrated       Corporate/        Consoli-
           Increase/(Decrease)                     Films          Products          Nylon            Other             dated
           -------------------                  -----------       ---------       ----------       ----------       -----------
<S>                                             <C>               <C>             <C>              <C>              <C>
Cost of goods sold........................                          $  8                                            $   8   (j)
                                                                      15                                               15   (k)
                                                                                                       53              53   (l)
                                                                                       76                              76   (m)
                                                    ---             ----             ----             ---           -----
Total cost of goods sold..................           --               23               76              53             152
Marketing, administrative, technological
  and amortization expenses...............                                                              6               6   (p)
                                                    ---             ----             ----             ---           -----
OPERATING INCOME (LOSS)...................           --              (23)             (76)            (59)           (158)
Equity earnings (loss) from affiliates....                                                             (2)             (2)  (p)
                                                                                                      (13)            (13)  (q)
Gain on sale of Polymer Modifiers
  business................................                                                             73              73   (r)
Other income (expense)....................                                                             (8)             (8)  (p)
                                                                                                       15              15   (s)
                                                                                      (14)                            (14)  (n)
                                                                                       (5)                             (5)  (n)
                                                                                      (10)                            (10)  (o)
                                                    ---             ----             ----             ---           -----
INCOME (LOSS) BEFORE INCOME TAXES.........           --              (23)            (105)              6            (122)
                                                    ===             ====             ====             ===
Income taxes (benefit)....................                                                                            (48)  (t)
                                                                                                                    -----
NET INCOME (LOSS).........................                                                                          $ (74)
                                                                                                                    =====
<FN>
---------
  2000 CHARGES AND OTHER EVENTS


(j)     Restructuring charges recorded in the Specialty Products segment related to exiting operations at the
        Port Plastics site in Addyston, Ohio ($8 million pretax, $5 million aftertax, or $0.05 per share).

(k)     Impairment charges recorded in the Specialty Products segment to write down chlorobenzenes' production assets
        ($15 million pretax, $10 million aftertax, or $0.09 per share).

(l)     Restructuring charges for workforce reductions of approximately 700 people across all world areas and
        functions of the Company and the closure of certain non-strategic facilities ($53 million pretax, $33 million
        aftertax, or $0.31 per share).

(m)     Impairment charges recorded in the Integrated Nylon segment to write down certain non-performing and
        non-strategic production assets ($76 million pretax, $47 million aftertax, or $0.44 per share).

(n)     Charges recorded in the Integrated Nylon segment to write down certain investments in Asia based upon
        indicators that the loss in their values was permanent ($14 million pretax, $8 million aftertax, or
        $0.07 per share) and to accrue for payment of debt obligations associated with one of the investments
        ($5 million pretax, $3 million aftertax, or $0.03 per share).

(o)     Charges recorded in the Integrated Nylon segment to primarily reserve for advances and working capital loans
        to an Asian equity affiliate ($10 million pretax, $6 million aftertax, or $0.06 per share).

(p)     Charges related to the formation and startup of the Astaris joint venture ($16 million pretax, $11 million
        aftertax, or $0.10 per share).

(q)     Charges associated with the impairment and closure of certain manufacturing operations in the United Kingdom
        for the Flexsys joint venture ($13 million pretax, $13 million aftertax, or $0.12 per share).

(r)     A gain on the sale of the Polymer Modifiers business and related manufacturing facilities ($73 million
        pretax, $46 million aftertax, or $0.43 per share).

(s)     A gain on the sale of P4 Production L.L.C., a phosphorus manufacturing venture ($15 million pretax,
        $9 million aftertax, or $0.08 per share).

(t)     Amount represents the tax effect of the charges and other events affecting comparability. Included in this
        line is the impact of a $7 million (or $0.07 per share) reduction in income tax expense for changes in the
        German tax rates.

                                 21

<PAGE>
<PAGE>

<CAPTION>
                                                                                      1999
                                                 ------------------------------------------------------------------------------
                                                 Performance       Specialty       Integrated       Corporate/        Consoli-
            Increase/(Decrease)                     Films          Products          Nylon            Other            dated
            -------------------                  -----------       ---------       ----------       ----------       ----------
<S>                                              <C>               <C>             <C>              <C>              <C>
Cost of goods sold.........................                                           $ 34                           $ 34   (u)
                                                                                                         29            29   (v)
                                                                                                         (2)           (2)  (w)
                                                     ---              ---             ----             ----          ----
Total cost of goods sold...................           --               --               34               27            61
Marketing, administrative, technological
  and amortization expenses................                                                                            --
                                                     ---              ---             ----             ----          ----
OPERATING INCOME (LOSS)....................           --               --              (34)             (27)          (61)
Equity earnings (loss) from affiliates.....                                                                            --
Other income (expense).....................                                                                            --
                                                     ---              ---             ----             ----          ----
INCOME (LOSS) BEFORE INCOME TAXES..........           --               --              (34)             (27)          (61)
                                                     ===              ===             ====             ====
Income taxes (benefit).....................                                                                           (23)
                                                                                                                     ----
NET INCOME (LOSS)..........................                                                                          $(38)
                                                                                                                     ====
<FN>
---------
  1999 CHARGES AND OTHER EVENTS


(u)     Charges related to exiting Integrated Nylon's ammonia business and for the write down of an Integrated Nylon
        segment bulk continuous filament spinning machine ($34 million pretax, $22 million aftertax, or
        $0.19 per share).

(v)     A charge for the anticipated settlement of certain pending property claims litigation related to the
        Anniston, Alabama plant site ($29 million pretax, $18 million aftertax, or $0.16 per share).

(w)     Reversal of excess restructuring reserves related to headcount reductions and facilities closures
        ($2 million pretax, $2 million aftertax, or $0.02 per share).
</TABLE>

  OUTLOOK AND ECONOMIC CONDITIONS

    Solutia is affected by economic conditions, particularly those
in the domestic housing industry and global automotive and textile
industries. Each of these industries is cyclical. A general
weakening of the economy in the United States impacted consumer
demand in these marketplaces which negatively affected Solutia's
sales volumes in the latter half of 2000 and throughout 2001.

    During 2001, Solutia began to see relief on many of its
feedstock raw material and energy costs as the price of crude oil
decreased to more normal levels. However, consumer demand for
products fell more rapidly than did the costs of the materials used
to produce the products. Therefore, selling prices eroded and
Solutia was unable to capture the full benefit of declining raw
material and energy costs. In 2002, Solutia expects to benefit from
more normalized raw material and energy costs, reduced employee and
contractor expenses resulting from the 2001 restructuring actions,
disciplined capital and growth spending and stabilized manufacturing
operating rates.

FINANCIAL CONDITION AND LIQUIDITY

    Solutia's debt obligations include borrowings against the
$800 million, five-year revolving credit facility ($800 million
facility) with a syndicate of commercial banks, notes and
debentures. The weighted average interest rate on total debt
outstanding at December 31, 2001, was 6.1 percent and was
6.7 percent at December 31, 2000.

    At December 31, 2001, debt maturing in one year consisted of
borrowings of $533 million from the $800 million facility and
$150 million of 6.5 percent notes due in October of 2002. Weighted
average interest rates on borrowings from the $800 million facility
were 4.5 percent during 2001. Weighted average interest rates on
commercial paper balances were 6.6 percent during 2000 and
5.5 percent in 1999. The $800 million facility is available for
working capital, commercial paper support and other general
corporate purposes.

    The $800 million facility contains various covenants that, among
other things, restrict Solutia's ability to merge with another
entity and require Solutia to meet certain leverage and interest
coverage ratios. During the first quarter of 2001, Solutia completed
an amendment of the $800 million facility that modified the
financial covenants. A 60-day waiver of the financial covenants was
received on September 17, 2001, for the third quarter of 2001.
Without the waiver, Solutia would not have been in compliance with
the leverage coverage ratio. In November 2001, Solutia terminated
the $250 million credit facility and completed an amendment of the
$800 million facility that modified financial covenants and
collateralized borrowings. Four domestic subsidiaries are guarantors
of the amended facility. Borrowings under the amended facility are
secured by liens on Solutia's inventory and receivables and those of
our material domestic subsidiaries and one foreign subsidiary,
pledges of 65 percent of the voting stock of two foreign
subsidiaries and a lien on specified principal properties. The
aggregate amount of Solutia's obligations entitled to the benefit of
the lien on specified properties will not exceed $236 million.
Solutia does not anticipate that future borrowings will be
significantly limited by the terms of these amendments.

                                 22

<PAGE>
<PAGE>
    On August 24, 2001, Standard & Poor's lowered our commercial paper
rating to A-3 from A-2 and revised its outlook on Solutia to negative
from stable. On October 26, 2001, Standard & Poor's affirmed our
senior unsecured credit facility at BBB and maintained a negative
outlook. On November 16, 2001, Moody's changed our senior unsecured
debt rating to Baa3 from Baa2. Moody's also lowered our commercial
paper rating to P-3 from P-2. On January 3, 2002, Fitch lowered our
senior unsecured rating to BBB-, affirmed our commercial paper rating
at F-3 and assigned a negative outlook. On February 4, 2002, Moody's
changed our senior unsecured debt rating to Ba1 from Baa3, secured
credit facility to Baa3 from Baa2 and our commercial paper from P-3 to
not prime. On February 27, 2002, Fitch lowered our senior secured debt
rating to BB+ from BBB, senior unsecured debt rating to BB from BBB-
and short-term rating to B from F-3. On March 1, 2002, Standard &
Poor's lowered our long-term corporate credit, senior unsecured and
bank loan ratings to BBB- from BBB and affirmed our A-3 short-term
corporate credit and commercial paper ratings. As a result of these
changes in Solutia's commercial paper ratings, Solutia has been unable
to issue commercial paper. Consequently, outstanding commercial paper
during 2001 has been refinanced with borrowings against the $800 million
facility. Solutia pays higher interest rates on the borrowings against
the $800 million facility than on commercial paper.

    The $800 million credit facility expires in August of 2002 and
$150 million of 6.5 percent notes mature in October of 2002. Solutia
plans to refinance the $800 million facility with a combination of
unsecured long-term notes, a secured term loan and a revolving
credit facility. Interest rates will be commensurate with Solutia's
credit rating. Interest expense is anticipated to be in the range of
$105 million to $110 million in 2002. Proceeds of the refinancing
will be used to repay outstanding borrowings under the $800 million
facility and $150 million of 6.5 percent notes and for other general
corporate purposes. The refinancing is expected to be completed in
the first half of 2002. Inability to complete this refinancing or a
similar financing vehicle prior to August 2002 would have a material
adverse affect on Solutia's liquidity.

    On April 14, 2001, Solutia reached an agreement to settle the
claims brought by 1,596 plaintiffs in one of the actions pending in
the U.S. District Court for the Northern District of Alabama. The
settlement did not have a material adverse effect on Solutia's
consolidated financial position, liquidity or profitability.

    In January 2002, Solutia signed an agreement to sell 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 $100 million. The sale is
expected to close during the first quarter of 2002 and result in a
modest gain. Solutia will use the net sales proceeds to pay down
debt.

    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 expires in August 2002. Solutia expects to
exercise its option to purchase the co-generation facility from the
trust for approximately $32 million with proceeds from the
anticipated refinancing during 2002.

    During February 2000, Solutia completed the issuance of
EUR 200 million ($196 million) of notes, due February 2005.
Proceeds from the notes were used primarily to refinance outstanding
commercial paper, and also for general corporate purposes.

    In February 2000, Solutia acquired CarboGen Holdings, AG, a
leading process research and development firm serving the global
pharmaceutical industry. In March 2000, Solutia purchased AMCIS AG,
a company serving the global pharmaceutical industry by developing
production processes and by manufacturing active ingredients for
clinical trials and small-volume commercial drugs. The combined
purchase price for these acquisitions was approximately
$118 million, which was financed with commercial paper and the
assumption of debt. During August 2000, Solutia received
approximately $130 million of proceeds associated with the sale of
its Polymer Modifiers business and related manufacturing facilities.
Also during August 2000, Solutia received $85 million from its
50 percent-owned Astaris joint venture that represented a cash
distribution and repayment of working capital loans.

    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. During
2001, Solutia contributed $31 million to the joint venture under
this agreement. Solutia anticipates that a contribution of up to
$25 million will be required in 2002. Solutia believes that this
obligation is not likely to have a significant impact on its
consolidated financial position, liquidity or profitability.

    Solutia's working capital at December 31, 2001, decreased to
negative $495 million from negative $334 million at December 31,
2000. The decrease in the working capital position primarily
resulted from the impact of recession-like economic conditions
experienced in the United States during 2001 and the classification
in short-term debt of $150 million notes due in October of 2002 that
was previously reported as long-term debt in 2000.

    Cash from operations was $44 million in 2001 as compared to
$244 million in 2000. The decrease was primarily attributable to
lower net earnings associated with recession-like economic
conditions experienced in the United States during 2001.

                                 23

<PAGE>
<PAGE>
    Capital expenditures for 2001 were $94 million. These
expenditures were used to fund various cost reduction, maintenance
and Pharmaceutical Services capacity expansion projects. The Company
expects that its capital requirements will be in the range of
$75 million to $100 million in 2002, principally for Pharmaceutical
Services capacity expansion, maintenance and cost reduction
projects. Approximately $8 million of 2002 estimated capital
requirements were committed at December 31, 2001.

    Solutia had a shareholders' deficit of $113 million at
December 31, 2001, which compares with a shareholders' deficit
of $34 million at December 31, 2000. This $79 million decline was
principally caused by the 2001 net loss and the currency translation
adjustment, principally related to the decline in value of the euro
included in accumulated other comprehensive income (loss).

    During 2000, Solutia repurchased 7.7 million shares of its
common stock at a cost of $106 million. On April 26, 2000, the
Board of Directors authorized the repurchase of up to 15 million
additional shares of Solutia common stock. Under this authorization,
Solutia has the authority to repurchase an additional 12.1 million
shares of its common stock. Solutia has currently suspended this
program and has not repurchased any shares since October 2000.

    Solutia believes that its cash flow from operations, available
borrowing capacity under the $800 million facility and the
anticipated refinancing provide sufficient resources to finance its
operations and planned capital needs for the next 12 months.

    The following tables summarize Solutia's contractual obligations
and commercial commitments as of December 31, 2001, excluding post
retirement and post employment obligations (dollars in millions).

<TABLE>
<CAPTION>
                                                                                   Payments Due by Period
                                                             ------------------------------------------------------------------
                                                                                                                      2007 and
                Contractual Obligations                      Total        2002       2003-2004       2005-2006       thereafter
                -----------------------                      ------       ----       ---------       ---------       ----------
<S>                                                          <C>          <C>        <C>             <C>             <C>
$800 million Credit Facility...........................      $  533       $533         $ --            $ --             $ --
Long-Term Debt.........................................         777        150          150             177              300
Capital Lease Obligations..............................           3          1            1               1               --
Operating Leases.......................................         120         20           29              23               48
Unconditional Purchase Obligations.....................          82          8           12              10               52
Other Obligations(a)...................................         187         50           59              46               32
                                                             ------       ----         ----            ----             ----
Total Contractual Cash Obligations.....................      $1,702       $762         $251            $257             $432
                                                             ======       ====         ====            ====             ====

<FN>
---------
(a)     Represents severance payments associated with December 31, 2001, contractual obligations and estimates of
        expenditures related to environmental remediation liabilities as of December 31, 2001. For 2007 and
        thereafter, estimated expenditures related to environmental remediation activities cannot be determined with
        any degree of certainty.

<CAPTION>
                                                                               Amount of Commitment Expiration Per Period
                                                            Total         -----------------------------------------------------
                                                           Amounts                                                    2007 and
            Other Commercial Commitments                  Committed       2002       2003-2004       2005-2006       thereafter
            ----------------------------                  ---------       ----       ---------       ---------       ----------
<S>                                                       <C>             <C>        <C>             <C>             <C>
Standby Letters of Credit...........................        $ 65          $ 65          $--             $--             $ --
Guarantees..........................................           9             5            3              --                1
Other Commercial Commitments(b).....................         232            69           24              24              115
                                                            ----          ----          ---             ---             ----
Total Commercial Commitments........................        $306          $139          $27             $24             $116
                                                            ====          ====          ===             ===             ====

<FN>
---------
(b)     Other commercial commitments in 2002 represent estimates of anticipated cash contributions to the Astaris
        joint venture, exercise of the purchase option for the co-generation facility at Pensacola, Florida, and
        agreements with customers to supply a guaranteed quantity of certain products annually at prices specified in
        the agreements. For 2003 and thereafter, other commercial commitments represent agreements with customers to
        supply a guaranteed quantity of certain products annually at prices specified in the agreements.
</TABLE>

ENVIRONMENTAL MATTERS

    Solutia continues its strong commitment to comply with laws and
government regulations concerning environmental matters and employee
safety and health in the United States and other countries. U.S.
environmental legislation that has a particular impact on the Company
includes the Toxic Substances Control Act; the Resource Conservation
and Recovery Act; the Clean Air Act; the Clean Water Act; the Safe
Drinking Water Act; and the Comprehensive Environmental Response,
Compensation and Liability Act (commonly known as Superfund). The
Company is also subject to the Occupational Safety and Health Act and
regulations of the Occupational Safety and Health Administration
("OSHA") concerning employee safety and health matters. The U.S.
Environmental Protection Agency, OSHA and other federal agencies have
the authority to promulgate regulations that have an impact on the
Company's operations. In addition to these federal activities, various
states have been delegated certain authority under several of these
federal statutes. Many state and local

                                 24

<PAGE>
<PAGE>
governments have adopted environmental and employee safety and health
laws and regulations, many of which meet federal requirements for
delegation of federal mandates to state entities. State or federal
agencies having lead enforcement authority may seek fines and
penalties for violation of these laws and regulations.

    Solutia is dedicated to long-term environmental protection and
compliance programs that reduce and monitor emissions of hazardous
materials into the environment as well as to the remediation of
identified existing environmental concerns. Solutia is among the
leaders in Responsible Care, the chemical industry's
performance-enhancement program.

    Expenditures in 2001 were approximately $7 million for
environmental capital projects and approximately $122 million for
the management of environmental programs, including the operation
and maintenance of facilities for environmental control, of which
$40 million was charged against recorded environmental liabilities.
Solutia estimates that a total of approximately $26 million will be
spent during 2002 and 2003 on additional capital projects for
environmental protection and that expenses for the management of
environmental programs in 2002 and 2003 will decrease slightly from
the 2001 levels.

    With respect to environmental remediation obligations, our
policy is to accrue costs for remediation of contaminated sites in
the accounting period in which the obligation becomes probable and
the cost is reasonably estimable. Significant adjustments to these
obligations resulted in the 2001 fourth quarter charges of
$34 million ($22 million aftertax, or $0.21 per share) to increase
the Company's environmental reserves. This action was required in
order to reflect revised estimates for changed circumstances
relating to the ultimate outcome of previously known environmental
matters. These revised estimates were based upon agreements
completed with environmental authorities and the availability of new
information from recently completed environmental studies. These
events and activities help to better define and quantify the
Company's ultimate liability for these matters.

    At the time of the spinoff, Solutia assumed liabilities related
to specified Superfund proceedings from the former Monsanto Company
(now Pharmacia Corporation), under the Distribution Agreement
between Monsanto and Solutia. As a result, while Monsanto remains
the named potentially responsible party or defendant for actions
that occurred before September 1, 1997, Solutia manages these
proceedings and litigation against Monsanto and indemnify it for any
costs, expenses and judgments arising from these proceedings.

    Solutia's estimates of its liabilities for Superfund sites are
based on evaluations of currently available facts with respect to
each individual site and take into consideration factors such as
existing technology, laws and agency policy and prior experience in
remediation of contaminated sites. As assessments and remediation
activities progress at individual sites, these liabilities are
reviewed periodically and adjusted to reflect additional technical,
engineering and legal information that becomes available. Solutia
has an accrued liability of $27 million as of December 31, 2001, for
Superfund sites. Major Superfund sites in this category include the
noncompany-owned sites at Brio and MOTCO in Texas, and Fike/Artel in
West Virginia, which account for $19 million of the accrued amount.
Solutia spent approximately $8 million in 2001 for remediation of
Superfund sites. Similar amounts can be expected in future years.

    Solutia had an accrued liability of $61 million as of
December 31, 2001, for plants no longer in operation and third-party
sites for which it assumed responsibility under the Distribution
Agreement entered into with Monsanto. Solutia's estimate of its
liability related to these sites is based on evaluations of currently
available facts with respect to each individual site. The estimate
takes into consideration factors such as existing technology, laws
and agency policy, and prior experience in remediation of
contaminated sites. The Company spent $16 million in 2001 for
remediation of these sites. Similar amounts can be expected in
future years.

    Solutia had an accrued liability of $85 million as of December 31,
2001, for solid and hazardous waste remediation, and for post-closure
costs at the Company's operating locations. Solutia recognizes certain
post-closure costs over the estimated remaining useful life of the
related facilities. Solutia spent $16 million in 2001 for remediation
of these facilities. Similar amounts can be expected in future years.

    Uncertainties related to all of Solutia's environmental
liabilities include evolving government policy and regulations, the
method and extent of remediation and future changes in technology.
Because of these uncertainties, Solutia estimates that potential
future expenses associated with these liabilities could be an
additional $20 million to $30 million. Although the ultimate costs
and results of remediation of contaminated sites cannot be predicted
with certainty, they are not expected to result in a material
adverse effect on Solutia's consolidated financial position,
liquidity or profitability in any one year.

SELF-INSURANCE

    Solutia maintains self-insurance reserves to cover its estimated
future legal costs and settlements related to workers' compensation,
product, general, auto and operations liability claims that are less
than policy deductible amounts or not covered by insurance. The
Company also has purchased commercial insurance in order to reduce
its exposure to such claims.

    Self-insured losses are accrued based upon estimates of the
aggregate liability for uninsured claims incurred using certain
actuarial assumptions followed in the insurance industry and the
Company's historical experience. The majority of Solutia's
self-insurance reserves

                                 25

<PAGE>
<PAGE>
and a significant portion of its commercial insurance are associated
with estimated product liabilities that Solutia inherited in the
spinoff from Monsanto Company in 1997 and products that are no longer
produced.

    As previously indicated, Solutia recorded a charge in the fourth
quarter of 2001 of $20 million ($13 million aftertax, or $0.13 per
share) to cost of goods sold to increase its self-insurance
reserves. This charge was necessary to bring the aggregate
self-insurance liability to an appropriate balance based upon recent
loss experience and recently updated actuarial assumptions. Cash
payments for self-insured risks were $24 million in 2001,
$50 million in 2000 and $25 million in 1999. Based upon recent
history and current actuarial assumptions, it is expected that
annual cash requirements for self-insurance risks will approximate
the level experienced in 2001 for the foreseeable future.

LEGAL MATTERS

    As discussed in Item 3 to this report, 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, we assumed from the former
Monsanto Company (now Pharmacia Corporation), under an agreement
known as the Distribution Agreement, liabilities related to
specified legal proceedings. As a result, although Monsanto remains
the named defendant, we are required to manage the litigation and
indemnify Monsanto for costs, expenses and judgments arising from
the litigation. While the results of litigation cannot be predicted
with certainty, Solutia does not believe, based upon currently
available facts, that the ultimate resolution of any of these
pending matters will have a material adverse effect on Solutia's
financial position or liquidity in any one year. However, resolution
in those cases involving the alleged discharge of polychlorinated
biphenyls ("PCBs") from the Anniston, Alabama plant site may have a
material adverse effect 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.

DERIVATIVE FINANCIAL INSTRUMENTS

    Solutia's business operations give rise to market risk exposures
that result from changes in currency exchange rates, interest rates
and certain commodity prices. To manage the volatility relating to
these exposures, Solutia enters into various hedging transactions
that enable it to alleviate the adverse effects of financial market
risk. Solutia's hedging transactions are carried out under policies
and procedures approved by the Audit and Finance Committee of the
Board of Directors, which do not permit the purchase or holding of
any derivative financial instruments for trading purposes. Note 5 to
the Consolidated Financial Statements includes a discussion of the
Company's accounting policies for financial instruments.

  FOREIGN CURRENCY EXCHANGE RATE RISK

    Solutia manufactures and sells its products in a number of
countries throughout the world and, as a result, is exposed to
movements in foreign currency exchange rates. Solutia uses foreign
currency hedging instruments to manage the volatility associated
with foreign currency purchases of materials and other assets and
liabilities created in the normal course of business. Solutia
primarily uses forward exchange contracts and purchased options to
hedge these risks with maturities of less than 18 months. Solutia
also enters into certain foreign currency derivative instruments
primarily to protect against exposure related to intercompany
financing transactions. Corporate policy prescribes the range of
allowable hedging activity and the instruments that are permitted
for use. Because the counterparties to these contracts are major
international financing institutions, credit risk arising from these
contracts is not significant, and Solutia does not anticipate any
counterparty losses.

    At December 31, 2001, Solutia had currency forward contracts to
purchase and sell $301 million of currencies, principally the U.S.
dollar, euro, Swiss Franc and United Kingdom Pound-Sterling, with
average maturities of 7 months.

    Based on the Company's overall currency rate exposure at
December 31, 2001, including derivative and other foreign currency
sensitive instruments, a near-term change in currency rates, within
a 95 percent confidence level based on historical currency rate
movements, would not materially affect Solutia's financial
statements.

  INTEREST RATE RISK

    Interest rate risk is primarily related to the changes in fair
value of fixed-rate long-term debt and short-term, floating rate
debt. Solutia believes its current debt structure appropriately
protects the Company from changes in interest rates and is not
actively using any contracts to manage interest rate risk. Based on
the Company's overall interest rate exposure at December 31, 2001, a
near-term change in interest rates, within a 95 percent confidence
level based on historical interest rate movements, would not
materially affect Solutia's financial statements. This is consistent
with the overall interest rate exposure at December 31, 2000.

                                 26

<PAGE>
<PAGE>
  COMMODITY PRICE RISK

    Certain raw materials and energy sources used by Solutia are
subject to price volatility caused by weather, crude oil prices,
supply conditions, political and economic variables and other
unpredictable factors. Solutia periodically uses forward and option
contracts to manage the volatility related to anticipated energy and
raw material purchases.

RECENTLY ISSUED ACCOUNTING STANDARDS

    Effective January 1, 2002, Solutia adopted SFAS No. 141,
"Business Combinations," and SFAS No. 142, "Goodwill and Other
Intangible Assets," which provide guidance related to accounting for
business combinations and goodwill. The adoption of SFAS No. 141 did
not have a material effect on Solutia's financial statements.
Solutia has not completed its evaluation of SFAS No. 142 and,
therefore, has not determined the final impact that the adoption of
this standard will have on its financial position and results of
operations. However, preliminary valuation work indicates that there
is a potential goodwill impairment in the Company's Resins and
Additives business. While the second step of the evaluation process
is yet to be finalized, it is likely that a pretax impairment charge
in the range of $100 million to $200 million will be required. In
addition, the Company expects annual amortization expense will be
reduced by approximately $20 million to $25 million aftertax.

    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.

    Effective January 1, 2002, Solutia adopted SFAS No. 144,
"Accounting for the Impairment or Disposal of Long-Lived Assets,"
which addresses the accounting and reporting for the impairment or
disposal of long-lived assets. The adoption of SFAS No. 144 did not
have a material effect on Solutia's consolidated financial
statements.

ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK.

    The information appearing under "Derivative Financial
Instruments" on page 26 is incorporated here by reference.

ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA.

<TABLE>
FINANCIAL SECTION--TABLE OF CONTENTS

<CAPTION>
                                                               Page
                                                              Number
                                                              ------
<S>                                                           <C>
Management Report...........................................    28

Report of Independent Auditors..............................    28

Statement of Consolidated Income (Loss).....................    29

Statement of Consolidated Comprehensive Income (Loss).......    29

Statement of Consolidated Financial Position................    30

Statement of Consolidated Cash Flow.........................    31

Statement of Consolidated Shareholders' Equity (Deficit)....    32

Notes to Consolidated Financial Statements..................    33
</TABLE>

                                 27

<PAGE>
<PAGE>
                           MANAGEMENT REPORT

    Management is responsible for the integrity, objectivity and
preparation of Solutia Inc.'s consolidated financial statements and
all of the related information appearing in this annual report. The
statements have been prepared in accordance with accounting
principles generally accepted in the United States of America. Where
necessary, this information reflects estimates that are based upon
currently available information and management's judgments.

    Management is also responsible for maintaining a system of
internal accounting controls designed to provide reasonable
assurance that Solutia's assets are safeguarded against material
loss from unauthorized use or disposition and that authorized
transactions are properly recorded to permit the preparation of
accurate financial information. Cost/benefit judgments are an
important consideration in this regard. The effectiveness of
internal controls is maintained by careful personnel selection and
thorough training, division of responsibilities, establishment and
communication of policies and ongoing internal review programs and
audits.

    Management believes that Solutia's system of internal accounting
controls as of and for the period ended December 31, 2001, was
effective and adequate to accomplish the objectives described above.


/s/ John C. Hunter III                         /s/ Robert A. Clausen

John C. Hunter III                             Robert A. Clausen
Chairman, President and                        Senior Vice President and
Chief Executive Officer                        Chief Financial Officer


March 4, 2002

                    REPORT OF INDEPENDENT AUDITORS

To the Shareholders of Solutia Inc.:

    We have audited the accompanying statements of consolidated
financial position of Solutia Inc. and subsidiaries (the Company) as
of December 31, 2001 and 2000, and the related statements of
consolidated income (loss), comprehensive income (loss), cash flow,
and shareholders' equity (deficit) for each of the three years in
the period ended December 31, 2001. Our audits also included the
financial statement schedule listed in the Index at Item 14. These
financial statements and the financial statement schedule are the
responsibility of the Company's management. Our responsibility is to
express an opinion on these financial statements and the financial
statement schedule based on our audits.

    We conducted our audits in accordance with auditing standards
generally accepted in the United States of America. Those standards
require that we plan and perform the audit to obtain reasonable
assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial
statements. An audit also includes assessing the accounting
principles used and significant estimates made by management, as
well as evaluating the overall financial statement presentation. We
believe that our audits provide a reasonable basis for our opinion.

    In our opinion, such consolidated financial statements present
fairly, in all material respects, the financial position of the
Company as of December 31, 2001 and 2000, and the results of its
operations and its cash flows for each of the three years in the
period ended December 31, 2001, in conformity with accounting
principles generally accepted in the United States of America. Also,
in our opinion, such financial statement schedule, when considered
in relation to the basic consolidated financial statements taken as
a whole, presents fairly in all material respects the information
set forth therein.

    As discussed in the notes to the consolidated financial
statements, the Company was required to adopt Statement of Financial
Accounting Standards No. 133, "Accounting for Derivative Instruments
and Hedging Activities," effective January 1, 2001.

/s/ Deloitte & Touche LLP

Deloitte & Touche LLP
St. Louis, Missouri

March 4, 2002

                                 28

<PAGE>
<PAGE>

<TABLE>
                                           SOLUTIA INC.

                              STATEMENT OF CONSOLIDATED INCOME (LOSS)

                          (DOLLARS IN MILLIONS, EXCEPT PER SHARE AMOUNTS)

<CAPTION>
                                                                      Year Ended December 31,
                                                                  --------------------------------
                                                                   2001         2000         1999
                                                                  ------       ------       ------
<S>                                                               <C>          <C>          <C>
NET SALES...................................................      $2,817       $3,185       $2,830
Cost of goods sold..........................................       2,388        2,699        2,178
                                                                  ------       ------       ------
GROSS PROFIT................................................         429          486          652
Marketing expenses..........................................         175          165          153
Administrative expenses.....................................         160          173          122
Technological expenses......................................          66           91           80
Amortization expense........................................          34           33            3
                                                                  ------       ------       ------
OPERATING INCOME (LOSS).....................................          (6)          24          294
Equity earnings (loss) from affiliates--net of tax..........         (13)          35           36
Interest expense............................................         (90)         (83)         (40)
Gain on sale of Polymer Modifiers business..................          --           73           --
Other income (expense)--net.................................          32           (8)          13
                                                                  ------       ------       ------
INCOME (LOSS) BEFORE INCOME TAXES...........................         (77)          41          303
Income taxes (benefit)......................................         (18)          (8)          97
                                                                  ------       ------       ------
NET INCOME (LOSS)...........................................      $  (59)      $   49       $  206
                                                                  ======       ======       ======
BASIC EARNINGS (LOSS) PER SHARE.............................      $(0.57)      $ 0.46       $ 1.86
                                                                  ======       ======       ======
DILUTED EARNINGS (LOSS) PER SHARE...........................      $(0.57)      $ 0.46       $ 1.80
                                                                  ======       ======       ======

Weighted average equivalent shares (in millions):
    Basic...................................................       103.9        105.9        110.8
    Effect of dilutive securities:
        Common share equivalents--common stock issuable upon
        exercise of outstanding stock options...............          --          1.6          3.8
                                                                  ------       ------       ------
    Diluted.................................................       103.9        107.5        114.6
                                                                  ======       ======       ======
</TABLE>

<TABLE>
                    STATEMENT OF CONSOLIDATED COMPREHENSIVE INCOME (LOSS)

                                    (DOLLARS IN MILLIONS)

<CAPTION>
                                                                   Year Ended December 31,
                                                                  --------------------------
                                                                  2001       2000       1999
                                                                  ----       ----       ----
<S>                                                               <C>        <C>        <C>
NET INCOME (LOSS)...........................................      $(59)      $ 49       $206
OTHER COMPREHENSIVE INCOME (LOSS):
Currency translation adjustments............................       (37)       (86)       (44)
Cumulative effect of accounting change, net of tax of $(1)..         2         --         --
Net loss on derivative instruments, net of tax of $2........        (3)        --         --
Minimum pension liability adjustments, net of tax of $(2)
  in 2001, $(4) in 2000, and $2 in 1999.....................         2          7         (4)
                                                                  ----       ----       ----
COMPREHENSIVE INCOME (LOSS).................................      $(95)      $(30)      $158
                                                                  ====       ====       ====

See accompanying Notes to Consolidated Financial Statements.
</TABLE>
                                 29

<PAGE>
<PAGE>

<TABLE>
                                     SOLUTIA INC.

                     STATEMENT OF CONSOLIDATED FINANCIAL POSITION

                   (DOLLARS IN MILLIONS, EXCEPT PER SHARE AMOUNTS)

<CAPTION>
                                                                  As of December 31,
                                                                  -------------------
                                                                   2001         2000
                                                                  ------       ------
<S>                                                               <C>          <C>
                           ASSETS

CURRENT ASSETS:
Cash and cash equivalents...................................      $   23       $   19
Trade receivables, net of allowances of $22 in 2001 and
  $12 in 2000...............................................         352          406
Miscellaneous receivables...................................         105          109
Prepaid expenses............................................          15           17
Deferred income tax benefit.................................         123          107
Inventories.................................................         303          357
                                                                  ------       ------
TOTAL CURRENT ASSETS........................................         921        1,015
PROPERTY, PLANT AND EQUIPMENT:
Land........................................................          58           60
Buildings...................................................         425          421
Machinery and equipment.....................................       3,006        2,982
Construction in progress....................................          51           62
                                                                  ------       ------
Total property, plant and equipment.........................       3,540        3,525
Less accumulated depreciation...............................       2,397        2,320
                                                                  ------       ------
NET PROPERTY, PLANT AND EQUIPMENT...........................       1,143        1,205
INVESTMENTS IN AFFILIATES...................................         313          351
GOODWILL, net of accumulated amortization of $45 in 2001 and
  $24 in 2000...............................................         386          421
IDENTIFIED INTANGIBLE ASSETS, net of accumulated
  amortization of $28 in 2001 and $16 in 2000...............         224          217
LONG-TERM DEFERRED INCOME TAX BENEFIT.......................         254          190
OTHER ASSETS................................................         167          182
                                                                  ------       ------
TOTAL ASSETS................................................      $3,408       $3,581
                                                                  ======       ======

       LIABILITIES AND SHAREHOLDERS' EQUITY (DEFICIT)

CURRENT LIABILITIES:
Accounts payable............................................      $  233       $  359
Wages and benefits..........................................          56           45
Postretirement liabilities..................................          82           78
Miscellaneous accruals......................................         362          373
Short-term debt.............................................         683          494
                                                                  ------       ------
TOTAL CURRENT LIABILITIES...................................       1,416        1,349
LONG-TERM DEBT..............................................         627          784
POSTRETIREMENT LIABILITIES..................................         947          941
OTHER LIABILITIES...........................................         531          541
SHAREHOLDERS' EQUITY (DEFICIT):
Common stock (authorized, 600,000,000 shares,
  par value $0.01)
    Issued: 118,400,635 shares in 2001 and 2000.............           1            1
    Net deficiency of assets at spinoff.....................        (113)        (113)
    Treasury stock, at cost (13,921,604 and
      15,484,194 shares in 2001 and 2000, respectively).....        (257)        (296)
Unearned ESOP shares........................................          (1)          (9)
Accumulated other comprehensive income (loss)...............        (144)        (108)
Reinvested earnings.........................................         401          491
                                                                  ------       ------
TOTAL SHAREHOLDERS' EQUITY (DEFICIT)........................        (113)         (34)
                                                                  ------       ------
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY (DEFICIT)........      $3,408       $3,581
                                                                  ======       ======

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

                                 30

<PAGE>
<PAGE>

<TABLE>
                                           SOLUTIA INC.

                               STATEMENT OF CONSOLIDATED CASH FLOW

                                      (DOLLARS IN MILLIONS)

<CAPTION>
                                                                      Year Ended December 31,
                                                                  -------------------------------
                                                                  2001        2000         1999
                                                                  -----       -----       -------
<S>                                                               <C>         <C>         <C>
INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS
  OPERATING ACTIVITIES:
Net income (loss)...........................................      $ (59)      $  49       $   206
Adjustments to reconcile to Cash From Operations:
    Items that did not use (provide) cash:
        Depreciation and amortization.......................        184         191           151
        Amortization of deferred credits....................        (14)        (12)          (10)
        Restructuring expenses and other unusual items......        127         195            63
        Net pretax gains from asset disposals...............        (36)        (79)           (8)
        Changes in assets and liabilities:
            Income and deferred taxes.......................        (48)        (11)           64
            Trade receivables...............................         47          69           (18)
            Inventories.....................................         57         (18)           42
            Accounts payable................................       (125)         41           (20)
            Other assets and liabilities....................        (89)       (181)         (106)
                                                                  -----       -----       -------
CASH FROM OPERATIONS........................................         44         244           364
                                                                  -----       -----       -------
INVESTING ACTIVITIES:
Property, plant and equipment purchases.....................        (94)       (221)         (257)
Acquisition and investment payments, net of cash acquired...        (35)       (110)         (835)
Property disposals and investment proceeds..................         43         220            30
                                                                  -----       -----       -------
CASH USED IN INVESTING ACTIVITIES...........................        (86)       (111)       (1,062)
                                                                  -----       -----       -------
FINANCING ACTIVITIES:
Net change in short-term debt obligations...................         41         (22)          511
Net change in long-term debt obligations....................         --         (13)          201
Treasury stock purchases....................................         --        (106)          (79)
Dividend payments...........................................         (4)         (4)           (4)
Common stock issued under employee stock plans..............         13           4             8
Other financing activities..................................         (4)         (1)           --
                                                                  -----       -----       -------
CASH (USED IN) FROM FINANCING ACTIVITIES....................         46        (142)          637
                                                                  -----       -----       -------
INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS............          4          (9)          (61)
CASH AND CASH EQUIVALENTS:
BEGINNING OF YEAR...........................................         19          28            89
                                                                  -----       -----       -------
END OF YEAR.................................................      $  23       $  19       $    28
                                                                  =====       =====       =======

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

    The effect of exchange rate changes on cash and cash equivalents
was not material. Cash payments for interest (net of amounts
capitalized) were $90 million in 2001, $88 million in 2000, and
$41 million in 1999. Cash payments for income taxes were
$24 million in 2001, $17 million in 2000, and $43 million in 1999.
Cash payments for the management of environmental programs which
were charged against recorded environmental liabilities were
$40 million in 2001, $29 million in 2000, and $22 million in 1999.

                                 31

<PAGE>
<PAGE>

<TABLE>
                                          SOLUTIA INC.

                    STATEMENT OF CONSOLIDATED SHAREHOLDERS' EQUITY (DEFICIT)

                                     (DOLLARS IN MILLIONS)

<CAPTION>
                                                                     Year Ended December 31,
                                                                  -----------------------------
                                                                  2001        2000        1999
                                                                  -----       -----       -----
<S>                                                               <C>         <C>         <C>
COMMON STOCK:
BALANCE, JANUARY 1..........................................      $   1       $   1       $   1
                                                                  -----       -----       -----
BALANCE, DECEMBER 31........................................      $   1       $   1       $   1
                                                                  -----       -----       -----
NET DEFICIENCY OF ASSETS AT SPINOFF:
BALANCE, JANUARY 1..........................................      $(113)      $(113)      $(113)
                                                                  -----       -----       -----
BALANCE, DECEMBER 31........................................      $(113)      $(113)      $(113)
                                                                  -----       -----       -----
TREASURY STOCK:
BALANCE, JANUARY 1..........................................      $(296)      $(209)      $(143)
    Shares purchased (0 shares in 2001, 7,717,300 shares
      in 2000, 3,781,700 shares in 1999)....................         --        (106)        (79)
    Net shares issued under employee stock plans
      (1,562,590 shares in 2001, 1,092,870 shares in 2000,
      551,613 shares in 1999)...............................         39          19          13
                                                                  -----       -----       -----
BALANCE, DECEMBER 31........................................      $(257)      $(296)      $(209)
                                                                  -----       -----       -----
UNEARNED ESOP SHARES:
BALANCE, JANUARY 1..........................................      $  (9)      $ (18)      $ (25)
    Amortization of ESOP balance............................          8           9           7
                                                                  -----       -----       -----
BALANCE, DECEMBER 31........................................      $  (1)      $  (9)      $ (18)
                                                                  -----       -----       -----
ACCUMULATED OTHER COMPREHENSIVE INCOME (LOSS):
        ACCUMULATED CURRENCY ADJUSTMENT:
        BALANCE, JANUARY 1..................................       (101)        (15)         29
        Currency translation adjustments....................        (37)        (86)        (44)
                                                                  -----       -----       -----
        BALANCE, DECEMBER 31................................       (138)       (101)        (15)
                                                                  -----       -----       -----
        MINIMUM PENSION LIABILITY:
        BALANCE, JANUARY 1..................................         (7)        (14)        (10)
        Minimum pension liability adjustments...............          2           7          (4)
                                                                  -----       -----       -----
        BALANCE, DECEMBER 31................................         (5)         (7)        (14)
                                                                  -----       -----       -----
        DERIVATIVE INSTRUMENTS:
        BALANCE, JANUARY 1..................................         --          --          --
        Cumulative effect of accounting change..............          2          --          --
        Net losses on derivative instruments................         (3)         --          --
                                                                  -----       -----       -----
        BALANCE, DECEMBER 31................................         (1)         --          --
                                                                  -----       -----       -----
BALANCE, DECEMBER 31........................................      $(144)      $(108)      $ (29)
                                                                  -----       -----       -----
REINVESTED EARNINGS:
BALANCE, JANUARY 1..........................................      $ 491       $ 450       $ 254
    Net income (loss).......................................        (59)         49         206
    Employee stock plans....................................        (27)         (4)         (6)
    Dividends...............................................         (4)         (4)         (4)
                                                                  -----       -----       -----
BALANCE, DECEMBER 31........................................      $ 401       $ 491       $ 450
                                                                  -----       -----       -----
TOTAL SHAREHOLDERS' EQUITY (DEFICIT)........................      $(113)      $ (34)      $  82
                                                                  =====       =====       =====

See accompanying Notes to Consolidated Financial Statements.
</TABLE>
                                 32

<PAGE>
<PAGE>
                            SOLUTIA INC.

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

          (DOLLARS IN MILLIONS, EXCEPT PER SHARE AMOUNTS)

1. SIGNIFICANT ACCOUNTING POLICIES

    Nature of Operations

    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.

    Prior to September 1, 1997, Solutia was a wholly-owned
subsidiary of the former Monsanto Company (now known as Pharmacia
Corporation). On September 1, 1997, Monsanto distributed all of the
outstanding shares of common stock of the Company as a dividend to
Monsanto stockholders (the spinoff). As a result of the spinoff, on
September 1, 1997, Solutia became an independent publicly-held
company listed on the New York Stock Exchange and its operations
ceased to be owned by Monsanto. Net deficiency of assets of
$113 million resulted from the spinoff.

    Basis of Consolidation

    The consolidated financial statements include the accounts of
Solutia and its majority-owned subsidiaries. Other companies in
which Solutia has a significant interest (20 to 50 percent) are
included in "Investments in Affiliates" in the Statement of
Consolidated Financial Position. Solutia's share of these companies'
net earnings or losses is reflected in "Equity Earnings (Loss) from
Affiliates" in the Statement of Consolidated Income (Loss).

    Use of Estimates

    The preparation of financial statements in conformity with
accounting principles generally accepted in the United States of
America requires management to make estimates and assumptions that
affect the reported amounts of assets and liabilities and disclosure
of contingent assets and liabilities at the date of the financial
statements and that affect revenues and expenses during the period
reported. Estimates are adjusted when necessary to reflect actual
experience. Significant estimates were used to account for
restructuring reserves, environmental reserves, self-insurance
reserves, employee benefit plans, asset impairments and
contingencies.

    Cash and Cash Equivalents

    Cash and cash equivalents consist of cash and temporary
investments with maturities of three months or less when purchased.

    Inventory Valuation

    Inventories are stated at cost or market, whichever is less.
Actual cost is used to value raw materials and supplies. Standard
cost, which approximates actual cost, is used to value finished goods
and goods in process. Standard cost includes direct labor and raw
materials, and manufacturing overhead based on practical capacity. The
cost of certain inventories (62 percent as of December 31, 2001) is
determined by the last-in, first-out (LIFO) method, which generally
reflects the effects of inflation or deflation on cost of goods sold
sooner than other inventory cost methods. The cost of other
inventories generally is determined by the first-in, first-out (FIFO)
method.

    Property, Plant and Equipment

    Property, plant and equipment are recorded at cost. The cost of
plant and equipment is depreciated over weighted average periods of
20 years for buildings and 12 years for machinery and equipment, by
the straight-line method.

    Intangible Assets

    The cost of intangible assets is amortized on a straight-line
basis over the estimated periods benefited, generally 20 years for
goodwill and periods ranging from 5 to 20 years for identified
intangible assets.

    Impairment of Long-Lived Assets

    Impairment tests of long-lived assets are made when conditions
indicate a possible loss. Impairment tests are based on a comparison
of undiscounted cash flows to the recorded value of the asset. If an
impairment is indicated, the asset value is written down to its fair
value based upon market prices or, if not available, upon discounted
cash value, at an appropriate discount rate.

                                 33

<PAGE>
<PAGE>
                            SOLUTIA INC.

       NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

    Environmental Remediation

    Costs for remediation of waste disposal sites are accrued in the
accounting period in which the obligation is probable and when the
cost is reasonably estimable. Postclosure costs for hazardous and
other waste facilities at operating locations are accrued over the
estimated life of the facility as part of its anticipated closure
cost. Environmental liabilities are not discounted, and they have
not been reduced for any claims for recoveries from insurance or
third parties. In those cases where insurance carriers or
third-party indemnitors have agreed to pay any amounts and
management believes that collectability of such amounts is probable,
the amounts are reflected as receivables in the consolidated
financial statements.

    Self-Insurance

    Solutia maintains self-insurance reserves to cover its estimated
future legal costs and settlements related to workers' compensation,
product, general, auto and operations liability claims that are less
than policy deductible amounts or not covered by insurance. The
Company also has purchased commercial insurance in order to reduce
its exposure to such claims. Self-insured losses are accrued based
upon estimates of the aggregate liability for uninsured claims
incurred using certain actuarial assumptions followed in the
insurance industry and the Company's historical experience.

    Revenue Recognition

    The Company's revenue-earning activities involve delivering or
producing goods, and revenues are considered to be earned when the
Company has completed the process by which it is entitled to such
revenues. The following criteria are used for revenue recognition:
persuasive evidence of an arrangement exists, delivery has occurred,
selling price is fixed or determinable and collection is reasonably
assured. In the case of the pharmaceutical services businesses,
revenues are primarily recorded on a percentage of completion
method.

    Derivative Financial Instruments

    Currency forward contracts are used to manage currency exposures
for financial instruments denominated in currencies other than the
entity's functional currency. Natural gas contracts are used to
manage some of the exposure for the cost of natural gas. Gains and
losses on contracts that are designated and effective as hedges are
included in net income (loss) and offset the exchange gain or loss
of the transaction being hedged.

    Major currencies affecting the Company's business are the U.S.
dollar, the British pound sterling, the euro, the Canadian dollar
and the Brazilian real. Currency restrictions are not expected to
have a significant effect on Solutia's cash flow, liquidity or
capital resources.

    Income Taxes

    Solutia accounts for income taxes using the asset and liability
method. Under this method, deferred tax assets and liabilities are
recognized for the future tax consequences of temporary differences
between the carrying amounts and tax bases of assets and liabilities
at enacted rates.

    Currency Translation

    The local currency has been used as the functional currency for
nearly all worldwide locations. The financial statements for most of
Solutia's ex-U.S. operations are translated into U.S. dollars at
current or average exchange rates. Unrealized currency translation
adjustments in the Statement of Consolidated Financial Position are
accumulated in equity.

    Earnings (Loss) per Share

    Basic earnings (loss) per share is a measure of operating
performance that assumes no dilution from securities or contracts to
issue common stock. Diluted earnings (loss) per share is a measure
of operating performance by giving effect to the dilution that would
occur if securities or contracts to issue common stock were
exercised or converted. At December 31, 2001, 1.2 million common
share equivalents were excluded because the effect would be
antidilutive.

    New Accounting Pronouncements

    Effective January 1, 2002, Solutia adopted SFAS No. 141,
"Business Combinations," and SFAS No. 142, "Goodwill and Other
Intangible Assets," which provide guidance related to accounting for
business combinations and goodwill. The adoption of SFAS No. 141 did
not have a material effect on Solutia's financial statements.
Solutia has not completed its evaluation of SFAS No. 142 and,
therefore, has not determined the final impact that the adoption of
this standard will have on its financial position and results of
operations. However, preliminary valuation work indicates that there
is a potential goodwill impairment in the Company's Resins and
Additives business. While

                                 34

<PAGE>
<PAGE>
                            SOLUTIA INC.

       NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

the second step of the evaluation process is yet to be finalized, it
is likely that a pretax impairment charge in the range of $100 million
to $200 million will be required. In addition, the Company expects
annual amortization expense will be reduced by approximately $20 million
to $25 million aftertax.

    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.

    Effective January 1, 2002, Solutia adopted SFAS No. 144,
"Accounting for the Impairment or Disposal of Long-Lived Assets,"
which addresses the accounting and reporting for the impairment or
disposal of long-lived assets. The adoption of SFAS No. 144 did not
have a material effect on Solutia's consolidated financial
statements.

    Reclassifications

    Certain reclassifications to prior years' financial information
have been made to conform to the 2001 presentation. These
reclassifications included amounts related to employee stock plans
which were previously classified as a reduction of net deficiency of
assets at spinoff that have been reclassified to reinvested
earnings.

2. ACQUISITIONS AND DIVESTITURES

    During the third quarter of 2000, Solutia completed the sale of
its Polymer Modifiers business and related manufacturing facilities
to Ferro Corporation for approximately $130 million. As a result of
this transaction, Solutia recognized a $73 million pretax gain
($46 million aftertax). Solutia's results of operations included net
sales of approximately $90 million in 2000 and $145 million in 1999
and operating income of approximately $16 million in 2000 and
$36 million in 1999 from the Polymer Modifiers business.

    During the second quarter of 2000, Solutia recognized a
$15 million pretax gain ($9 million aftertax) on the sale of
substantially all of its minority interest in P4 Production L.L.C.,
a phosphorus manufacturing venture. The results of operations from
Solutia's minority interest in P4 Production L.L.C. were not
material to Solutia's consolidated results of operations.

    During the first quarter of 2000, Solutia completed two
acquisitions in the Specialty Products segment, which provide custom
process and technology services to the global pharmaceutical
industry. In the first acquisition, which closed on February 10,
Solutia acquired CarboGen Holdings AG. CarboGen is a leading process
research and development firm. In the second acquisition, which
closed on March 24, Solutia purchased AMCIS AG. AMCIS serves the
global pharmaceutical industry by developing production processes
and by manufacturing active ingredients for clinical trials and
small-volume commercial drugs. The combined purchase price for these
acquisitions was approximately $118 million, which was financed with
commercial paper and the assumption of debt.

    Both of the acquisitions have been accounted for using the
purchase method. The allocations of the purchase price to the assets
and liabilities acquired resulted in current assets of $17 million,
non-current assets of $27 million, goodwill of $57 million, other
intangible assets of $41 million, current liabilities of
$21 million and non-current liabilities of $3 million. Goodwill is
being amortized over its estimated useful life of 20 years, and
other intangible assets are being amortized over their estimated
useful lives, which average 18 years.

    Results of operations for CarboGen and AMCIS were included in
Solutia's results of operations from the acquisition dates. The
results of operations for the acquired businesses were not material
to Solutia's consolidated results of operations for 2000.

    On December 22, 1999, Solutia acquired Vianova Resins from
Morgan Grenfell Private Equity Ltd. for approximately 1.2 billion
deutsche marks (approximately $617 million), which was financed with
commercial paper and the assumption of debt. Vianova Resins is a
leading European producer of resins and additives for coatings and
technical applications for the specialty, industrial and automotive
sectors.

    The acquisition has been accounted for using the purchase
method. The allocation of the purchase price to the assets and
liabilities acquired resulted in current assets of $192 million,
non-current assets of $227 million, goodwill of $321 million, other
intangible assets of approximately $163 million, current liabilities
of $99 million and non-current liabilities of $187 million. Goodwill
is being amortized over its estimated useful life of 20 years, and
other intangible assets are being amortized over their estimated
useful lives, which average 19 years.

    On May 25, 1999, Solutia acquired CPFilms Inc. from Akzo Nobel N.V.
for approximately $200 million, which was financed with commercial paper.
CPFilms is a leading manufacturer and marketer of window film and other
high-technology film products for automotive and architectural after-markets
and a variety of other specialty film applications. The acquisition has been
accounted for using the purchase

                                 35

<PAGE>
<PAGE>
                            SOLUTIA INC.

       NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

method. The allocation of the purchase price to the identifiable
assets and liabilities acquired resulted in goodwill of
approximately $80 million. Goodwill and other intangible assets
are being amortized over their estimated useful lives of 20 years.
CPFilms' results of operations from May 25, 1999, through
December 31, 1999, were included in Solutia's Statement of
Consolidated Income for the year ended December 31, 1999.

    The following unaudited pro forma condensed information for the
year ended December 31, 1999, gives effect to the acquisitions of
CPFilms and Vianova Resins, and the associated debt financing, as if
the acquisitions and the financing had occurred as of the beginning
of the periods presented.

<TABLE>
<CAPTION>
                                                                  For the Year Ended
                                                                  December 31, 1999
(Unaudited)                                                       ------------------
<S>                                                               <C>
Net sales...................................................            $3,357
Net income..................................................               203
Basic earnings per share....................................              1.83
Diluted earnings per share..................................              1.77
</TABLE>

3. RESTRUCTURING AND BUSINESS COMBINATION RESERVES

    During the fourth quarter of 2000, Solutia recorded
restructuring charges of $53 million ($33 million aftertax) to cost
of goods sold for costs associated with work force reductions and
closure of certain non-strategic facilities. During 2001, Solutia
reduced its workforce by approximately 700 positions. Additionally,
Solutia eliminated more than 750 contractor positions during 2001.
Approximately 90 percent of the workforce reductions affected North
American business and manufacturing operations, and approximately
10 percent affected European, Asian and Latin American operations
and sales offices. Management positions represented approximately
one-third of the workforce reductions. During the fourth quarter of
2001, Solutia determined that the original provision taken for its
2001 restructuring program was insufficient to cover its total
costs. Actual costs to terminate certain European and North American
management employees and certain employee benefit costs for
involuntary terminations were higher than the original estimates.
As a result, Solutia recorded additional restructuring charges of
$9 million ($6 million aftertax) to cost of goods sold to cover
these higher costs. The restructuring actions contemplated by this
reserve were completed by the end of 2001. Certain severance
payments owed to individuals terminated late in the fourth quarter
of 2001 have been included in accrued liabilities and will be paid
in their entirety during the first quarter of 2002. The closure of
non-strategic facilities is not anticipated to have a significant
impact on future operations.

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

<TABLE>
<CAPTION>
                                                        Employment       Shutdown of
                                                        Reductions       Facilities        Total
                                                        ----------       -----------       -----
<S>                                                     <C>              <C>               <C>
Balance at January 1, 2000........................         $ --              $--           $ --
    Charges taken.................................           50                3             53
    Amounts utilized..............................           --               (3)            (3)
                                                           ----              ---           ----
Balance at December 31, 2000......................         $ 50              $--           $ 50
                                                           ----              ---           ----
    Charges taken.................................            9               --              9
    Amounts utilized..............................          (59)              --            (59)
                                                           ----              ---           ----
BALANCE AT DECEMBER 31, 2001......................         $ --              $--           $ --
                                                           ====              ===           ====
</TABLE>

    During the second quarter of 2000, Solutia completed plans to
integrate Vianova Resins operations with Solutia's resins business
and service organizations and recorded a liability of $11 million to
accrue for costs of integration, in accordance with Emerging Issues
Task Force Issue 95-3, "Recognition of Liabilities in Connection
with a Purchase Business Combination." The integration plans
included employment reductions primarily from Vianova Resins service
organizations located in more than 10 countries. In addition, the
plans included amounts to shut down certain Vianova Resins sales
offices. During the first half of 2001, Solutia completed the
integration actions of shutting down certain Vianova Resins sales
offices at a cost of approximately $1 million and reduced its
workforce by approximately 130 positions at a cost of approximately
$10 million.
                                 36

<PAGE>
<PAGE>
                            SOLUTIA INC.

       NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

    The following table summarizes the Vianova Resins integration
costs and amounts utilized to carry out those plans:

<TABLE>
<CAPTION>
                                                         Employment       Shutdown of
                                                         Reductions       Facilities        Total
                                                         ----------       -----------       -----
<S>                                                      <C>              <C>               <C>
Balance at January 1, 2000.........................         $--               $--            $--
     Charges taken.................................          10                 1             11
     Amounts utilized..............................          (2)               --             (2)
                                                            ---               ---            ---
Balance at December 31, 2000.......................         $ 8               $ 1            $ 9
                                                            ---               ---            ---
    Amounts utilized...............................          (8)               (1)            (9)
                                                            ---               ---            ---
BALANCE AT DECEMBER 31, 2001.......................         $--               $--            $--
                                                            ===               ===            ===
</TABLE>

    As part of the integration of Vianova Resins with Solutia's
resins businesses, Solutia identified excess production capacity for
certain Solutia resins products that will allow for the
consolidation of production facilities. As a result, Solutia decided
to exit 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 was
determined by discounting future cash flows using an appropriate
discount rate. Under the operating agreement, Solutia is required to
provide 24 months notice of intent to exit and to pay contractually
obligated costs for an additional 18 months thereafter to a
third-party operator. The contractually obligated costs represent
direct manufacturing, overhead, utilities and severance. The
financial impact will not be material to Solutia as production will
be shifted to other production facilities.

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

<TABLE>
<CAPTION>
                                                 Shutdown of      Asset 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
                                                     ===              ===            ===        ===
</TABLE>

    In February 1999, Integrated Nylon's ammonia unit experienced
the failure of certain equipment critical to the production process.
Based on an analysis of the economics of purchased ammonia and the
cost to repair the equipment, Solutia decided to exit the ammonia
business. A $28 million ($18 million aftertax) charge to cost of
goods sold was recorded in the first quarter of 1999 to implement
the exit plan. The charge included $2 million to write down the
assets to their fair value of approximately $4 million, $4 million
of dismantling costs and $22 million of costs for which Solutia is
contractually obligated under an operating agreement. During the
first quarter of 2000, Solutia entered into an agreement for the
dismantling of those assets by a third-party and as a result,
transferred the liability for dismantling to the third-party.
During the third quarter of 2000, Solutia reached an agreement with
the plant operator for the final settlement of the contractually
obligated costs. As a result, Solutia transferred the liability
for the contractually obligated costs to accrued liabilities. Net
sales for the ammonia business were $1 million for the year ended
December 31, 1999. Operating income for that period was minimal.

                                 37

<PAGE>
<PAGE>
                            SOLUTIA INC.

       NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

    The following table summarizes the 1999 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, 1999....................          $--               $--            $ --        $ --
     Charges taken............................            4                 2              22          28
     Amounts utilized.........................           --                (2)             (6)         (8)
                                                        ---               ---            ----        ----
Balance at December 31, 1999..................          $ 4               $--            $ 16        $ 20
                                                        ---               ---            ----        ----
Amounts utilized..............................           (4)               --             (16)        (20)
                                                        ---               ---            ----        ----
Balance at December 31, 2000..................          $--               $--            $ --        $ --
                                                        ===               ===            ====        ====
</TABLE>

4. ASSET IMPAIRMENTS

    During the fourth quarter of 2000, Solutia recorded a $76 million
($47 million aftertax) impairment charge to cost of goods sold
primarily to write down certain non-performing and non-strategic fiber
spinning, drawing and packaging equipment which supports several of
Integrated Nylon's product lines. Solutia also recorded an impairment
charge to cost of goods sold of $15 million ($10 million aftertax) to
write down chlorobenzenes' production equipment in the Specialty
Products segment. The impairments were indicated by 2000 operating
losses and projections of continued losses primarily because of the
noncompetitive cost positions these businesses have and the
competitive market conditions that they face. The carrying values of
the assets were written down as determined by discounting expected
future cash flows, using an appropriate discount rate. The assumptions
used in the cash flow projections were not materially different from
the market conditions experienced in 2000. These conditions are not
expected to improve significantly in the foreseeable future. The cash
flow assumptions included a declining demand and market share combined
with decreased operating margins. Lower operating margins reflect the
non-competitive cost position of these businesses and the impact of
lower selling prices associated with an extremely competitive
operating environment.

    During the second quarter of 2000, Solutia recorded a
$6 million ($4 million aftertax) impairment charge to administrative
expenses for the write down of capitalized software costs related to
the formation of the Astaris joint venture. The software had
previously been fully dedicated to Solutia's Phosphorus Derivatives
business. Impairment was indicated by a significant change in the
extent and manner in which Astaris was expected to utilize the asset
under a transition services agreement. The carrying value of the
asset was written down to its estimated fair value, as determined by
discounting expected future cash flows, using an appropriate
discount rate.

    An impairment charge of $6 million ($4 million aftertax) was
recorded in the first quarter of 1999 to cost of goods sold
primarily to write down a bulk continuous filament spinning machine
as a result of management's decision to shut down the equipment due
to a noncompetitive cost position. The adjusted carrying value of
the machine was $0.5 million at the time of the write down. The
charge was due to a review under SFAS No. 121, "Accounting for the
Impairment of Long-Lived Assets and Assets to Be Disposed Of," which
indicated that the carrying amount of the assets exceeded the
identifiable, undiscounted cash flows related to the assets. Fair
value of the assets was determined based on estimates of market
prices for the machinery. Operating income derived from the
machinery was minimal in the year ended December 31, 1999.

5. RISK MANAGEMENT ACTIVITIES

    Effective January 1, 2001, Solutia adopted SFAS No. 133,
"Accounting for Derivative Instruments and Hedging Activities," as
amended, which requires that all derivative instruments be reported
on the balance sheet at fair value and establishes criteria for
designation and effectiveness of hedging relationships. The
cumulative effect of adopting SFAS No. 133 as of January 1, 2001,
resulted in a cumulative addition to other comprehensive income
(loss) of $2 million aftertax, principally attributable to
unrealized gains in commodity cash flow hedges.

    Solutia's business operations give rise to market risk exposures
that result from changes in currency exchange rates, interest rates
and certain commodity prices. To manage the volatility relating to
these exposures, Solutia enters into various hedging transactions
that enable it to alleviate the adverse effects of financial market
risk. Designation is performed on a specific exposure basis to
support hedge accounting. The changes in fair value of these hedging
instruments are offset in part or in whole by corresponding changes
in the fair value or cash flows of the underlying exposures being
hedged. Solutia's hedging transactions are carried out under
policies and procedures approved by the Audit and Finance Committee
of the Board of Directors, which do not permit the purchase or
holding of any derivative financial instruments for trading
purposes.

                                 38

<PAGE>
<PAGE>
                            SOLUTIA INC.

       NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

    Foreign Currency Exchange Rate Risk

    Solutia manufactures and sells its products in a number of
countries throughout the world and, as a result, is exposed to
movements in foreign currency exchange rates. Solutia uses foreign
currency hedging instruments to manage the volatility associated
with foreign currency purchases of materials and other assets and
liabilities created in the normal course of business. Solutia
primarily uses forward exchange contracts and purchased options to
hedge these risks with maturities of less than 18 months.

    Solutia also enters into certain foreign currency derivative
instruments primarily to protect against exposure related to
intercompany financing transactions. Solutia has chosen not to
designate these instruments as hedges and to allow the gains and
losses that arise from marking the contracts to market to be
recorded in other income (expense)--net in the period. The net
impact of the related gains and losses was not material.

    In addition, Solutia uses forward exchange contracts which are
designated and qualify as cash flow hedges. These are intended to
offset the effect of exchange rate fluctuations on certain
forecasted equipment purchases. Gains and losses on these
instruments to the extent that the hedge is effective are deferred
in other comprehensive income (loss) until the related depreciation
of equipment purchased is recognized in earnings. The earnings
impact is reported in cost of goods sold to match the classification
of depreciation. At December 31, 2001, all hedges were determined to
be effective.

    No cash flow hedges were discontinued during the year due to
changes in expectations on the original forecasted transactions.
Foreign currency hedging activity is not material to Solutia's
financial statements.

    Interest Rate Risk

    Interest rate risk is primarily related to the changes in fair
value of fixed-rate long-term debt and short-term, floating rate
debt. Solutia believes its current debt structure appropriately
protects the Company from changes in interest rates and is not
actively using any contracts to manage interest rate risk.

    Commodity Price Risk

    Certain raw materials and energy sources used by Solutia are
subject to price volatility caused by weather, crude oil prices,
supply conditions, political and economic variables and other
unpredictable factors. Solutia periodically uses forward and option
contracts to manage the volatility related to anticipated energy and
raw material purchases with maturities up to 18 months. These market
instruments are designated as cash flow hedges. The mark-to-market
gain or loss on qualifying hedges is included in other comprehensive
income (loss) to the extent effective, and reclassified into cost of
goods sold in the period during which the hedged transaction affects
earnings. The mark-to-market gains or losses on ineffective portions
of hedges are recognized in cost of goods sold immediately. For the
year ended December 31, 2001, the net impact on other comprehensive
income (loss) included approximately $4 million aftertax for
unrealized losses on cash flow hedges partially offset by
reclassifications out of other comprehensive income (loss) of
approximately $1 million aftertax for realized losses on cash flow
hedges. Solutia estimates that approximately $2 million of existing
net unrealized losses will be reclassified to cost of goods sold
within 12 months.

    Credit Risk

    Credit risk arising from the inability of a counterparty to meet
the terms of Solutia's financial instrument contracts is generally
limited to the amounts, if any, by which the counterparty's
obligations exceed the obligations of the Company. It is Solutia's
policy to enter into financial instruments with a diversity of
creditworthy counterparties. Therefore, Solutia does not expect to
incur material credit losses on its risk management or other
financial statement instruments.

6. INVESTMENTS IN AFFILIATES

    In January of 2002, Solutia signed an agreement to sell 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 $100 million. The sale is expected to close during the first
quarter of 2002 and result in a modest gain. Solutia will use the net sales
proceeds to pay down debt.

    In April 2000, Astaris LLC, a joint venture between Solutia and
FMC Corporation, started operations to manufacture and market
phosphorus chemicals. Solutia contributed its Phosphorus Derivatives
business to the joint venture in exchange for a 50 percent ownership
share. Net assets contributed to the venture totaled approximately
$87 million. During the third quarter of 2000, Solutia received
$85 million from Astaris representing a cash distribution and
repayment of working capital loans. In connection with the external
financing agreement

                                 39

<PAGE>
<PAGE>
                            SOLUTIA INC.

       NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

for Astaris completed during the third quarter of 2000, Solutia
contractually agreed to provide Astaris with funding in the event
the joint venture fails to meet certain financial benchmarks. During
2001, Solutia contributed $31 million to Astaris under this
agreement. Solutia anticipates a contribution of up to $25 million
will be required in 2002.

    At December 31, 2001, Solutia's investments in affiliates
consisted principally of its 50 percent interests in the Flexsys,
Advanced Elastomers Systems and Astaris joint ventures for which
Solutia uses the equity method of accounting. Solutia received
dividends from affiliates of approximately $30 million in 2001,
$45 million in 2000 and $60 million in 1999. Summarized combined
financial information for 100 percent of the Flexsys, AES and
Astaris joint ventures is as follows:

<TABLE>
<CAPTION>
                                                               2001         2000        1999
                                                              ------       ------       ----
<S>                                                           <C>          <C>          <C>
Results of operations:
    Net sales...........................................      $1,241       $1,247       $869
    Gross profit........................................         226          327        267
    Operating income (loss).............................         (63)         138        108
    Net income (loss)...................................         (48)          95         85

Financial position:
    Current assets......................................      $  493       $  552
    Noncurrent assets...................................         768          744
    Current liabilities.................................         498          347
    Noncurrent liabilities..............................         205          334
</TABLE>

7. INVENTORY VALUATION

    The components of inventories were:

<TABLE>
<CAPTION>
                                                                  2001        2000
                                                                  -----       -----
<S>                                                               <C>         <C>
Finished goods..............................................      $ 209       $ 305
Goods in process............................................        107         105
Raw materials and supplies..................................        100         108
                                                                  -----       -----
Inventories, at FIFO cost...................................        416         518
Excess of FIFO over LIFO cost...............................       (113)       (161)
                                                                  -----       -----
TOTAL.......................................................      $ 303       $ 357
                                                                  =====       =====
</TABLE>

    Inventories at FIFO approximate current cost. The effects of
LIFO inventory liquidations were not significant.

8. INCOME TAXES

    The components of income (loss) before income taxes were:

<TABLE>
<CAPTION>
                                                                2001        2000       1999
                                                                -----       ----       ----
<S>                                                             <C>         <C>        <C>
United States.............................................      $(154)      $(23)      $224
Outside United States.....................................         77         64         79
                                                                -----       ----       ----
TOTAL.....................................................      $ (77)      $ 41       $303
                                                                =====       ====       ====
</TABLE>

                                 40

<PAGE>
<PAGE>
                            SOLUTIA INC.

       NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

    The components of income tax expense (benefit) charged to
operations were:

<TABLE>
<CAPTION>
                                                                 2001       2000       1999
                                                                 ----       ----       ----
<S>                                                              <C>        <C>        <C>
Current:
    U.S. federal...........................................      $(30)      $(63)      $ 48
    U.S. state.............................................        --         (2)         6
    Outside United States..................................        46         34         20
                                                                 ----       ----       ----
                                                                   16        (31)        74
                                                                 ----       ----       ----
Deferred:
    U.S. federal...........................................        (3)        46         18
    U.S. state.............................................       (13)        (7)        --
    Outside United States..................................       (18)       (16)         5
                                                                 ----       ----       ----
                                                                  (34)        23         23
                                                                 ----       ----       ----
TOTAL......................................................      $(18)      $ (8)      $ 97
                                                                 ====       ====       ====
</TABLE>

    During 2000, Germany reduced its corporate tax rate effective
January 1, 2001. In accordance with SFAS No. 109, "Accounting for
Income Taxes," Solutia recognized $7 million of income to record the
net effect of the change on deferred income tax assets and
liabilities. This adjustment is included as part of the deferred tax
provision above.

    Factors causing Solutia's effective tax rate to differ from the
U.S. federal statutory rate were:

<TABLE>
<CAPTION>
                                                                  2001       2000       1999
                                                                  ----       ----       ----
<S>                                                               <C>        <C>        <C>
U.S. federal statutory rate.................................      (35)%       35%        35%

U.S. state income taxes.....................................      (11)       (15)         2
Tax benefit of foreign sales corporation....................       (2)       (13)        (2)
Taxes related to foreign income, net of credits.............      (11)       (17)        (1)
Valuation allowances........................................       25         32         --
Income from equity affiliates recorded net of tax...........        4        (37)        (4)
Other.......................................................        7         (6)         2
                                                                  ---        ---         --
EFFECTIVE INCOME TAX RATE...................................      (23)%      (21)%       32%
                                                                  ===        ===         ==
</TABLE>

    Deferred income tax balances were related to:

<TABLE>
<CAPTION>
                                                                  2001        2000
                                                                  -----       -----
<S>                                                               <C>         <C>
Property....................................................      $(200)      $(173)
Postretirement benefits.....................................        369         377
Restructuring reserves......................................          3          29
Environmental liabilities...................................         67          64
Intangible assets...........................................        (59)        (66)
Inventory...................................................         17          --
Tax credit carryforward.....................................         54          --
Valuation allowances........................................        (32)        (13)
Net operating losses........................................         31           9
Other.......................................................         32         (30)
                                                                  -----       -----
NET DEFERRED TAX ASSETS.....................................      $ 282       $ 197
                                                                  =====       =====
</TABLE>

    At December 31, 2001, foreign tax credit carryforwards
available to reduce possible future U.S. income taxes amounted to
approximately $54 million, all of which will expire in 2004 through
2006. Valuation allowances have been provided for the foreign
tax credit carryforwards that are not likely to be utilized. At
December 31, 2001, various state and foreign net operating loss
carryforwards are

                                 41

<PAGE>
<PAGE>
                            SOLUTIA INC.

       NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

available to offset future taxable income. These net operating
losses expire in years after 2004 or have an indefinite carryforward
period. Income taxes and remittance taxes have not been recorded on
$92 million in undistributed earnings of subsidiaries, either
because any taxes on dividends would be offset substantially by
foreign tax credits or because Solutia intends to reinvest those
earnings indefinitely. It is not practicable to estimate the tax
effect of remitting these earnings to the United States.

9. DEBT OBLIGATIONS

    Solutia's debt obligations include borrowings against the
$800 million, five-year revolving credit facility ($800 million
facility) with a syndicate of commercial banks, notes and
debentures. The weighted average interest rate on total debt
outstanding at December 31, 2001, was 6.1 percent and was
6.7 percent at December 31, 2000.

    Debt Maturing in One Year

    At December 31, 2001, debt maturing in one year consisted of
borrowings of $533 million from the $800 million facility and
$150 million of 6.5 percent notes due in October of 2002. Weighted
average interest rates on borrowings from the $800 million facility
were 4.5 percent during 2001. Weighted average interest rates on
commercial paper balances were 6.6 percent during 2000 and
5.5 percent in 1999. The $800 million facility is available for
working capital, commercial paper support and other general
corporate purposes. The $800 million facility expires in August
of 2002.

    The $800 million facility contains various covenants that, among
other things, restrict Solutia's ability to merge with another
entity and require Solutia to meet certain leverage and interest
coverage ratios. During the first quarter of 2001, Solutia completed
an amendment of the $800 million facility that modified the
financial covenants. A 60-day waiver of the financial covenants was
received on September 17, 2001, for the third quarter of 2001.
Without the waiver, Solutia would not have been in compliance with
the leverage coverage ratio. In November 2001, Solutia completed an
amendment of the $800 million facility that modified financial
covenants and collateralized borrowings. Four domestic subsidiaries
are guarantors of the amended facility. Borrowings under the amended
facility are secured by liens on Solutia's inventory and receivables
and those of its material domestic subsidiaries and one foreign
subsidiary, pledges of 65 percent of the voting stock of two foreign
subsidiaries and a lien on specified principal properties. The
aggregate amount of Solutia's obligations entitled to the benefit of
the lien on specified properties will not exceed $236 million.
Solutia does not anticipate that future borrowings will be
significantly limited by the terms of these amendments.

    The $800 million credit facility expires in August of 2002 and
$150 million of 6.5 percent notes mature in October of 2002. Solutia
plans to refinance the $800 million facility with a combination of
unsecured long-term notes, a secured term loan and a revolving
credit facility. Interest rates will be commensurate with Solutia's
credit rating. Proceeds of the refinancing will be used to repay
outstanding borrowings under the $800 million facility and
$150 million of 6.5 percent notes and for other general corporate
purposes. The refinancing is expected to be completed in the first
half of 2002. Inability to complete this refinancing or a similar
financing vehicle prior to August 2002 would have a material adverse
affect on Solutia's liquidity.

    Long-Term Debt

    Long-term debt consisted of the following:

<TABLE>
<CAPTION>
                                                                  2001        2000
                                                                  -----       ----
<S>                                                               <C>         <C>
6.5% notes due 2002.........................................        150        150
7.375% debentures due 2027..................................        300        300
6.72% debentures due 2037...................................        150        150
6.25% euro notes due 2005...................................        177        186
Other.......................................................          3          1
Unamortized debt discount...................................         (3)        (3)
                                                                  -----       ----
                                                                    777        784
Less: Current portion of long-term debt.....................       (150)        --
                                                                  -----       ----
TOTAL.......................................................      $ 627       $784
                                                                  =====       ====
</TABLE>

                                 42

<PAGE>
<PAGE>
                            SOLUTIA INC.

       NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

    The notes and debentures are unsecured obligations. Interest is
payable semiannually, on April 15 and October 15 of each year. The
holders of the 2037 debentures have the right to require repayment
on October 15, 2004. The notes and debentures contain provisions
that, among other things, restrict Solutia's ability to create liens
on assets and its ability to enter into sale and leaseback
transactions.

10. FAIR VALUES OF FINANCIAL INSTRUMENTS

    The estimated fair value of Solutia's long-term debt was
$553 million as of December 31, 2001, and $685 million as of
December 31, 2000. These estimates compare with the recorded amount
of $627 million in 2001 and $784 million in 2000.

    The recorded amounts of cash, trade receivables, third-party
guarantees, accounts payable and short-term debt approximate their
fair values at both December 31, 2001, and December 31, 2000. The
estimated fair value of the Company's foreign currency forward
contracts on intercompany financing transactions and natural gas
contracts was approximately $5 million at December 31, 2001.
Notional amounts for purchase contracts were $308 million at
December 31, 2001, and $286 million at December 31, 2000, and
for sell contracts the notional amounts were $301 million at
December 31, 2001, and $265 million at December 31, 2000.

    Fair values are estimated by the use of quoted market prices,
estimates obtained from brokers and other appropriate valuation
techniques and are based upon information available as of
December 31, 2001, and December 31, 2000. The fair-value estimates
do not necessarily reflect the values Solutia could realize in the
current market.

11. POSTRETIREMENT BENEFITS

    Pension benefits are based on the employee's age, years of
service and/or compensation level. 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. Prior to
the spinoff, the majority of Solutia's employees participated in
Monsanto's noncontributory pension plans. In conjunction with the
spinoff, Solutia assumed pension liabilities and received related
assets from those plans for its applicable active employees and for
certain former employees who left Monsanto in earlier years.

    The majority of Solutia's employees also participate in benefit
programs that provide certain health care and life insurance
benefits for retired employees. Substantially all regular, full-time
U.S. employees and certain employees in other countries may become
eligible for these benefits if they reach retirement age while
employed by Solutia and have the required years of service. These
postretirement benefits are unfunded and are generally based on the
employee's age, years of service and/or compensation level. The
costs of postretirement benefits are accrued by the date the
employees become eligible for the benefits. In connection with the
spinoff, Solutia assumed retiree medical liabilities for its
applicable active employees and for approximately two-thirds of the
retired U.S. employees of Monsanto.

    For 2001, 2000, and 1999, Solutia's pension and healthcare and
other benefit costs were as follows:

<TABLE>
<CAPTION>
                                                                                                           Healthcare and
                                                                       Pension Benefits                    Other Benefits
                                                                 -----------------------------       --------------------------
                                                                 2001        2000        1999        2001       2000       1999
                                                                 -----       -----       -----       ----       ----       ----
<S>                                                              <C>         <C>         <C>         <C>        <C>        <C>
Service costs for benefits earned..........................      $  31       $  32       $  38       $ 10       $ 10       $ 11
Interest cost on benefit obligation........................        123         131         132         53         53         49
Assumed return on plan assets..............................       (145)       (144)       (153)        --         --         --
Prior service costs........................................         21          21          21        (15)       (18)       (18)
Transition asset...........................................         (2)        (10)        (10)        --         --         --
Recognized net (gain)/loss.................................         (8)          4          (3)        10          7          6
Settlement.................................................          1         (23)         --         --         --         --
                                                                 -----       -----       -----       ----       ----       ----
TOTAL......................................................      $  21       $  11       $  25       $ 58       $ 52       $ 48
                                                                 =====       =====       =====       ====       ====       ====
</TABLE>

                                 43

<PAGE>
<PAGE>
                            SOLUTIA INC.

       NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

    Components of the changes in fair value of plan assets, changes
in the benefit obligation and the funding status of Solutia's
postretirement plans were as follows:

<TABLE>
<CAPTION>
                                                                                              Healthcare and
                                                                   Pension Benefits           Other Benefits
                                                                  -------------------         ---------------
                                                                   2001         2000          2001       2000
                                                                  ------       ------         ----       ----
<S>                                                               <C>          <C>            <C>        <C>
CHANGES IN FAIR VALUE OF PLAN ASSETS
    Fair value of plan assets at January 1..................      $1,724       $1,973         $ --       $ --
    Actual return on plan assets............................         (81)          92           --         --
    Employer contributions..................................           6           22           --         --
    Settlements.............................................          --          (37)          --         --
    Benefits paid...........................................        (265)        (326)          --         --
                                                                  ------       ------         ----       ----
    FAIR VALUE OF PLAN ASSETS AT DECEMBER 31................      $1,384       $1,724         $ --       $ --
                                                                  ------       ------         ----       ----
CHANGES IN BENEFIT OBLIGATION
    Benefit obligation at January 1.........................      $1,746       $1,833         $732       $720
    Service costs...........................................          31           32           10         10
    Interest cost...........................................         123          131           53         53
    Participant contributions...............................          --           --            9          7
    Actuarial losses........................................          69          111           79         51
    Settlements.............................................          --          (37)          --        (17)
    Benefits paid...........................................        (265)        (326)         (95)       (92)
    Plan amendments.........................................           2            2           19         --
                                                                  ------       ------         ----       ----
    BENEFIT OBLIGATION AT DECEMBER 31.......................      $1,706       $1,746         $807       $732
                                                                  ======       ======         ====       ====
</TABLE>

    Plan assets consist principally of common stocks and U.S.
government and corporate obligations. Contributions to the pension
benefit plans were neither required nor made in 2001 and 2000
because Solutia's principal pension plan is adequately funded, using
assumed returns.

    The funded status of Solutia's postretirement benefit plans at
December 31, 2001, and 2000 was as follows:

<TABLE>
<CAPTION>
                                                                                             Healthcare and
                                                                  Pension Benefits           Other Benefits
                                                                  -----------------         -----------------
                                                                  2001        2000          2001        2000
                                                                  -----       -----         -----       -----
<S>                                                               <C>         <C>           <C>         <C>
FUNDED STATUS...............................................      $(322)      $ (22)        $(807)      $(732)
Unrecognized actuarial (gain)/loss..........................          8        (294)          136          65
Unrecognized prior service costs............................        115         135          (107)       (141)
Additional liability........................................        (39)        (13)           --          --
Unrecognized transition (gain)/loss.........................         --          (5)           --          --
                                                                  -----       -----         -----       -----
ACCRUED NET LIABILITY AT DECEMBER 31........................      $(238)      $(199)        $(778)      $(808)
                                                                  =====       =====         =====       =====
</TABLE>

    The accrued net liability was included in:

<TABLE>
<CAPTION>
                                                                                             Healthcare and
                                                                  Pension Benefits           Other Benefits
                                                                  -----------------         -----------------
                                                                  2001        2000          2001        2000
                                                                  -----       -----         -----       -----
<S>                                                               <C>         <C>           <C>         <C>
Current postretirement liabilities..........................      $  --       $  --         $ (82)      $ (78)
Long-term postretirement liabilities........................       (251)       (211)         (696)       (730)
Less: Other assets..........................................         13          12            --          --
                                                                  -----       -----         -----       -----
ACCRUED NET LIABILITY.......................................      $(238)      $(199)        $(778)      $(808)
                                                                  =====       =====         =====       =====
</TABLE>

                                 44

<PAGE>
<PAGE>
                            SOLUTIA INC.

       NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

    Certain of Solutia's pension benefit plans are unfunded and
therefore have accumulated benefit obligations in excess of plan
assets. Information regarding these unfunded plans was as follows:

<TABLE>
<CAPTION>
                                                                  2001       2000
                                                                  ----       ----
<S>                                                               <C>        <C>
Projected benefit obligation................................      $24        $25
Accumulated benefit obligation..............................       22         23
Fair value of plan assets...................................       --         --
</TABLE>

    The significant actuarial assumptions used to estimate the
projected benefit obligation for the Company's principal pension,
healthcare and other benefit plans were as follows:

<TABLE>
<CAPTION>
                                                                                            Healthcare and
                                                                  Pension Benefits          Other Benefits
                                                                  -----------------         ---------------
                                                                  2001        2000          2001       2000
                                                                  -----       -----         ----       ----
<S>                                                               <C>         <C>           <C>        <C>
Discount rate...............................................      7.00%       7.25%         7.00%      7.25%
Assumed long-term rate of return on plan assets.............      9.50%       9.50%           --         --
Annual rates of salary increase (for plans that base
  benefits on final compensation level).....................      4.00%       4.25%           --         --
Assumed trend rate for healthcare costs.....................        --          --          5.25%      5.00%
Ultimate trend rate for healthcare costs....................        --          --          5.25%      5.00%
</TABLE>

    A 1 percent change in the assumed health care cost trend rates
would have the following effect as of December 31, 2001:

<TABLE>
<CAPTION>
                                                              1-PERCENTAGE-        1-PERCENTAGE-
                                                              POINT INCREASE       POINT DECREASE
                                                              --------------       --------------
<S>                                                           <C>                  <C>
Effect on total service and interest cost components....           $ 1                  $ (1)
Effect on postretirement benefit obligation.............             9                   (10)
</TABLE>

12. EMPLOYEE SAVINGS PLANS

    In connection with the spinoff, Monsanto common stock held by the
Monsanto Employee Stock Ownership Plan (ESOP) and related Monsanto
ESOP borrowings were allocated between Solutia and Monsanto. As a
result of this allocation, Solutia received 2.4 million shares of
Monsanto common stock and assumed $29 million of ESOP debt to third
parties. Simultaneously, Solutia created its own ESOP, established a
trust to hold the Monsanto shares, and issued a $29 million loan to
the trust. The trust used the proceeds of the loan to repay the
assumed third-party debt. Subsequent to the spinoff, the ESOP trust
was required by government regulations to divest its holdings of
Monsanto common stock and to use the proceeds to acquire Solutia
common stock. The divestiture of Monsanto common stock and the
purchase of Solutia common stock were completed in early 1998. At
inception, the trust held 10,737,097 shares of Solutia common stock.
As of December 31, 2001, there have been 10,303,561 shares allocated
to participants.

    Substantially all U.S. employees of Solutia are eligible to
participate in the Solutia Inc. Savings and Investment Plan, a
401(k) plan. Shares held in the ESOP are used to make Solutia's
matching contribution to eligible participants' accounts under this
plan. The number of shares released is computed on each pay date
based on a formula that considers the participant contribution, the
Solutia matching rate, and Solutia's closing stock price. Shares
allocated to participant accounts totaled 1,160,203 shares in 2001,
1,314,341 shares in 2000, and 979,439 shares in 1999, leaving
433,536 unallocated shares as of December 31, 2001. The value of
these contributions was $15 million in 2001, $17 million in 2000,
and $18 million in 1999. Solutia will fulfill future matching
obligations with remaining unallocated shares in the ESOP and the
use of treasury stock or open market purchases of the Company's
stock. Unallocated shares held by the ESOP are considered
outstanding for earnings (loss) per share calculations. Compensation
expense is equal to the cost of the shares allocated to
participants, less dividends paid on the shares held by the ESOP.
Information regarding the ESOP follows:

<TABLE>
<CAPTION>
                                                                  2001       2000       1999
                                                                  ----       ----       ----
<S>                                                               <C>        <C>        <C>
Total ESOP expense..........................................       $8        $10         $8
Interest portion of total ESOP expense......................        1          1          2
Cash contributions..........................................        7         10         10
</TABLE>

                                 45

<PAGE>
<PAGE>
                            SOLUTIA INC.

       NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

13. STOCK OPTION PLANS

    Solutia has two stock-based incentive plans under which awards
are being granted to officers and employees, the Solutia Inc. 2000
Stock-Based Incentive Plan and the Solutia Inc. 1997 Stock-Based
Incentive Plan. The 2000 plan authorizes up to 5,400,000, and the
1997 plan up to 7,800,000, shares of Solutia common stock for grants
of non-qualified and incentive stock options, stock appreciation
rights, restricted stock awards and bonus stock awards. The shares
used may be newly issued shares, treasury shares or a combination.
Under both plans, the exercise price of a stock option must be no
less than the fair market value of Solutia's common stock on the
option grant date. Additionally, the plans provide that the term of
any stock option granted may not exceed 10 years. At December 31,
2001, approximately 3,101,380 shares from the 2000 plan and
139,731 shares from the 1997 plan remained available for grants.

    During 2001, non-qualified options to purchase 468,000 shares of
Solutia common stock were granted under the plans to current executive
officers and other senior executives as a group, and non-qualified
stock options to purchase 1,269,250 shares were granted to other
employees at an average exercise price of $13.68 per share. Total
shares covered by options granted under the plans to current executive
officers and other senior executives as a group totaled 2,567,000 and
other employees totaled 7,900,518, through December 31, 2001. The
options granted to Solutia's executive officers and other senior
executives are primarily performance options that become exercisable
upon the earlier of achievement of specified share price targets or
the ninth anniversary of the option grant. The options granted to the
other management employees are time-based. They generally become
exercisable in thirds, one-third on each of the first three
anniversaries of the option grant date.

    The Solutia Inc. Non-Employee Director Compensation Plan
provides incentives to non-employee members of Solutia's board of
directors. This plan authorizes up to 400,000 shares for grants of
non-qualified stock options and for grants of deferred shares in
payment of all or a portion of the annual retainer for the
non-employee directors. Only treasury shares may be used. Under this
plan, the exercise price of a stock option must be no less than the
fair market value of Solutia's common stock on the grant date and
the term of any stock option granted under the plan may not exceed
10 years. At December 31, 2001, 236,551 shares of Solutia's common
stock remained available for grants under the plan. Shares covered
by options granted to non-employee directors totaled 25,167 in 2001,
25,167 in 2000, and 34,333 in 1999.

    As permitted by SFAS No. 123, "Accounting for Stock-Based
Compensation," Solutia has elected to continue following the
guidance of Accounting Principles Board (APB) Opinion No. 25,
"Accounting for Stock Issued to Employees," for measurement and
recognition of stock-based transactions with employees. Accordingly,
no compensation cost has been recognized for Solutia's option plans.
Had the determination of compensation cost for these plans been
based on the fair value at the grant dates for awards under these
plans, consistent with the method of SFAS No. 123, Solutia's net
income (loss) would have been reduced to the pro forma amounts
indicated below:

<TABLE>
<CAPTION>
                                                                2001        2000        1999
                                                               ------       -----       -----
<S>                                                            <C>          <C>         <C>
NET INCOME (LOSS):
    As reported..........................................      $  (59)      $  49       $ 206
    Pro forma............................................         (67)         42         187

DILUTED EARNINGS (LOSS) PER SHARE:
    As reported..........................................      $(0.57)      $0.46       $1.80
    Pro forma............................................       (0.64)       0.39        1.63
</TABLE>

    Compensation expense resulting from the fair value method of
SFAS No. 123 may not be representative of compensation expense to be
incurred on a pro forma basis in future years. The fair value of
each option grant is estimated on the date of grant by use of the
Black-Scholes option-pricing model.

    The following weighted-average assumptions were used for grants
of Solutia options in 2001, 2000 and 1999:

<TABLE>
<CAPTION>
                                                                  2001       2000       1999
                                                                  ----       ----       ----
<S>                                                               <C>        <C>        <C>
Expected dividend yield.....................................       0.2%       0.2%       0.2%
Expected volatility.........................................      40.0%      34.0%      34.0%
Risk-free interest rates....................................       4.6%       5.8%       6.0%
Expected option lives (years)...............................       5.0        5.0        5.0
</TABLE>

    The weighted-average fair values of options granted were $5.57
in 2001, $5.30 in 2000, and $8.05 in 1999.

                                 46

<PAGE>
<PAGE>
                            SOLUTIA INC.

       NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

    A summary of the status of Solutia's stock option plans for
years ended December 31, 2001, 2000 and 1999 follows:

<TABLE>
<CAPTION>
                                                                            Outstanding
                                                                 ---------------------------------
                                               Exercisable                        Weighted-Average
                                                 Shares            Shares          Exercise Price
                                               -----------       ----------       ----------------
<S>                                            <C>               <C>              <C>
December 31, 1998........................      17,116,842        25,857,105            $14.79
                                               ----------        ----------            ------

    Granted..............................                         2,054,658            $20.61
    Exercised............................                          (678,710)            10.93
    Expired..............................                          (495,232)            18.43
                                               ----------        ----------            ------
December 31, 1999........................      18,852,246        26,737,821            $15.27
                                               ----------        ----------            ------

    Granted..............................                         1,912,043            $13.98
    Exercised............................                          (379,687)             6.74
    Expired..............................                        (1,279,514)            17.21
                                               ----------        ----------            ------
December 31, 2000........................      23,590,921        26,990,663            $15.21
                                               ----------        ----------            ------

    Granted..............................                         1,762,417            $13.68
    Exercised............................                        (1,796,038)             6.14
    Expired..............................                        (1,278,013)            16.32
                                               ----------        ----------            ------
DECEMBER 31, 2001........................      21,993,759        25,679,029            $15.68
                                               ==========        ==========            ======
</TABLE>

    The following table summarizes information about stock options
outstanding at December 31, 2001:

<TABLE>
OPTIONS OUTSTANDING:

<CAPTION>
              Range of                                      Weighted-Average
              Exercise                                         Remaining           Weighted-Average
               Prices                        Shares         Contractual Life        Exercise Price
-------------------------------------      ----------       ----------------       ----------------
<S>                                        <C>              <C>                    <C>
$ 3 to 7.............................       2,650,148             1.8                   $ 5.97
  8 to 11............................          58,246             6.6                    10.80
 12 to 15............................       4,425,852             7.9                    13.52
 16 to 18............................      12,430,225             5.0                    16.43
 19 to 22............................       5,888,303             6.3                    19.69
 23 to 29............................         226,255             6.4                    27.65
                                           ----------             ---                   ------
$ 3 to 29............................      25,679,029             5.5                   $15.68
                                           ==========             ===                   ======
</TABLE>

<TABLE>
OPTIONS EXERCISABLE:

<CAPTION>
                        Range of                                               Weighted-Average
                    Exercise Prices                             Shares          Exercise Price
--------------------------------------------------------      ----------       ----------------
<S>                                                           <C>              <C>
$ 3 to 7................................................       2,650,148            $ 5.97
  8 to 11...............................................          33,967             10.11
 12 to 15...............................................       1,581,669             12.98
 16 to 18...............................................      12,430,225             16.43
 19 to 22...............................................       5,079,495             19.58
 23 to 29...............................................         218,255             27.61
                                                              ----------            ------
$ 3 to 29...............................................      21,993,759            $15.75
                                                              ==========            ======
</TABLE>

14. CAPITAL STOCK

    Solutia's board of directors declared a dividend of one
preferred stock purchase right for each share of Solutia's common
stock issued in the distribution of shares by Monsanto to its
shareholders on the effective date of the spinoff and authorized the
issuance of one right for each share of common stock issued after
the effective date of the spinoff until the earlier of the date the
rights become exercisable and the

                                 47

<PAGE>
<PAGE>
                            SOLUTIA INC.

       NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

termination date of the rights plan. If a person or group acquires
beneficial ownership of 20 percent or more, or announces a tender
offer that would result in beneficial ownership of 20 percent or
more, of Solutia's outstanding common stock, the rights become
exercisable. Then, for every right held, the owner will be entitled
to purchase one one-hundredth of a share of a series of preferred
stock for $125. If Solutia is acquired in a business combination
transaction while the rights are outstanding, for every right held,
the holder will be entitled to purchase, for $125, common shares of
the acquiring company having a market value of $250. In addition, if
a person or group acquires beneficial ownership of 20 percent or
more of Solutia's outstanding common stock, for every right held,
the holder (other than such person or members of such group) will be
entitled to purchase, for $125, a number of shares of Solutia's
common stock having a market value of $250. Furthermore, at any time
after a person or group acquires beneficial ownership of 20 percent
or more (but less than 50 percent) of Solutia's outstanding common
stock, Solutia's board of directors may, at its option, exchange
part or all of the rights (other than rights held by the acquiring
person or group) for shares of Solutia's common stock on a
one-share-for-every-one-right basis. At any time prior to the
acquisition of such a 20 percent position, Solutia can redeem each
right for $0.01. The board of directors is also authorized to reduce
the aforementioned 20 percent thresholds to not less than
10 percent. The rights expire in the year 2007.

    The Company has 10 million shares of preferred stock, par value
$0.01 per share, authorized. As of December 31, 2001, there were no
preferred shares issued or outstanding.

15. COMMITMENTS AND CONTINGENCIES

    Commitments, principally in connection with uncompleted
additions to property, were approximately $8 million at December 31,
2001. Solutia was contingently liable as a guarantor principally in
connection with bank loans totaling approximately $9 million at
December 31, 2001. In addition, as of December 31, 2001, the Company
was contingently liable under letters of credit, primarily related
to environmental remediation, totaling $65 million. Solutia's future
minimum payments under noncancelable operating leases and
unconditional purchase obligations are $21 million for 2002,
$22 million for 2003, $20 million for 2004, $18 million for 2005,
$16 million for 2006, and $100 million thereafter.

    Solutia has entered into agreements with customers to supply a
guaranteed quantity of certain products annually at prices specified
in the agreements. In return, the customers have advanced funds to
Solutia to cover the costs of expanding capacity to provide the
guaranteed supply. Solutia has recorded the advances as
deferred credits and amortizes the amounts to income as the
customers purchase the products. The unamortized deferred credits
were approximately $175 million at December 31, 2001, and
approximately $171 million at December 31, 2000.

    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. During
2001, Solutia contributed $31 million to the joint venture under
this agreement. Solutia anticipates a contribution of up to
$25 million will be required in 2002. Solutia believes that this
obligation is not likely to have a significant impact on its
consolidated financial position, liquidity or profitability.

    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 expires in August 2002. Solutia expects to
exercise its option to purchase the co-generation facility from the
trust for approximately $32 million with proceeds from the
anticipated refinancing during 2002.

    The more significant concentrations in Solutia's trade
receivables at year-end were:

<TABLE>
<CAPTION>
                                                                  2001       2000
                                                                  ----       ----
<S>                                                               <C>        <C>
U.S. chemical industry......................................      $53        $ 51
U.S. carpet industry........................................       33          42
European glass industry.....................................       39          38
European chemical industry..................................       81         101
</TABLE>

    Management does not anticipate losses on its trade receivables
in excess of established allowances.

    Solutia's Statement of Consolidated Financial Position included
accrued liabilities of $173 million at December 31, 2001, and
$181 million at December 31, 2000, for the remediation of identified
waste disposal sites. Expenditures related to remediation activities
were $40 million in 2001, $29 million in 2000 and $22 million in
1999. Solutia expects to incur expenditures in the range of
$30 million to $40 million annually for remediation activities for
the foreseeable future.

                                 48

<PAGE>
<PAGE>
                            SOLUTIA INC.

       NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

    Uncertainties related to all of Solutia's environmental
liabilities include evolving government policy and regulations, the
method and extent of remediation and future changes in technology.
Because of these uncertainties, Solutia estimates that potential
future expenses associated with these liabilities could be an
additional $20 million to $30 million. Although the ultimate costs
and results of remediation of contaminated sites cannot be predicted
with certainty, they are not expected to have a material, adverse
effect on Solutia's consolidated financial position, liquidity or
profitability in any one year.

    On April 14, 2001, Solutia reached an agreement to settle the
claims brought by 1,596 plaintiffs in one of the actions pending in
the U.S. District Court for the Northern District of Alabama. The
settlement agreement was approved by the court and did not have a
material adverse effect on Solutia's consolidated financial
position, liquidity or profitability.

    A mechanics' lien in the amount of approximately $42 million was
filed on the Chocolate Bayou plant in Alvin, Texas. This lien arises
out of a dispute with the contractor, Fluor Daniel, over the
construction of Solutia's new acrylonitrile plant. The contractor
also alleges a constitutional lien on such property pursuant to the
Texas Constitution.

    On October 12, 2000, the printing ink resins unit and a small
phenolics production unit at Wiesbaden, Germany were severely
damaged by an explosion and fire. No fatalities, serious injuries or
environmental damage resulted from the incident. During the first
quarter of 2001, Solutia finalized insurance recoveries and,
accordingly, recognized a $28 million gain ($17 million aftertax) in
other income (expense)--net from the insurance settlements in excess
of the net book value of the plant assets and associated losses.

    During the first quarter of 1999, Solutia recorded a
$29 million ($18 million aftertax) charge to cost of goods sold to
increase reserves related to the anticipated settlement of two
lawsuits brought against Monsanto, for which Solutia assumed
responsibility in the 1997 spinoff from Monsanto, relating to the
alleged discharge of polychlorinated biphenyls ("PCBs") from the
Anniston, Alabama plant site, and to environmental remediation of
the allegedly affected areas. During the third quarter of 2000,
Solutia paid approximately $23 million for the settlement of these
actions. The remainder of the reserve was established to cover costs
associated with environmental remediation of the allegedly affected
areas.

    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 Monsanto, under the Distribution Agreement, liabilities
related to specified legal proceedings. As a result, although
Monsanto remains the named defendant, Solutia is required to manage
the litigation and indemnify Monsanto 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 very large 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.

    Monsanto manufactured PCBs at the Anniston, Alabama plant from
1935 to 1971. Solutia is defending a number of actions in state and
federal court in Alabama relating to the alleged emission of PCBs and
other allegedly hazardous materials from that plant. Plaintiffs claim
to suffer from various personal injuries and are allegedly fearful of
future illness. Some claim property damage. To date we have settled
approximately 5,900 PCB claims relating to Anniston. Four cases
originally filed on behalf of approximately 3,500 plaintiffs were
consolidated and a trial of the claims of 16 individuals and one
business from that group of plaintiffs is in progress. Plaintiffs in
the current trial are claiming property damage and mental anguish and
are seeking compensatory and punitive damages and injunctive relief.
The jury in that case has returned a verdict finding Solutia liable to
plantiffs on theories of negligence, wantonness, suppression,
nuisance, trespass and outrage. The issue of damages has not yet been
submitted to the jury. The jury also determined that the circumstances
in Anniston constitute a public nuisance. The Alabama Attorney General
and the District Attorneys in four counties around Anniston intervened
in this matter as plaintiffs for the public nuisance count. They seek
an order compelling Solutia to pay for a study of the impact of PCBs
in the area, and formulating a plan and setting a schedule for
cleanup. In addition, the Alabama Department of Environmental
Management intervened in this matter to assure that any decision
reached has a sound scientific basis. Another Anniston case pending in
federal court in Birmingham, Alabama, filed on behalf of 1,116 minor
plaintiffs, now involves approximately 15,000 adult and minor
plaintiffs. Those plaintiffs claim to suffer unspecified injuries and
assert their right to medical monitoring and testing, and seek
compensatory and punitive damages in unspecified amounts. The case is
scheduled to go to trial in or after February 2003. Liability, if any,
that may result from litigation against Solutia is not determinable.
These cases are being vigorously defended. Management does not believe
that the ultimate resolution of these cases 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.

                                 49

<PAGE>
<PAGE>
                            SOLUTIA INC.

       NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

16. SUPPLEMENTAL DATA

    Supplemental income statement data were:

<TABLE>
<CAPTION>
                                                                   2001         2000        1999
                                                                  ------       ------       ----
<S>                                                               <C>          <C>          <C>
    Raw material and energy costs...........................      $1,216       $1,300       $984
    Employee compensation and benefits......................         779          824        728
    Taxes other than income.................................         119          113         92
    Rent expense............................................          37           38         26
    Provision for doubtful accounts.........................          11           11         --

    Technological expenses:
        Research and development............................          58           67         58
        Engineering, commercial development and patent......           8           24         22
                                                                  ------       ------       ----
    Total technological expenses............................          66           91         80

    Interest expense:
        Total interest cost.................................          92          101         53
        Less capitalized interest...........................           2           18         13
                                                                  ------       ------       ----
    Net interest expense....................................          90           83         40
</TABLE>

17. SEGMENT AND GEOGRAPHIC DATA

    Effective January 1, 2001, Solutia reorganized its management
structure from a centralized organization to a decentralized
organization. This change redefined segment profitability as the
costs for certain functional services, which were previously managed
centrally, are now reflected in the operating segments. In addition,
certain product groups have been moved between operating segments in
recognition of the new management structure and related product
management responsibilities. Financial data for prior periods have
been restated to conform to the current presentation.

    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, including ALFTALAT(R)   Nylon intermediate "building block"
                                       polyester resins, RESIMENE(R) and             chemicals
  KEEPSAFE(R), SAFLEX INSIDE(R)        MAPRENAL(R) crosslinkers, SYNTHACRYL(R)
  (in Europe only) and KEEPSAFE        acrylic resins and GELVA(R)
  MAXIMUM(R) glass for residential     pressure-sensitive adhesives
  security and hurricane protection
  windows

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

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

                                 50

<PAGE>
<PAGE>
                            SOLUTIA INC.

       NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

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.

    Solutia's 2001, 2000 and 1999 segment information follows:

<TABLE>
<CAPTION>
                                                                        Year Ended December 31,
                                        ---------------------------------------------------------------------------------------
                                                  2001                           2000                           1999
                                        -------------------------      -------------------------      -------------------------
                                                 INTER-                         Inter-                         Inter-
                                         NET     SEGMENT                Net     segment                Net     segment
                                        SALES     SALES    PROFIT      Sales     Sales    Profit      Sales     Sales    Profit
                                        ------   -------   ------      ------   -------   ------      ------   -------   ------
<S>                                     <C>      <C>       <C>         <C>      <C>       <C>         <C>      <C>       <C>
SEGMENT:
    Performance Films.............      $  591     $--     $  61       $  692     $--     $ 106       $  669     $--     $ 126
    Specialty Products............         918      --        77        1,004      --        32          760       2       119
    Integrated Nylon..............       1,308      --        11        1,490       1       (29)       1,407       4       161
                                        ------     ---     -----       ------     ---     -----       ------     ---     -----
SEGMENT TOTALS....................       2,817      --       149        3,186       1       109        2,836       6       406

RECONCILIATION TO CONSOLIDATED
  TOTALS:
    Sales eliminations............                                         (1)     (1)                    (6)     (6)
    Corporate expenses............                          (121)                          (107)                          (111)
    Equity earnings (loss) from
      affiliates..................                           (13)                            37                             38
    Interest expense..............                           (90)                           (83)                           (40)
    Gain on sale of Polymer
      Modifiers business..........                            --                             73                             --
    Other income (expense)--net...                            (2)                            12                             10
                                        ------     ---                 ------     ---                 ------     ---
CONSOLIDATED TOTALS:
    NET SALES.....................      $2,817     $--                 $3,185     $--                 $2,830     $--
                                        ======     ===     -----       ======     ===     -----       ======     ===     -----
    INCOME (LOSS) BEFORE INCOME
      TAXES.......................                         $ (77)                         $  41                          $ 303
                                                           =====                          =====                          =====

<CAPTION>
                                                               Year Ended December 31,
                                         --------------------------------------------------------------------
                                                      2001                                 2000
                                         -------------------------------      -------------------------------
                                                  CAPITAL   DEPRECIATION               Capital   Depreciation
                                                  EXPEN-        AND                    Expen-        and
                                         ASSETS   DITURES   AMORTIZATION      Assets   ditures   Amortization
                                         ------   -------   ------------      ------   -------   ------------
<S>                                      <C>      <C>       <C>               <C>      <C>       <C>
SEGMENT:
 Performance Films.................      $  561     $39         $ 38          $  565    $ 28         $ 44
 Specialty Products................       1,076      35           59           1,144      31           61
 Integrated Nylon..................         901      20           83           1,102     159           83
                                         ------     ---         ----          ------    ----         ----
SEGMENT TOTALS.....................      $2,538     $94         $180          $2,811    $218         $188

RECONCILIATION TO CONSOLIDATED
 TOTALS:
 Unallocated amounts...............         870      --            4             770       3            3
                                         ------     ---         ----          ------    ----         ----
CONSOLIDATED TOTALS................      $3,408     $94         $184          $3,581    $221         $191
                                         ======     ===         ====          ======    ====         ====

<CAPTION>
                                         Year Ended December 31,
                                     -------------------------------
                                                  1999
                                     -------------------------------
                                              Capital   Depreciation
                                              Expen-        and
                                     Assets   ditures   Amortization
                                     ------   -------   ------------
<S>                                  <C>      <C>       <C>
SEGMENT:
 Performance Films.................  $  663    $ 21         $ 42
 Specialty Products................   1,274      20           29
 Integrated Nylon..................   1,089     210           79
                                     ------    ----         ----
SEGMENT TOTALS.....................  $3,026    $251         $150

RECONCILIATION TO CONSOLIDATED
 TOTALS:
 Unallocated amounts...............     744       6            1
                                     ------    ----         ----
CONSOLIDATED TOTALS................  $3,770    $257         $151
                                     ======    ====         ====
</TABLE>

    Solutia's geographic information for 2001, 2000 and 1999
follows:

<TABLE>
<CAPTION>
                                                                             Net Sales                    Long-Lived Assets
                                                                  --------------------------------       -------------------
                                                                   2001         2000         1999         2001         2000
                                                                  ------       ------       ------       ------       ------
<S>                                                               <C>          <C>          <C>          <C>          <C>
     U.S....................................................      $1,618       $1,939       $1,992       $  846       $  899
    Other countries.........................................       1,199        1,246          838          297          306
                                                                  ------       ------       ------       ------       ------
    CONSOLIDATED TOTALS.....................................      $2,817       $3,185       $2,830       $1,143       $1,205
                                                                  ======       ======       ======       ======       ======
</TABLE>

                                 51

<PAGE>
<PAGE>
                            SOLUTIA INC.

       NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

18. QUARTERLY DATA--UNAUDITED

<TABLE>
<CAPTION>
                                                                   First        Second         Third        Fourth       Total
                                                                  Quarter       Quarter       Quarter       Quarter       Year
                                                                  -------       -------       -------       -------      ------
<S>                                                    <C>       <C>           <C>           <C>           <C>          <C>
    Net Sales....................................      2001       $  747        $  737        $  690        $  643       $2,817
                                                       2000       $  846        $  834        $  774        $  731       $3,185

    Gross Profit (Loss)..........................      2001          128           128           129            44          429
                                                       2000          199           158           143           (14)         486

    Operating Income (Loss)......................      2001           21            22            24           (73)          (6)
                                                       2000           79            37            35          (127)          24

    Net Income (Loss)............................      2001           22            13             7          (101)         (59)
                                                       2000           51             4            78           (84)          49

    Basic Earnings (Loss) per Share..............      2001         0.21          0.13          0.07         (0.97)       (0.57)
                                                       2000         0.47          0.04          0.75         (0.82)        0.46

    Diluted Earnings (Loss) per Share............      2001         0.21          0.12          0.07         (0.97)       (0.57)
                                                       2000         0.46          0.04          0.74         (0.81)        0.46

    Common Stock Price:
        2001.....................................      HIGH        14.85         15.07         14.14         14.28        15.07
                                                        LOW        12.06         12.03         11.25         11.71        11.25

        2000.....................................      High        17.19         15.56         15.69         13.00        17.19
                                                        Low        11.63         11.25         10.38         10.88        10.38
</TABLE>

    Net income in the first quarter of 2001 includes an aftertax
gain of $17 million from an insurance settlement associated with the
explosion and fire that destroyed the Vianova printing inks and
phenolics production facility in Wiesbaden, Germany. Net loss in the
fourth quarter of 2001 includes aftertax charges of $96 million to
cover Solutia's share of restructuring costs at its Astaris and
Flexsys joint ventures, increases to environmental and
self-insurance reserves, additional severance costs and the write
down of certain non-performing assets.

    Net income in the second quarter of 2000 includes special net
aftertax charges of $31 million principally associated with the
formation and start-up of the Astaris joint venture and Solutia's
share of restructuring and asset impairment charges recorded by the
Flexsys joint venture. Net income in the third quarter of 2000
includes a $46 million aftertax gain on sale of the Polymer
Modifiers business and income of $7 million recorded in income taxes
related to changes in German income tax laws. Net loss in the fourth
quarter of 2000 includes restructuring and asset impairment charges
of $96 million aftertax.

    Under SFAS No. 128, "Earnings per Share," the quarterly and
total year calculations of basic and diluted earnings (loss) per
share are based on weighted average shares outstanding for that
quarterly or total year period, respectively. As a result, the sum
of diluted earnings (loss) per share for the quarterly periods may
not equal total year earnings (loss) per share.

ITEM 9. CHANGES IN AND DISAGREEMENTS ON ACCOUNTING AND FINANCIAL
        DISCLOSURE.

    None.

                                 52

<PAGE>
<PAGE>
                              PART III

ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT.

    Information about directors and executive officers appearing
under "Election of Directors" on pages 5 through 7 of Solutia's
Notice of Annual Meeting and Proxy Statement dated March 14, 2002,
is incorporated by reference. The following information about
Solutia's executive officers on March 1, 2002, is included pursuant
to Instruction 3 of Item 401(b) of Regulation S-K:

<TABLE>
<CAPTION>
                                                              Year First
                                                              Became an
                                       Present Position       Executive
       Name-Age                        with Registrant         Officer     Other Business Experience since January 1, 1997
----------------------------------------------------------------------------------------------------------------------------
<S>                              <C>                          <C>         <C>
John C. Hunter III, 55           Chairman, President, Chief     1997      President, Chief Operating Officer and Director,
                                 Executive Officer and                    1997-1999. President, Fibers Business Unit, Monsanto,
                                 Director                                 1995-1997.

Karl R. Barnickol, 60            Senior Vice President,         1997      Associate General Counsel and Assistant Secretary of
                                 General Counsel and                      Monsanto, 1985-1997.
                                 Secretary

Robert A. Clausen, 57            Senior Vice President and      1997      President, Monsanto Business Services, 1994-1997.
                                 Chief Financial Officer;
                                 Advisory Director

Sheila B. Feldman, 47            Vice President, Human          1997      Vice President, Human Resources, 1997-1999. Director,
                                 Resources and Public Affairs             Human Resources, Monsanto Business Services and
                                                                          Stewardship, 1995-1997.

Gerald R. Hayden, 55             Vice President, Corporate      2001      Director, Customer Operations, 1997-2001.
                                 Services

Victoria M. Holt, 44             Vice President and General     1999      Vice President and General Manager, Saflex, 1999-2001.
                                 Manager, Performance Films               Vice President and General Manager, Acrilan Business
                                                                          Unit, 1997-1998. Business Director, Acrilan Business
                                                                          Unit, Monsanto, 1996-1997.

Monika Riese-Martin, 45          Vice President and General     2002      Vice President and General Manager, Aqualon Division
                                 Manager, Resins and                      of Hercules Inc., 1998-2002. Business Director,
                                 Additives and Industrial                 Hercules Inc., 1996-1998.
                                 Products

John F. Saucier, 48              Vice President and General     2001      Vice President, Strategic Planning, Mergers and
                                 Manager, Integrated Nylon                Acquisitions, 1997-2001.
</TABLE>

    The above listed individuals are elected to the offices set
opposite their names to hold office until their successors are duly
elected and have qualified, or until their earlier death,
resignation or removal.

ITEM 11. EXECUTIVE COMPENSATION.

    Information appearing under "Compensation of Directors" on
page 9 and under "Summary Compensation Table," "Option Grants in 2001,"
"Aggregated Option Exercises in 2001 and Year-End Option Values,"
"Pension Plans" and "Agreements with Named Executive Officers" on
pages 15 through 18 of Solutia's 2002 Proxy Statement is
incorporated here by reference.

ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT.

    Information appearing under "Ownership of Solutia Common Stock"
on pages 9 through 11 of Solutia's 2002 Proxy Statement is
incorporated here by reference.

ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.

    None.

                                 53

<PAGE>
<PAGE>
                              PART IV

ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULE AND REPORTS ON FORM 8-K.

    (a) Documents filed as part of this report:

        1. Financial Statements--See the Index to Consolidated
           Financial Statements and Financial Statement Schedule at
           page 27 of this report.

        2. The following supplemental schedule for the years ended
           December 31, 2001, 2000 and 1999

               II--Valuation and Qualifying Accounts

           All other supplemental schedules are omitted because of the
           absence of the conditions under which they are required.

        3. Exhibits--See the Exhibit Index beginning at page 57 of
           this report. For a listing of all management contracts and
           compensatory plans or arrangements required to be filed as
           exhibits to this report, see the exhibits listed under
           Exhibit Nos. 10(a), 10(b), 10(d), 10(e), 10(f), 10(h),
           10(i), 10(j), 10(k), 10(l), 10(n) and 10(r) on pages 57 and
           58 of the Exhibit Index. The following exhibits listed in
           the Exhibit Index are filed with this report:

           3      By-Laws of Solutia Inc., as amended February 27, 2002

           21     Subsidiaries of the Registrant (see page 60)

           23     Independent Auditors' Consent (see page 61)

           24(a)  Powers of attorney submitted by John C. Hunter III,
                  Robert A. Clausen, James M. Sullivan, Paul Donovan,
                  Paul H. Hatfield, Robert H. Jenkins, Frank A. Metz, Jr.,
                  J. Patrick Mulcahy, Sally G. Narodick, William D. Ruckelshaus
                  and John B. Slaughter

           24(b)  Certified copy of board resolution authorizing Form 10-K
                  filing using powers of attorney

           99     Computation of the Ratio of Earnings to Fixed Charges
                  (see page 63)

    (b) Reports on Form 8-K during the quarter ended December 31, 2001:

        Solutia filed a Form 8-K on December 21, 2001.

                                 54

<PAGE>
<PAGE>
                             SIGNATURES

    Pursuant to the requirements of Section 13 or 15(d) 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.

                                         By:     /s/ JAMES M. SULLIVAN
                                            --------------------------------
                                                   James M. Sullivan
                                             Vice President and Controller
                                            (Principal Accounting Officer)

Date: March 7, 2002

    Pursuant to the requirements of the Securities Exchange Act of
1934, this report has been signed below by the following persons on
behalf of the registrant and in the capacities and on the dates
indicated.

<TABLE>
<CAPTION>
                  Signature                               Title                                      Date
                  ---------                               -----                                      ----
<S>                                            <C>                                            <C>

                      *                        Chairman, President,                              March 7, 2002
---------------------------------------------  Chief Executive Officer and Director
             John C. Hunter III                (Principal Executive Officer)

           /s/  ROBERT A. CLAUSEN              Senior Vice President and                         March 7, 2002
---------------------------------------------  Chief Financial Officer
              Robert A. Clausen                (Principal Financial Officer)

           /s/  JAMES M. SULLIVAN              Vice President and Controller                     March 7, 2002
---------------------------------------------  (Principal Accounting Officer)
              James M. Sullivan

                      *                        Director                                          March 7, 2002
---------------------------------------------
                Paul Donovan

                      *                        Director                                          March 7, 2002
---------------------------------------------
              Paul H. Hatfield

                      *                        Director                                          March 7, 2002
---------------------------------------------
              Robert H. Jenkins

                      *                        Director                                          March 7, 2002
---------------------------------------------
             Frank A. Metz, Jr.

                      *                        Director                                          March 7, 2002
---------------------------------------------
             J. Patrick Mulcahy


                                 55

<PAGE>
<PAGE>

<CAPTION>
                  Signature                        Title                                              Date
                  ---------                        -----                                              ----
<S>                                            <C>                                            <C>

                      *                        Director                                          March 7, 2002
---------------------------------------------
              Sally G. Narodick

                      *                        Director                                          March 7, 2002
---------------------------------------------
           William D. Ruckelshaus

                      *                        Director                                          March 7, 2002
---------------------------------------------
              John B. Slaughter

<FN>

*Karl R. Barnickol, by signing his name hereto, does sign this document on behalf of the above noted individuals,
pursuant to powers of attorney duly executed by such individuals which have been filed as an Exhibit to this
Form 10-K.


                                                                                       /s/  KARL R. BARNICKOL
                                                                                    ----------------------------
                                                                                         Karl R. Barnickol
                                                                                          Attorney-in-Fact
</TABLE>


                                 56

<PAGE>
<PAGE>
                           EXHIBIT INDEX

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

<TABLE>
<CAPTION>
Exhibit No.      Description
-----------      -----------
<S>              <C>
 2(a)            Distribution Agreement (incorporated by reference to
                 Exhibit 2 of Solutia's Registration Statement on
                 Form S-1 (333-36355) filed September 25, 1997)

 2(b)            Joint Venture Agreement between Solutia Inc. and FMC
                 Corporation* (incorporated by reference to Exhibit 2(i) of
                 Solutia's Form 8-K filed on April 27, 2000)

 2(c)            First Amendment to Joint Venture Agreement between
                 Solutia Inc. and FMC Corporation (incorporated by reference
                 to Exhibit 2(ii) of Solutia's Form 8-K filed on April 27, 2000)

 2(d)            Second Amendment to Joint Venture Agreement between
                 Solutia Inc. and FMC Corporation (incorporated by
                 reference to Exhibit 2(iii) of Solutia's Form 8-K filed
                 on April 27, 2000)

 2(e)            Third Amendment to Joint Venture Agreement between
                 Solutia Inc. and FMC Corporation* (incorporated by
                 reference to Exhibit 2(iv) of Solutia's Form 8-K filed
                 on April 27, 2000)

 3(a)            Restated Certificate of Incorporation of Solutia
                 (incorporated by reference to Exhibit 3(a) of Solutia's
                 Registration Statement on Form S-1 (333-36355) filed
                 September 25, 1997)

 3(b)            By-Laws of Solutia Inc., as amended February 27, 2002

 4(a)            Rights Agreement (incorporated by reference to Exhibit 4
                 of Solutia's Registration Statement on Form 10 filed on
                 August 7, 1997)

 4(b)            Amendment to Rights Agreement, dated as of November 1, 2001,
                 and Certificate regarding change of Rights Agent
                 (incorporated by reference to Exhibit 4.4 of Solutia's
                 Registration Statement on Form S-3 (333-75812) filed
                 December 21, 2001)

 4(c)            Indenture dated as of October 1, 1997, between Solutia Inc.
                 and The Chase Manhattan Bank, as Trustee (incorporated by
                 reference to Exhibit 4.1 of Solutia's Form 10-Q for the
                 quarter ended September 30, 1997)

 4(d)            6.5% Notes due 2002 in the principal amount of $150,000,000
                 (incorporated by reference to Exhibit 4.2 of Solutia's
                 Form 10-Q for the quarter ended September 30, 1997)

 4(e)            7.375% Debentures due 2027 in the principal amount
                 of $200,000,000 (incorporated by reference to
                 Exhibit 4.3 of Solutia's Form 10-Q for the quarter
                 ended September 30, 1997)

 4(f)            7.375% Debentures due 2027 in the principal amount
                 of $100,000,000 (incorporated by reference to
                 Exhibit 4.4 of Solutia's Form 10-Q for the quarter
                 ended September 30, 1997)

 4(g)            6.72% Debentures due 2037 in the principal amount
                 of $150,000,000 (incorporated by reference to
                 Exhibit 4.5 of Solutia's Form 10-Q for the quarter
                 ended September 30, 1997)

 4(h)            Registrant agrees to furnish to the Securities and Exchange
                 Commission upon request copies of instruments defining the
                 rights of holders of certain unregistered long-term debt of
                 the registrant and its consolidated subsidiaries.

 9               Omitted--Inapplicable

10(a)            Financial Planning and Tax Preparation Services Program for
                 the Executive Leadership Team (incorporated by reference to
                 Exhibit 10(a) of Solutia's Form 10-K for the year ended
                 December 31, 1997)

10(b)            Employee Benefits Allocation Agreement (incorporated by
                 reference to Exhibit 10(a) of Solutia's Registration
                 Statement on Form S-1 (333-36355) filed September 25, 1997)

<FN>
---------
*Confidential treatment has been granted for a portion of this exhibit.

                                  57
<PAGE>
<PAGE>
                     EXHIBIT INDEX (CONTINUED)

<CAPTION>
Exhibit No.      Description
-----------      -----------
<S>              <C>
10(c)            Tax Sharing and Indemnification Agreement (incorporated by
                 reference to Exhibit 10(b) of Solutia's Registration
                 Statement on Form S-1 (333-36355) filed September 25, 1997)

10(d)            Solutia Inc. Management Incentive Replacement Plan as
                 amended on April 28, 1999 (incorporated by reference to
                 Exhibit 10(2) of Solutia's Form 10-Q for the quarter ended
                 June 30, 1999)

10(e)            Solutia Inc. 1997 Stock-Based Incentive Plan as amended on
                 April 28, 1999 and April 26, 2000 (incorporated by reference
                 to Exhibit 10(1) of Solutia's Form 10-Q for the quarter
                 ended June 30, 2000)

10(f)            Solutia Inc. Non-Employee Director Compensation Plan, as
                 amended February 24, 1999, January 26, 2000 and June 27,
                 2001 (incorporated by reference to Exhibit 10 of Solutia's
                 Form 10-Q for the quarter ended June 30, 2001)

10(g)            U.S. $800,000,000 Amended and Restated Five Year Credit
                 Agreement, dated as of November 23, 1999, among Solutia, the
                 initial lenders named therein, Bank of America N.A., as
                 Syndication Agent and Citibank, N.A., as Administrative
                 Agent (incorporated by reference to Exhibit 10(g) of
                 Solutia's Form 10-K for the year ended December 31, 1999)

10(h)            Form of Employment Agreement with certain Named Executive
                 Officers (incorporated by reference to Exhibit 10(1) of
                 Solutia's Form 10-Q for the quarter ended March 31, 1998)

10(i)            Form of Employment Agreement with other executive officers
                 (incorporated by reference to Exhibit 10(2) of Solutia's
                 Form 10-Q for the quarter ended March 31, 1998)

10(j)            Solutia Inc. Annual Incentive Plan (incorporated by
                 reference to Appendix B of the Solutia Inc. Notice of Annual
                 Meeting and Proxy Statement dated March 9, 2000)

10(k)            Solutia Inc. Long-Term Incentive Plan (incorporated by
                 reference to Appendix C of the Solutia Inc. Notice of Annual
                 Meeting and Proxy Statement dated March 9, 2000)

10(l)            Solutia Inc. Deferred Compensation Plan (incorporated by
                 reference to Exhibit 10 of Solutia's Form 10-Q for the
                 quarter ended September 30, 1998)

10(m)            Agreement, dated 10th November, 1999, for the sale and
                 purchase of class A shares, preference shares and loan stock
                 and the cancellation of warrants in Viking Resins Group
                 Holdings B.V. between (a) Solutia Inc., as purchaser,
                 (b) the holders of the A shares, preference shares and loan
                 stock as sellers, and (c) the warrantholders (incorporated
                 by reference to Exhibit 2.1 of Solutia's Form 8-K filed on
                 January 4, 2000)

10(n)            Solutia Inc. 2000 Stock-Based Incentive Plan (incorporated
                 by reference to Appendix A of the Solutia Inc. Notice of
                 Annual Meeting and Proxy Statement dated March 9, 2000)

10(o)            Amendment No. 1, dated as of November 21, 2000, to U.S.
                 $800,000,000 Amended and Restated Five-Year Credit
                 Agreement, dated as of November 23, 1999, among Solutia, the
                 initial lenders named therein, Bank of America N.A., as
                 Syndication Agent and Citibank, N.A., as Administrative
                 Agent (incorporated by reference to Exhibit 10(p) of
                 Solutia's Form 10-K for the year ended December 31, 2000)

10(p)            Amendment No. 2, dated as of February 1, 2001, to U.S.
                 $800,000,000 Amended and Restated Five-Year Credit
                 Agreement, dated as of November 23, 1999, among Solutia, the
                 initial lenders named therein, Bank of America N.A., as
                 Syndication Agent and Citibank, N.A., as Administrative
                 Agent (incorporated by reference to Exhibit 10.1 of
                 Solutia's Form 10-Q for the quarter ended March 31, 2001)

10(q)            Amendment No. 3, dated as of November 16, 2001, to U.S.
                 $800,000,000 Amended and Restated Five-Year Credit
                 Agreement, dated as of November 23, 1999, among Solutia, the
                 initial lenders named therein, Bank of America N.A., as
                 Syndication Agent and Citibank, N.A., as Administrative
                 Agent (incorporated by reference to Exhibit 99.2 of
                 Solutia's Form 8-K Report filed December 21, 2001)

10(r)            Letter Agreement between Solutia Inc. and Michael E. Miller
                 dated January 23, 2001 (incorporated by reference to
                 Exhibit 10.3 of Solutia's Form 10-Q for the quarter ended
                 March 31, 2001)
                                 58
<PAGE>
<PAGE>
                     EXHIBIT INDEX (CONTINUED)
<CAPTION>

Exhibit No.      Description
-----------      -----------
<S>              <C>
11               Omitted--Inapplicable; see "Statement of Consolidated Income
                 (Loss)" on page 29

21               Subsidiaries of the Registrant (see page 60)

23               Independent Auditors' Consent (see page 61)

24(a)            Powers of Attorney submitted by John C. Hunter III,
                 Robert A. Clausen, James M. Sullivan, Paul Donovan,
                 Paul H. Hatfield, Robert H. Jenkins, Frank A. Metz, Jr.,
                 J. Patrick Mulcahy, Sally G. Narodick, William D. Ruckelshaus
                 and John B. Slaughter

24(b)            Certified copy of board resolution authorizing Form 10-K
                 filing utilizing powers of attorney

99               Computation of the Ratio of Earnings to Fixed Charges
                 (see page 63)

<FN>
---------
Only Exhibits Nos. 21, 23, and 99 have been included in the printed copy of this report.
</TABLE>

                                 59