<PAGE>

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

                             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, 2000
                                          -----------------
                                  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 $1.36 BILLION AS OF THE CLOSE OF BUSINESS ON FEBRUARY
26, 2001.

  INDICATE THE NUMBER OF SHARES OUTSTANDING OF EACH OF THE
REGISTRANT'S CLASSES OF COMMON STOCK, AS OF THE LATEST PRACTICABLE
DATE: 103,419,837 SHARES OF COMMON STOCK, $.01 PAR VALUE,
OUTSTANDING AS OF THE CLOSE OF BUSINESS ON FEBRUARY 26, 2001.

                DOCUMENTS INCORPORATED BY REFERENCE

  PORTIONS OF SOLUTIA INC.'S NOTICE OF ANNUAL MEETING OF
STOCKHOLDERS AND PROXY STATEMENT DATED MARCH 15, 2001 (PART III OF
FORM 10-K).

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

<PAGE>
<PAGE>

        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 about the following to be
forward-looking statements:

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

  * dividends;

  * financing plans;

  * business strategy;

  * budgets;

  * projected cost reductions;

  * plans and objectives of management for future operations;

  * competitive position;

  * growth opportunities for existing products;

  * price increases;

  * benefits from new technology; and

  * share repurchases.

  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:

  * customer acceptance of new products;

  * efficacy of new technology and facilities;

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

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

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

  * shortages or pricing of raw materials and energy;

  * currency fluctuations;

  * ability to acquire and integrate new businesses;

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

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

                               PART I


ITEM 1. BUSINESS.

  Solutia Inc. and its subsidiaries produce and market a variety
of high performance chemical-based materials. Solutia's strategic
focus is built on key strengths, including:

  * Complex manufacturing capabilities;

  * Process engineering expertise;

  * Technical service;

  * Customer problem solving;

  * Polymer chemistry; and

  * Fiber technology.

  We use these world-class skills to create solutions and products
for customers in the consumer, household, automotive, industrial
products and pharmaceutical industries. Solutia's products and
services include:

  * SAFLEX(R) plastic interlayer, used to make laminated glass for
    automotive and architectural applications; LLUMAR(R) and
    VISTA(R) window films; and industrial films;

  * RESYDROL(R) waterborne resins, ALFTALAT(R) and SYNTHACRYL(R)
    powder resins, RESIMENE(R) amino crosslinkers and MODAFLOW(R)
    flow and leveling agents, used to produce high-performance
    coatings for various products such as automobiles, bicycles,
    bridges and compact discs;

                                   1



<PAGE>
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  * Process research and development and small scale-up
    manufacturing in support of new chemical entity development in
    the pharmaceutical industry; and

  * VYDYNE(R) and ASCEND(R) nylon polymers; chemical
    intermediates; and nylon fibers such as WEAR-DATED(R) and
    ULTRON VIP(R).

  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,
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. This event is referred to in
this document as the "spinoff."

RECENT DEVELOPMENTS

  During 2000, Solutia refined its portfolio strategy to:

  * Expand and grow its Performance Films segment;

  * Aggressively grow select Specialty Products businesses; and

  * Maximize the value of its Integrated Nylon segment.

  During the first quarter of 2000, Solutia completed the
acquisition of two companies that provide custom process and
technology services to the global pharmaceutical industry. The first
was CarboGen Holdings AG on February 10, 2000. CarboGen is a leading
process research and development firm. The second was AMCIS AG on
March 24, 2000. AMCIS develops production processes and manufactures
active ingredients for clinical trials and small-volume commercial
drugs. The combined purchase price for these acquisitions was
approximately $118 million.

  In April 2000, Astaris LLC, a joint venture between Solutia and
FMC Corporation, officially 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. See "Principal Equity Affiliates"
on page 6 below.

  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 for the nine
months ended September 30, 2000, included net sales of approximately
$93 million and operating income of approximately $16 million, from
the Polymer Modifiers business.

  In December 2000, Solutia's Board of Directors approved cost
reduction initiatives that are expected to achieve $100 million in
annual savings. These cost savings will result from a smaller senior
management team, efficiencies realized from the implementation of
enterprise-wide systems in support of improved work design
processes, work force reductions and the streamlining of operations
primarily within the Integrated Nylon segment. Approximately
50 percent of these savings are expected to be achieved in 2001,
with the full amount achieved in fiscal year 2002.

SEGMENTS; PRINCIPAL PRODUCTS

  For 2000, Solutia reported its business under three segments:

  * Performance Films;

  * Specialty Products; and

  * Integrated Nylon.

  The tabular and narrative information contained in Note 16 of
"Notes to Consolidated Financial Statements" appearing on pages 49
through 51 is incorporated by reference into this section.

                                   2
 
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<TABLE>
PERFORMANCE FILMS SEGMENT

<CAPTION>
                                          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        DuPont; HT Troplast     Butyraldehyde;       Ghent, Belgium;
HOME FURNISHINGS   for KEEPSAFE(R),       increase the                               ethanol; polyvinyl   Springfield, MA;
                   SAFLEX INSIDE(R)       safety, security,                          alcohol; vinyl       Trenton, MI;
                   (used in Europe),      sound                                      acetate monomer;     Martinsville, VA
                   and KEEPSAFE           attenuation,                               polyester film
                   MAXIMUM(R) laminated   energy efficiency
                   window glass;          and ultraviolet
                   LLUMAR(R) and          protection of      Materials Science
                   VISTA(R)               architectural      Corp. (MSC);
                   professional window    glass for          Lintec; 3M
                   films and GILA(R)      residential and
                   retail window films    commercial
                                          structures;
                                          after-market
                                          films for solar
                                          control, security
                                          and safety
-------------------------------------------------------------------------------------------------------------------------------
VEHICLES           SAFLEX(R) plastic      Products to        DuPont; Sekisui         Butyraldehyde;       Ghent, Belgium;
                   interlayer for         increase the                               ethanol; polyvinyl   Springfield, MA;
                   windshields and for    safety, security,                          alcohol; vinyl       Trenton, MI;
                   side and rear          sound attenuation                          acetate monomer;     Martinsville, VA
                   windows of vehicles;   and ultraviolet                            polyester film
                   LLUMAR(R),             protection of      MSC; Lintec; Madico
                   FORMULAONE             automotive glass
                   PERFORMANCE
                   AUTOMOTIVE FILMS(R)
                   and GILA(R) retail
                   window films
-------------------------------------------------------------------------------------------------------------------------------
INDUSTRIAL         GELVA(R) pressure      Packaging;         DuPont; Akzo Nobel;     Ethanol;             Ghent, Belgium;
APPLICATIONS       sensitive adhesives;   medical devices;   Bayer; Lintec; MSC;     formaldehyde;        Springfield, MA;
                   industrial films;      tapes and graphic  3M; Southwall;          maleic anhydride;    Trenton, MI;
                   release liners and     arts               Rexam; IST;             melamine; polyester  Martinsville, VA
                   deep-dyed films                           National Starch         film; butanol;
                                                                                     chlorine
-------------------------------------------------------------------------------------------------------------------------------
ELECTRONICS        Performance films;     Computer touch-    3M; Lintec; MSC;        Ethanol;             Martinsville, VA;
                   conductive and anti-   screens;           Southwall; Sheldahl     formaldehyde;        Canoga Park, CA
                   reflective coated      electroluminescent                         maleic anhydride;
                   films                  displays and                               melamine; polyester
                                          watches; cathode                           film
                                          ray tube monitors
-------------------------------------------------------------------------------------------------------------------------------
</TABLE>

                                                   3
 
<PAGE>
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<TABLE>
SPECIALTY PRODUCTS SEGMENT

<CAPTION>
                                          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            THERMINOL(R) heat      Heat transfer      Dow Chemical Co.;       Benzene; phenol;     Alvin, TX;
EQUIPMENT          transfer fluids;       fluids; water      Nippon Steel            phosphorus           Anniston, AL;
                   DEQUEST(R) water       treatment; oil     Chemical Co.;           trichloride          Newport, Wales
                   treatment chemicals    field chemicals    Rhodia; Bayer                                (U.K.)
-------------------------------------------------------------------------------------------------------------------------------
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-Fechenheim,
                   crosslinkers;          paints; coated                             melamine             Germany; Romano
                   MAPRENAL(R) and        fabric; wire and                                                d'Ezzelino, Italy
                   MADURIT(R) resins      cable; liquid
                                          coating systems;
                                          fiberboard;
                                          technical
                                          laminates; paper
                                          coatings
-------------------------------------------------------------------------------------------------------------------------------
AVIATION/          SKYDROL(R) aviation    Hydraulic fluids   Exxon Mobil             Phosphorus           St. Louis, MO
TRANSPORTATION     hydraulic fluids;      for commercial                             oxychloride;
                   SKYKLEEN(R) aviation   aircraft;                                  methanol
                   solvents               environmentally
                                          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-Fechenheim,
                   RESIMENE(R)            and sealants;      Valley/Total;           formaldehyde;        Hamburg and
                   crosslinkers;          paints; coated     Eastman; UCB;           melamine; methanol;  Wiesbaden, Germany;
                   VIACRYL(TM),           fabric; wire and   Ashland                 terephthalic acid    Rayong, Thailand;
                   MACRYNAL(R),           cable;                                                          Romano d'Ezzelino,
                   VIALKYD(R),            automotive,                                                     Italy
                   DUROXYN(TM),           industrial and
                   VIAKTIN(R),            decorative
                   VIAMIN(R), and         coatings;
                   HOSTAFLEX(R) resins;   environmentally
                   RESYDROL(R)            friendly coatings
                   waterborne resins;
                   ALFTALAT(R),
                   SYNTHACRYL(R) and
                   VIAKTIN(R) solid
                   resins
-------------------------------------------------------------------------------------------------------------------------------
PHARMACEUTICALS    Process research and   New                Millennium                                   Aarau and Basel,
                   development services   pharmaceuticals    Chemical; Evotec                             Switzerland
                   and small scale-up
                   manufacturing
                   services
-------------------------------------------------------------------------------------------------------------------------------
</TABLE>

                                          4
 
<PAGE>
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<TABLE>
INTEGRATED NYLON SEGMENT

<CAPTION>
                                          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 Foley,
                   ACRILAN(R) acrylic     commercial                                 propylene            AL
                   fiber; ASCEND(TM)      carpet; area
                   nylon polymer          rugs; bath mats;
                                          WEAR-DATED(R)
                                          upholstery
                                          fabrics;
                                          blankets;
                                          non-woven
                                          reinforcement
                                          and linings
-------------------------------------------------------------------------------------------------------------------------------
PERSONAL           ACRILAN(R) acrylic     Sweaters; knit     Sterling Chemicals;     Acrylonitrile;      Pensacola, FL;
PRODUCTS           fiber; ASCEND(TM)      apparel;           Acordis; DuPont;        ammonia;            Decatur, AL;
                   nylon polymer          half-hose; active  Radici                  cyclohexane;        Greenwood, SC
                                          wear; craft                                propylene
                                          yarns; hand-knit
                                          yarns; apparel;
                                          dental floss;
                                          intimate apparel;
                                          bedding; shoes
-------------------------------------------------------------------------------------------------------------------------------
VEHICLES           Nylon filament;        Tires; air bags;   Acordis; DuPont;        Acrylonitrile;      Pensacola, FL;
                   VYDYNE(R) nylon        brakes;            Rhodia; Asahi           ammonia;            Decatur, AL;
                   molding resins;        convertible tops;  Chemical                cyclohexane;        Greenwood, SC
                   ASCEND(TM) nylon       automotive                                 propylene
                   polymer; ACRILAN(R)    interior,
                   acrylic fiber          exterior and
                                          under-the-hood
                                          molded parts;
                                          carpet;
                                          non-woven
                                          reinforcement
                                          and linings
-------------------------------------------------------------------------------------------------------------------------------
INDUSTRIAL         ACRILAN(R) acrylic     Conveyer belts;    Acordis; DuPont;        Acrylonitrile;      Pensacola, FL;
APPLICATIONS       fiber; ASCEND(TM)      awnings and        Honeywell; BASF         ammonia;            Decatur, AL;
                   nylon polymer;         tents; nylon film                          cyclohexane;        Greenwood, SC
                   industrial nylon       cooking bags;                              propylene
                   fiber                  specialized food
                                          packaging
-------------------------------------------------------------------------------------------------------------------------------
INTERMEDIATE       Nylon salt;            Nylon and acrylic  DuPont; Rhodia;         Natural gas;        Anniston and
CHEMICALS          adipic acid;           fiber; nylon       BASF; Asahi             propylene; benzene; Decatur, AL; Alvin,
                   hexamethylenediamine;  plastics;          Chemical                chlorine;           TX; Greenwood, SC;
                   acrylonitrile;         herbicides; feed                           cyclohexane         Sauget, IL;
                   chlorobenzenes         supplements                                                    Pensacola, FL
-------------------------------------------------------------------------------------------------------------------------------
</TABLE>

                               5
 
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PRINCIPAL EQUITY AFFILIATES

  Solutia participates in a number of joint ventures in which it
shares management control with other companies. Solutia's equity
earnings from affiliates were $35 million in 2000, $36 million in
1999, and $25 million in 1998. 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
between Solutia and 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 between Solutia and Exxon Mobil Corporation.

  Astaris, headquartered in the United States, produces and 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 between
Solutia and FMC Corporation.

SALE OF PRODUCTS

  Solutia's products are sold directly to end users in various
industries, principally by Solutia's own sales force, and, to a
lesser extent, by 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. Solutia's marketing
and distribution practices do not result in unusual working capital
requirements on a consolidated basis. Inventories of finished goods,
goods in process and raw materials are maintained to meet customer
requirements and Solutia's scheduled production. In general, Solutia
does not manufacture its products against a backlog of firm orders;
production is scheduled to meet the level of incoming orders and the
projections of future demand. Solutia generally is not dependent
upon one or a group of customers, and it has no material contracts
with the government of the United States, or any state or local, or
foreign government. In general, Solutia's sales are not subject to
seasonality. While no single customer or customer group accounts for
10 percent or more of Solutia's net sales, sales to the carpet mill
industry and the European auto glass industry each represent a
significant portion of Solutia's net sales.

COMPETITION

  Solutia encounters substantial competition in each of its
product lines. This competition, from other manufacturers of the
same products and from manufacturers of different products designed
for the same uses, is expected to continue in both U.S. and ex-U.S.
markets. Depending on the product involved, various types of
competition are encountered, including price, delivery, service,
performance, product innovation, product recognition and quality.
Overall, Solutia regards its principal product groups as competitive
with many other products of other producers and believes that it is
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

  Solutia is a significant purchaser of basic, commodity raw
materials, including propylene, cyclohexane, benzene and natural
gas. Major requirements for key raw materials are typically
purchased pursuant to medium- to long-term contracts. Solutia is not
dependent on any one supplier for a material amount of its raw
materials or energy requirements, but certain important raw
materials are obtained from a few major suppliers. In general, where
Solutia has limited sources of raw materials, it has developed
contingency plans to minimize the effect of any interruption or
reduction in supply. For information regarding specific raw
materials, see the charts under "Segments; Principal Products"
above.

                                6
 
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  While temporary shortages of raw materials and energy may
occasionally occur, these items are generally sufficiently available
to cover current and projected requirements. However, their
continuing availability and price are subject to unscheduled plant
interruptions occurring during periods of high demand, or due to
domestic and world market and political conditions, as well as to
the direct or indirect effect of U.S. and other countries'
government regulations. The impact of any future raw material and
energy shortages on Solutia's 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 21 below.

PATENTS AND TRADEMARKS

  Solutia owns a large number of patents which relate to a wide
variety of products and processes, has pending a substantial number
of patent applications and is licensed under a small number of
patents owned by others. Solutia owns a considerable number of
established trademarks in many countries under which it markets its
products. These patents and trademarks in the aggregate are of
material importance in the operations of Solutia and to its
Performance Films, Specialty Products, and Integrated Nylon
segments.

RESEARCH AND DEVELOPMENT

  Research and development constitute an important part of
Solutia's activities. Solutia's research and development expenses
amounted to approximately $67 million in 2000, $58 million in 1999,
and $60 million in 1998, or about 2% of sales on average. Solutia
focuses its research and development expenditures on process
improvements and select product development.

  Our Performance Films segment launched SAFLEX(R) HP (high
performance) plastic interlayer for hurricane protection and
security in large commercial applications. Our Integrated Nylon
segment's improved new singed staple fiber was introduced in new
carpet grades from the major carpet mills, and its cotton-like
GINNY(TM) acrylic product was successfully commercialized in the
upholstery market. Our Specialty Products segment commercialized
environmentally friendly adhesives that meet U.S. Postal Service
requirements. It also developed and commercialized a family of
water-based, pressure-sensitive adhesives that meet and exceed the
performance properties of solvent-based adhesives.

ENVIRONMENTAL MATTERS

  The narrative information appearing under "Environmental
Matters" on pages 22 and 23 below is incorporated here by reference.

EMPLOYEE RELATIONS

  On December 31, 2000, Solutia had approximately 10,200 employees
worldwide. In general, satisfactory relations have prevailed between
Solutia and its employees. Solutia uses self-directed work teams,
incentive programs and other initiatives to keep employees actively
involved in the success of the business. Approximately 20% of
Solutia's 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,
including Europe, Canada, Latin America and Asia. Nearly 40% of
Solutia's consolidated sales in 2000 were made into markets outside
the United States. Operations outside the United States are
potentially subject to a number of risks and limitations that are
not present in domestic operations, including fluctuations in
currency values, trade restrictions, investment regulations,
governmental instability and other potentially detrimental
governmental practices or policies affecting companies doing
business abroad. Solutia's Performance Films and Specialty
Products segments are particularly dependent on their international
operations. Approximately one-half and three-fourths of their 2000
sales, respectively, were made into markets outside the United
States.

                              7
 
<PAGE>
<PAGE>

ITEM 2. PROPERTIES.

  Solutia's general offices are located in a leased facility in
St. Louis County, Missouri. Solutia's principal European offices are
located in Louvain La Neuve, Belgium, in premises leased from the
University of Louvain. Solutia also has research laboratories,
research centers and manufacturing locations worldwide. Information
about Solutia's 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.

  Solutia's principal plants are suitable and adequate for their
use. Utilization of these facilities may vary with seasonal,
economic and other business conditions, but none of the principal
plants is substantially idle. The facilities generally have
sufficient capacity for existing needs and expected near-term
growth. Solutia has plans in place to expand facilities that are
anticipated to reach capacity in the next two to three years.

  Solutia owns most of its principal plants. However, at Antwerp,
Belgium and Sao Jose dos Campos, Brazil, both of which are Monsanto
sites, Solutia owns certain buildings and production equipment and
leases the underlying land. In addition, Solutia leases the land
for its Vianova Resins facilities at Suzano, Brazil and Frankfurt-
Fechenheim, Germany from Clariant or a subsidiary of Clariant
and the land for its facilities at Wiesbaden, Germany from
InfraServ with site services also provided by InfraServ.

  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, Solutia is the guest and Monsanto is the operator at the
facilities except the Chocolate Bayou facility, at which Monsanto is
the guest and Solutia is the operator. The initial term of each of
the operating agreements is 20 years. After the initial term, the
operating agreements continue indefinitely unless and until
terminated by either party 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 prior to the expiration of its
initial term. Solutia operates 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.

  Solutia has completed construction and begun operation of a
world-scale acrylonitrile production facility at Chocolate Bayou.
The facility employs Solutia's proprietary catalyst system and is
capable of producing approximately 550 million pounds annually.
Solutia has product sale agreements with three customers, Bayer,
Novus International Inc. and Asahi, which made advance payments in
connection with this project. In addition, Solutia has constructed a
phenol processing facility at the Pensacola, Florida site to produce
intermediates in the nylon manufacturing process.

  Solutia is an active participant in the safety and health
Voluntary Protection Program ("VPP") administered by the
Occupational Safety and Health Administration for sites in the U.S.,
and implemented by Solutia for sites outside the U.S. Currently, ten
Solutia sites in the U.S. qualify for the OSHA VPP "Star"
designation, a rating designating full compliance. Three other
Solutia sites, two in Europe and one in Canada, have achieved the
Solutia "Star" designation, which is an internal equivalent to the
OSHA designation.


<PAGE>
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, Solutia
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, Solutia is
required to manage the litigation and indemnify Monsanto for costs,
expenses and judgments arising from the litigation. The results of
litigation cannot be predicted with certainty. However, based upon
currently available facts, Solutia does not believe that the
ultimate resolution of any of these pending matters, except those
cases described below involving the alleged discharge of
polychlorinated biphenyls ("PCBs") from the Anniston, Alabama plant
site, will have a material adverse effect on Solutia's financial
position, liquidity or profitability in any one year. Resolution of
those Anniston, Alabama cases 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

                            8
 
<PAGE>
<PAGE>

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.

  On April 12, 1985, Monsanto was named as a defendant in Alanis,
et al. v. Farm & Home Savings, et al., filed in the District Court
in Harris County, Texas, the first of a number of lawsuits in which
plaintiffs claimed injuries resulting from alleged exposure to
substances present at or emanating from the Brio Superfund site near
Houston, Texas. Monsanto is one of a number of companies that sold
materials to the chemical reprocessor at that site. The following
two matters were settled recently: (1) Monsanto was one of a number
of defendants in an action brought in Harris County District Court
on behalf of 412 plaintiffs who were former employees of the
owners/operators of the Brio site, or members of the employees'
families. Plaintiffs claimed physical and emotional injury and
sought compensatory and punitive damages in an unspecified amount.
On April 24, 2000, the Company reached a tentative agreement to
settle this matter for $6 million. On December 15, 2000, the
settlement was approved by the court and has been implemented. (2)
Monsanto was one of a number of defendants in an action brought in
Harris County District Court on behalf of 76 plaintiffs who lived in
a subdivision near the Brio site, who attended school near the site
or who used nearby recreational baseball fields. Plaintiffs claimed
to have suffered various personal injuries and fear future disease;
they asserted the need for medical monitoring. Plaintiffs sought
compensatory and punitive damages in an unspecified amount. The
Company reached a tentative agreement in October, 2000 to settle
this matter for $631,000. The settlement was approved by the court
and was implemented on February 26, 2001. This leaves only two
cases, one pending in Harris County District Court, the other in
U.S. District Court for the Southern District of Texas, on behalf of
39 plaintiffs who owned homes or lived in subdivisions near the Brio
site, attended school near the site or used nearby recreational
baseball fields. Monsanto is one of a number of defendants in these
cases. Plaintiffs claim to have suffered various personal injuries
and fear future disease; they assert the need for medical
monitoring, and, in the case of the homeowners, claim property
damage. Plaintiffs seek compensatory and punitive damages in an
unspecified amount. Solutia believes there are meritorious defenses
to these lawsuits, including lack of proximate cause, lack of
negligent or improper conduct on the part of Monsanto or Solutia and
negligence of plaintiffs (or their parents) and/or of the builders
and developers of the Southbend subdivision. Solutia is vigorously
defending these actions.


<PAGE>
  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 PCBs and other
materials from its Anniston, Alabama plant site. The following
matters are currently pending: (1) Monsanto is 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. They seek compensatory and punitive
damages in an unspecified amount. Plaintiffs in these cases opted
out of 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, has been settled. (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.
The matter has been fully briefed and the parties await the decision
of that Court. (3) Monsanto is the sole defendant in one additional
action pending in United States District Court for the Northern
District of Alabama 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

                              9

<PAGE>
<PAGE>

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 February 12, 2001, the Alabama Supreme Court
consented to answer this question and ordered the parties to submit
briefs. (4) Monsanto is one of a number of defendants in one additional
action brought in Circuit Court for Calhoun County, Alabama 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 claim to suffer from unspecified personal injuries and
seek compensatory and punitive damages in an unspecified amount.
(5) Monsanto and Solutia were named as defendants in one additional
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 a nearby commercial development. Plaintiffs seek
compensatory and punitive damages in an unspecified amount. (6)
Monsanto is one of a number of defendants in an additional 8 cases
brought in Circuit Court for Calhoun County, Alabama and two
additional cases brought in United States District Court for the
Northern District of Alabama on behalf of a total of 5,419
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 one commercial entity which owns
property near 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
defendants to remove alleged contamination in Anniston. 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. On March 8, 1999,
the Alabama Supreme Court stayed all proceedings in several
consolidated cases pending in Circuit Court for Calhoun County
brought on behalf of 2,714 plaintiffs after Solutia filed a petition
for a writ of mandamus. Solutia sought the intervention of the
Alabama Supreme Court on a number of grounds, including the failure
of the trial court to rule on Solutia's motions for change of venue,
for exclusion of certain evidence that lacks a valid scientific
basis, for specification of procedures to govern trial of
plaintiffs' claims, including procedures governing jury selection,
and other relief. On May 16, 2000, the Alabama Supreme Court issued
an order lifting the stay of proceedings for the sole purpose of
allowing the trial court to enter orders on the pending motions. On
October 12, 2000, the trial court entered its orders. These cases
are now back before the Alabama Supreme Court and the parties await
the court's decision. (7) In addition to the matters described
above, Solutia has been advised of approximately 90 additional
potential plaintiffs who may file new actions or intervene in
actions already pending. 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.
These actions are being vigorously defended.

  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 verdict was reduced to
$45 million by the trial court to account for a settlement reached
with the Commonwealth by a codefendant during trial. 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.
                                 10
<PAGE>
<PAGE>

  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 on September
1, 1997, which is now both operated and controlled by Pharmacia.
Despite the sale of substantially all of Solutia's interest in this
joint venture, Solutia continues to be a party to this litigation.
On November 22, 1999, the United States, on behalf of the EPA,
demanded $2,500,000 from P4 Production, Solutia and Monsanto and
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

  Solutia has evaluated risk retention and insurance levels for
product liability, property damage and other potential areas of
risk. Solutia will continue to devote significant effort to
maintaining and improving safety and internal control programs,
which reduce its exposure to certain risks. Management decides the
amount of insurance coverage to purchase from unaffiliated companies
and the appropriate amount of risk to retain based on the cost and
availability of insurance and the likelihood of a loss. Management
believes that the levels of risk which it has retained are
consistent with those of other companies in the chemical industry.
There can be no assurance that Solutia will not incur losses beyond
the limits, or outside the coverage, of its 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.

  Under the Distribution Agreement that Solutia and Monsanto
entered into at the time of the spinoff, Solutia is entitled to the
benefit of liability insurance coverage under certain Monsanto
policies, to the extent coverage existed and coverage limits are not
exhausted, for claims for which Solutia assumed responsibility. That
insurance coverage generally is shared with Monsanto for other
liabilities existing prior to the spinoff which Monsanto has
retained, on an as available basis, without allocation.

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

  Solutia did not submit any matters to the security holders during the
fourth quarter of 2000.

                                  11
 
<PAGE>
<PAGE>

                               PART II

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

  Solutia's 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 2000 and 1999 as reported in the New York Stock Exchange
Composite Transactions.

<TABLE>
<CAPTION>
             2000              High      Low                   1999               High      Low
---------------------------   ------    ------     ---------------------------   ------    ------
<S>                           <C>       <C>        <C>                           <C>       <C>
First Quarter..............   $17.19    $11.63     First Quarter..............   $24.38    $15.88
Second Quarter.............    15.56     11.25     Second Quarter.............    26.31     16.06
Third Quarter..............    15.69     10.38     Third Quarter..............    22.94     16.13
Fourth Quarter.............    13.00     10.88     Fourth Quarter.............    18.88     13.50
</TABLE>

  On December 31, 2000, Solutia had 36,703 registered shareholders.

  The declaration and payment of dividends is made at the
discretion of Solutia's Board of Directors. The Board's current
policy is to pay cash dividends on an annual basis in December. The
Board anticipates that the current 4-cent annual dividend will
remain unchanged for the foreseeable future.

                              12
 
<PAGE>
<PAGE>

ITEM 6. SELECTED FINANCIAL DATA.

  The following selected financial information has been derived
from the audited consolidated financial statements. The information
set forth below is not necessarily indicative of results of future
operations and should be read in conjunction with "Management's
Discussion and Analysis of Financial Condition and Results of
Operations" and the consolidated financial statements and related
notes thereto included elsewhere in this Form 10-K.

<TABLE>
FINANCIAL SUMMARY
<CAPTION>
(Dollars in millions, except per share amounts)

                                                2000       1999       1998       1997      1996
OPERATING RESULTS:                            -------    -------    -------    -------    ------
<S>                                           <C>        <C>        <C>        <C>        <C>
NET SALES..................................   $ 3,185    $ 2,830    $ 2,835    $ 2,969    $2,977
GROSS PROFIT...............................       486        652        750        653       652
  As percent of net sales..................        15%        23%        26%        22%       22%
MARKETING, ADMINISTRATIVE AND TECHNOLOGICAL
 EXPENSES..................................       429        355        364        363       427
  As percent of net sales..................        13%        13%        13%        12%       14%
AMORTIZATION EXPENSE.......................        33          3         --         --        --
OPERATING INCOME(1)........................        24        294        386        290        33
  As percent of net sales..................         1%        10%        14%        10%        1%
INCOME BEFORE INCOME TAXES.................        41        303        375        290        33
NET INCOME(2)..............................        49        206        249        192        32
  As percent of net sales..................         2%         7%         9%         6%        1%

SHARE DATA:
BASIC EARNINGS PER SHARE(3)................   $  0.46    $  1.86    $  2.16    $  1.63    $ 0.28
DILUTED EARNINGS PER SHARE(3)..............      0.46       1.80       2.03       1.55      0.27
DIVIDENDS PER SHARE........................      0.04       0.04       0.04       0.01        --
COMMON STOCK PRICE:
  HIGH.....................................     17.19      26.31      32.00      27.75        --
  LOW......................................     10.38      13.50      18.69      18.69        --
  CLOSE....................................     12.00      15.44      22.38      26.69        --
PRICE/EARNINGS RATIO ON YEAR-END STOCK
 PRICE.....................................        26          9         11         17        --
NUMBER OF REGISTERED SHAREHOLDERS..........    36,703     39,171     41,864     57,894        --
YEAR-END SHARES OUTSTANDING (IN
 MILLIONS).................................     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)................................       518        458        401      1,053        --

OTHER DATA:
INTEREST EXPENSE(4)........................   $    83    $    40    $    43    $    41    $   36
INCOME TAXES (BENEFIT).....................        (8)        97        126         98         1
DEPRECIATION AND AMORTIZATION..............       191        151        147        145       166
TOTAL ASSETS...............................     3,581      3,770      2,765      2,768     2,483
CAPITAL EXPENDITURES.......................       221        257        158        165       192
LONG-TERM DEBT.............................       784        802        597        597        --
EMPLOYEES (YEAR-END).......................    10,200     10,600      8,700      8,800        --

<FN>
---------
(1) Operating income includes restructuring charges and other items of $158 million in 2000, $61 million in
    1999, $1 million in 1998, $84 million in 1997 and $248 million in 1996.

(2) Net income includes restructuring charges and other items of $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, $53 million, or $0.43
    per share, in 1997 and $164 million, or $1.37 in 1996.

(3) For the 1996 period which ended prior to the spinoff, the number of Monsanto weighted average shares
    outstanding and common share equivalents were adjusted for the distribution ratio in the spinoff of one
    share of Solutia's common stock for every five shares of Monsanto common stock.

(4) 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 consolidated financial statements to
    reflect Solutia's pro rata share of the financing structure of Monsanto.
</TABLE>

                                  13
 
<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 elsewhere in 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        Intermediate "building block"
                                      ALFTALAT(R) polyester resins,          chemicals
KEEPSAFE(R), SAFLEX INSIDE(R) (in     RESIMENE(R) and MAPRENAL(R)
 Europe only) and KEEPSAFE            crosslinkers and SYNTHACRYL(R)
 MAXIMUM(R) glass for residential     acrylic resins
 security and hurricane protection
 windows

LLUMAR(R), VISTA(R) and GILA(R)      THERMINOL(R) heat transfer fluids      Merchant polymer and nylon extrusion
 professional and after-market                                               polymers, including VYDYNE(R) and
 window films                                                                ASCEND(TM)

Conductive and anti-reflective       DEQUEST(R) water treatment chemicals   Carpet fibers, including the WEAR-
 coated films and deep-dyed films                                            DATED(R) and ULTRON VIP(R) brands

GELVA(R) pressure-sensitive          SKYDROL(R) hydraulic fluids and        Industrial nylon fibers
 adhesives                            SKYKLEEN(R) cleaning fluids for
                                      aviation

                                     Process research, process              ACRILAN(R) acrylic fibers for
                                      development, scale-up capabilities     apparel, upholstery fabrics, craft
                                      and small scale manufacturing for      yarns and other applications
                                      the pharmaceutical industry
</TABLE>

  See Note 16 to the Consolidated Financial Statements for further
information.

RESULTS OF OPERATIONS

  Solutia's net sales for 2000 of $3.185 billion were 13 percent
higher than 1999 net sales of $2.830 billion and 12 percent higher
than 1998 net sales of $2.835 billion. A number of events affect the
comparability of 2000 results with those in 1999 and 1998. 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 these businesses, net sales for 2000 were up 3
percent from the comparable periods of 1999 and 1998. The net sales
increases reflected higher average selling prices, partially offset
by unfavorable currency exchange rate fluctuations and lower
volumes. Operating income for the year ended December 31, 2000, was
$24 million, 92 percent lower than 1999 operating income of
$294 million, and 94 percent lower than 1998 operating income of
$386 million. The decline in 2000 operating income was caused by
higher raw material and energy costs that resulted from the sharp
increase in petrochemical and natural gas prices and by special
charges taken in the second and fourth quarters of 2000 related to
certain workforce reductions, asset impairments and facility
closures. 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.

 PERFORMANCE FILMS

  Net sales for Performance Films were $731 million in 2000,
compared with $713 million in 1999 and $614 million in 1998. The 3
percent increase in 2000 net sales over 1999 resulted from 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

                                14
 
<PAGE>
<PAGE>

the Polymer Modifiers business and unfavorable currency exchange
movements. Excluding CPFilms and the Polymer Modifiers businesses,
2000 net sales were essentially equal to 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 year-ago 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.

  The Performance Films segment's net sales for 1999 increased 16
percent over 1998 net sales because of an overall volume gain of
more than 20 percent, partially offset by selling price declines.
The sales volume increase was attributable to the May 1999
acquisition of CPFilms, and to a greater than 10 percent increase in
SAFLEX(R) plastic interlayer sales volumes. Volume gains for
SAFLEX(R) plastic interlayer resulted from the full global
commercialization of SAFLEX IIIG(R), the continued commercialization
of KEEPSAFE(R), SAFLEX INSIDE(R) (in Europe only) and KEEPSAFE
MAXIMUM(R) brand products and the launch of a SAFLEX(R) product for
Enhanced Protective Glass. Contractual pricing provisions that
adjust pricing downward for increased volume caused the selling
price declines.

  Segment profit was $185 million in 2000, versus $189 million in
1999, and $168 million in 1998. The 2 percent decrease in 2000
segment profit compared with 1999 primarily resulted from increased
raw material costs in the SAFLEX(R) plastic interlayer business and
the loss of sales from the Polymer Modifiers business. The decrease
was partially offset by lower employee benefits cost. The 13 percent
improvement in 1999 segment profit over 1998 was due to higher
year-over-year net sales, lower raw material costs and employee
benefits cost and other cost reductions, partially offset by
increased marketing expenditures related to the promotion of
KEEPSAFE(R), SAFLEX INSIDE(R) (in Europe only) and KEEPSAFE
MAXIMUM(R) brands and Enhanced Protective Glass.

 SPECIALTY PRODUCTS

  Solutia's Specialty Products segment had net sales of $866
million in 2000, compared with $615 million in 1999 and
$613 million in 1998. The 41 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 Scriptsets line of business which was sold in August
1999.

  The slight increase in 1999 net sales over 1998 resulted from
increased sales volumes of Solutia's resins and additives products
and SKYDROL(R) 5 hydraulic fluid for aviation applications,
partially offset by unfavorable currency exchange movements. The
growth in sales volumes for resins and additives was attributable to
strong sales in the coatings market, especially during the fourth
quarter of 1999. Also during 1999, Solutia became the sole supplier
of hydraulic fluid to Boeing Corporation for its new commercial
aircraft.

  Specialty Products' segment profit was $182 million in 2000,
compared with $159 million in 1999 and $152 million in 1998. The 14
percent increase in 2000 profit resulted from higher net sales from
the acquired companies, partially offset by the loss of sales from
the Phosphorus Derivatives business and unfavorable manufacturing
variances for specialty chemicals products. The 5 percent
improvement in 1999 profit was due to improved manufacturing
performance for Solutia's phosphorus derivatives products, and to a
lesser extent, lower raw material costs.


<PAGE>
 INTEGRATED NYLON

  Solutia's Integrated Nylon segment had net sales in 2000 of
$1.580 billion, compared with $1.508 billion in 1999 and
$1.613 billion in 1998. The 5 percent increase in 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 cost increases. Price

                                 15
 
<PAGE>
<PAGE>

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 7 percent decline in this segment's 1999 net sales compared
with 1998 resulted from lower selling prices for almost all products
and lower ACRILAN(R) acrylic fiber volumes, partially offset by
improved sales volumes of carpet fiber and nylon polymers. Lower
selling prices and sales volumes for ACRILAN(R) acrylic fibers were
caused by weak market conditions in the Asia Pacific region. In
addition, that region's lower demand depressed markets in the
Americas as acrylic fiber producers sought alternative outlets for
their products. The impact of these events began early in the third
quarter of 1998 and continued through the third quarter of 1999.
Prices stabilized early in the fourth quarter of 1999 and increased
slightly during the remainder of the year. For 1999 compared with
1998, ACRILAN(R) acrylic fiber accounted for more than half of
Integrated Nylon's net sales decline. Nylon carpet selling prices
were adversely affected in 1999 by the consolidation of the carpet
mill industry in late 1998 and the resultant increase in the carpet
mills' buying leverage. In addition, lower-priced polyester carpet
fiber also put downward pressure on prices. Sales volumes for the
segment's products were mixed, as improved carpet fiber and
VYDYNE(R) nylon molding resins volumes were offset by lower
ACRILAN(R) acrylic fiber volumes, lower chlorobenzenes volumes and
Solutia's exit from the ammonia business in 1999.

  Integrated Nylon segment profit was $160 million in 2000, versus
$289 million in 1999 and $376 million in 1998. The 45 percent
decrease resulted almost exclusively 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 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. The petrochemical
and natural gas markets remain extremely volatile and upward pricing
pressures continue because of low worldwide inventory levels.
Elevated petrochemical and natural gas costs, as well as lower
Integrated Nylon volumes, will continue to adversely affect
profitability over the near term. The 23 percent decrease in 1999
segment profit from 1998 was caused by lower selling prices in 1999,
which were partially offset by reduced manufacturing and overhead
costs.

 OPERATING INCOME

  Solutia's operating income for 2000 was $24 million, compared
with $294 million in 1999 and $386 million in 1998. The decline in
2000 operating income was caused by higher raw material and energy
costs that resulted from the sharp increase in petrochemical and
natural gas prices and by special charges taken in the second and
fourth quarters of 2000 related to certain workforce reductions,
asset impairments and facility closures. 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.

  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 operations at the Port Plastics site in Addyston, Ohio and
recorded a restructuring charge 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 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.


<PAGE>
  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 work force reductions of
approximately 700 people

                               16
 
<PAGE>
<PAGE>

across all world areas of the company and the closure of certain
non-strategic facilities. The restructuring is part of an
enterprise-wide cost reduction initiative expected to achieve $100
million in annual savings. Approximately 60 percent of the savings
will come from these restructuring actions and will be reflected
primarily in cost of goods sold. The balance of the savings will come
from a variety of projects aimed at improving efficiencies and work
processes and will be reflected primarily in cost of goods sold.
Approximately half of the savings from the cost reduction initiative is
expected to be achieved in 2001, with the full amount achieved in 2002.
The cost savings will primarily result from work force reductions, a
smaller senior management team, efficiencies realized from the full
implementation of enterprise-wide systems and the streamlining of
operations primarily within Integrated Nylon. The restructuring
actions are expected to be carried out by the end of 2001. Cash
outlays associated with the restructuring actions will be funded by
operations. Approximately 80 percent of the workforce reductions are
planned for North American business and manufacturing operations,
and approximately 20 percent are planned for European, Asian and
Latin American operations and sales offices. Management and senior
management positions represent approximately one-third of the
workforce reductions. The closure of non-strategic facilities is not
anticipated to have a significant impact to future operations.

  During the fourth quarter of 2000, Solutia recorded a $76
million ($47 million aftertax, or $0.44 per share) impairment charge
to cost of goods sold primarily for the write-off of 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, or $0.09 per share)
for the write-off 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 off 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.

  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 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 and $20 million in 1998. Operating
income for those periods 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 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 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 in the years ended December 31, 1999 and
1998.

                                  17


<PAGE>
<PAGE>

  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 will 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.

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

  The 24 percent decline in 1999 operating income from 1998
operating income was caused by lower Integrated Nylon segment profit
and charges recorded in the first quarter of 1999, partially offset
by higher profit in the Performance Films and Specialty Products
segments and lower administrative and technological expenses. The
comparison of operating income between 1999 and 1998 was affected by
reversals of excess restructuring reserves to reflect lower cost
estimates for restructuring actions. A reversal of $3 million ($2
million aftertax, or $0.02 per share) was made in the second quarter
of 1998 due to lower cost estimates for the shutdown of certain
facilities included in the 1996 restructuring plan. Reversals made
in the third and fourth quarters of 1998 of $3 million ($2 million
aftertax, or $0.02 per share) and $3 million ($2 million aftertax,
or $0.02 per share), respectively, were due to lower cost estimates
to implement Solutia's employment reduction plans. Estimates were
lowered because of higher than anticipated attrition, which reduced
employment levels without additional cost to Solutia.

  Operating income for 1998 was also affected by inventory charges
of $4 million ($3 million aftertax, or $0.03 per share) in the third
quarter and $6 million ($4 million aftertax, or $0.04 per share) in
the fourth quarter. The third quarter charge was taken to reduce
certain slow-moving inventories to their net realizable values. The
fourth quarter charge was primarily caused by losses on the
disposition of certain nonsalable inventories.

 EQUITY EARNINGS FROM AFFILIATES

  Equity earnings from affiliates were $35 million in 2000,
compared with $36 million in 1999 and $25 million in 1998. The
slight decrease in 2000 was primarily the result of special charges
recorded by the Flexsys and Astaris joint ventures during the second
quarter of 2000. The Flexsys joint venture 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, the Astaris joint venture recorded charges 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 special 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.

  The improvement in 1999 equity earnings over 1998 was due to
strong sales volumes for the Flexsys joint venture, and the Advanced
Elastomer Systems joint venture, in which Solutia has 50 percent
ownership interests. In addition, Flexsys had higher earnings as
the result of good manufacturing performance in its PPD2 unit,
which started operations in 1998. The PPD2 unit produces
4-amino-diphenylamine, a product that extends the life of rubber
products.


<PAGE>
 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,
$145 million in 1999 and $147 million in 1998 and operating income
of approximately $16 million in 2000, $36 million in 1999 and
$36 million in 1998, from the Polymer Modifiers business.

                               18
 
<PAGE>
<PAGE>

 OTHER INCOME (EXPENSE)--NET

  Other expense in 2000 totaled $8 million. This compares to other
income in 1999 of $13 million and $7 million in 1998. The decline in
income was principally attributed to 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, $14 million ($8
million aftertax, or $0.07 per share) for the write-down of certain
equity-method investments in Asia based upon indicators that the
loss in their values was other than temporary, charges of $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 and charges of $8 million ($5 million
aftertax, or $0.05 per share) associated with the startup and
formation of the Astaris joint venture incurred during the second
quarter of 2000. Partially offsetting the special charges was 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.

 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. 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.

                                19
 
<PAGE>
<PAGE>

 SUMMARY OF SPECIAL CHARGES AND OTHER EVENTS AFFECTING COMPARABILITY

  Special charges recorded in 2000, 1999 and 1998 and other events
affecting comparability have been summarized in the table below
(dollars in millions).

<TABLE>
<CAPTION>
                                                                 2000          1999       1998
                                                               ---------    ---------   --------
<S>                                                            <C>          <C>         <C>
Cost of goods sold..........................................   $  8  (a)    $ 63  (k)   $(9) (m)
                                                                 53  (b)      (2) (l)    10  (n)
                                                                 91  (c)
                                                              -----         ----        ---
Total cost of goods sold....................................    152           61          1
Marketing, administrative and technological expenses........      6  (d)      --         --
                                                              -----         ----        ---
OPERATING INCOME............................................   (158)         (61)        (1)
Equity earnings from affiliates.............................     (2) (d)      --         --
                                                                (13) (e)
Gain on sale of Polymer Modifiers business..................     73  (f)      --         --
Other income (expense)-net..................................     (8) (d)      --         --
                                                                 15  (g)
                                                                (14) (h)
                                                                 (5) (h)
                                                                (10) (i)
                                                              -----         ----        ---
INCOME BEFORE INCOME TAXES..................................   (122)         (61)        (1)
Income taxes (benefit)......................................    (48) (j)     (23)        --
                                                              -----         ----        ---
NET INCOME (LOSS)...........................................  $ (74)        $(38)       $(1)
            ----                                              =====         ====        ===
<FN>
--------
(a) Restructuring charge related to exiting operations at the Port Plastics site in Addyston, Ohio ($8
    million pretax, $5 million aftertax, or $0.05 per share).

(b) Restructuring charge ($53 million pretax, $33 million aftertax, or $0.31 per share) to cost of goods
    sold for work force reductions of approximately 700 people across all world areas and functions of the
    company and the closure of certain non-strategic facilities.

(c) Impairment charge ($91 million pretax, $57 million aftertax, or $0.53 per share) to cost of goods sold
    primarily for the write down of certain non-performing and non-strategic production assets in the
    Integrated Nylon segment.

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

(e) Special operations charge 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).

(f) 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).

(g) 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).

(h) Charges to write-down certain investments in Asia based upon indicators that the loss in their values
    was other than temporary ($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).

(i) A charge ($10 million pretax, $6 million aftertax, or $0.06 per share) primarily to reserve for advances
    and working capital loans to an Asian equity affiliate.

(j) Amount represents the tax effect of the special 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 German tax rates.

(k) Special charge related to exiting Integrated Nylon's ammonia business, the write down of an Integrated
    Nylon segment bulk continuous filament spinning machine and the anticipated settlement of certain
    pending property claims litigation related to the Anniston, Alabama plant site ($63 million pretax,
    $40 million aftertax, or $0.35 per share).

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

(m) Reversal of excess restructuring reserves related to headcount reductions and facilities closures ($9
    million pretax, $6 million aftertax, or $0.05 per share).

(n) Charge for the write-down of certain slow-moving inventories and losses on the disposition of certain
    nonsalable inventories ($10 million pretax, $7 million aftertax, or $0.06 per share).
</TABLE>

                                        20
 
<PAGE>
<PAGE>

 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.

  During 2000, the cost of many feedstocks increased significantly
as the price of crude oil increased above $30 a barrel. During the
second half of 2000, natural gas escalated in price even more
dramatically than crude oil. Natural gas prices affect both
feedstock and energy costs. Recent forecasts indicate that crude oil
and natural gas prices may be moderating somewhat, but appear to
have settled at a price that is 20 to 30 percent higher than
historical averages. These markets remain volatile, which could
cause feedstock and energy costs to fluctuate significantly during
2001. Solutia expects that average selling prices will rise for
those products with formula pricing. Most of Solutia's products,
however, do not have contracts with formula pricing. Solutia will
continue to announce and implement a number of price increases
focused on restoring margins. However, the delay in adjusting
formula pricing and the difficulty in obtaining price increases
because of competitive factors and a weaker economy in the United
States will continue to negatively impact operating margins in 2001.

FINANCIAL CONDITION AND LIQUIDITY

  During February 2000, Solutia completed the issuance of euro 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. At December 31,
2000, Solutia had outstanding commercial paper balances of $485
million, a $227 million reduction from the December 31, 1999,
balance of $712 million.

  Solutia's commercial paper program is supported by an $800
million, five-year revolving credit facility ($800 million facility)
with a syndicate of commercial banks. The $800 million facility is
also available for working capital and other general corporate
purposes. This agreement, which expires in August 2002, was amended
during November 1999, principally to allow the issuance of
commercial paper in euros, as well as U.S. dollars.

  During November 2000, Solutia put into place a $250 million,
364-day multi-currency revolving credit agreement ($250 million
facility) with a syndicate of commercial banks. The $250 million
facility has terms that are generally consistent with the terms of
the $800 million facility. The $250 million facility supports
Solutia's commercial paper program and is available for working
capital and other 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 finalization of the external financing
agreement for Astaris during the third quarter of 2000, Solutia and
FMC Corporation have independently contractually agreed to provide
Astaris with funding in the event the joint venture fails to meet
certain financial benchmarks. Subsequent to December 31, 2000,
Solutia received notification that such a contribution will be
required in 2001. Solutia believes that this obligation is not
likely to have a significant impact on its consolidated financial
position, liquidity or profitability.


<PAGE>
  Solutia's working capital at December 31, 2000, decreased to
negative $334 million from negative $213 million at December 31,
1999. The decrease in the working capital position primarily
resulted from the sale of the Polymer Modifiers business and the
contribution of the Phosphorus Derivatives business to the Astaris
joint venture during 2000. Solutia's working capital position was
further reduced by the impact of slowing economic conditions
experienced during the second half of the year. At December 31,
2000, Solutia had short-term debt of $494 million.

                              21

<PAGE>
<PAGE>

  Cash from operations was $244 million in 2000 as compared to
$364 million in 1999. The decrease was primarily attributable to
lower net earnings associated with the sharp increase in
petrochemical and natural gas costs during 2000.

  Capital expenditures for 2000 were $221 million. These
expenditures were used to fund various cost reduction, maintenance
and capacity expansion projects. The company expects that its
capital requirements will be approximately $130 million in 2001,
principally for capacity expansion and cost reduction projects.
Approximately $7 million of 2001 estimated capital requirements were
committed at December 31, 2000.

  Solutia had a shareholders' deficit of $34 million at December
31, 2000, which compares with shareholders' equity of $82 million at
December 31, 1999. This $116 million decline was principally caused
by an $86 million decline in the currency translation adjustment,
principally related to the devaluation of the euro, included in
Accumulated Other Comprehensive Income (Loss) and share repurchases
which more than offset Solutia's net income in 2000.

  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 believes that its cash flow from operations and
available borrowing capacity under the $800 million facility and the
$250 million facility provide sufficient resources to finance its
operations and planned capital needs for the next 12 months.

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 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 enforcement lead 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 2000 were approximately $12 million for
environmental capital projects and approximately $111 million for
the management of environmental programs, including the operation
and maintenance of facilities for environmental control, of which
$28 million was charged against recorded environmental liabilities.
Solutia estimates that a total of approximately $20 million will be
spent during 2001 and 2002 on additional capital projects for
environmental protection and that expenses for the management of
environmental programs in 2001 and 2002 will increase slightly from
the 2000 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.

                                22
 
<PAGE>
<PAGE>

  At the time of the spinoff, Solutia assumed from the former
Monsanto Company (now Pharmacia Corporation), under the Distribution
Agreement between Monsanto and Solutia, liabilities related to
specified Superfund proceedings. As a result, while Monsanto remains
the named potentially responsible party or defendant for actions
that occurred before September 1, 1997, Solutia will manage 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 $33 million as of December 31, 2000, 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 $23 million of the accrued amount.
Solutia spent approximately $7 million in 2000 for remediation of
Superfund sites. Similar amounts can be expected in future years.

  Solutia had an accrued liability of $69 million as of December
31, 2000, 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 $9 million in 2000 for
remediation of these sites. Similar amounts can be expected in
future years.

  Solutia had an accrued liability of $79 million as of December
31, 2000, 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 $12 million in
2000 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.

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.

  Solutia uses value-at-risk ("VAR") testing and analysis to
measure and control risks. VAR estimates the loss in fair market
value, which Solutia would potentially incur, given a certain move
in market prices over a certain period of time, using specified
confidence levels. The tests discussed below for exposure to
interest rate and currency rate exposures are based on a one-day
horizon and a 95 percent confidence level. The model assumes that
financial returns are normally distributed. The VAR model takes into
account correlations and diversification across market factors,
including currencies and interest rates. Estimates of volatility and
correlations of market factors are drawn from the JP Morgan
RiskMetrics dataset as of December 31, 2000. In cases where data is
unavailable, a reasonable approximation is included. Solutia
estimates that the maximum loss that could arise in one day is not
material.


<PAGE>
 FOREIGN CURRENCY EXCHANGE RATE RISK

  Currency forward contracts are used to manage currency exposures
for financial instruments denominated in currencies other than the
entity's functional currency. Gains and losses on contracts that are
designated and effective

                             23
 
<PAGE>
<PAGE>

as hedges are included in net income and offset the exchange gain or
loss of the transaction being hedged. Solutia's 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. This hedging activity is intended to
protect Solutia from adverse fluctuations in foreign currency
exchange rates.

  At December 31, 2000, Solutia had currency forward contracts to
purchase $265 million and sell $265 million of other currencies,
principally the euro, Swiss Franc and United Kingdom Pound-Sterling,
with average maturities of 10 months. Net unrealized hedging gains
at December 31, 2000, were not material.

  Based on the company's overall currency rate exposure at
December 31, 2000, 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 consolidated
financial position, results of operations or cash flows.

 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 does not actively manage interest rate risk. Based on
the company's overall interest rate exposure at December 31, 2000, a
near-term change in interest rates, within a 95 percent confidence
level based on historical interest rate movements, would not
materially affect the consolidated financial position, results of
operations or cash flows of the company. This is consistent with the
overall interest rate exposure at December 31, 1999.

 COMMODITY PRICE RISK

  Certain raw materials and energy sources are subject to price
volatility caused by weather, crude oil prices, supply and demand
conditions and other unpredictable factors. Solutia periodically
employs commodity price option contracts to hedge some of this
exposure. The commodity price risk associated with the derivative
instruments is not material to Solutia's consolidated financial
position, results of operations or cash flow.

RECENTLY ISSUED ACCOUNTING STANDARDS

  Effective January 1, 2001, Solutia adopted SFAS No. 133,
"Accounting for Derivative Instruments and Hedging Activity," which
provides comprehensive and consistent standards for the recognition
and measurement of derivative and hedging activities. The adoption
of SFAS No. 133 did not have a material effect on Solutia's
consolidated financial statements.

  During the fourth quarter of 2000, Solutia adopted Staff
Accounting Bulletin 101, "Revenue Recognition in Financial
Statements" (SAB 101) which provides guidance related to revenue
recognition. The adoption of SAB 101 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 pages 23 and 24 above is incorporated here by
reference.

                               24
 
<PAGE>
<PAGE>

ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA.

FINANCIAL SECTION--TABLE OF CONTENTS

                                                             Page
                                                            Number
                                                            ------

Management Report...........................................  26

Report of Independent Auditors..............................  26

Statement of Consolidated Income............................  27

Statement of Consolidated Comprehensive Income (Loss).......  27

Statement of Consolidated Financial Position................  28

Statement of Consolidated Cash Flow.........................  29

Statement of Consolidated Shareholders' Equity (Deficit)....  30

Notes to Consolidated Financial Statements..................  31

                              25
 
<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, 2000, 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

February 28, 2001

                 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 as of December
31, 2000 and 1999, and the related statements of consolidated
income, comprehensive income (loss), cash flow, and shareholders'
equity (deficit) for each of the three years in the period ended
December 31, 2000. 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 Solutia
Inc. and subsidiaries as of December 31, 2000 and 1999, and the
results of their operations and their cash flows for each of the
three years in the period ended December 31, 2000, 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.

/s/ Deloitte & Touche LLP

Deloitte & Touche LLP
St. Louis, Missouri

February 28, 2001

                                26
 
<PAGE>
<PAGE>

<TABLE>
                                     SOLUTIA INC.

                           STATEMENT OF CONSOLIDATED INCOME

                   (DOLLARS IN MILLIONS, EXCEPT PER SHARE AMOUNTS)

<CAPTION>
                                                                 Year Ended December 31,
                                                               --------------------------
                                                                2000      1999      1998
                                                               ------    ------    ------
<S>                                                            <C>       <C>       <C>
NET SALES...................................................   $3,185    $2,830    $2,835
Cost of goods sold..........................................    2,699     2,178     2,085
                                                               ------    ------    ------
GROSS PROFIT................................................      486       652       750
Marketing expenses..........................................      165       153       145
Administrative expenses.....................................      173       122       136
Technological expenses......................................       91        80        83
Amortization expense........................................       33         3        --
                                                               ------    ------    ------
OPERATING INCOME............................................       24       294       386
Equity earnings from affiliates.............................       35        36        25
Interest expense............................................      (83)      (40)      (43)
Gain on sale of Polymer Modifiers business..................       73        --        --
Other income (expense)--net.................................       (8)       13         7
                                                               ------    ------    ------
INCOME BEFORE INCOME TAXES..................................       41       303       375
Income taxes (benefit)......................................       (8)       97       126
                                                               ------    ------    ------
NET INCOME..................................................   $   49    $  206    $  249
                                                               ======    ======    ======
BASIC EARNINGS PER SHARE....................................   $ 0.46    $ 1.86    $ 2.16
                                                               ======    ======    ======
DILUTED EARNINGS PER SHARE..................................   $ 0.46    $ 1.80    $ 2.03
                                                               ======    ======    ======

Weighted average equivalent shares (in millions):
  Basic.....................................................    105.9     110.8     115.5
  Effect of dilutive securities:
    Common share equivalents--common stock issuable upon
     exercise of outstanding stock options..................      1.6       3.8       7.3
                                                               ------    ------    ------
  Diluted...................................................    107.5     114.6     122.8
                                                               ======    ======    ======
</TABLE>

<TABLE>
                   STATEMENT OF CONSOLIDATED COMPREHENSIVE INCOME (LOSS)

                                  (DOLLARS IN MILLIONS)

<CAPTION>
                                                                Year Ended December 31,
                                                               -------------------------
                                                                2000      1999      1998
                                                                ----      ----      ----
<S>                                                            <C>        <C>       <C>
NET INCOME..................................................   $   49     $206      $249
OTHER COMPREHENSIVE INCOME (LOSS):
Currency translation adjustments............................      (86)     (44)       10
Minimum pension liability adjustments, net of tax of $4 in
 2000, $2 in 1999, and $2 in 1998...........................        7       (4)       (3)
                                                               ------     ----      ----
COMPREHENSIVE INCOME (LOSS).................................   $  (30)    $158      $256
                                                               ======     ====      ====
</TABLE>

See accompanying Notes to Consolidated Financial Statements.

                                   27
 
<PAGE>
<PAGE>

<TABLE>
                                SOLUTIA INC.

               STATEMENT OF CONSOLIDATED FINANCIAL POSITION

              (DOLLARS IN MILLIONS, EXCEPT PER SHARE AMOUNTS)

<CAPTION>
                                                              As of December 31,
                                                              ------------------
                                                                2000       1999
                                                               ------     ------
<S>                                                            <C>        <C>
                           ASSETS

CURRENT ASSETS:
Cash and cash equivalents...................................   $   19     $   28
Trade receivables, net of allowances of $12 in 2000 and $12
 in 1999....................................................      406        483
Miscellaneous receivables and prepaid expenses..............      126        131
Deferred income tax benefit.................................      107        101
Inventories.................................................      357        371
                                                               ------     ------
TOTAL CURRENT ASSETS........................................    1,015      1,114
PROPERTY, PLANT AND EQUIPMENT:
Land........................................................       60         68
Buildings...................................................      421        436
Machinery and equipment.....................................    2,982      2,919
Construction in progress....................................       62        272
                                                               ------     ------
Total property, plant and equipment.........................    3,525      3,695
Less accumulated depreciation...............................    2,320      2,379
                                                               ------     ------
NET PROPERTY, PLANT AND EQUIPMENT...........................    1,205      1,316
INVESTMENTS IN AFFILIATES...................................      351        377
GOODWILL, net of accumulated amortization of $24 in 2000 and
 $2 in 1999.................................................      421        511
IDENTIFIED INTANGIBLE ASSETS, net of accumulated
 amortization of $16 in 2000 and $5 in 1999.................      217         33
LONG-TERM DEFERRED INCOME TAX BENEFIT.......................      190        232
OTHER ASSETS................................................      182        187
                                                               ------     ------
TOTAL ASSETS................................................   $3,581     $3,770
                                                               ======     ======

      LIABILITIES AND SHAREHOLDERS' EQUITY (DEFICIT)
CURRENT LIABILITIES:
Accounts payable............................................   $  359     $  312
Wages and benefits..........................................       45         59
Postretirement liabilities..................................       78         86
Miscellaneous accruals......................................      373        359
Short-term debt.............................................      494        511
                                                               ------     ------
TOTAL CURRENT LIABILITIES...................................    1,349      1,327
LONG-TERM DEBT..............................................      784        802
POSTRETIREMENT LIABILITIES..................................      941        998
OTHER LIABILITIES...........................................      541        561
SHAREHOLDERS' EQUITY (DEFICIT):
Common stock (authorized, 600,000,000 shares, par value
 $0.01)
  Issued: 118,400,635 shares in 2000 and 1999...............        1          1
  Additional contributed capital............................     (141)      (137)
  Treasury stock, at cost (15,484,194 and 8,859,764 shares
   in 2000 and 1999, respectively)..........................     (296)      (209)
Unearned ESOP shares........................................       (9)       (18)
Accumulated other comprehensive income (loss)...............     (108)       (29)
Reinvested earnings.........................................      519        474
                                                               ------     ------
TOTAL SHAREHOLDERS' EQUITY (DEFICIT)........................      (34)        82
                                                               ------     ------
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY (DEFICIT)........   $3,581     $3,770
                                                               ======     ======
</TABLE>

See accompanying Notes to Consolidated Financial Statements.

                                  28
 
<PAGE>
<PAGE>

<TABLE>
                                   SOLUTIA INC.

                      STATEMENT OF CONSOLIDATED CASH FLOW

                              (DOLLARS IN MILLIONS)

<CAPTION>
                                                               Year Ended December 31,
                                                              -------------------------
                                                               2000     1999     1998
                                                               ----     ----     ----
<S>                                                           <C>      <C>       <C>
INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS OPERATING
 ACTIVITIES:
Net income..................................................  $  49    $  206    $ 249
Adjustments to reconcile to Cash From Operations:
  Items that did not use (provide) cash:
    Deferred income taxes...................................     23        23       32
    Depreciation and amortization...........................    191       151      147
    Amortization of deferred credits........................    (12)      (10)      (7)
    Restructuring expenses and other special
     charges--net...........................................    195        63       --
    Other...................................................    (15)       15       17
  Working capital changes that provided (used) cash:
    Trade receivables.......................................     69       (18)      68
    Inventories.............................................    (18)       42       (6)
    Accounts payable and accrued liabilities................    (64)     (114)       3
    Other...................................................     (1)        6       15
  Net pretax gains from asset disposals.....................    (79)       --       --
  Other items...............................................    (94)       --       19
                                                              -----     -----    -----
CASH FROM OPERATIONS........................................    244       364      537
                                                              -----     -----    -----
INVESTING ACTIVITIES:
Property, plant and equipment purchases.....................   (221)     (257)    (158)
Acquisition and investment payments, net of cash acquired...   (110)     (835)      (8)
Property disposals and investment proceeds..................    220        30       22
                                                              -----     -----    -----
CASH USED IN INVESTING ACTIVITIES...........................   (111)   (1,062)    (144)
                                                              -----     -----    -----
FINANCING ACTIVITIES:
Net change in short-term debt obligations...................    (23)      511     (190)
Long-term debt proceeds.....................................     --       201       --
Long-term debt reductions...................................    (13)       --       --
Treasury stock purchases....................................   (106)      (79)    (161)
Dividend payments...........................................     (4)       (4)      (5)
Common stock issued under employee stock plans..............      4         8       28
                                                              -----     -----    -----
CASH (USED IN) FROM FINANCING ACTIVITIES....................   (142)      637     (328)
                                                              -----     -----    -----
INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS............     (9)      (61)      65
CASH AND CASH EQUIVALENTS:
BEGINNING OF YEAR...........................................     28        89       24
                                                              -----     -----    -----
END OF YEAR.................................................  $  19     $  28    $  89
                                                              =====     =====    =====
</TABLE>

See accompanying Notes to Consolidated Financial Statements.

  The effect of exchange rate changes on cash and cash equivalents
was not material. Cash payments for interest (net of amounts
capitalized) were $88 million in 2000, $41 million in 1999 and $44
million in 1998. Cash payments for income taxes were $17 million in
2000, $43 million in 1999 and $94 million in 1998.

                              29
 
<PAGE>
<PAGE>

<TABLE>
                                    SOLUTIA INC.

             STATEMENT OF CONSOLIDATED SHAREHOLDERS' EQUITY (DEFICIT)

                               (DOLLARS IN MILLIONS)

<CAPTION>
                                                               Year Ended December 31,
                                                               -----------------------
                                                                2000    1999     1998
                                                                ----    ----     ----
<S>                                                            <C>      <C>      <C>
COMMON STOCK:
BALANCE, JANUARY 1..........................................   $   1    $   1    $   1
                                                               -----    -----    -----
BALANCE, DECEMBER 31........................................   $   1    $   1    $   1
                                                               -----    -----    -----
ADDITIONAL CONTRIBUTED CAPITAL:
BALANCE, JANUARY 1..........................................   $(137)   $(131)   $(119)
  Employee stock plans and ESOP.............................      (4)      (6)     (12)
                                                               -----    -----    -----
BALANCE, DECEMBER 31........................................   $(141)   $(137)   $(131)
                                                               -----    -----    -----
TREASURY STOCK:
BALANCE, JANUARY 1..........................................   $(209)   $(143)   $ (22)
  Shares purchased (7,717,300 shares in 2000, 3,781,700
   shares in 1999, 6,246,300 shares in 1998)................    (106)     (79)    (161)
  Net shares issued under employee stock plans (1,092,870
   shares in 2000, 551,613 shares in 1999, 1,609,451
   shares in 1998)..........................................      19       13       40
                                                               -----    -----    -----
BALANCE, DECEMBER 31........................................   $(296)   $(209)   $(143)
                                                               -----    -----    -----
UNEARNED ESOP SHARES:
BALANCE, JANUARY 1..........................................   $ (18)   $ (25)   $ (31)
  Amortization of ESOP balance..............................       9        7        6
                                                               -----    -----    -----
BALANCE, DECEMBER 31........................................   $  (9)   $ (18)   $ (25)
                                                               -----    -----    -----
ACCUMULATED OTHER COMPREHENSIVE INCOME (LOSS):
    ACCUMULATED CURRENCY ADJUSTMENT:
    BALANCE, JANUARY 1......................................     (15)      29       19
    Currency translation adjustments........................     (86)     (44)      10
                                                               -----    -----    -----
    BALANCE, DECEMBER 31....................................    (101)     (15)      29
                                                               -----    -----    -----
    MINIMUM PENSION LIABILITY:
    BALANCE, JANUARY 1......................................     (14)     (10)      (7)
    Minimum pension liability adjustments...................       7       (4)      (3)
                                                               -----    -----    -----
    BALANCE, DECEMBER 31....................................      (7)     (14)     (10)
                                                               -----    -----    -----
BALANCE, DECEMBER 31........................................   $(108)   $ (29)   $  19
                                                               -----    -----    -----
REINVESTED EARNINGS:
BALANCE, JANUARY 1..........................................   $ 474    $ 272    $  28
  Net income................................................      49      206      249
  Dividends.................................................      (4)      (4)      (5)
                                                               -----    -----    -----
BALANCE, DECEMBER 31........................................   $ 519    $ 474    $ 272
                                                               -----    -----    -----
TOTAL SHAREHOLDERS' EQUITY (DEFICIT)........................   $ (34)   $  82    $  (7)
                                                               =====    =====    =====
</TABLE>

See accompanying Notes to Consolidated Financial Statements.

                                  30

<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 produce and market a variety
of high-performance chemical-based materials. Solutia's strategic
focus is built on key strengths, including complex manufacturing
capabilities, process engineering expertise, technical service,
customer problem solving, polymer chemistry and fiber technology.
These world-class skills are applied to create solutions and
products for customers in the consumer, household, automotive,
industrial products and pharmaceutical industries. Solutia's
products and services include SAFLEX(R) plastic interlayer; window
and industrial films; GELVA(R) pressure-sensitive adhesives; liquid,
powder and waterborne resins; VYDYNE(R) and ASCEND(TM) nylon
polymers; process research, process development and scale-up
services for the pharmaceutical industry; and nylon 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. Negative additional contributed
capital arose upon 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 from
Affiliates" in the Statement of Consolidated Income.

    Use of Estimates

    The preparation of financial statements in conformity with
generally accepted accounting principles 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 (69 percent as of December
31, 2000) 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.

                                 31
 
<PAGE>
<PAGE>
                            SOLUTIA INC.

       NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

    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. Such 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.

    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.

    Revenue Recognition

    Revenues are recorded when products are shipped. 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 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 exchange rates.

                                 32
 
<PAGE>
<PAGE>
                            SOLUTIA INC.

       NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

Unrealized currency translation adjustments in the Statement of
Consolidated Financial Position are accumulated in equity.

    Earnings per Share

    Solutia measures earnings per share under the guidance of
Statement of Financial Accounting Standards (SFAS) No. 128,
"Earnings per Share." Basic earnings per share is a measure of
operating performance that assumes no dilution from securities or
contracts to issue common stock. Diluted earnings 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.

    New Accounting Pronouncements

    Effective January 1, 2001, Solutia adopted SFAS No. 133,
"Accounting for Derivative Instruments and Hedging Activity," which
provides comprehensive and consistent standards for the recognition
and measurement of derivative and hedging activities. The adoption
of SFAS No. 133 did not have a material effect on Solutia's
consolidated financial statements.

    During the fourth quarter of 2000, Solutia adopted Staff
Accounting Bulletin 101, "Revenue Recognition in Financial
Statements" (SAB 101) which provides guidance related to revenue
recognition. The adoption of SAB 101 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 2000 presentation.

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, $145 million in 1999 and
$147 million in 1998 and operating income of approximately
$16 million in 2000, $36 million in 1999 and $36 million in 1998,
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.

                                 33
 
<PAGE>
<PAGE>
                            SOLUTIA INC.

       NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

    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 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 will
be 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
years ended December 31, 1999 and 1998, give 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         1998
                                                          ------       ------
(Unaudited)
<S>                                                       <C>          <C>
Net sales...........................................      $3,357       $3,465
Net income..........................................         203          241

Basic earnings per share............................        1.83         2.09
Diluted earnings per share..........................        1.77         1.97
</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 of
approximately 700 people across all world areas of the company and
the closure of certain non-strategic facilities. The restructuring
actions are expected to be carried out by the end of 2001.
Approximately 80 percent of the workforce reductions are planned for
North American business and manufacturing operations, and
approximately 20 percent are planned for European, Asian and Latin
American operations and sales offices. Management and senior
management positions represent approximately one-third of the
workforce reductions. The closure of non-strategic facilities is not
anticipated to have a significant impact on future operations.

                                 34
 
<PAGE>
<PAGE>
                            SOLUTIA INC.

       NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

    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
                                             ===               ===            ===
</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 include
employment reductions of approximately 130 people, primarily from
Vianova Resin's service organizations located in more than 10
countries. In addition, the plans include amounts to shut down
certain Vianova Resins sales offices. The integration actions are
expected to be carried out by the end of the second quarter of 2001.

    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
                                             ===               ===            ===
</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 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
                                       ===              ===            ===        ===
</TABLE>

                                 35
 
<PAGE>
<PAGE>
                            SOLUTIA INC.

       NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

    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) special operations
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, and $20 million in 1998. Operating
income for those periods was minimal.

    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>

    In December 1996, Solutia recorded pretax restructuring charges
of $256 million ($164 million aftertax) to cover costs associated
with the closure or sale of certain facilities, asset write-offs and
work force reductions of approximately 900 people across all world
areas and functions of the company. The workforce reductions were
required to reduce staffing for the spinoff and for the
implementation of new business systems and methodologies.
Approximately two-thirds of the workforce reductions were planned
for North American business and manufacturing operations, and
approximately one-third were planned for European, Asian and Latin
American operations and sales offices. Of the North American
reductions, approximately half of the reductions were management and
senior management positions.

    Activities completed during 1999 included the shutdowns of
certain facilities and the final stage of headcount reductions
totaling approximately 150 people. The 1999 headcount reductions
occurred in Solutia's Asian, European and North American operations.
Total headcount reductions under the 1996 restructuring were
approximately 900 people. The headcount reductions occurred over a
longer period of time than management estimated due to the efforts
required to complete the separation from Monsanto and the transition
to new business systems and methodologies. In the fourth quarter of
1999, Solutia reversed excess restructuring reserves due to the
completion of the actions at a lower cost than contemplated in the
1996 plan. A reversal of $1 million ($1 million aftertax) 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) was made to eliminate a reserve
recorded to shutdown a non-strategic facility after that shutdown
was completed at a lower cost.

    During 1998, actions taken under the 1996 restructuring plan
included continuing the shutdowns of certain facilities and
headcount reductions of approximately 50 people. The 50 people
affected were in almost all areas of Solutia, but primarily in
Solutia's shared service operations, and left the company by the end
of 1998. During December 1998, Solutia also terminated approximately
100 individuals who left on various dates in the first half of 1999.
During 1998, evaluations of the costs to complete Solutia's
restructuring plans yielded lower cost estimates for certain of the
restructuring actions. The second quarter 1998 review yielded lower
cost estimates to complete the

                                 36
 
<PAGE>
<PAGE>
                            SOLUTIA INC.

       NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

shutdown of certain facilities and resulted in the reversal of
$3 million ($2 million aftertax) in that quarter. The third and
fourth quarter 1998 reviews yielded downward revisions of the costs
to implement the employment reduction plans due to higher than
anticipated attrition that reduced employment levels without
additional cost to the company. As a result, the company reversed
restructuring reserves of $3 million ($2 million aftertax) in the
third quarter 1998 and $3 million ($2 million aftertax) in the
fourth quarter.

    The following table summarizes the actions of the 1996 plan
carried out during 1998 and 1999:

<TABLE>
<CAPTION>
                                            Employee        Shutdown of
                                           Reductions       Facilities        Total
                                           ----------       -----------       -----
<S>                                        <C>              <C>               <C>
Balance at January 1, 1998...........         $ 67              $29           $ 96
     Amounts utilized................          (24)              (8)           (32)
     Adjustments.....................           (6)              (3)            (9)
                                              ----              ---           ----
Balance at December 31, 1998.........         $ 37              $18           $ 55
                                              ----              ---           ----
     Amounts utilized................          (36)             (17)           (53)
     Adjustments.....................           (1)              (1)            (2)
                                              ----              ---           ----
Balance at December 31, 1999.........         $ --              $--           $ --
                                              ====              ===           ====
</TABLE>

    For all of Solutia's restructuring charges, expenses were
recorded based on estimates prepared at the time the restructuring
actions were approved by the board of directors or management.
Adjustments to these estimates, shown in the tables above, were
credited to costs of goods sold in the respective year.

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
for the write-off of 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) for
the write-off 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 off 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 is $0.5 million. The charge is 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

                                 37
 
<PAGE>
<PAGE>
                            SOLUTIA INC.

       NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

of market prices for the machinery. Operating income derived from
the machinery was minimal in the years ended December 31, 1999 and
1998.

5. INVESTMENTS IN AFFILIATES

    In April 2000, Astaris L.L.C., 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. Solutia accounts for the joint venture using the equity
method of accounting. During the third quarter of 2000, Solutia
received $85 million from Astaris representing a cash distribution
and repayment of working capital loans.

    At December 31, 2000, 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. Summarized combined
financial information for 100 percent of the Flexsys, AES and
Astaris joint ventures is as follows:

<TABLE>
<CAPTION>
                                                   2000        1999       1998
                                                  ------       ----       ----
<S>                                               <C>          <C>        <C>
Results of operations:
    Net sales...............................      $1,247       $869       $838
    Gross profit............................         327        267        256
    Operating income........................         138        108        116
    Net income..............................          95         85         94

Financial position:
    Current assets..........................      $  552       $398
    Noncurrent assets.......................         744        518
    Current liabilities.....................         347        275
    Noncurrent liabilities..................         334         48
</TABLE>

6. INVENTORY VALUATION

    The components of inventories were:

<TABLE>
<CAPTION>
                                                           2000        1999
                                                           -----       -----
<S>                                                        <C>         <C>
Finished goods.......................................      $ 305       $ 260
Goods in process.....................................        105         121
Raw materials and supplies...........................        108         109
                                                           -----       -----
Inventories, at FIFO cost............................        518         490
Excess of FIFO over LIFO cost........................       (161)       (119)
                                                           -----       -----
TOTAL................................................      $ 357       $ 371
                                                           =====       =====
</TABLE>

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

                                 38
 
<PAGE>
<PAGE>
                            SOLUTIA INC.

       NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

7. INCOME TAXES

    The components of income before income taxes were:

<TABLE>
<CAPTION>
                                                    2000       1999       1998
                                                    ----       ----       ----
<S>                                                 <C>        <C>        <C>
United States.................................      $(23)      $224       $285
Outside United States.........................        64         79         90
                                                    ----       ----       ----
TOTAL.........................................      $ 41       $303       $375
                                                    ====       ====       ====
</TABLE>

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

<TABLE>
<CAPTION>
                                                    2000       1999       1998
                                                    ----       ----       ----
<S>                                                 <C>        <C>        <C>
Current:
    U.S. federal..............................      $(63)      $ 48       $ 66
    U.S. state................................        (2)         6          3
    Outside United States.....................        34         20         25
                                                    ----       ----       ----
                                                     (31)        74         94
                                                    ----       ----       ----

Deferred:
    U.S. federal..............................        46         18         21
    U.S. state................................        (7)        --          6
    Outside United States.....................       (16)         5          5
                                                    ----       ----       ----
                                                      23         23         32
                                                    ----       ----       ----
TOTAL.........................................      $ (8)      $ 97       $126
                                                    ====       ====       ====
</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>
                                                      2000       1999       1998
                                                      ----       ----       ----
<S>                                                   <C>        <C>        <C>
U.S. federal statutory rate.....................       35%        35%        35%
U.S. state income taxes.........................      (15)         2          2
Tax benefit of foreign sales corporation........      (13)        (2)        (2)
Taxes related to foreign income, net of
  credits.......................................      (17)        (1)        --
Valuation allowances............................       32         --         --
Income from equity affiliates recorded net of
  tax...........................................      (37)        (4)        (2)
Other...........................................       (6)         2          1
                                                      ---         --         --
EFFECTIVE INCOME TAX RATE.......................      (21)%       32%        34%
                                                      ===         ==         ==
</TABLE>

                                 39
 
<PAGE>
<PAGE>
                            SOLUTIA INC.

       NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

    Deferred income tax balances were related to:

<TABLE>
<CAPTION>
                                                           2000        1999
                                                           -----       -----
<S>                                                        <C>         <C>
Property.............................................      $(173)      $(197)
Postretirement benefits..............................        377         399
Restructuring reserves...............................         29           7
Environmental liabilities............................         64          76
Intangible assets....................................        (66)         --
Inventory............................................         --          (3)
Valuation allowances.................................        (13)         --
Other................................................        (21)         17
                                                           -----       -----
NET DEFERRED TAX ASSETS..............................      $ 197       $ 299
                                                           =====       =====
</TABLE>

    At December 31, 2000, foreign tax credit carryforwards available
to reduce possible future U.S. income taxes amounted to
approximately $13 million, all of which expire in 2005. Valuation
allowances have been provided for the foreign tax credit
carryforwards that are not likely to be utilized. Income taxes and
remittance taxes have not been recorded on $77 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.

8. DEBT OBLIGATIONS

    Solutia's debt obligations include commercial paper, notes and
debentures. The weighted average interest rate on total debt
outstanding at December 31, 2000, was 6.7 percent and was 6.8
percent at December 31, 1999.

    Debt Maturing in One Year

    Debt maturing in one year consisted of commercial paper balances
of $485 million at December 31, 2000, and $511 million at December
31, 1999. Weighted average interest rates on commercial paper
balances were 6.6 percent during 2000, 5.5 percent in 1999 and 5.7
percent during 1998.

    At December 31, 1999, $201 million of outstanding commercial
paper was reclassified from short-term debt to long-term debt based
on Solutia's intention to refinance that amount through the issuance
of euro 200 million of notes, due February 2005.

    Solutia's commercial paper program is principally supported by
an $800 million, five-year revolving credit facility ($800 million
facility) with a syndicate of commercial banks. The $800 million
facility is also available for working capital and other general
corporate purposes. This agreement was amended during November 1999,
principally to allow the issuance of commercial paper in euros, as
well as U.S. dollars.

    During November 2000, Solutia put in place a $250 million,
364-day multi-currency revolving credit agreement ($250 million
facility) with a syndicate of commercial banks. The $250 million
facility has terms that are generally consistent with the terms of
the $800 million facility. The $250 million facility supports
Solutia's commercial paper program and is available for working
capital and other general corporate purposes.

    Both the $800 million facility and the $250 million facility
contain 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. Solutia does
not anticipate that future borrowings will be limited by the terms
of these agreements. Interest on amounts borrowed under these credit
facilities is expected to approximate money market rates.

                                 40
 
<PAGE>
<PAGE>
                            SOLUTIA INC.

       NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

    Long-Term Debt

    Long-term debt consisted of the following:

<TABLE>
<CAPTION>
                                                             2000       1999
                                                             ----       ----
<S>                                                          <C>        <C>
Commercial paper.......................................      $ --       $201
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..............................       186         --
Other..................................................         1          4
Unamortized debt discount..............................        (3)        (3)
                                                             ----       ----
TOTAL..................................................      $784       $802
                                                             ====       ====
</TABLE>

    Other notes of $1 million at December 31, 2000, and $4 million
at December 31, 1999, were assumed in the acquisition of Vianova
Resins.

    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
against assets and its ability to enter into sale and leaseback
transactions.

9. FAIR VALUES OF FINANCIAL INSTRUMENTS

    The estimated fair value of Solutia's long-term debt was $685 million
as of December 31, 2000, and $761 million as of December 31, 1999. These
estimates compare with the recorded amount of $784 million in 2000 and
$802 million in 1999.

    The recorded amounts of cash, trade receivables, third-party
guarantees, accounts payable and short-term debt approximate their
fair values at both December 31, 2000, and December 31, 1999. The
estimated fair value of the company's foreign currency forward
contracts and natural gas contracts was not material. Notional
amounts for purchase contracts were $286 million at December 31,
2000, and $44 million at December 31, 1999, and for sell contracts
the notional amounts were $265 million at December 31, 2000, and
$44 million at December 31, 1999.

    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,
2000, and December 31, 1999. The fair-value estimates do not necessarily
reflect the values Solutia could realize in the current market.

10. 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, Monsanto 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

                                 41
 
<PAGE>
<PAGE>
                            SOLUTIA INC.

       NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

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.

    During the second quarter of 1998, Solutia amended certain of
its postretirement health care plans, primarily to adjust
cost-sharing provisions. The amendment resulted in a $161 million
reduction in the company's accumulated postretirement benefit
obligation, which is being amortized over the average remaining
service life of plan participants of approximately 12 years.

    For 2000, 1999 and 1998, Solutia's pension and healthcare and
other benefit costs were as follows:

<TABLE>
<CAPTION>
                                                      Pension Benefits              Healthcare and Other Benefits
                                                -----------------------------       -----------------------------
                                                2000        1999        1998        2000        1999        1998
                                                -----       -----       -----       -----       -----       -----
<S>                                             <C>         <C>         <C>         <C>         <C>         <C>
Service costs for benefits earned.........      $  32       $  38       $  33        $10         $11         $11
Interest cost on benefit obligation.......        131         132         130         53          49          54
Assumed return on plan assets.............       (144)       (153)       (147)        --          --          --
Prior service costs.......................         21          21          19        (18)        (18)        (12)
Transition asset..........................        (10)        (10)        (10)        --          --          --
Unrecognized net (gain)/loss..............          4          (3)         (3)         7           6           1
Settlement................................        (23)         --          --         --          --          --
                                                -----       -----       -----        ---         ---         ---
TOTAL.....................................      $  11       $  25       $  22        $52         $48         $54
                                                =====       =====       =====        ===         ===         ===
</TABLE>

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

<TABLE>
<CAPTION>
                                                                                              Healthcare and
                                                                   Pension Benefits           Other Benefits
                                                                  -------------------         ---------------
                                                                   2000         1999          2000       1999
                                                                  ------       ------         ----       ----
<S>                                                               <C>          <C>            <C>        <C>
CHANGES IN FAIR VALUE OF PLAN ASSETS
    Fair value of plan assets at January 1..................      $1,973       $1,910         $ --       $ --
    Actual return on plan assets............................          92          349           --         --
    Acquisitions............................................          --            2           --         --
    Settlements.............................................         (37)          --           --         --
    Benefits paid...........................................        (304)        (288)          --         --
                                                                  ------       ------         ----       ----
    FAIR VALUE OF PLAN ASSETS AT DECEMBER 31................      $1,724       $1,973         $ --       $ --
                                                                  ------       ------         ----       ----
CHANGES IN BENEFIT OBLIGATION
    Benefit obligation at January 1.........................      $1,833       $1,983         $720       $726
    Service costs...........................................          32           38           10         11
    Interest cost...........................................         131          132           53         49
    Participant contributions...............................          --           --            7          2
    Actuarial gains and losses..............................         111          (54)          51         12
    Acquisitions............................................          --           21           --         --
    Settlements.............................................         (37)          --          (17)        --
    Benefits paid...........................................        (326)        (300)         (92)       (80)
    Plan amendments.........................................           2           13           --         --
                                                                  ------       ------         ----       ----
    BENEFIT OBLIGATION AT DECEMBER 31.......................      $1,746       $1,833         $732       $720
                                                                  ======       ======         ====       ====
</TABLE>

                                 42
 
<PAGE>
<PAGE>
                            SOLUTIA INC.

       NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

    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 2000 and 1999
because Solutia's principal pension plan is adequately funded, using
assumed returns.

    The funded status of Solutia's postretirement benefit plans at
December 31, 2000, and 1999 was as follows:

<TABLE>
<CAPTION>
                                                                                             Healthcare and
                                                                  Pension Benefits           Other Benefits
                                                                  -----------------         -----------------
                                                                  2000        1999          2000        1999
                                                                  -----       -----         -----       -----
<S>                                                               <C>         <C>           <C>         <C>
FUNDED STATUS...............................................      $ (22)      $ 140         $(732)      $(720)
Unrecognized actuarial (gain)/loss..........................       (294)       (464)           65          18
Unrecognized prior service costs............................        135         149          (141)       (159)
Additional liability........................................        (13)        (25)           --          --
Unrecognized transition (gain)/loss.........................         (5)        (13)           --          --
                                                                  -----       -----         -----       -----
ACCRUED NET LIABILITY AT DECEMBER 31........................      $(199)      $(213)        $(808)      $(861)
                                                                  =====       =====         =====       =====
</TABLE>

    The accrued net liability was included in:

<TABLE>
<CAPTION>
                                                                                             Healthcare and
                                                                  Pension Benefits           Other Benefits
                                                                  -----------------         -----------------
                                                                  2000        1999          2000        1999
                                                                  -----       -----         -----       -----
<S>                                                               <C>         <C>           <C>         <C>
Current postretirement liabilities..........................      $  --       $  --         $ (78)      $ (86)
Long-term postretirement liabilities........................       (211)       (223)         (730)       (775)
Less: Other assets..........................................         12          10            --          --
                                                                  -----       -----         -----       -----
ACCRUED NET LIABILITY.......................................      $(199)      $(213)        $(808)      $(861)
                                                                  =====       =====         =====       =====
</TABLE>

    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 is as follows:

<TABLE>
<CAPTION>
                                                              2000       1999
                                                              ----       ----
<S>                                                           <C>        <C>
Projected benefit obligation............................      $25        $30
Accumulated benefit obligation..........................       23         24
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
                                                                  -----------------         ---------------
                                                                  2000        1999          2000       1999
                                                                  ----        ----          ----       ----
<S>                                                               <C>         <C>           <C>        <C>
Discount rate...............................................      7.25%       7.50%         7.25%      7.50%
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).....................      4.25%       4.50%           --         --
Assumed trend rate for healthcare costs.....................        --          --          5.00%      5.25%
Ultimate trend rate for healthcare costs....................        --          --          5.00%      5.25%
</TABLE>

                                 43
 
<PAGE>
<PAGE>
                            SOLUTIA INC.

       NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

    A 1 percent change in the assumed health care cost trend rates
would have the following effect as of December 31, 2000:

<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.............................            12                   (13)
</TABLE>

11. 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, 2000, there have been 9,143,358 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 1,314,341 shares in 2000,
979,439 shares in 1999 and 622,598 shares in 1998, leaving 1,593,739
unallocated shares as of December 31, 2000. The value of these
contributions was $17 million in 2000, $18 million in 1999, and
$16 million in 1998. 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>
                                                     2000       1999       1998
                                                     ----       ----       ----
<S>                                                  <C>        <C>        <C>
Total ESOP expense.............................      $10        $ 8         $6
Interest portion of total ESOP expense.........        1          2          2
Cash contributions.............................       10         10          7
</TABLE>

12. 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,
2000, approximately 4,191,380 shares from the 2000 plan and 356,374
shares from the 1997 plan remained available for grants.

    During 2000, non-qualified options to purchase 456,000 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 1,430,876 shares were
granted to other employees at an average exercise price of $13.98
per share. Total shares covered by options granted under the plans
to current executive officers and other senior executives as a group
totaled 2,099,000 and other employees totaled 6,631,268, through
December 31, 2000. The options granted to Solutia's

                                 44
 
<PAGE>
<PAGE>
                            SOLUTIA INC.

       NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

executive officers and other senior executives are 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, 2000, 257,717 shares of Solutia's common
stock remained available for grants under the plan. Shares covered
by options granted, and deferred shares credited to non-employee
directors' accounts totaled 25,167 in 2000, 34,333 in 1999 and
16,000 in 1998.

    As permitted by SFAS No. 123, "Accounting for Stock-Based
Compensation," Solutia has elected to continue following the
guidance of Accounting Principles Board 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 would have been reduced to the pro forma amounts indicated
below:

<TABLE>
<CAPTION>
                                                  2000        1999        1998
                                                  -----       -----       -----
<S>                                               <C>         <C>         <C>
NET INCOME:
    As reported.............................      $  49       $ 206       $ 249
    Pro forma...............................         42         187         224
DILUTED EARNINGS PER SHARE:
    As reported.............................      $0.46       $1.80       $2.03
    Pro forma...............................       0.39        1.63        1.82
</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 2000, 1999 and 1998:

<TABLE>
<CAPTION>
                                                     2000       1999       1998
                                                     ----       ----       ----
<S>                                                  <C>        <C>        <C>
Expected dividend yield........................       0.2%       0.2%       0.2%
Expected volatility............................      34.0%      34.0%      28.0%
Risk-free interest rates.......................       5.8%       6.0%       5.1%
Expected option lives (years)..................       5.0        5.0        5.0
</TABLE>

    The weighted-average fair values of options granted were $5.30
in 2000, $8.05 in 1999 and $9.33 in 1998.

                                 45
 
<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, 2000, 1999 and 1998 follows:

<TABLE>
<CAPTION>
                                                             Outstanding
                                                  ---------------------------------
                                Exercisable                        Weighted-Average
                                  Shares            Shares          Exercise Price
                                -----------       ----------       ----------------
<S>                             <C>               <C>              <C>
December 31, 1997                9,517,858        27,892,400            $14.53
                                ----------        ----------            ------
    Granted...............                           273,567            $27.12
    Exercised.............                        (1,833,225)            12.19
    Expired...............                          (475,637)            16.22
                                ----------        ----------            ------
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
                                ==========        ==========            ======
</TABLE>

    The following table summarizes information about stock options
outstanding at December 31, 2000:

OPTIONS OUTSTANDING:

<TABLE>
<CAPTION>
       Range of                               Weighted-Average
       Exercise                                  Remaining           Weighted-Average
        Prices                 Shares         Contractual Life        Exercise Price
-----------------------      ----------       ----------------       ----------------
<S>                          <C>              <C>                    <C>
$ 3 to 7...............       4,353,760             2.4                   $ 5.90
  8 to 11..............          50,029             7.0                    10.58
 12 to 15..............       3,081,363             7.8                    13.42
 16 to 18..............      13,206,730             6.0                    16.44
 19 to 22..............       6,061,700             7.3                    19.69
 23 to 29..............         237,081             7.4                    27.65
                             ----------             ---                   ------
$ 3 to 29..............      26,990,663             5.9                   $15.21
                             ==========             ===                   ======
</TABLE>

OPTIONS EXERCISABLE:

<TABLE>
<CAPTION>
                Range of                                        Weighted-Average
             Exercise Prices                     Shares          Exercise Price
-----------------------------------------      ----------       ----------------
<S>                                            <C>              <C>
$ 3 to 7.................................       4,353,760            $ 5.90
  8 to 11................................          28,862              9.74
 12 to 15................................       1,261,713             12.56
 16 to 18................................      13,206,730             16.44
 19 to 22................................       4,619,940             19.43
 23 to 29................................         119,916             27.49
                                               ----------            ------
$ 3 to 29................................      23,590,921            $14.92
                                               ==========            ======
</TABLE>

                                 46
 
<PAGE>
<PAGE>
                            SOLUTIA INC.

       NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

13. 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 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, 2000, there were no
preferred shares issued or outstanding.

14. COMMITMENTS AND CONTINGENCIES

    Commitments, principally in connection with uncompleted
additions to property, were approximately $7 million at December 31,
2000. Solutia was contingently liable as a guarantor principally in
connection with bank loans totaling approximately $16 million at
December 31, 2000. In addition, as of December 31, 2000, the company
was contingently liable under letters of credit, primarily related
to environmental remediation, totaling $37 million. Solutia's future
minimum payments under noncancelable operating leases and unconditional
purchase obligations are $30 million for 2001, $25 million for 2002,
$58 million for 2003, $18 million for 2004, $17 million for 2005 and
$87 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 $171 million at December 31, 2000, and approximately
$183 million at December 31, 1999.

    In connection with the finalization of the external financing
agreement for Astaris during the third quarter of 2000, Solutia and
FMC Corporation have independently contractually agreed to provide
Astaris with funding in the event the joint venture fails to meet
certain financial benchmarks. Subsequent to December 31, 2000,
Solutia received notification that such a contribution will be
required in 2001. Solutia believes that this obligation is not
likely to have a significant impact on its consolidated financial
position, liquidity or profitability.

                                 47
 
<PAGE>
<PAGE>
                            SOLUTIA INC.

       NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

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

<TABLE>
<CAPTION>
                                                             2000       1999
                                                             ----       ----
<S>                                                          <C>        <C>
U.S. chemical industry.................................      $ 51       $ 51
U.S. carpet industry...................................        42         41
European glass industry................................        38         50
European chemical industry.............................       101         28
</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 $181 million at December 31, 2000, and $201 million
at December 31, 1999, for the remediation of identified waste disposal
sites. Expenditures related to remediation activities were $29 million
in 2000, $22 million in 1999 and $22 million in 1998.

    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 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. Solutia has
determined that all probable losses will be recovered from insurance
proceeds and has not recorded a loss from the incident. Solutia
anticipates that the insurance recoveries will exceed the net book
value of the plant assets and associated losses resulting in a gain.
The results of operations from these production units were not
material to Solutia's consolidated results of operations.

    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 will 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. 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

                                 48
 
<PAGE>
<PAGE>
                            SOLUTIA INC.

       NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

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.

15. SUPPLEMENTAL DATA

    Supplemental income statement data were:

<TABLE>
<CAPTION>
                                                                   2000        1999       1998
                                                                  ------       ----       ----
<S>                                                               <C>          <C>        <C>
    Raw material and energy costs...........................      $1,300       $984       $994
    Employee compensation and benefits......................         824        728        757
    Current income and other taxes..........................          82        166        176
    Rent expense............................................          38         26         26
    Technological expenses:
        Research and development............................          67         58         60
        Engineering, commercial development and patent......          24         22         23
                                                                  ------       ----       ----
    Total technological expenses............................          91         80         83
    Interest expense:
        Total interest cost.................................         101         53         49
        Less capitalized interest...........................          18         13          6
                                                                  ------       ----       ----
    Net interest expense....................................          83         40         43
</TABLE>

16. SEGMENT AND GEOGRAPHIC DATA

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

<TABLE>
<CAPTION>
         Performance Films                      Specialty Products                      Integrated Nylon
------------------------------------  --------------------------------------  ------------------------------------
<S>                                   <C>                                     <C>
SAFLEX(R) plastic interlayer          Resins and additives, including         Intermediate "building block"
                                        ALFTALAT(R) polyester resins,           chemicals
KEEPSAFE(R), SAFLEX INSIDE(R) (in       RESIMENE(R) and MAPRENAL(R)
  Europe only) and KEEPSAFE             crosslinkers and SYNTHACRYL(R)
  MAXIMUM(R) glass for residential      acrylic resins
  security and hurricane protection
  windows

LLUMAR(R), VISTA(R) and GILA(R)       THERMINOL(R) heat transfer fluids       Merchant polymer and nylon extrusion
  professional and after-market                                                 polymers, including VYDYNE(R) and
  window films                                                                  ASCEND(TM)

Conductive and anti-reflective        DEQUEST(R) water treatment chemicals    Carpet fibers, including the WEAR-
  coated films and deep-dyed films                                              DATED(R) and ULTRON VIP(R) brands

GELVA(R) pressure-sensitive           SKYDROL(R) hydraulic fluids and         Industrial nylon fibers
  adhesives                             SKYKLEEN(R) cleaning fluids for
                                        aviation

                                      Process research, process development,  ACRILAN(R) acrylic fibers for
                                        scale-up capabilities and small         apparel, upholstery fabrics, craft
                                        scale manufacturing for the             yarns and other applications
                                        pharmaceutical industry
</TABLE>

                                 49
 
<PAGE>
<PAGE>
                            SOLUTIA INC.

       NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

    Accounting policies of the segments are the same as those
described in the summary of significant accounting policies in Note 1.
However, segment profit reflects only operating expenses that are
directly attributable to the segment. Unallocated service costs are
managed centrally and primarily include costs of technology,
engineering and manufacturing services that are provided to the
segments. These amounts also include corporate administration costs.
The company accounts for intersegment sales at agreed upon transfer
prices. Intersegment sales are eliminated in consolidation. Segment
assets consist primarily of customer receivables, finished goods
inventories and fixed assets directly associated with the production
processes of the segment (direct fixed assets). Segment depreciation
and amortization is based upon direct fixed assets. Unallocated
assets consist primarily of goodwill, identified intangible assets,
deferred taxes, certain investments in equity affiliates and
indirect fixed assets.

    Solutia's 2000, 1999 and 1998 segment information follows:

<TABLE>
<CAPTION>
                                                                        Year Ended December 31,
                                        ---------------------------------------------------------------------------------------
                                                  2000                           1999                           1998
                                        -------------------------      -------------------------      -------------------------
                                                 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.............      $  731     $--     $ 185       $  713     $--     $ 189       $  614     $--     $ 168
    Specialty Products............         866      --       182          615       2       159          613       3       152
    Integrated Nylon..............       1,580       1       160        1,508       4       289        1,613       4       376
                                        ------     ---     -----       ------     ---     -----       ------     ---     -----
SEGMENT TOTALS....................       3,177       1       527        2,836       6       637        2,840       7       696
RECONCILIATION TO CONSOLIDATED
  TOTALS:
    Sales eliminations............          (1)     (1)                    (6)     (6)                    (7)     (7)
    Other revenues................           9                             --                              2
    Less unallocated service
      costs:
        Cost of goods sold........                          (207)                          (124)                           (70)
        Marketing, administrative
          and technological
          expenses................                          (263)                          (216)                          (240)
    Amortization expense..........                           (33)                            (3)                            --
    Equity earnings from
      affiliates..................                            35                             36                             25
    Interest expense..............                           (83)                           (40)                           (43)
    Gain on sale of Polymer
      Modifiers business..........                            73                             --                             --
    Other income (expense)--net...                            (8)                            13                              7
                                        ------     ---                 ------     ---                 ------     ---
CONSOLIDATED TOTALS:
    NET SALES.....................      $3,185     $--                 $2,830     $--                 $2,835     $--
                                        ======     ===     -----       ======     ===     -----       ======     ===     -----
    INCOME BEFORE INCOME TAXES....                         $  41                          $ 303                          $ 375
                                                           =====                          =====                          =====
</TABLE>


<PAGE>
<TABLE>
<CAPTION>
                                                      Year Ended December 31,
                           ------------------------------------------------------------------------------
                                           2000                                      1999
                           ------------------------------------      ------------------------------------
                                                   DEPRECIATION                              Depreciation
                                      CAPITAL          AND                      Capital          and
                           ASSETS   EXPENDITURES   AMORTIZATION      Assets   Expenditures   Amortization
                           ------   ------------   ------------      ------   ------------   ------------
<S>                        <C>      <C>            <C>               <C>      <C>            <C>
SEGMENT:
 Performance Films...      $  411       $ 26           $ 28          $  484       $ 21           $ 30
 Specialty
  Products...........         508         29             27             677          8             18
 Integrated Nylon....       1,041        137             58             985        189             57
                           ------       ----           ----          ------       ----           ----
SEGMENT TOTALS.......      $1,960       $192            113          $2,146        218            105
RECONCILIATION TO
 CONSOLIDATED TOTALS:
 Unallocated
  amounts............       1,621         29             78           1,624         39             46
                           ------       ----           ----          ------       ----           ----
CONSOLIDATED
 TOTALS..............      $3,581       $221           $191          $3,770       $257           $151
                           ======       ====           ====          ======       ====           ====

<CAPTION>
                             Year Ended December 31,
                       ------------------------------------
                                       1998
                       ------------------------------------
                                               Depreciation
                                  Capital          and
                       Assets   Expenditures   Amortization
                       ------   ------------   ------------
<S>                    <C>      <C>            <C>
SEGMENT:
 Performance Films...  $  371       $ 24           $ 27
 Specialty
  Products...........     324         20             19
 Integrated Nylon....     887         81             56
                       ------       ----           ----
SEGMENT TOTALS.......  $1,582        125            102
RECONCILIATION TO
 CONSOLIDATED TOTALS:
 Unallocated
  amounts............   1,183         33             45
                       ------       ----           ----
CONSOLIDATED
 TOTALS..............  $2,765       $158           $147
                       ======       ====           ====
</TABLE>

                                 50
 
<PAGE>
<PAGE>
                            SOLUTIA INC.

       NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

    Solutia's geographic information for 2000, 1999 and 1998
follows:

<TABLE>
<CAPTION>
                                                                  Net Sales                    Long-Lived Assets
                                                       --------------------------------       -------------------
                                                        2000         1999         1998         2000         1999
                                                       ------       ------       ------       ------       ------
<S>                                                    <C>          <C>          <C>          <C>          <C>
    U.S..........................................      $1,939       $1,992       $2,009       $  899       $1,001
    Other countries..............................       1,246          838          826          306          315
                                                       ------       ------       ------       ------       ------
    CONSOLIDATED TOTALS..........................      $3,185       $2,830       $2,835       $1,205       $1,316
                                                       ======       ======       ======       ======       ======
</TABLE>

17. QUARTERLY DATA--UNAUDITED

<TABLE>
<CAPTION>
                                                          First        Second         Third        Fourth       Total
                                                         Quarter       Quarter       Quarter       Quarter       Year
                                                         -------       -------       -------       -------      ------
<S>                                           <C>        <C>           <C>           <C>           <C>          <C>
    Net Sales...........................      2000        $ 846         $ 834         $ 774         $ 731       $3,185
                                              1999          652           711           731           736        2,830

    Gross Profit........................      2000          199           158           143           (14)         486
                                              1999          105           193           183           171          652

    Operating Income....................      2000           79            37            35          (127)          24
                                              1999           26           102            94            72          294

    Net Income..........................      2000           51             4            78           (84)          49
                                              1999           23            71            61            51          206

    Basic Earnings per Share............      2000         0.47          0.04          0.75         (0.82)        0.46
                                              1999         0.21          0.64          0.55          0.46         1.86

    Diluted Earnings per Share..........      2000         0.46          0.04          0.74         (0.81)        0.46
                                              1999         0.20          0.61          0.53          0.46         1.80

    Common Stock Price:
        2000............................      HIGH        17.19         15.56         15.69         13.00        17.19
                                               LOW        11.63         11.25         10.38         10.88        10.38

        1999............................      High        24.38         26.31         22.94         18.88        26.31
                                               Low        15.88         16.06         16.13         13.50        13.50
</TABLE>

    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 income in the
fourth quarter of 2000 includes restructuring and asset impairment
charges of $96 million aftertax.

    Net income in the first quarter of 1999 includes aftertax
charges of $18 million related to exiting Integrated Nylon's ammonia
business, $4 million related to the write down of an Integrated
Nylon bulk continuous filament spinning machine to fair value and
$18 million related to the anticipated settlement of certain
property claims litigation involving the Anniston, Alabama plant
site.

    Under SFAS No. 128, "Earnings per Share," the quarterly and
total year calculations of basic and diluted earnings 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 per share for the quarterly periods may not equal total
year earnings per share.

                                 51
 
<PAGE>
<PAGE>
ITEM 9. CHANGES IN AND DISAGREEMENTS ON ACCOUNTING AND FINANCIAL
        DISCLOSURE.

    None.

                              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 15, 2001,
is incorporated by reference. The following information about
Solutia's executive officers on March 1, 2001, is included pursuant
to Instruction 3 of Item 401(b) of Regulation S-K:

<TABLE>
<CAPTION>
                                                                   Year First
                                                                     Became
                                                                       an
                                                                   Executive
           Name-Age              Present Position with Registrant   Officer     Other Business Experience since January 1, 1996
--------------------------------------------------------------------------------------------------------------------------------
<S>                              <C>                               <C>         <C>
John C. Hunter III, 54           Chairman, President, Chief          1997      President, Chief Operating Officer and
                                 Executive Officer and Director                Director, 1997-1999. President, Fibers Business
                                                                               Unit, Monsanto, 1995-1997.

Karl R. Barnickol, 59            Senior Vice President, General      1997      Associate General Counsel and Assistant Secretary
                                 Counsel and Secretary                         of Monsanto, 1985-1997.

Russell J. Belle, 58             Vice President and General          2001      Vice President and General Manager, Specialty
                                 Manager, Industrial Products                  Chemicals, 2000-2001. Vice President and General
                                                                               Manager, Intermediates, 1998-1999. Vice President
                                                                               and General Manager, Specialty Resins, 1997-1998.
                                                                               Business Director, Specialty Resins, Monsanto,
                                                                               1995-1997.

Robert A. Clausen, 56            Senior Vice President and Chief     1997      President, Monsanto Business Services, 1994-1997.
                                 Financial Officer; Advisory
                                 Director

Sheila B. Feldman, 46            Vice President, Human Resources     1997      Vice President, Human Resources, 1997-1999.
                                 and Public Affairs                            Director, Human Resources, Monsanto Business
                                                                               Services and Stewardship, 1995-1997.

John J. Ferguson, 48             Senior Vice President,              1998      Senior Vice President, Shared Services and Supply
                                 Integrated Nylon                              Chain, 1998-1999. Vice President and General
                                                                               Manager, SAFLEX(R) Plastic Interlayer, 1997-1998.
                                                                               President, SAFLEX(R) Plastic Interlayer,
                                                                               Monsanto, 1994-1997.

Victoria M. Holt, 43             Vice President and General          1999      Vice President and General Manager, Saflex,
                                 Manager, Performance Films                    1999-2001. Vice President and General Manager,
                                                                               Acrilan Business Unit, 1997-1998. Business
                                                                               Director, Acrilan Business Unit, Monsanto,
                                                                               1996-1997. Assistant to Monsanto's Chief
                                                                               Executive Officer, 1995-1996.

                                 52
 
<PAGE>
<PAGE>
<CAPTION>
                                                                   Year First
                                                                     Became
                                                                       an
                                                                   Executive
           Name-Age              Present Position with Registrant   Officer     Other Business Experience since January 1, 1996
--------------------------------------------------------------------------------------------------------------------------------
<S>                              <C>                               <C>         <C>
Todd B. Imhoff, 36               Vice President, Corporate           2001      Vice President, Supply Chain, 2000-2001.
                                 Services                                      Director, Strategic Procurement, 1999-2000.
                                                                               Manager, Supply Chain Strategy, 1997-1999.
                                                                               National Accounts Manager (Operations), Americas
                                                                               Division of Monsanto, 1996-1997. Manager, U.S.
                                                                               Package Distribution, Americas Division of
                                                                               Monsanto, 1996.

Michael E. Miller, 59            Vice Chairman and Director          1997      Vice Chairman and Chief Operating Officer and
                                                                               Director, 1999-2001. Vice Chairman and Advisory
                                                                               Director, 1998-1999. Senior Vice President, Chief
                                                                               Administrative Officer, and Advisory Director,
                                                                               1997-1998. President, Specialty Products Business
                                                                               Unit, Monsanto, 1995-1997.

Robert B. Toth, 40               Vice President and General          1999      Vice President and General Manager, Polymer
                                 Manager, Resins and Additives                 Modifiers and Resins, 1998-1999. Vice President
                                                                               and General Manager, Polymer Modifiers,
                                                                               1997-1998. Director, Global Strategy for Crop
                                                                               Business Unit of Monsanto, 1996-1997.
</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 2000,"
"Aggregated Option Exercises in 2000 and Year-End Option Values,"
"Long-Term Incentive Plan--Awards in Last Fiscal Year," "Pension
Plans," and "Agreements with Named Executive Officers" on pages 15
through 19 of Solutia's 2001 Proxy Statement is incorporated here by
reference.

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

    Information appearing under "Ownership of Company Common Stock"
on pages 10 and 11 of Solutia's 2001 Proxy Statement is incorporated
here by reference.

ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.

    Information appearing under "Relationships and Transactions" on
page 21 of Solutia's 2001 Proxy Statement is incorporated here by
reference.

                                 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 25 of this
           report.

        2. The following supplemental schedule for the years ended
           December 31, 2000, 1999 and 1998:

               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) and 10(o) on pages 57 and 58 of the Exhibit
           Index. The following exhibits listed in the Exhibit Index are
           filed with this report:

           10(m)  U.S. $250,000,000 364-Day Multicurrency Credit Agreement,
                  dated as of November 21, 2000, among Solutia, the lenders
                  named therein, Bank of America, N.A., as Syndication Agent
                  and Citibank, N.A., as Administrative Agent

           10(p)  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

           21     Subsidiaries of the Registrant (see page 59)

           23     Consent of Independent Auditors (see page 60)

           24(a)  Powers of Attorney submitted by John C. Hunter III, Robert
                  A. Clausen, James M. Sullivan, Michael E. Miller, Robert T.
                  Blakely, 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 62)

    (b) Reports on Form 8-K during the quarter ended December 31,
        2000:

        None.

                                 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 8, 2001

    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
                  ---------                                        -----                             ----
<C>                                            <S>                                               <C>


                      *                        Chairman, President, Chief Executive Officer      March 8, 2001
  ----------------------------------------     and Director (Principal Executive Officer)
             John C. Hunter III


                      *                        Senior Vice President and                         March 8, 2001
  ----------------------------------------     Chief Financial Officer
              Robert A. Clausen                (Principal Financial Officer)


                                               Vice President and Controller                     March 8, 2001
           /s/  JAMES M. SULLIVAN              (Principal Accounting Officer)
  ----------------------------------------
              James M. Sullivan


                      *                        Vice Chairman and Director                        March 8, 2001
  ----------------------------------------
              Michael E. Miller


                      *                        Director                                          March 8, 2001
  ----------------------------------------
              Robert T. Blakely


                      *                        Director                                          March 8, 2001
  ----------------------------------------
              Paul H. Hatfield


                      *                        Director                                          March 8, 2001
  ----------------------------------------
              Robert H. Jenkins



                                 55
 
<PAGE>
<PAGE>

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


                      *                        Director                                          March 8, 2001
  ----------------------------------------
             Frank A. Metz, Jr.


                      *                        Director                                          March 8, 2001
  ----------------------------------------
             J. Patrick Mulcahy


                      *                        Director                                          March 8, 2001
  ----------------------------------------
              Sally G. Narodick


                      *                        Director                                          March 8, 2001
  ----------------------------------------
           William D. Ruckelshaus


                      *                        Director                                          March 8, 2001
  ----------------------------------------
              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.
</TABLE>

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

                                 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
-----------      -----------
<C>              <S>
 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 April 28, 1999
                 (incorporated by reference to Exhibit 3(ii) of Solutia's
                 Form 10-Q for the quarter ended March 31, 1999)

 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)            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(c)            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(d)            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(e)            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(f)            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(g)            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)

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

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

Exhibit No.      Description
-----------      -----------
<C>              <S>
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 and January 26, 2000 (incorporated
                 by reference to Exhibit 10 of Solutia's Form 10-Q for the
                 quarter ended March 31, 2000)

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)            U.S. $250,000,000 364-Day Multicurrency Credit Agreement, dated as
                 of November 21, 2000, among Solutia, the lenders named therein,
                 Bank of America, N.A., as Syndication Agent and Citibank, N.A., as
                 Administrative Agent

10(n)            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(o)            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(p)            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

11               Omitted--Inapplicable; see "Statement of Consolidated Income" on page 27

16               Omitted--Inapplicable

18               Omitted--Inapplicable

21               Subsidiaries of the Registrant (see page 59)

22               Omitted--Inapplicable

23               Consent of Independent Auditors (see page 60)

24(a)            Powers of Attorney submitted by John C. Hunter III, Robert A. Clausen,
                 James M. Sullivan, Michael E. Miller, Robert T. Blakely, 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 62)

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

                                 58