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Monsanto 1992 Annual Report ) MAR 002125 LAM010243 MONSANTO 1992 O^RVIEW onsanto Company's not income in lllll2 was ulkvk'd In ,1 number ol significant nonrecurring items. Asa result, the company had a net loss Mid $S8 million, or 71 cents per share, on net sales of $7.S billion. The largest of the charges against earnings was a one-time atlertac charge of $658 million, or $5.34 per share, to adopt Statement of Financial Accounting S No. I Oh. This rule recognizes the future costs ot medical and other post-retirement bene fits for retirees. Tlie company also took a one-time aftertax, charge of $425 million, or $3.44 per share, to implement cost-cutting actions designed to make worldwide operations more focused, productiv e and cost-effective. Major elements include a realignment of selected research investments; reductions in employment; and a number of consolidations, closings and sales of nonstrategic businesses and facilities. The most significant gain in 1992 came from the sale of Fisher Controls International Inc. The aftertax gain from that sale was $554 million, or $4.49 per share. Although Fisher Controls was part of Monsanto for 23 years, its valve and process controls businesses were no longer a strategic fit for the company. The sale of Fisher Controls allows Monsanto to focus on its four core businesses. The company also realized an aftertax gain of $118 million, or 96 cents per share, from the adoption of Statement of Financial Accounting Standards No. 109, which pertains to income-tax accounting. TABLE OF CONTENTS Letter to Shareowners 2 Chairman and Chief Executive Officer Richard J. Mahoney describes the steps the company will take to meet its main objective: to provide superior shareowner value. Review of Operations 6-21 Monsanto's four oper ating units implement strategies that contribute to the corporate objective of increasing value for shareowners. In this section, each unit defines its key goals, reviews the status of those goals in 1992, and provides an outlook for meeting those objectives in the future. The Agricultural Group 6 The Chemical Group 10 The NutraSweet Company 14 Searle 18 A Tribute to Earle H. Harbison, fr. 22 Monsanto's former presi dent and chief operating officer retires Sept. 1,1993. This tribute to Earle H. Harbison, Jr. looks back on his almost 26-year career with Monsanto. Financial Section and Corporate Information 23- This section provides Monsanto's financial reports and statements; information on officers, advisory directors and the board of directors; and shareowner information. Financial Section 23 Officers and Advisory Directors 55 Board of Directors 56 Shareowner Information 57 MAR 002126 VI l*N3 Monsanto Company. Tr.KJonurki.jnd service nurks of Monsanto and its subsidiaries are indicated bv italics throughout this publication. Kraft ami Li|*hl n' Lively are registered trademarks of Kraft General Food* Inc. LAM018244 OPERATIONAL HI (Dollars m millions, cvirpl por^liiuvi Net Sales ) Income (l.oss) from Continuing Operations Net Income (Loss) IVr Share: Income (Loss) from Continuing Operations Net Income (Loss) Dividends Shareowners' Equity Depreciation and Amortization Cash Provided by Operations Research and Development Expenses Return on Shareowners' Equity Percent of Total Debt to Total Capitalization Shareowners (year-end) Shares Outstanding (year-end, in millions) Employees (year-end) 1992 $7,763 S (126) S (88) m\ $7,936 S 238 S 2% pwo S8,06S S 486 S 546 Change 1992 vs. 1991 or,, (153)",, (130)",, S(l.Ol) $(0.71) $ 2.20 $24.95 $ 765 $ 912 $ 651 (2.6)% 36% 60,074 120 33,797 S 1.87 S 2.33 $2,045 $29.72 $ 714 $1,180 $ 610 7.6% 38% 60,152 123 39,281 S 3.77 S 4.23 S 1.88 $32.51 $ 704 $1,104 $ 595 13.6% 35% 62,230 126 41,081 (154)",, (130)",, 8";, (16)% 7% (23)% 7% (134)% (5)% -- (2)% (14)% THIS IS MONSANTO Monsanto Company makes and markets high-value agricultural products, chemical prod ucts, pharmaceuticals and food ingredients. The company's best-known brands include Roundup herbicide, Lasso herbicide, Wear-Dated carpet, Saflex plastic interlayer, Calan calcium channel blocker, Cytotec ulcer preventive drug and NutraSweet brand sweetener. ABOUT THE COVER Monsanto is paving the way to strategic goals that create superior shareowner value. MAR 002127 Mouiiitito 1992 Ainiunl Report 1 i An/ini0?/LK LETTER TO SHAREO S hareowners h.ui .1 rough rule in llM2. In the preceding deinde Monsanto outperformed (hi' market, with .1 tnl.il ivlurn to shareou ners .n eraging miiiii' S2ll percent per unr. lint ll)lP closed u ilh our stock down 15 pen out lmm its lanuarv opening. Thom was .1 lot ol pood nou s during llW2. hut thoro was some had nou s as woll. The all-important earnings rosult was a disappointmont Tho two previous pages and tho financial soction of this report describe the net negative effect of se\ oral one-time charges and pains tor the vear. 1 hose nonrecurrinp items include new accountinp charges for retiree benefits required of most L'.S.-based companies, charpes for cost-cuttinp actions, asset sales, and other unusual items. Even so, earnings from operations weren't what we had projected at the start of the vear. When we set out our plans for 1992, we had several objectives: Keep sales and earnings growing for Roundup herbicide. We got the sales increase, with worldwide volumes up 16 percent. What would have been a superb year for earnings from Roundup was only "pretty good" because of the cost of fixing a production outage. We simply shouldn't have let that outage happen, given our excel lent manufacturing record. Get new pharmaceutical product approvals to launch major sales growth. Searle received three new drug approvals in the United States and a number of impor tant approvals internationally -- a remarkable record. But 1992 also brought U.S. approval for the first generic competition for the sustained-release form of Searle's leading product, Calan calcium channel blocker. We're optimistic about the prospects for Searle's new products, but the competition will hurt Calan, at least in the short term. Complete the plan to manage the consequences of the U.S. patent expiration LAM018246 for X'u/riiSTiTi / brand sweetener in 1992. We've ivt.iined most ot our business tor Xiiliiiytrcl worldwide, .is we had planned. To offset lower ('rices, we're driving down our cost ol doing business, as well as our production costs. In addition, we re moving forward w ith research and development for Sweetener 2000. a high-intensitv sweetener that promises a step change in cost and performance for the sweetener market. Our branded offerings were bolstered with now-product launches, especially XiihvSu'irl S/wii/ii/. This new product in tabletop sen ins; jars is spoonable, like sugar. We expect good growth from products like S'nlniSnrl S/nuut/t// and from increasing sales of NiitniSuwl in cost- driven sugar-substitution markets worldwide. This business is solid now and has some interesting "wild cards" developing. Capitalize on our superb product positions in The Chemical Group during the expected 1992 economic recovery. We kept our market positions for our high-value chemical products in 1992, but the economy remained weak. Europe, usually an earn ings engine for us, sputtered. Dispose of nonstrategic assets and redeploy the proceeds. Fisher Controls International Inc. was sold for SI .3 billion, with a recorded aftertax gain of 5554 million. Other asset sales brought in 5177 million. We expect to use half the proceeds from these sales to retire high-price debt and to purchase the Ortho lawn-and-garden business from Chevron Chemical Co. We'll continue to apply unrelenting pressure to reduce our costs and to ensure product quality gains that customers can recognize as value. Ortho's line will be an excellent addition to our family of home lawn-and-garden products. Sales of our lawn-and-garden products have been increasing significantly in the past few vears; the Ortho addition will make us a major player. Share repurchases remain an important use for excess cash available after normal business requirements have been met. Our board of directors again authorized share repurchases in 1992. Cut overhead and operating costs in a major way. We expect pretax gains of 5200 million annually from cost-cutting actions we announced in November 1992. These savings will be evident beginning in 1994, once we get through the interim expenses associated with the cuts. Sometimes potential cost gains like these melt away before being realized. We intend to ensure that these savings happen. Continue a reliable dividend policy for shareowners. For the 20th consecu tive year, the dividend was increased. Move major research and development (R&D) programs forward to commer cialization. The recent approvals for Searle products were impressive in number and quality. Bovine somatotropin (BST), a product that offers improved dairy productiv- MAR 002129 ity, has been an expensive investment in biotechnology. Currently, it's cleared for sale in nine countries. In the European Community, the Committee for Veterinary Medicinal Products has found BST safe and effective, but permission for sale has not yet been granted. In the United States, approval for sale is still pending at the Food and Drug 1992 Auntinl Report LA1VI018247 \ Administration. Meanwhile, we've developed commercial and public programs, and we're containing costs prior to the launch ot the product. New crop and food products also based on biotechnology are moving well toward commercialization. These include an array of products with attractive consumer and environmental profiles. The highly publicized launch of Simpler all natural fat substitute has been a "technical" success, with some 30 products containing Simplest now offered by food com panies worldwide. Buf making money from Simplest? remains elusive. We intend to resolve that issue in 1993. We have demanding standards for all of our R&D and new-product programs: We either meet them or move on. CREATING VALUE FOR THE FUTURE For 1993 and beyond, the company's objective hasn't changed: to provide superior shareowner value and achieve the principal financial target of a sustainable 20 percent return on shareowners' equity by mid-decade. We have the product mix that We intend to return Monsanto to the favored position -- or better -- that we had with shareowners in the late 1980s. can get us there, but to do so we must meet several of the objectives I described earlier: Take advantage of an economic recovery in the United States and Europe for The Chemical Group. Our market shares are excellent, and our costs are moving lower. However, to meet and sustain corporate financial targets, we need to operate our chemical plants at capacity utilization rates sev eral percentage points higher than our 1992 range. With our restructured chemical product lineup and a reasonable recovery, we can do it and demonstrate as well the impressive cost gains we've made. Sustain our continued success with Roundup herbicide. Our strategy to OUR COMMITMENT TO SHAREOWNER VALUE Monsanto is committed to consistently increasing value for shareowners by achieving a superior level of financial performance. The principal financial target is to reach and sus tain a 20 percent return on shareowners' equity, while generating excess cash that can be returned to shareowners in dividends and through share repurchases after normal business needs are met. We'll reach these goals by bringing superior value to our customers; by intro ducing new products and forming new alliances; by exiting businesses that cannot meet our targets; by hiring, training and motivating high-quality employees; and by acting responsibly and earning a favored right-to-operate in society. On pages 6-21 of this annual report, we describe the goals of each of our operating units. The achievement of these goals contributes to Monsanto's overall success in increas ing shareowner value. 4 Monsanto 1992 Annual Report 002130 LAM018248 preserve this extraordinary franchise looks secure. Volumes continue to grow prolitablv worldwide because id our pricing and new end-use strategies. There will doubtless be some erosion of share with new generic entries over time, but we're in good shape to prosper in a growing market. Move Searle through the current new-product launch costs and show sales success. We'll have a better appraisal later in 1993, but early signs look promising for Maxai/uin, a once-a-dav quinolone anti-infective agent launched in the United States in 1992; for Dai/piv in the United States and Arthrotec in Europe, both for the treatment of the symptoms of arthritis; and for Ambien, a treatment for short-term insomnia. All of these products potentially offer important advances in performance and consumer accep tance, in keeping with the new realities of the pharmaceutical industry. For the long term, we intend to continue to develop innovative alliances that will ensure world-class strength in R&D and marketing. A number of initiatives are under review. We're going to restore shareowner enthusiasm that matches our own for this fine unit of the company. Convert biotechnology R&D from an expense to a profit in the coming years. We need no reminders that we've invested heavily in biotechnology. We've got to get it right or bring the costs way down. We're betting on success. Continue to apply unrelenting pressure to reduce our costs and to ensure product quality gains that customers can recognize as value. We made good progress in 1992. There's more to come. We're taking dozens of other steps to reach our financial targets: revving up our cash-generating capabilities, continuing share repurchases, and redeploying our assets, among other important actions -- all while still providing for vibrant growth. We're recognized by the financial community as great "counterpunchers" for our impressive defenses of Lasso and Roundup herbicides, NutraSweet brand sweetener, Saflex plastic interlayer, Wear-Dated carpet, and other powerful franchises. I would have included Calan calcium channel blocker in that group until the 1992 entry of a generic' competitor for the sustained-release form. But even with Calan, a free fall isn't a fore gone conclusion in the marketplace. Every great defense needs a sustained offense to produce a winner, and that's what we'll be demonstrating as we develop the franchises of the future. Our overriding objective is to return Monsanto to the favored position -- or better -- that we had with shareowners in the late 1980s. We remain committed to shareowner value. We intend to make it happen! Our thanks yo to Earle H. Harbison, jr,, chairman of the executive committee of the board of directors and past president and chiefoperating officer, for his service to this company. A tribute to Earle, who retires on Sept. 1,1993, is on page 22 of this report. The board elected Robert B. Shapiro tofollow Earle as president and chiefoperating officer, and Nicholas L. Reding as vice chairman. We have assembled a value-oriented management team across Monsanto. Richard J. Mahoney Chairman and Chief Executive Officer March 6,1993 mar 002131 Monsanto 1992 Annual Report 5 LAMP 18249  The growth ol conservation tillage -- a (arming practice that reduces or eliminates plowing -- is generating new sales for Roundup herbicide as farmers substitute Roundup lor tilling to control weeds. ) THE AGRICULTURAL^ROUP The Agricultural Group adds value lor Monsanto's shareowners by the strength ol some ol the world's leading weed control products: Roundup herbicide and other glyphosate-based herbicides, and the laniily ol acetanilide herbicides. The unit is also creating a new generation ol products based on research and devel opment in both agricultural chemistry and biotechnology. In 1992, volumes lor Roundup herbicide increased by 16 percent. Excluding a charge for cost-cutting actions and unexpected costs from damage to a plant that makes a key raw material for Roundup, operating income lor the unit would have improved over income in the previous year. or The Agricultural Group, there arc two kev questions: How long can we extend the growth of Roundup herbicide, and how soon can we turn biotechnology into a viable business? Roundup, the top-selling crop- protection chemical in the world, continues to be a growth product after 19 years on the market because farmers continue to find new ways to use it. Typically, customers respond to price reductions by using Roundup in wavs that weren't economical at the previous prices. We,ve encouragedi new applications bv selectively lower- rr ' ing prices in markets worldwide. Roundup herbicide continues to grow after 19 years on the market because of new uses. Our experience has been that higher volumes result in lower costs, which lead to increases in revenues and operating income. Also contributing to volume growth for Roundup her bicide is the expanding practice of conservation tillage, 002132 WHERE WE ARE AND WHERE WE WANT TO BE I goal P Generate for Roundup. The expiration of European continuously higher imifSilsui Volumes patents creates an opening worldwide volumes of and operating income for for generic competition; Roundup herbicide and Roundup are forecasted to U.S. patent protection for other glyphosate-based continue to grow for several the active ingredient in herbicides. years because of increasing Roundup remains in place STATUS Volumes for demand. This demand is into the year 2000. Roundup increased 16 per caused by three factors: a cent in 1992. However, competitive cost position, income from Roundup was strategic reductions in sell affected by the costs of ing price, and the rapid Hendrik A. Verfaillie, vice president of Monsanto i damage to a plant that spread of conservation and president of makes a kev raw material tillage practices in farming. The Agricultural Group 6 LAM018250 .i larming method th.it reduces or eliminates plowing. We \ e seen tremendous grow th in the use ot Roundup tor no-till larming, and the amvnt pricing; mokes great economic sense tin' conservation tillage," savs Hendrik A. Verlaillie, vice president of Monsanto and pres ident ol The Agricultural Croup. Encapsulated formulations in the acetanilide tamilv ol herbicides are also being used in no-till tannin*;. Based on the same chemistry as / a.-M' herbi cide, Micro-Tech and Bullet encapsulated herbicides and Partner drv encapsulated herbicide provide the farmer longer weed control. Thev also offer improved performance over certain other grass herbicides in no-till applications. Sales for the pyridine family of herbicides, which includes Dimension turf herbicide, were outstanding in 1992. Registrations of products from the pyridine family continue worldwide. New broadleaf herbicides for European cereal crops and for corn in the United States are also moving through the approval process. The expanding practice of conservation tillage benefits both Roundup herbicide and the acetanilide family of herbicides. Income from Roundup in 1992 was reduced by the costs of damage to a manufacturing facility that makes a key raw material for Roundup. The availability of Roundup to customers wasn't affected, but the supply of raw materials used in the production of Roundup was interrupted. "The incident forced us to operate at lean inventory levels and fast response times -- beyond what many people thought was possible," Verfaillie says. "We'll carry those lessons forward." The second half of the 1990s should bring to market crops with a variety of ben eficial traits developed through biotechnology. For example, crops made tolerant to Roundup herbicide offer a potential source of further growth. Currently, Roundup must be Giif/dmc/ oit A Encapsulated formulations in the acetanilide family of herbicides use microscopic shells of varying thickness, which release herbicide over time. This allows the farmer to apply the products earlier for longer control of weeds and improved performance in no-till applications. | GOAL H Use encapsu lated formulations to maintain the competitive position of our acetanilide family of herbicides. E2335S Volumes and operating income grew in 1992 because of acreage increases, cost-cutting measures, and a strategy shift emphasizing sales of two encapsulated prod ucts, Micro-Tech and Bullet The Agricultural Group Sales Ms ii percent of lolal Monsanto snlcsl 22% A The Agricultural Group's revenues, which account for almost one-quarter of Monsanto's sales, are fueled by some of the leading herbicides in the world. herbicides, and a dry encapsulated product, Partner herbicide. KS!USl3 Volumes will be subject to continued competitive pressures, although they should benefit from encapsulated and dry encapsulated formulations, and from conservation tillage practices. In 1993, volumes for these products may be affected by reduced U.S. com acreage due to government programs. 1 goal El Bring new agri cultural chemical products from the laboratory to the marketplace. Sales in the pyridine family of herbi cides, including Dimension turf herbicide, were out standing. A herbicide for Continued on fHigc S mar 002133 Montonla 1992 Annual Report LAM018251  Monsanto and University of Florida scientists announced a biotechnology breakthrough in 1992: the first addition of a gene to wheat. Wheat is a signiticant crop for Monsanto to work with because of the size of the potential market. More acres worldwide are planted in wheat than in any other grain crop. THE AGRICULTURAL JBOUP used before .1 crop comes up, because the herbicide kills both weeds and v aluable plants. Crops developed through biolechnologv to tolerate Roundup will allow larmets to apple Roundup even alter a crop has cMiicrgcd. wi.t.h. out, .harming it.. Soybeans and canola that are tolerant to Roundup herbicide Distribution channels for biotechnoloqy Kprod- ucts will vary by crop, depending on where the ,,. value of our technology can best be realized. have been field-tested tor the past four years. These tests continued in 1992, along with those of other crops developed through biotechnology, such as insect-resistant cotton, potatoes and corn; tomatoes that have summertime flavor vear-round; and potatoes that absorb less oil in cooking. Even as our first products of biotechnology enter advanced stages of field testing, new breakthroughs are occurring in the labs. In 1992, Monsanto and University of Florida scientists announced the first addition of a gene to wheat, the initial step toward improv ing this important crop through biotechnology. On the business side, we made significant advances in 1992 to bring these new technologies to market. Possible distribution channels include licensing agreements, direct seed sales to farmers, and arrangements with food processors. The choice will vary from crop to crop, depending on where the value of our technology can best be realized. For example, the value of insect-resistant cotton would be realized by the farmer, who could greatly reduce the use of insecticides. Therefore, we would be properly rewarded by the seed company that sells it to the farmer. In 1992, we completed such a licensing agreement with Delta and Pine Land Co., a cotton seed firm with the dominant market share in the southeastern United States. We also entered into a business WHERE WE ARE AND WHERE WE WANT TO BE Continued tree crops from this family fwge 7 was registered in Spain and South Africa. Registrations of pyridine products continue in the United States and several other countries. BUUSffilJ Registrations of the pyridine herbicides should continue. Also moving toward commer cialization are a broadleaf herbicide for European cereal crops and a broadleaf herbicide for com in the United States. | goal H Introduce in this decade new products from biotechnology research and development. STATUS continued for cotton, pota toes and com resistant to insects; for soybeans and canola tolerant to Roundup herbicide; for a potato that Glyphosate Volume Growth CSv/vruvif: I9tl7 100 ivrivufi 250........................................................ 200................................ 150........................................................ WO.............................................................. 50........................................................ 0....................................... CB GD CD H> D D Volumes for Roundup and other glyphosate herbicides have increased steadily, in part because of new uses encouraged by selective price reductions. absorbs less oil when it's cooked; and for a tomato that has summertime flavor year-round. The first addi tion of a gene to wheat was achieved. The first licensing agreement with a major seed producer was signed as a distribution channel for insect-resistant cotton. An agreement to develop, produce and market genet ically modified tomatoes 8 A/ftn/srii//< i992 Anniml Report -------------------------------------- MAR 00213* LAM018252 partnership with NTCargiulo Inc., one ol the largest tomato growers and shippers in Florida. The new agreement, signed in December 1992, will combine Monsanto's expertise in genetically modifying plants with NTCargiulo's capabilities in tomato breeding, production and marketing. but before any new products can be marketed, we must gain regulatory approval for these technologies. In 1992, the U.S. Food and Drug Administration announced a new poliev specifying that genetically improved foods are subject to the same regulatory procedures as foods developed through conventional breeding techniques. New growth potential also comes from our Residential Products Division. Products in this division include Roundup herbicide and Gnrnsuvcp lawn-care products. Regulatory approvals still must be gained before improved foods and crops can be brought to market. In 1992, the residential formulation of maintained its double-digit growth. To take greater advantage of an expanding home lawn-and-garden mar ket, we signed a letter of intent in January 1993 to acquire Chevron Chemical Co.'s Ortho lawn-and-garden business. The combination of Monsanto's lawn-and-garden products with the Ortho line and potential new products would allow us to continue to expand in the residential market and to generate incremental sales growth. Our achievements in 1992 provide positive answers to our two key performance questions: First, Roundup herbicide is forecasted to remain a volume- and revenue-growth business into the middle of the decade. Second, we now have two major advantages that support biotechnology as a viable business in the second half of the decade: the demonstrated soundness of the technology and the availability of distribution channels that will allow us to benefit from the value we add. Monsanto's residential products -- including Roundup herbicide and Creensweep lawn-care products -- are wellpositioned for increased sales in the growing home lawn-and-garden market. U.S. No-till Acreage Mcrrs in millions! (Sourer Conservation Tillage Information Center1 JO... 25... 20 .. 15.. 10 . 5.. 0.. A The Agricultural Group is seizing the market opportunity created by a more than 100 percent increase in U.S. no-till acreage in the last five years. was signed with a leading tomato grower and ship per in December 1992. lSUISSfil3 Field trials will continue, distribution channels will be clarified, and product approvals will be sought from appro priate regulatory agencies. The first commercial bio technology products could enter the market in the second half of the 1990s. | goal H Position our residential products to continue worldwide growth. fcskii&UEJ The residential version of Roundup herbi cide continued double digit growth in 1992. fn January 1993, we signed a letter of intent to acquire Chevron Chemical Co.'s Ortho lawn-and-garden business. OUTLOOK We've iden tified significant growth potential in the home lawn-and-garden market. Strong consumer market ing of Roundup, Greensweep lawn-care products, the Ortho products and other potential new products will allow us to expand in the residential market and generate incremental sales growth, m MAR 002135 Moittiintit 1992 Anutuif Ri'fiart LAM018253  Food phosphates enhance the flavor, appearance and texture of processed poultry, meat and seafood. Food phos phate products have played a major role in the shift of Monsanto's phosphorus-based businesses from commodity markets to higher-value, performance-oriented markets. ) THE CHEMICAL GROU The Chemical Group manages a portfolio of chemical businesses that bring high value to our customers, allowing the group to contribute significantly to Monsanto's financial targets. It also selectively develops higher-growth, higherreturn businesses that could offset the potential attrition of earnings from maturing operations. In 1992, operating income from the group's core businesses was sup pressed by the continuing effect of the weak worldwide economy, especially in the automotive, construction and home furnishings markets. More than half of The Chemical Group's products are sold into these markets. Income was also affected by a charge for cost-cutting actions and asset write-downs. uture performance of The Chemical Croup depends on our ability to manage its five core businesses for steady growth of sales and operating income. The Ffive largest businesses are plastics; rubber chemicals; nylon and acrylic fibers; Sofle:v plastic interlayer; and phosphorus and its derivatives. Together, they account for more than half of The Chemical Group's sales. Assuming a reasonable, sustained economic recovery through mid-decade, each of these businesses is expect,ed, t. o grow steadily year to year. We anticipate that by 1996 Given a reasonable, sustained economic recovery through mid-decade, each of our largest chemical businesses is expected to grow steadily year to year, their combined operating income will be significantly higher than their 1992 income. Saflex plastic interlayer for laminated glass serves three major markets: wind shields for new cars, replacement windshields, and architectural glazing. The short-term outlook in Europe and Japan appears sluggish, but Saflex WHERE WE ARE AND WHERE WE WANT TO BE 1 goal P Strengthen income. During 1992, we Monsanto's global leader commissioned new facili ship in key automotive and ties for the production architectural markets for of a superior windshield Saflex plastic interlayer product for the auto through timely investments motive market. in facilities and technology. EZQ32S3 With low- STATUS Declining cost, state-of-the-art economies in several key capacity in North and markets resulted in below- South America, Europe forecast sales of Saflex. This and Japan, we're strongly resulted in lower capacity positioned to benefit utilization and depressed from a renewal of growth in world markets, given a reasonable economic recovery. | goal H Expand the performance plastics business by enhancing our geographic, market, and specialty product Robert G. Potter, executive vice president of Monsanto and president of The Chemical Group mar 002136 10 Mi'NSrl/iM A II it ii it I Ri'l'iirl LAM018254 i-. u t.'ll-po-'iliuivd m m,i|oi \orlh American markets to benelit from the anticipated recov erv. lo generate additional growth in this business, we're inv esting in facilities In meet laminateil glass demand worldwide -- most recently in Western F.urope, South To generate additional growth for Saflex plastic interlayer, we re investing in facilities to meet laminated glass demand worldwide. America and Japan. We're also moving deeper into strategic segments where we haven't been major participants. In addition, we're continuing our ettorts to expand the use ot Siif/i'.v in architectural markets where the product's advantages in satetv, securitv, sound control and energy efticiencv are valued. Our plastics business ranks in the industry's top tier worldwide. Our products -- targeted at the higher-v alue end ot the market -- are used in hot tubs, camper tops, refrigerator interiors, hand tools and garden tools, trim and under-the-hood parts for automobiles, housings for business machines, and parts for medical delivery systems. Typical users of our plastic products are companies in the computer, commu nications and automotive industries -- global enterprises that expect consistent product performance as well as superior logistical and technical service. The fastest- growing market for Li/sfmn ABS plastics today is the southern Asia/China region, which will account for more than one-third of world demand for ABS plastics by the end of this decade. To serve this region better, we entered a joint venture in 1992 to build and operate a plant for Lustran ABS in Thailand. When the plant becomes operational in 1995, we will be the only producer of ABS plastics to have manu facturing sites in all four major global markets. Our nylon and acrylic carpet fibers business serves the U.S. carpet industry, particularly makers of quality residential replacement carpeting. Our carpet fibers Coutinui'it on /Jiiyi1 I 2 The 1993 Dodge Intrepid by Chrysler Corp. contains Monsanto plastics tn highvalue applications on the console, interior door panel, steering column and instru ment panel. positions, while managing costs to improve nearterm operating income. ESEESil Volumes increased in 1992, but margins decreased because of pressure on pricing. In 1992, we formed a joint venture in Thailand that by 1995 should make us the only producer of ABS plastics to have manufac turing plants in alt four The Chemical Group Sales i.-l- ,i /`iTirnl iif loin/ MiiiinihIii ni/iM 48% A The Chemical Group's solid core of business fran chises accounts for almost one-half of Monsanto's sales. major global markets. iSlSUSiisiS Slow but steady sales growth is projected, with continuing pressure on pricing as long as global oversupply persists.1 1 goal H Maintain our position in the U.S. carpet market by focusing on sell ing our nylon and acrylic fibers to the residential replacement and commer cial carpet segments. yUUiJ Volumes increased in 1992, but margins narrowed because of price deterioration. miiisiisQi slow but steady volume growth is projected. Further cost reductions should help maintain profitability. Pricing will remain a key issue. Ci'/ifim/iv/ >`ii 12 LAM018255 Mints,into 1992 Ai\ 11/ K.'/hu t MAR 002137  The Mercedes 400SEL features Saflex plastic interlayer, the world's leading product for laminated wind shields. The three maior markets for this product are new windshields, replace ment windshields, and architectural uses. THE CHEMICAL GROU command i preferred market share because of their superior performance in the carpet manufacturing process. Our warranty for Wctw-Dtilcd carpet is our commitment to quality all the wav through to the consumer, and it adds value to this business. In llM2, we com pleted a manufacturing project that resulted in added capacity and product improvements. Well continue to generate growth over the next five years with more advances in quality and with new generations of d i ffere n t iafed prod ucts. Rubber chemicals and phosphorus and its deriv Our nylon and acrylic carpet fibers command a preferred market share because of their superior performance for our carpet mill customers. atives are the most mature of our core businesses. We're finding wavs to increase their sales and operating income within industries whose growth has leveled off. In rubber chemicals, we've started a major program to determine the commercial viability of new production technology that not only is more efficient but also could lead to a significant reduction in process waste. In phosphorus and derivatives, we continued to benefit in 1992 from our decisions to reduce costs and to shift our market focus away from commodity home-laundry detergents and toward a variety of higher-value, higher-margin markets. In 1992, we shipped our last pound of phosphate for heavy-duty home-laundry detergents to U.S. manufacturers. To supplement future earnings, The Chemical Group is investing in high-technology products with low fixed-capital require ments and high-growth potential. Among these products are Flectron metallized materials, a line that we bolstered with the acquisition of Devex S.A., a Swiss company that specializes in WHERE WE ARE AND WHERE WE WANT TO BE Continued I ciUAL flj Manage our from i>nge n world leadership position in rubber chemicals, while achieving the returns we experienced in previous years. SQE9 Sales declined in 1992 in an environment of global overcapacity, tire industry consolida tion, and turmoil in the Commonwealth of Independent States. 1992 Sales by Market (Dollars m millions) Construction/ Home furnishings Vehicles Personal products All others A The Chemical Group makes high-value products sold primarily to the automo tive. construction and home furnishings markets. The government of the Soviet Union had been one of the largest buyers of our rubber chemicals products. Sales will grow slowly. A new production technology holds promise for signi ficant improvements in manufacturing efficiency. I goal H Operate the lowest-cost, highestvalue phosphorus and derivatives business in the United States. Performance from operations improved in 1992, as we continued our move out of com modity home-laundry detergents into a variety of performance applica tions in food, dental and other high-value market segments. 12 /VIoii'tiittii 199' Amuinl Report MAR 002138 LAM018256 metallizing processes. We also ocijuirod Diamonex Inc., .1 world lender in high-performance diamond and diamond-like coalings for industri.il ^ optic.il and electronic uses. "We recognize that we're going to have to ramp up our invest ment in our businesses," savs Robert G. Potter, executive vice president of Monsanto and president ot The Chemical Group. "We'll invest to meet cus tomer needs with tour intentions: to make a lower-cost product, to make a higher-qualitv product, to meet specific demands of strategic segments of a market, and to increase capacity as necessary to take advantage of any market growth opportunity." In 1992, we also initiated a process that should help us continue to reduce our We're investing to make lower-cost and higherquality products, to meet specific demands of market segments, and to increase capacity as needed to take advantage of market opportunities. cost of doing business. The Chemical Group's restruc- turings in 1985 and 1991 focused on closing ineffi cient plants and on getting out of businesses that didn't support our strategic objectives. The current initiative is designed to find more efficient ways to deal with inventories, to handle customer orders, to organize production runs, to use capital and human resources, and to manage all other essential business processes. The management of our core businesses for steady, dependable growth of sales ) and operating income has three parts. First, we'll launch initiatives to exploit the distinct opportunities that exist within each business. Second, we'll support those initiatives with increased capital investment. And third, we'll become more competitive by reducing our overall cost of doing business. Wear-Dated carpel, made with nylon and acrylic libers from Monsanto, is one of the most respected names in top-quality, highperformance residential carpeting. Residential car peting makes up 65 percent of the U.S. carpet market. 1992 Sales by Division (By percent) 29% Fibers 18% Resins 18% Plastics 17% Performance Products 13% Rubber and Process Chemicals 5% Engineered Products The Fibers Division contributes the largest sales percentage in The Chemical Group, followed by Resins, Plastics. Performance ) Products and Rubber and Process Chemicals. OUTLOOK Sales growth should be moderate, despite continued intense competition. We expect to maintain our low-cost position because of improved manufacturing productivity. 1 goal B Build a portfolio of businesses based on high-technology concepts that have low fixed-capital requirements and high- growth potential. Flectron metal lized materials recorded its first commercial sales in 1992. We acquired the Swiss company Devex S.A. to complement Flectron. We also acquired Diamonex Inc., a two-year-old com pany that is a world leader in high-performance diamond and diamond like coatings for industrial, optical and electronic uses. EZQES3 Sales for Flectron, Devex and Diamonex are expected to grow rapidly, with high margins and high returns. These and other high-performance products to follow will supplement future earnings of maturing products. MAR 002139 Monsanto 1992 Annunt Report 13 A HlftlQOCT t Orangma ,Light, mad. e .by i >i.ingtna France, is one ot ii in European beverages iti.it conlam NuUaSweel iHand sweetener Europe is tin; lastest-growmg world market tor NulraSweet THE NUTRASWEET C The NulraSweet Company contributes to shareowner value by generating cash and income for Monsanto. The unit makes and markets innovative food ingredi ents that promote healthy lifestyles, such as NulraSweet brand sweetener and Simplesse all natural fat substitute. In 1992, sales and operating income were less than in the previous year. This decline was caused by reduced selling prices for NulraSweet due to competitive pressures leading up to the December T992 expiration of the company's U.S. p^ atent for aspartame. O^peratinga income was also affected by a charge for cost-cutting actions and an asset write-down. he NutraSweet Company entered 1992 with two directiv vs: one defensive, the other offensive. Defensively, we were concerned about the L.S. customer Tbase tor NnlrtiSuvcl brand sweetener that fueler! our rise from a start-up operation in 1981 to a company with 5879 million in soles in 1992. Those customers would have other supplier options after our U.S. patent for aspartame expire on Dec. 14, 1992. Offensively, we had to identify new sources of sales growth in a post patent environment, recognizing that competitive pricing for our large-volume customers would restrict revenue growth for NittrnSimi, our brand name for aspartame. Our defensive concerns have diminished: The Coca-Cola Co. and PepsiCo Inc., our two largest customers, each requested and signed sepa- J rate agreements stipulating Our two largest customers entered into separate agreements stipulating The NutraSweet Company as their preferred supplier of aspartame, 002140 WHERE WE ARE AND WHVERThEe NWutEraSWweAeNt CTomTpOanyBaEs their preferred supplier of aspartame. Other goal || Retain and build our market position Jg carbonated soft drink companies sought similar assurances of supply. entered into separate our solid leadership in agreements stipulating consumer brand loyalty. for SiitrnSuvct brand sweetener with key The NutraSweet Company as their preferred supplier ECQSZEQ Aspartame volumes will continue carbonated soft drink customers, and sustain of aspartame. We remained to grow through mid the only company with' decade, although at lower our competitive advantage the capacity to meet the post-patent prices. in the carbonated soft drink industry requirements of customers who use large amounts of Relationships with The Coca-Cola Co. and PepsiCo Inc. were -olidified m 1992. Both aspartame. We strength ened our position as the low-cost producer of aspartame and maintained Robert E. Flynn, chairman and chief executive officer of The NulraSweet Company 14 1 I'll, ll /\ i J'lTf ------------------------------------------------------------------- ________ I AM01RPBR An ill YI'.H-OIhI |UlP. IUH'tlUT Ml| plier Ci>ult.1 produce aspartame in the quantities required In' the ti>p-tii-r users. "No one has vet built .in aspar tame plant anywhere in the world th.it can compete with us," s.ivs Robert I'. I'lvnn, chairman and chid e\ecuti\e officer of The NutraSweet Company. "And we have reduced our cost ot manu facturing; bv almost 7(1 percent o\er the p. decade through process improvements capital investments." In the race to provide the huge volumes of aspartame required by the carbonated soft drink industry, our competitive advantages are taste, cost, scale, reliability, quality, Manufacturing costs for NutraSweet brand sflfeblener have been reduced by almost TO.percent during the past decade. safety, customer support, and con sumer brand loyalty. We have several options for growth in the carbonated soft drink market. One is fountain conversion -- replacing the current blend of aspartame and saccharin in fountain products with 100 percent aspartame. Another is sugar blending, which substitutes aspartame as a lower-tost option for some of the sugar in nondiet prod ucts. A third is higher-concentration formulations that use more aspartame. We also anticipate sales growth from tabletop sweeteners and food ingredients in the United States and from our European operations. Ci'nJmj/of in/ /(' ** Kraft Light n' Lively Light is tlie first sour cream to use Simplesse all natural tat substitute, which helps reduce lat and calories in foods sucli as dips | goal H Solidify category leadership for our family of tabletop sweeteners. EESEETOuf 1992 adver tising campaign for Equal tabletop sweetener, featur ing actress and singer Cher, increased sales and built consumer interest in the tabletop sweetener category. Our successful launch of NutraSweet Spoonful tabletop sweetener The NutraSweet Company Sales fa. a (vru'iif of total Manxuito -11% A Sales for The NutraSweet Company in 1992 were affected by reduced selling prices for NutraSweet brand sweetener because ot competitive pressures prior to the U S. patent expiration for aspadame. expanded the category by attracting consumers who didn't previously use a tabletop sweetener. By expanding the market for existing tabletop products and by introducing new ones, we expect to double our penetration of U.S. house holds by 1995. | GOAL Retain exist ing food customers for aspartame while develop ing new business through regulatory approval of new ways to use aspar tame in food. bales of aspartame for food uses increased in 1992 com pared with 1991 results. In 1992, aspartame was approved in the United States for use as a bulk Gw/w/h'i/ if" 10 MAR 002141 /992 Anmtitl Rcfiorl 15 1-AM078259  The NutraSweet Company has established a market leading position in the United States with Equal tabletop sweetener. Through aggressive marketing and new-product introductions, we intend to double U S. consumer use of our tabletop sweeteners. THE NUTRASWEET CMPANY Tabletop products include' our vstnhli''lu-d I i/iiul tabletop m\ ccIciht and out new NutraSweet Spiumful tabletop sweetener. Ipitiil loads the tabletop sweetener valegon in dollar sales, including significant increase's in I^P elue lo an aggressii e ael\ erlismg campaign featuring actress and singer Cher. NutraSweet S/'<i<>/i/w/ teas mtroeluccel in I'-l'-P, following L.S hood and Drui; Administration approv al to market aspartame in bulk lorm 1 he bulk formulation allows one teaspoon e>l NutraSweet Speotilul to contain the same sweetness as one teaspoon ot sugar, with one-eighth the calories. The tar get market tor this product is the 41) million to h() million U.S. consumers who use products containing NutraSweet brand sweetener, but don't use a tabletop sweetener. Our food ingredients business in I992 consisted primarily of nonbeverage aspartame uses and of Simpler all natural fat substitute. Sales of aspartame as a food ingredient increased in 1992. Simplesse is now featured in approximately 30 different product lines worldwide. Twentv-two nations have approved Simplesse for use as a food ingredient. Sales of NutraSweet brand sweetener in Europe are expected to outperform the total European market for aspartame in the second half of the decade. The product is now being used in reduced-fat cheese, frozen desserts, sour cream, baked goods, butter, margarine, mayonnaise, salad dressings, yogurt, puddings, soups and sauces. Current efforts are aimed at reducing the cost of Simplesse to allow greater pene tration of the food manufacturing industry, which is extremely cost-sensitive. Our European marketing joint venture with Ajinomoto Co. Inc. increased its sales of aspartame significantly in 1992, despite a heavy import duty. In the second half of the decade, sales of NutraSweet brand sweetener are expected to outperform the total WHERE WE ARE AND WHERE WE WANT TO BE tabletop sweetener and in /W\T 15 hot breakfast cereals, in malt beverages containing fruit juice, and in refriger ated, ready-to-serve pud dings and fillings. It was also approved in Canada for baking applications. ESSZEE3 Prices will be lower as a result of post-patent competition. Competition for the busi ness of food manufacturers will also intensify. U.S. approvals are pending for the use of aspartame in baked goods, confections and noncarbonated beverages. | goal Q Reduce the cost of Simplesse all natural fat substitute to the point where it will stimulate significant new sales to high-volume food manufacturers. European Aspartame Sales iPiru-nt Ink'll iiii siIi/iiiO \ntniSuwl All othi-r .I'.p.lrl.inu' /.7 . CE> CE> E> D Sales ot NutraSweet brand sweetener have been more than halt of the total estimated aspartame sales in Europe in the last five years. fcifeitiU Kraft Light n' Lively Light sour cream led the new-product launches that featured Simplesse as an ingredient in 1992. We continued to demonstrate in 1992 that Simplesse works as a good tasting fat replacement. OUTLOOK questions have been answered. The remaining question is economic: Can i 16 \i o it 'ti it 11* J'W.? Ainnutl hY/>>rf MAR 002142 LAMO18260 lumpi'.m market lor .ispai'lamy. \\ hu ll i> expanding ,il I* peivenl annualU Our aspartame pl.tnl in Cr.nolines. I ranee. i* on schedule lor completion and start-up in mid - Sweetener 2000, our next-generation high-potency sweetener, offers the long-term opportunity of competing in the world's overall sweetener market. l`W.>. Ihe pl.tnl is also .1 joint \ online with Ajinomoto, .1 lapanosc lood ingre dient company and long-time partner ol l lv NiutraSwecI Company. Tho lirst European sales of Simplesm'were nvot'di'd in 1942. We\ 0 demonstrated that Simplesse works as a tat sub stitute in tlie most important European categories of cheese, buffer and dairy spreads. On the strength of sales to manufacturers of these products, European sales of Simplesse are expected to grow significantly over the next five years. Development of The NutraSvveet Company's next- generation high-potenev sweetener continued during 1992. "Sweetener 2000 is really moving along," Flynn says. "If we get it approved, we'll go after the world's sweetener business, not just the diet sweetener business." The pivotal year of 1992 ended with both of our Spoonful directives accomplished. Our key customer base is intact, and sources of growth have been identified, from the near-term, new-product and new-market opportunities tor NutraSweet brand sweetener and Simplesse all natural fat substitute, to the long-term possibilities of Sweetener 2000. 4 NutraSweet Spoonful, our newest entry in the tabletop sweetener market, is designed to attract the 40 million to 60 million U S. consumers who like NutraSweet but don't use a tabletop sweetener. we sell Simplesse at a price that is profitable for us and for the food manufacturer, without requiring that finished goods be priced at more than the consumer is willing to pay? We'll seek to resolve that issue in 1993. | goal H Stimulate growth of aspartame and Simplesse in Europe. IsUiUUsi Aspartame sales in Europe increased in 1992 over 1991 results, despite a significant import duty. Work continued on construction of an aspar tame plant in France, a project with our long time partner in Europe, Ajinomoto Co. Inc. The plant is on schedule for start-up in mid-1993. The first European sales of Simplesse occurred in 1992. OUTLOOK The aspar- tame market in Europe will continue its strong growth, and our sales are expected to outpace the market's annual growth rate. Growth for Simplesse will be determined by our ability to produce it at a cost that will allow us to price it favorably for European manufacturers of cheese, butter and dairy spreads. (J.S. Retail Market Share of Tabletop Sweeteners f/VnvHf ofdollar siutre ivlutnol fS'iffu*: iV/rfst'Ji Hoti-k'hold Pawl DiittU 70 ... bO 50. 40 . M>. 20 . 10. D I The Nutr.6wi.vt Comp.im I All other* The NutraSweet Company is increasing its presence in the U.S. retail market for tabletop sweeteners. MAR 002143 Mu/im/u/i* /`HJ Annual liri'xit 17 LAA/1018261 3 v Searte continues to expand its operations in the seven nations (clock wise from bottom left' the United Slates. Canada, the United Kingdom. Germany. Italy. Japan and France) that account for almost 80 percent of the world's pharmaceutical sales. SEARLE Searle contributes to Monsanto's value by bringing to market new pharmaceuti cal products that generate revenue and earnings growth. Results in 1992 were lowered primarily by new-product launches, charges associated with cost-culling actions, and lower prices for drugs sold to managed health care groups and through Medicaid. We also had our lirst generic competition in the United Slates for the sustained-release form of Calan calcium channel blocker. While pricing pressures may become a long-term concern for the pharmaceutical industry, launch costs and the charge for cost-cutting steps represent near-term invest ments that will position Searle for improved growth and profitability. he year 1992 was pivotal for Searle, as we took dramatic steps to shift our product mix into a higher percentage of drugs with patent protection or marketing exclusivity. Four new drugs received approvals in various coun tries: Maxaquin, a once-a-day quinolone anti-infective agent; Dai/pro, a once-a-day treatment for the symptoms of arthritis; Ambien. a treatment for short-term insomnia; and Arthrotec, a treatment for the symptoms of arthritis. These products were timely additions. The sustained-release form of Calan, our calcium channel blocker ,. ., and a leading U.S. brand, faced its first generic com- Resources are being shifted to support the U.S. launches and growth of three new drugs. petition in 1992. We'll shift the resources that have supported Calan to the U.S. launches and growth of Maxaquin, Daypro and Ambien. In light of these changes, we face one central question: How quickly can we convert the promise of new products into significant sales and eamings? WHERE WE ARE AND WHERE WE WANT TO BE I goal n Increase the introduction of new pharmaceutical products. Major pharma ceuticals were approved or launched in key markets in 1992. Maxaquin quinolone anti-infective agent was launched in the United States and approved in 11 other markets. Daypro, a treatment for the symptoms of arthritis, and Ambien, a treatment for short-term insomnia, were approved in the United States. Arthrotec, a treatment for the symptoms of arthritis, was approved in Sweden, France and the United Kingdom in 1992, and in Canada in early 1993. These last three products will be launched in 1993. In addition, global intro duction of Cytotec ulcer preventive drug proceed ed on schedule, with plans for a 1993 launch in Japan. l2l!US2l!l3 Sales of Maxaquin, Daypro, Ambien and Arthrotec will allow us to increase the percent age of our income from Sheldon G. Gilgore, M.D.. chairman and chief executive officer of G.D. Searle & Co. MAR 002144 18 /VJn''tiiit{i A initial Hcjutrt LAM018262 \ It* mltutliJii* ni.tjr't in'tv pnulm l> u illi murki-lmi; ru lu- siviiv In i/onlimu' our grow 111 and improve our ptolil.ibililv. Sales ol .Huhi/h/h. I Vi/pm. Aml'icii .mil ArllnvU'i will allow us lo increase llio percentage ol our income Irom prod ucts 'i ill' marketing ecclusii it\ I'alents protivt tw o ol the lour into the nu\l cenlurs One exception / >r/i//n>. win iso marketing exclusii itv extends until llW7, but tor which w e're Our challenge is to quickly convert the promise ot new products into significant sales and earnings growth. seeking .in extension. Patent applicalions .viv .'Iso pondint; tor Arlliroh't Although thu US. patent lor Miixiujiiiii runs through the vo.tr 2(102. wo'vo applied lor .m iwtoiision ot our exclusivity into 21X15. "This product has boon suc cessfully l.iunchod into the fastest-growing segment of the worldwide antibiotic market," says Sheldon G. Gilgore, M.D., chairman and chief executive officer of Searle. "In the United States alone, this market segment was well over $600 million in sales in 1992, twice what it wms five t ears ago. With our once-a-day dosage for all approved indications, we're on our way toward being one of the major players in this category." Dtu/firo, the first once-a-day treatment in the most prescribed class of arthritis therapies, was approved in the United States in 1992. "Dai/pro should be an important new' product for the U.S. market," Gilgore says. "Research has demonstrated that patients are more likely to take the proper amount of their medication if they have to take it only once a day." Ambit>n, a treatment for short-term insomnia that preserves deep sleep with minimal unwanted aftereffects, Coiitimn'il tin I'i'S1' 20 T In 1993. Searle will launch two new treatments tor the symptoms of arthritis: Daypro in the United States, and Arthrotec in the United Kingdom, Sweden and Canada. products with marketing exclusivity. Behind them, the product pipeline includes potential treat ments for diseases such as AIDS, thrombosis, psoriasis, atrial arrhythmia, ulcerative colitis, and Alzheimer's and age-associated memory impairment, I goal fl Manage the life cycles of existing products ) as their patents expire. The sustainedrelease form of Colon cal cium channel blocker lost marketing exclusivity in the United States in 1989 and faced its first generic competition in 1992. We've prepared for this challenge by strengthening the brand image of Colon and by pursuing a new patented formulation. We'U manage support costs to reduce the Searle Sales MS It fKTlTIlt of total MoitxlltlO Nl/i>> 4- -19% a Searle's sales are almost one-fifth of total Monsanto revenues, but this percent age is expected to increase over time. effect of declining sales on operating income. Conderel tabletop sweetener, which has been without patent protection for several years, continued its healthy performance in Europe on the strength of its brand image. I3ES2E353 Market share erosion for Colon appears inevitable, but holding the Ciuffim/ri/ on 2ll mar 002145 Mor/s.niM I192 Ainimil Kofmrt LAM018263 19  Maxaquin quinolone antiinfective agent, a once-a-day treatment for urinary tract and lower respiratory tract infections, was launched in seven countries in 1992. It is part of the fastest-growing segment of the worldwide antibiotic market. was approved in the United States and is awaiting approval in Canada. Hie sleep-aid market has shrunk in recent years because ot physicians' and patients' safety concerns over benzodiazepine hypnotics. Because Ainbicn is from a different class of drugs, it offers a new alternative to a largely dissatisfied market. Arthrotcc arthritis treatment offers powerful pain relief with reduced risk of gas troduodenal ulcers through a combination of a leading anti-arthritis medication and our Cytolcc ulcer preventive drug. Artluvtcc was approved in Sweden, France and the United Kingdom in 1992, and in Canada in early 1993. Approval is pending in several other major European countries. These four new high-potential drugs should reinvigorate our existing product line. The launch costs will affect earnings near-term, but the long-term payback should be substantial. Behind these drugs, the ... , pipeline features new treatments for diseases such as AIDS, thrombosis, Launch costs for new drugs will affect immediate earnings, but the long-term payback shou|d ^ substantial. psoriasis, atrial arrhythmia, ulcerative colitis, and Alzheimer's and age-associated memory impairment. They still must demon strate their safety, efficacy and economic value; some of them will never be commercialized. From their ranks, however, we expect the next generation of profitable Searle products. In addition, we continue to benefit from the contributions of two other solid performers. Cyfofec ulcer preventive drug accounted for $124 million in sales in 1992. Launch plans for Cytotec in 1993 are being prepared for Japan, as we work toward com pleting its global introduction. Canderel, our tabletop sweetener made with NutraSweet brand sweetener and sold primarily in Europe, delivered $157 million in 1992 sales. It also WHERE WE ARE AND WHERE WE WANT TO BE continued line on costs should from .. . page 19 maintain this drug as a significant earnings con tributor throughout the decade. No other major Searle products face generic competition before 1997. Canderel, which prior to 1986 was sold only in pharmacies in Europe, will continue its expansion into food stores. Patented Product Sales fBy percent) 20..................... d> @ A Searle is growing the percentage ol its sales that comes from products with patent protection. *** 002146 I goal H Expand our presence in markets outside the United States. STATUS acquired the remaining shares of our U.S. and Italian joint venture with Alfa Schiapparelli Wassermann. We also acquired majority interest in Sanitas, a medical prod ucts distribution company in the Czech Republic, and Searle Sales by Country (BypaxmO 48% United States 11 % France 6% Germany 6% United Kingdom 5% japan 4% Canada 3% Italy 17% All others More than 80 percent of Searie's sales in 1992 were in the seven countries that make up the largest share of the worldwide pharmaceuti cal market. 20 Monsanto 1992 Annual Report LAIVI018264 forms the Inundation tor on over-the-counter business (hot we'd like to expand. With an eye toward the over-the-counter market, we entered the Canadian diet food-supplement market in 1992 through the acquisition of Nutri-Bm and Niitri-Dicl meal replacements. We continue to expand our presence in Western Europe and Japan, and to seek strategic alliances and other collaborations in emerging markets. Even as we benefit from the sales of our new products, we expect Ciilmi calcium channel blocker to remain an earnings contributor. The name Cnlnu conjures a powerful image for physicians and patients that, in many cases, will sustain it as the calcium channel blocker of choice. We're also developing an enhanced formulation based on a unique delivery system that promises significant benefits and the potential for future growth. Currently, we're decreasing administrative and marketing investments behind the brand to reduce the effect of declining sales on operating income. We're expanding the presence of our products in key global markets as well. In 1992, we acquired the remaining shares of our U.S. and Italian joint ven ture with Alfa Schiapparelli Wassermann. We also acquired a majority interest in Sanitas, a medical products distribution company in the Czech Republic, and we established a joint venture in Taiwan. In the years ahead, the challenge of turning our new-product launches into profitable brands worldwide will require the best efforts of everyone at Searle. It will bolster these efforts by continuing to seek innovative alliances to complement our marketing and research and development. "We don't underestimate the magnitude of our task," Gilgore says. "But we're con vinced that in 1992, we took actions that will help us achieve our goals." m Ambien. a treatment for short-term insomnia, received approval in the United States in 1992. Ambien is the first product in a new class of compounds that offer physicians more options for their patients. established a joint venture in Taiwan. l.lhJM.I!! We'll continue to expand our presence in the United States, the United Kingdom, France, Germany, Italy, Japan and Canada, which make up almost 80 percent of the global pharmaceutical market. In addition, we're seeking strategic partners and other collaborations in the emerging markets of Central and Eastern Europe and in the Commonwealth of Independent States. | GOAL II Evaluate opportunities to re-enter the consumer health care business. The strong performance of Canderel tabletop sweetener pro vides the foundation on which to build an over- New Product Launches In Key Countries 1993 projected 5 2.. 1.. 0- CD CD CD CD CD CD A Searle continues to launch new products in important world markets, averaging more than two a year for the last five years. the-counter consumer health care business. We entered the Canadian diet food-supplement mar ket in 1992 through the acquisition of Nutri-Bar and Nutri-Diet meal replacement products. I.linn.Tl We'll continue to look for over-the-counter product opportunities with multi national applications. MAR 00214 7 Monsanto 1992 Annual Report 21 LAM018265 HARBISON, JR Earle H. Harbison, Jr. will retire from Monsanto on Sept. 1. 1993. bringing to an end a distinguished career that spans almost 26 years. From May 1986 to January 1993, he was president and chief operating officer. He has been a member of the board of directors for seven years, and he is currently chairman of the executive committee of the board. otuiiv and titles .ire onlv .i partial measure oi Earle Harbison's gift to the Tcompam. Equally at ease with heads ot state and entrv-level workers, Harbison has been a strong and persuasive voice for free world trade, a passionate disciple of Monsanto's technologies, a mentor and role model to nianv aspiring managers, and a true patron and civic leader in the St. Louis community. He will leave Monsanto with a sense of satisfaction and confidence that the plans in place for the company's future are sound. "I firmly believe our people are our greatest asset. When you get the right people together with the right goals, you've got an unbeatable combination," Harbison says. Still, the thought of his pending retirement is bittersweet. "I've enjoyed virtually every day I've spent at Monsanto," he says, "but there comes a time to move on, and that time is at hand. I look forward to the future with the same enthusiasm I felt 26 years ago when I walked into Monsanto." Earle Harbison may be stepping aside, but he won't soon be forgotten. Certainly not by the thousands of Monsanto employees worldwide whose lives he touched over the years. In whatever he chooses to do, it's a sure bet he'll continue to make his mark as a true leader and a gentleman. Earle H. Harbison, Jr., chairman, executive committee of the board of directors 22 iVltHistifiNi 1992 A ii it if it / Report MAR 002148 LAM018266 ) ) Unless otherwise indicated by the context. "Monsanto" means Monsanto Company and con solidated subsidiaries, and "the Company" means Monsanto Company only, yvil dollars are in 'millions, except per share data. FIN I A L SECTION CONTE Management Report Audit Committee Report Independent Auditors' Opinion Statement of Consolidated Income Review of Consolidated Results of Operations Operating Unit Segment Data Geographic Data Quarterly Data Statement of Consolidated Financial Position Review of Changes in Financial Position Statement of Consolidated Shareowners' Equity Statement of Consolidated Cash Flow Review of Cash Flow Notes to Financial Statements Significant Accounting Policies Basis of Consolidation Currency Translation Restructuring and Other Actions Principal Acquisitions and Divestitures Depreciation and Amortization Inventory Valuation Income Taxes Short-Term Debt and Credit Arrangements Long-Term Debt Financial Instruments Fair Values Postretirement Benefits Employee Savings Plans Stock Option Plans Earnings per Share Capital Stock Commitments and Contingencies Supplemental Data Segment Information Financial Summary MAR 002149 24 24 25 26 27 31 38 39 40 42 43 44 45 47 47 47 47 47 48 48 48 49 49 50 50 50 52 52 52 52 53 53 53 54 Monsanto 1992 Annual Report 23 LAM018267 MANAGEMEN Monsanto Company management is responsible for the fair presentation and consistency of all financial information included in this Annual Report in accordance with generally accepted accounting principles. Where necessary, the information reflects management's best estimates and judgments. Management also is responsible for maintaining a system of internal accounting controls with the objectives of providing reasonable assurance that Monsanto'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: personnel selection and training; division of responsibilities; establishment and communication of policies; and ongoing internal review programs and audits. Management believes that Monsanto's svstem of internal accounting controls as of December 31,1992, is effective and adequate to accomplish the above described objectives. Richard J. Mahoney Chairman and Chief Executive Officer Francis A. Stroble Senior Vice President and Chief Financial Officer February 26,1993 AUDIT COMMITTEE REPORT The Audit Committee is composed of five non employee members of the Board of Directors and met five times during 1992. The Committee reviews and monitors Monsanto^ internal accounting controls, financial reports, accounting practices and the scope and effectiveness of the audits performed by the independent auditors and internal auditors. The Committee also recommends to the full Board of Directors the appointment of Monsanto's principal inde pendent auditors and approves in advance all significant audit and nonaudit services provided by such auditors. As ratified by shareowner vote at the 1992 annual meeting, Deloitte & Touche were appointed as independent auditors to examine, and to express an opinion as to the fair pre sentation of, the consolidated financial statements. This opinion follows. The Audit Committee discusses audit and financial reporting matters with representatives of the Company^ financial management, its internal auditors and Deloitte & Touche. The internal auditors and Deloitte & Touche meet with the Committee, with and without management representatives present, to discuss the results of their examinations, the adequacy of Monsanto's internal accounting controls and the quality of financial reporting. The Committee encourages the internal auditors and Deloitte & Touche to communicate directly with the Committee. The Audit Committee has reviewed the financial section of this Annual Report. Pursuant to the recommen dation of the Committee, the Board of Directors has approved the financial section. Buck Mickel Chairman, Audit Committee February 26,1993 mar 002150 24 Monsanto 1992 Annual Rrport LAM018268 INDEPENDENT AUDIT To the Shareowners of Monsanto Company: We have audited the accompanying statement of -consolidated financial position of Monsanto Company and Ibsidiaries as of December 31,1992 and 1991, and the related statements of consolidated income, shareowners' equity and cash flow for each of the three years in the period ended December 31,1992. These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits in accordance with gener ally accepted auditing standards. 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 dis closures 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 state ments present fairly in all material respects the financial position of Monsanto Company and Subsidiaries at December 31,1992 and 1991, and the results of their operations and their cash flows for each of the three years in the period ended December 31,1992, in conformity with generally accepted accounting principles. As discussed in the Notes to Financial Statements, in 1992 Monsanto changed its methods of accounting for postretirement benefits other than pensions and for income taxes. Deloitte & Touche St. Louis, Missouri February 26,1993 ) MAR 002151 LAM018269 ) Monsanto 1992 Annual Report 25 CONSOLIDATED INCO (Dollars in millions, except per share) Net Sales Cost of goods sold Gross Profit Marketing expenses Administrative expenses Technological expenses Amortization of intangible assets Restructuring expense - net Operating Income Interest expense Interest income Other income (expense) - net Income (Loss) from Continuing Operations Before Income Taxes Income taxes Income (Loss) from Continuing Operations Discontinued Operations: Income from Fisher Controls Gain on sale of Fisher Controls Income from Discontinued Operations Income Before Accounting Changes Cumulative Effect of Accounting Changes: Postretirement Benefits Other Than Pensions Income Taxes Net Income (Loss) Earnings per Share: Income (Loss) from Continuing Operations Discontinued Operations Accounting Changes Net Income (Loss) beThe above statement should read in conjunction with pages 47 through 53 ofthis report. Previously reported amounts have been reclassified to present Fisher Controls as discontinued operations. 1992 $7,763 4,710 3,053 1,115 487 720 237 436 58 (169) 43 (106) (174) (48) (126) 24 554 578 452 (658) 118 $ (88) $(1.01) 4.68 (4.38) $(0.71) 1991 $7,936 4,519 3,417 1,042 530 680 233 457 475 (166) 64 (19) 354 116 238 58 58 296 $ 296 $ 1.87 0.46 $ 2.33 1990 S8.068 4,787 3,281 1,113 470 661 229 808 (176) 51 33 716 230 486 60 60 546 $ 546 $ 3.77 0.46 $ 4.23 KEY FINANCIAL STATISTICS As a Percent of Net Sales: Gross Profit Marketing, Administrative and Technological Expenses Research and Development Expenses Operating Income Income (Loss) from Continuing Operations Net Income (Loss) Effective Income Tax Rate Return on Shareowners' Equity 26 Monsanto J 992 Annual Report 1992 39% 30 8 1 (2) (1) (28) (2.6) 1991 43% 28 8 6 3 4 33 7.6 1990 41% 28 7 10 6 7 32 13.6 MAR 002152 LAM018270 REVIEW OF CONSO TED RESULTS OF OPE 1992 FINANCIAL RESULTS WERE BELOW EXPECTATIONS The year 1992 was one of transition for Monsanto. Several nonrecurring actions affected 1992 net income, and performance from continuing operations was a disappoint ment. The U.S. economy has been slow in rebounding, while the European economy deteriorated. This resulted in significant competitive pressures on The Chemical Group's selling prices. Pharmaceuticals profitability suffered from the high costs associated with the launch of Maxacjuin quinolone anti-infective agent, the expansion of the U.S. sales force to support Muxnipiiii and other anticipated new product introductions, and lower selling prices. In addition, as expected, NutraSweet net sales declined as a result of lower selling prices. Bright spots in 1992 were the strong sales volume growth in Roundup and the acetanilide family of herbicides, prompted by successful marketing programs and good weather conditions, the completion of major NutraSweet customer contracts, and the governmental approval of several new Pharmaceutical products. THE YEAR WAS AFFECTED BY NUMEROUS UNUSUAL EVENTS The year 1992 was also significantly affected by numerous unusual events. Monsanto continued its restruc turing program, which primarily affected Pharmaceuticals, Jn 1992. The Fisher Controls business was sold. In addition, Monsanto implemented new accounting rules related to postretirement benefits and income taxes. NET LOSS INCURRED FOR THE YEAR These unusual events resulted in Monsanto incur ring a net loss of $88 million, or $0.71 per share, for 1992. The impact of the 1992 and 1991 unusual events is summarized in the following table: Net Income (Loss) 1992 1991 Gain on the sale of Fisher Controls Restructuring and other actions Other unusual items Accounting changes: Postretirement Benefits Other Than Pensions Income Taxes $554 (425) (47) (687) 118 $(332) Total Unusual Events Income from Fisher Controls Operations (487) 24 (332) 58 Total Impact on Net Income $(463) $(274) ) In October 1992, Monsanto sold Fisher Controls for $1,275 million in cash, realizing an aftertax gain of $554 million, or $4.49 per share. The financial statements present the results of Fisher Controls as discontinued oper ations. Reported amounts for previous years have been reclassified consistent with this presentation. See page 48 in the Notes to Financial Statements for further information on Fisher Controls. In November 1992, the Board of Directors approved a series of restructuring actions in operating and staff units designed to make worldwide operations more focused, productive and cost-effective. Major elements include reduc tions in employment, a number of consolidations, closings and sales of nonstrategic businesses and facilities, and a realignment of selected research investments. These actions resulted in a one-time aftertax expense of $425 million, or $3.44 per share, in the fourth quarter of 1992. Other unusual items totaled an aftertax expense of $47 million, or $0.38 per share. These items principally were costs incurred as a result of damage to a glyphosate raw material manufacturing unit in January 1992 and the settlement of certain lawsuits related to the Brio Superfund site in the second quarter of 1992. Effective January 1,1992, Monsanto adopted Statement of Financial Accounting Standards (SFAS) No. 106, "Employers' Accounting for Postretirement Benefits Other Than Pensions," for its retiree benefit plans. The adoption of this rule resulted in a one-time aftertax expense of $658 million ($1,045 million pretax), or $5.34 per share. The incremental effect of SFAS No. 106 during 1992 decreased operating income by $45 million and income from continuing operations by $29 million, or $0.23 per share. Also effective January 1,1992, Monsanto adopted SFAS No. 109, 'Accounting for Income Taxes." The adop tion of this rule resulted in a one-time aftertax gain of $118 million, or $0.96 per share. Excluding the unusual actions and events summa rized in the table above, 1992 net income would have been $375 million compared with $570 million for the prior year, a decline of 34 percent. Earnings per share in 1992 would have been $3.04, a 32 percent decline from the prior year. NET SALES DECLINED DUE TO LOWER SELLING PRICES Net sales in 1992 declined 2 percent as higher sales volume from continuing businesses did not offset the lack of sales from divested businesses and lower selling prices in all operating units. NutraSweet's average aspartame selling price declined, as expected, as NutraSweet approached the December 1992 expiration of the aspartame-use patent in the United States. Continued poor economic conditions in many of The Chemical Group's key markets resulted in significant pressures on chemical selling prices. Sales volume of The Chemical Group did improve modestly over that of the prior year. MAR 002153 Monsanto 2 992 Annual Report 27 LAM018271 REVIEW OF C A^olidated results o \L /WlJllr*'./ Net sales of The Agricultural Group benefited from its pricing and new end-use strategies, farmers' conversion to conservation tillage and good weather conditions, on balance, in many key markets, especially North America. Glyphosate sales volume increased 16 percent worldwide. Lasso herbicide sales volume grew 8 percent. However, The Agricultural Group's total 1992 net sales were 2 percent below the prior year, which included $132 million of sales associated with the subsequently divested animal feed ingredients business. The Chemical Group's net sales declined in 1992 because of the lack of sales from divested businesses, lower average selling prices worldwide, principally due to the worsening economic conditions in Western Europe, Japan and the Commonwealth of Independent States, and the slow economic recovery in the United States. Sales volume in the United States gradually improved in 1992 as North American automobile production levels and housing starts increased over the depressed 1991 levels. NutraSweet's net sales declined 8 percent in 1992 due to lower average selling prices, partially offset by slightly higher aspartame sales volume. The 1992 sales volume increase was due primarily to significantly higher sales of tabletop sweeteners. Pharmaceuticals net sales in 1992 were slightly below the prior year. Sales of the Calan family of calcium channel blockers declined 10 percent, primarily due to lower selling prices resulting from higher rebates to state Medicaid programs and the continued shift in demand from retail pharmacy to managed health care providers, coupled with the impact of generic competition for the sustained-release form. Sales of Canderel tabletop sweetener, made with NutraSweet brand sweetener, increased 7 percent. In addition, Pharmaceuticals benefited from sales of new products, such as Maxaquin quinolone anti-infective agent. Net sales in markets outside the United States represented 41 percent of Monsanto's total 1992 net sales, which is about the same level as the prior year. OPERATING RESULTS DECLINE Operating income was $58 million in 1992, a decline of 88 percent compared with 1991. Excluding the $624 million of pretax restructuring and unusual charges in 1992 and the $457 million of restructuring charges in 1991, operating income would have decreased about 27 percent in 1992. Operating results in 1992 were hurt by lower selling prices but helped by improved sales volume and mix from, certain products, as well as lower raw material costs. Excluding 1992 and 1991 restructuring and unusual charges, operating results declined for all business segments except The Agricultural Group. The core busi nesses of The Agricultural Group benefited from significantly higher sales volumes of Roundup and Lasso herbicides, lower manufacturing costs and cost savings from prior years' restructuring actions. Ope;ating results in 1992 for The Chemical Group were hurt by lower selling prices and $26 million of incremental SFAS No. 106 costs. These factors were partially offset by lower raw material costs and higher sales volumes. NutraSweet operating income was adversely affected by lower selling prices, but benefited from cost savings from the 1991 reorganization. Operating income for Pharmaceuticals decreased in 1992, primarily because of costs to launch Maxaquin quinolone anti-infective agent in the United States, expansion of the U.S. sales force to support Maxaquin and other anticipated new product launches, and lower selling prices. Marketing expenses increased 7 percent in 1992, principally from the above-mentioned costs incurred by Pharmaceuticals. Administrative expenses decreased 8 percent due to cost savings resulting from prior years' restructuring programs and lower incentive compensation. The loss in "Other income (expense) -- net" in 1992 was larger than in the previous year, principally due to the 1992 write-down of investments to market value and higher currency losses. PRINCIPAL FINANCIAL TARGET REMAINS 20 PERCENT RETURN ON EQUITY Management's principal financial target is to reach and sustain a 20 percent return on shareowners' equity (ROE). Although the previously discussed 1992 restructuring actions, accounting changes and unusual events resulted in a negative ROE in 1992, these restructur ing actions will make the Company more cost competitive in its world markets. PRODUCT DEVELOPMENT AND COMMERCIALIZATION ARE TOP PRIORITY New product development and commercialization continue to be the most important strategic priority for Monsanto. Research and development expenditures were $651 million in 1992,8 percent of net sales, a level that reflects management's strong, long-term commitment to research and development. Major investments continue to be the discovery and development of pharmaceutical and agricultural products. Research in existing product technology and new applications also continues across all business units. Monsanto's research program also includes acquisition of new technologies through licensing. The result is that Monsanto has many potential products in the research and development pipeline, several of which should be commercialized over the next few years. MAR 002154 Monsanto 1992 Annual Report LAM018272 PRIOR YEAR REVIEW In 1991, Monsanto's operating performance was Operating income declined 41 percent in 1991, as a result of the S457 million pretax restructuring charge. r >Asonably strong considering the depressed economic late in several of Monsanto's major markets. Operating results in 1991 were helped by lower raw material costs and improved sales volume and mix from In October 1990 and june 1991, the Board of continuing products. The effect of The Chemical Group's Directors approved restructuring steps to strengthen The lower manufacturing capacity utilization reduced earnings Agricultural Group, The Chemical Group and the corporate when compared with 1990. staff for the future. Net income for 1991 declined 46 percent Operating income for The Agricultural Group because of the $325 million, $2.54 per share, aftertax restruc and Pharmaceuticals increased in 1991, while operating turing charge. Earnings per share were 45 percent lower in results declined for The Chemical Group and NutraSweet. 1991. Excluding the restructuring charge, net income would The Agricultural Group's operating income benefited from have increased 14 percent. Net income in 1991 benefited higher sales volume, lower manufacturing costs and cost from lower petrochemical-based raw material costs and savings from restructuring actions implemented in late improved sales volume and mix from continuing products. 1990. Operating income for Pharmaceuticals increased in Net sales for 1991 were down only slightly 1991, primarily because of strong volume growth in key from that of the prior year and were the second-best in products, higher average selling prices and gains from Monsanto's history. Modest sales volume growth in con the divestiture of nonstrategic product rights. The profit tinuing businesses was more than offset by the decrease improvement was partially offset by the December 1990 in sales due to divested businesses. Average selling prices divestiture of several consumer products to a third party were marginally lower than those in 1990. under a prior agreement. The Chemical Group incurred Net sales for Pharmaceuticals, The Agricultural an operating loss compared with operating income in 1990, Group and NutraSweet increased compared with the because of its restructuring expense. Operating results for prior year. Net sales for The Chemical Group declined. The Chemical Group were helped by lower petrochemical- Pharmaceuticals net sales growth was led by the Calan based raw material costs and hurt by the effect of lower family of calcium channel blockers, up 9 percent; Cytotec sales volume, lower selling prices, and lower manufac ulcer preventive drug, up 35 percent; and Canderel tabletop turing capacity utilization. NutraSweet operating income tener, up 11 percent. Net sales for The Agricultural benefited from higher sales volume, but was adversely 2p grew as weather conditions improved in most key affected by lower selling prices. markets. In addition, 1991 strategic price reductions in Marketing expenses decreased 6 percent in 1991 certain countries for Roundup glyphosate-based herbicide because of lower advertising and promotional expenses. generated higher sales volume. Glyphosate sales volume Administrative expenses increased in 1991, in part because increased 17 percent worldwide. NutraSweet's sales volume of higher 1991 incentive compensation. increased 5 percent, while selling prices decreased. The "Other income (expense) -- net" in 1991 decreased, Chemical Group's net sales for 1991 were lower as a result principally because the prior year included higher gains of discontinued product lines and lower demand caused from divestitures. by the depressed North American automotive industry, the delayed U.S. economic recovery and a slowdown in the European economy. MAR 002155 Monsanto 1992 Annual Report LAM018273 SOLID AT ED RESULTS O PER ATIONS murj ANALYSIS OF CHANGE IN EARNINGS PER SHARE - BETTER (WORSE) ) 1992 vs. 1991 1991 vs. 1990 Sales-Related Factors: Selling prices Sales volume and mix $(1.47) 0.66 S(0.35) 0.61 Total Sales-Related Factors (0.81) 0.26 Cost-Related Factors: Raw material costs Manufacturing capacity utilization Other manufacturing costs Marketing, administrative and technological expenses 0.26 0.15 (0.11) (0.50) 1.02 (0.26) 0.03 (0.28) Total Cost-Related Factors (0.20) 0.51 Interest expense Interest income Other income (expense) - net Change in income taxes Change in shares outstanding (0.02) (0.10) (0.06) (0.34) 0.10 0.05 0.07 (0.26) 0.20 0.04 Change in Earnings per Share Before Other Factors (1.43) 0.87 Other Factors: ) Restructuring and other unusual actions (1.22) (2.60) Gain on sale of Fisher Controls 4.49 Divestitures (0.27) (0.17) Accounting change for post- retirement benefits (5.57) Accounting change for income taxes 0.96 Total Other Factors (1.61) (2.77) Change in Earnings per Share $(3.04) $(1.90) Selling Price Index (l:W7U III 1.2............... 1.(1.................................... ().>' ............................ 116....................... (14.................. 112........................ 0.0......... ........ Sales Volume Index <IM7=1.0) 1.5 v :.................. 1.2..................... 0.9................................... 0.6..................... 0.3....................................... 0.0........ ......... CD CD Raw Material Cost Index (1957=1.01 !.0._........................ 0.8..................... 0.6..................... 0.4................................... 0.2..................... 0.0 .... ......... CD CD CD ) 30 Monsanto 1992 Annual Report HAK 002156 LAM018274 OPERATING UNIT SE )______ me Agricultural Croup The Chemical Group NutraSweet Pharmaceuticals Biotechnology Product Discovery Corporate Total 1992 $1,676 3,705 879 1,503 Net Sales 1991 1990 $1,711 3,740 954 1,531 $1,676 4,035 933 1,424 $7,763 $7,936 $8,068 Operating Income (Loss)"1 1992 1991 1990 $ 245 94 72 (232) $400 (154) 173 170 $327 297 183 93 Research and Development 1992 1991 1990 $149 109 44 276 $140 105 41 259 $151 115 41 228 (62) (59) $ 58 (57) (57) $475 (52) (40) $808 62 11 $651 57 8 $610 52 8 $595 The Agricultural Group The Chemical Group NutraSweet Pharmaceuticals Biotechnology Product Discovery Corporate Fisher Controls 'xtal 1992 $1,678 3,234 934 2,398 Total Assets 1991 1990 $1,592 3,162 1,155 2,342 $1,668 3,163 1,296 2,085 41 800 $9,085 51 294 631 $9,227 59 318 647 $9,236 Capital Expenditures 1992 1991 1990 $136 290 49 104 $ 93 300 58 96 $134 340 113 112 65 8 12 4 $586 $554 $711 Depreciation and Amortization 1992 - 1991 1990 $112 301 234 108 $104 272 233 94 $124 260 218 87 8 9 13 222 $765 $714 $704 (^Operating income was affected by the 1992 and 1991 restructuring and other unusual charges as follows: Income (Expense) 1992 1991 Operating Unit: The Agricultural Group The Chemical Group NutraSweet Pharmaceuticals Corporate $(135) (148) (70) (265) (6) $ 30 (478) (9) Total $(624) $(457) Although inflation is relatively low in most of Monsanto's major markets, it continues to affect operating results. To mitigate the effect of inflation, Monsanto has implemented measures to manage working capital, control costs, improve productivity and raise selling prices where government regulations and competitive conditions permit. In addition, it is estimated that the current cost of replacing certain assets is greater than their historical cost presented in the financial statements. Accordingly, the depreciation xpense reported in the Statement of Consolidated Income jiuld be greater if the expense were stated on a current cost basis. Sales between operating units were not significant. Certain corporate expenses, primarily those related to the overall management of Monsanto, were not allocated to the operating units or geographic areas. Corporate assets primarily include investments in affiliates and a portion of the cash balance. The principal factors that accounted for the operat ing units' performance in 1992 and 1991, along with the factors that are expected to affect operating results in the near term, are described on the following pages. MAR 002157 Monsanto 1992 Annual Report 31 LAM018275 OPERATING T SEGMENT DATA THE AGRICULTURAL GROUP 1992 Net Sales: Crop chemicals Animal feed ingredients $1,647 29 1991 51,551 160 1990 $1,508 168 The pi incip.il factors tor the change in operating income were: . . .................. ........... Better (Worse) 1992 vs. 1991 1991 vs. 1990 Total Operating Income $1,676 245 $1,711 400 $1,676 Selling prices 327 Sales volume and mix $ (64) 95 $(31) 48 he Agricultural Group is a leading worldwide Tproducer and marketer of herbicides, including manufacturing costs Roundup, Lasso, Build, Harness, Micro-Tech, Far-Go, Restructuring and other charges Avadex and Machete herbicides. More than half of the uniGt'slyphosate plant damage costs herbicide net sales are made to markets outside the United Inventory write-down States. Weather conditions in the agricultural markets Divestitures throughout the world affect sales volume. Other 38 56 (93) 30 (42) (30) (30) (38) (29) 8 The Agricultural Group Net Sales (Dollars in millions) Change in operating income $(155) $73 Worldwide sales volume of glyphosate herbicide 2.000- increased 16 percent, benefiting from the pricing and new end-use strategies, farmers' conversion to conservation 1300 - tillage and good weather conditions, on balance, in many key markets, especially North America. The reductions 1.000- in selling prices, principally in the United States on certain glyphosate products, continued to benefit glyphosate sales 500 CD < Rest of world Europe United States volume by making the herbicide cost-effective for weed control for a broader range of crop and industrial uses. The operating income effect of the increased glyphosate herbi cide sales volume exceeded the effect of lower selling prices. Profitability on the acetanilide family of herbicides increased The Agricultural Group had a strong operating performance in 1992 excluding the adverse impact on oper ating income from the unusual items discussed below. The Agricultural Group 1992 net sales revenue was 2 percent below the prior year. However, excluding the 1991 sales of the subsequently divested animal feed ingredients business, 1992 net sales for The Agricultural Group would have been 6 percent higher than the prior year. Operating income in 1992 decreased 39 percent compared with 1991. The decline in 1992 operating income resulted from unusual items occurring in both 1992 and 1991. The unusual items included in 1992 operating income were the $42 million loss associated with damage to a manufacturing site of a raw material for Roundup herbicide, $30 million charge for the write-down of certain bovine somatotropin (BST) inventories because of expira tion of the shelf life, and $63 million in restructuring charges and other items, principally related to employment reduc tions. In 1991, operating income benefited from a $30 million gain from restructuring and $30 million in income from the significantly because of the combination of increased sales volumes and improved cost management. Expenditures for BST, while less than those in the prior year, continued to affect financial results adversely. Total manufacturing capac ity utilization for The Agricultural Group was 64 percent and 61 percent in 1992 and 1991, respectively. In 1991, The Agricultural Group's net sales and operating income increased 2 percent and 22 percent, respectively, as compared with that of 1990. A pretax restructuring gain of $30 million resulted from the 1990 restructuring program and was included in 1991 operating income. Lower raw material and other manufacturing costs, along with cost savings resulting from the restructuring actions, also helped to improve operating income. Worldwide sales volume of glyphosate herbicide increased 17 percent in 1991, benefiting from improved weather conditions in the United States and certain other key country markets. Reductions in selling prices, princi pally in the United States on certain glyphosate products, continued to benefit glyphosate sales volume. subsequently divested animal feed ingredients business. 32 MoMSflnfo 7 992 Annual Report MAR 002158 LAM018276 Profitability on the acetanilide family of herbicides increased significantly because of the combination of ^improved cost management, a new product form and a Jelling price increase, partially offset by a decrease in sales volume. Market share for these herbicides declined slightly during 1991. Net sales and profitability of Avadex herbicide decreased in 1991 due primarily to the poor farm economy in Canada. AGRICULTURAL GROUP OUTLOOK Patents protecting glyphosate herbicide in various countries expired in 1991, while compound per se patent protection for the active ingredient in Roundup herbicide continues in the United States until the year 2000. Management expects that manufacturing process patents that are important to Monsanto's cost position will maintain our competitive position after the expiration of the other patents. The Agricultural Group has a significant number of new products in the research and develop ment pipeline and some that are currently in the initial stages of commercialization. The focus continues to be on a number of chemical and biotechnologyrelated products. BST will have significant value to the dairy ) industry through the reduction of milk production costs, but BST continues to meet opposition from certain groups. BST has been approved in nine countries, but not yet in the United States. Management believes BST will be approved in the United States. However, if U.S. approval is not received, a material charge to earnings could result. Monsanto continues to maintain the tech nical capabilities needed to secure regulatory approval and is prepared to expand commercial capabilities to launch the product. As mentioned in the Notes to Financial Statements on page 48, Monsanto has signed a letter of intent to purchase the assets, including working capital, of the Ortho Consumer Products Division of Chevron Chemical Co. This business, with annual sales of approx imately $250 million, will complement the residential products business of The Agricultural Group. MAR 002159 THE CHEMICAL GROUP 1992 1991 1990 Net Sales: Fibers $1,065 Performance products 619 Plastics 661 Resins 686 Rubber and process chemicals 471 Engineered products 203 Discontinued products $ 974 648 710 683 482 145 98 S 971 668 850 660 530 137 219 Total Operating Income (Loss) $3,705 94 $3,740 $4,035 (154) 297 he Chemical Group produces a wide range of Tchemicals, plastics, fibers and other products listed in the table above. The unit's principal strengths are nylon carpet fiber, high-performance plastics, Saflex plastic interlayer, phosphorus and derivatives, and rubber chemicals. The Chemical Group Net Sales (Dollars in millions} 5.000.............................. 4.000 3.000 2.000.......................... 1.000........................ 0............. ..... CD Rest of world Europe United States In 1992, The Chemical Group was impacted by the worsening economic conditions in Western Europe, Japan and the Commonwealth of Independent States (CIS) and by the slow economic recovery in the United States. The Chemical Group's net sales from continuing products for 1992 were 2 percent higher compared with 1991, as a result of a 4 percent increase in sales volume, partially offset by lower selling prices principally in fibers and plastics. The sales volume increase in 1992 was primarily in fibers as U.S. housing starts rebounded from 1991 levels. However, various product sales volumes to Europe, Japan and the CIS declined as a result of weak demand. In 1992, The Chemical Group had operating income of $94 million versus an operating loss of $154 million in the prior year. However, there were a number of unusual items affecting the profitability in both years. Specifically, 1992 operating income was adversely Monsanto 1992 Annual Report 33 LAM018277 OPERATING SEGMENT DATA affected by $77 million in restructuring expenses associated with implementing further cost-cutting actions, $41 million in costs associated with the settlement of certain litigation related to the Brio Superfund site, $30 million in expenses related to a facility asset impairment, and $26 million of incremental SFAS No. 106 costs. In 1991, The Chemical Group had a $478 million expense associated with the 1991 restructuring program. An analysis of the change in operating income is provided below: Better (Worse) 1992 vs. 1991 1991 vs. 1990 Selling prices Sales volume and mix Manufacturing capacity utilization Raw material costs Restructuring charges Asset impairment Brio litigation settlement Incremental SFAS No. 106 costs Other $(83) 25 11 46 401 (30) (41) (26) (55) $ (33) (30) (52) 181 (478) (39) Change in operating income $248 $(451) Lower raw material costs were not sufficient to offset the 2 percent decline in average selling prices. Capacity utilization, an important factor for The Chemical Group profitability, was 78 percent in 1992, versus 75 percent in 1991. Fibers net sales in 1992 were 9 percent above those of 1991 despite lower selling prices. This strong performance is primarily due to increased sales to the home replacement carpet market in the United States, higher sales of Acrilan acrylic fiber and improved global demand for fiber intermediates. Sales of nylon carpet fiber were 7 percent higher than the prior year. Performance products net sales were below those of the prior year, principally due to the weak U.S. economy. Phosphorus and derivatives results were better in 1992 due to improved market conditions and reduced industry capacity. Plastics net sales in 1992 were lower than those of 1991, primarily because of lower selling prices throughout the world. Sales volume increased in the United States as North American automobile production levels increased over those in 1991, but were partially offset by lower volumes in Europe, Brazil and Japan. Worldwide sales volume in 1992 of Stiflcx plastic interlayer, the largest resin product, was essentially flat with 1991. increased demand for architectural products was offset bv lower worldwide demand for automotive products, principally due to the worsening economic conditions in Western Europe and Japan. Rubber chemicals sales volumes were adversely affected by the depressed economies in Europe, as well as the economic disruption in the CIS. However, North American sales volumes increased over those in 1991. The Chemical Group's net sales for 1991 were 7 percent below 1990. This was primarily a result of discon tinued product lines and lower sales volumes of continuing businesses, a reflection of the lack of a U.S. economic recov ery, the lowest North American automotive production level since 1983, and the slowdown in the European economy. A pretax restructuring charge of $478 million resulted in the 1991 operating loss for The Chemical Group. Excluding this charge, operating income would have improved 9 percent compared with 1990. Operating income benefited from lower raw material costs and cost contain ment programs but was hurt by lower manufacturing capacity utilization. CHEMICAL GROUP OUTLOOK The Chemical Group outlook for 1993 is for improvement, but the degree is difficult to predict, primarily because of the unknown timing of the economic recovery in Western Europe and Japan, coupled with the uncertain pace of the U.S. economic recovery. Maintaining market share for strategic products with good cost positions and continuing cost reduction efforts will be the focus of The Chemical Group. Active management of environmental compliance activities is also a major focus. mar 002160 34 Monsanto 1992 Annual Report LAM018278 NUTRASWEET In 1991, net sales were up 2 percent, while operat ^ales Operating Income 1992 $879 72 1991 5954 173 1990 $933 183 ing income decreased 5 percent compared with 1990. The effect of 5 percent higher sales volume was partially offset bv the lower selling prices. Operating income was reduced by one-time costs of $10 million associated with various he NutraSweet Company manufactures and markets reorganizing actions taken during 1991. TNutraSweet brand sweetener, which is sold world wide, Equal tabletop sweetener, which is sold in the NUTRASWEET OUTLOOK United States, NutraSweet Spoonful brand tabletop sweetener, The prospects for NutraSweet brand sweetener and Simplesse all natural fat substitute. Sales of NutraSweet remain strong worldwide, despite the expiration of the brand sweetener in the European market are made by a U.S. patent. NutraSweet has built important competitive 50 percent-owned European joint venture and therefore are advantages, including: (a) brand name identity and not included in NutraSweet net sales and operating income. logo recognition, (b) proprietary low-cost manufacturing NutraSweet's share of the European joint ventures earnings processes, (c) state-of-the-art manufacturing facilities, are reflected in "Other income (expense) -- net" in the (d) technical expertise, (e) the reputation as a superior Statement of Consolidated Income. About 90 percent quality, highly reliable supplier, (f) an economical of NutraSweet net sales were in the U.S. market. replacement for sugar in certain markets, and (g) the NutraSweet net sales and operating income in possibility of an internally developed, next-generation 1992 decreased 8 percent and 58 percent, respectively, high-potency sweetener. compared with the 1991 amounts. Worldwide aspartame Competition from generic aspartame producers sales volumes were slightly higher while average selling and others will lower selling prices in the future. These prices were lower on planned price decreases. Operating lower prices will adversely affect operating income and income in 1992 also was reduced by a $46 million inventory cash flow. Operating income in 1993 and beyond will write-down discussed below and restructuring actions benefit from lower annual amortization expense of totaling $24 million associated with plant consolidations, $173 million because the aspartame-use patent is now employment reductions, and other actions. Operating fully amortized. ^e benefited from lower operating expenses from the The United States will remain the principal 1W1 reorganization. An analysis of the change in operating market for NutraSweet brand sweetener in 1993, but income is provided below: growth in international markets will continue. Accord Better (Worse) 1992 vs. 1991 1991 vs. 1990 ingly, NutraSweet has invested in a new manufacturing facility in France, through a European joint venture. The plant is scheduled to begin production in 1993. Simplesse, the company's all natural fat substi Sales decline (selling prices tute, is expected to be more broadly marketed for use offset by volume) $ (96) $ (3) in multiple food categories. However, Simplesse faces Restructuring charge (24) a challenging market in which competition continues Inventory adjustment (46) to intensify. Other, principally lower operating costs in 1992 65 (7) Change in operating income $(101) $(10) NutraSweet inventories are valued using the last-in, first-out (LIFO) method. Lower selling prices in post-patent contracts with customers necessitated a lower of cost or market adjustment to the LIFO value of invento ries in the fourth quarter of 1992, concurrent with the patent expiration. MAR 002161 ) LAM018279 Monsanto 1992 Annual Report 35 bIT SEGMENT DATA PHARMACEUTICALS 1992 1991 1990 Net Sales Operating Income (Loss) $1,503 Sl,531 (232) 170 $1,424 93 earle is a research-based, worldwide pharma Sceutical business concentrating on drugs for the treatment of cardiovascular, gastrointestinal, immuno-inflammatory, central nervous system and infectious diseases. Pharmaceuticals Net Sales (Dolltiry III imlhoiKt 2.000 .......... 1500....................... 1.000......................... 500............................. ............... 0 0 CD Rest of world Europe United States sales of nonstratogic businesses. A pretax restructuring charge of S265 million resulted in a 1992 operating loss for Pharmaceuticals. In addition to the restructuring charges, costs to introduce Maxaquin quinolone anti-infective agent in the United States, the expansion of the U.S. sales force to support Maxaquin and other anticipated new product intro ductions, and lower selling prices negatively affected 1992 results. Operating income in 1991 benefited from the sales of nonstrategic product rights. The principal factors for the change in operating income were: Selling prices Sales volume and mix Product rights sales Restructuring Marketing, administrative and technological expenses Other Change in operating income Better (Worse) 1992 vs. 1991 1991 vs. 1990 $ (30) 39 (49) (265) $25 43 36 (89) (8) $(402) (20) (7) $ 77 Pharmaceuticals net sales declined 2 percent in 1992 when compared with 1991. Net sales of the Calart family of calcium channel blockers for hypertension and angina, sold primarily in the North American market, were $456 million, 10 percent lower than the prior year. This decline was due to lower selling prices and the introduction of generic competition for the sustained-release form of Calan. Continued growth of Canderel tabletop sweetener (which is marketed by Searle outside the United States and by NutraSweet in the United States under the brand name Equal) and new products, such as Maxaquin quinolone antiinfective agent, partially offset the sales decline. Net sales of Canderel were $157 million in 1992, up 7 percent from 1991. Sales of new products were $93 million, led by Maxaquin, which was launched in the United States in mid-1992. Sales volume of Cytotec ulcer preventive drug increased 2 percent in 1992. However, net sales were about the same level as the prior year due to increased sales of the lower dosage form. Average selling prices for Pharmaceuticals were moderately lower, resulting from rebates, principally for Calan, to state Medicaid programs and a continued shift in demand from retail pharmacy to managed health care providers in the United States. A significant part of the restructuring approved by the Board of Directors in November 1992 affected Pharmaceuticals. The restructuring steps included reductions in employment, plant closings and consoli dations, a rationalization of research investments, and Pharmaceuticals investment in research and development (R&D) continues to be significant. R&D expenditures were 18 percent and 17 percent of the unit's net sales in 1992 and 1991, respectively. Although the 1992 restructuring realigned some research investments, the future R&D spending level is expected to continue to be significant. This spending level demonstrates the commit ment to product discovery and development that is aimed at securing sound, long-term financial performance for Pharmaceuticals. Pharmaceuticals net sales increased 8 percent in 1991 when compared with 1990. The improvement reflected continued growth for Cytotec ulcer preventive drug, the Calan family of calcium channel blockers for hypertension and angina, and Canderel tabletop sweetener, as well as higher selling prices. Net sales for Calan, sold primarily in the North American market, were $508 million, 9 percent higher than 1990 sales. Worldwide sales for Cyfofec were $123 million, up 35 percent from 1990. Net sales of Canderel outside the United States were $147 million in 1991, up 11 percent from 1990. Net sales for Calan, Cytotec and other products in the United States were reduced by $30 million for rebates to state Medicaid programs mandated under the 1990 Omnibus Budget Reconciliation Act. Comparisons with 1990 also were affected by the December 1990 divesti ture of certain of Searle's consumer products outside the United States to a third party, under the terms of a 1985 agreement related to the Company's acquisition of Searle. 36 Monsanto 1992 Annual Report mar 002162 LAM018280 . Sales and operating income of these consumer products were $52 million and $30 million, respectively, in 1990. Pharmaceuticals operating income increased percent in 1991 due to higher sales and the sale of certain nonstrategic product rights. PHARMACEUTICALS OUTLOOK Calan participates in an increasingly competi tive market for antihypertensive drugs and now faces generic competition. This increased competition is likely to adversely affect the future sales and profits of Calan. Searle is developing a formulation of Calan with propri etary delayed-release technology that could eventually enhance the product's competitive position. In 1992, Searle launched Maxaquin, the first once-a-day anti-infective drug in the quinolone class, in the United States. Maxaquin also received 1992 regu latory approvals in Italy, France, the United Kingdom, Canada and 7 other countries. Daypro, a nonsteroidal anti-inflammatory drug, and Ambien, the first of a new class of prescription sleep aids, have been approved by the U.S. Food and Drug Administration and will be launched in 1993. Ambien is awaiting regulatory approval in Canada. Cytolec ulcer preventive drug was approved in Japan. Cytolec has now been approved in all major markets. Arthrotec, a new product for the treatment Jjf arthritis, is a combination of Searle's Cytotec and diclofenac, the world's best-selling prescription arthritis medication. Arthrotec has been approved in the U.K., France, Canada, Sweden and Portugal. As a result of these approvals, increased launch costs are expected in 1993. Products currently in various stages of scientific development include potential treatments for abnormal heart rhythms; Alzheimer's disease and age-associated memory impairment; psoriasis and ulcerative colitis; thrombosis; acquired immune deficiency syndrome (AIDS), and other viral diseases. BIOTECHNOLOGY PRODUCT DISCOVERY The mission of Biotechnology Product Discovery is to generate a continuous pipeline of proprietary product opportunities and new technologies essential to success in the areas of human health, plant-related agriculture and chemical products. For human health care, Monsanto applies biotechnology to provide target proteins for the development of novel pharmaceutical chemicals. The strategy for plant-related agriculture is to isolate novel genes, the products of which are expressed in genetically transformed plants providing unique agronomic charac teristics. The chemical research programs provide novel high-performance chemicals and unique approaches to manufacturing processes and waste minimization. When product leads and new technologies are refined and clarified, they are transferred to the operating units for further development and commercialization. MAR 002163 ) Monsanto 1992 Annual Report IAJVJ07828 GEOGRAPHI United States Europe-Africa Asia-Pacific Canada Latin America Interarea Eliminations Corporate Fisher Controls Total Net Sales to Unaffiliated Customers 1992 1991 1990 $4,964 1,652 566 290 291 $5,100 1,708 530 305 293 $5,131 1,776 486 341 334 $7,763 $7,936 $8,068 The data above are prepared on an "entity basis," which means that net sales, operating income and assets of a legal entity are assigned to the geographic area where the legal entity is located (for example, a sale from the United States to Latin America is reported as a U.S. sale). Interarea sales, which are sales between Monsanto locations in different world areas, were made on a market price basis. Interarea sales have been excluded from the above table and were: 1992 1991 1990 World area shipped from: United States Europe-Africa Asia-Pacific Canada Latin America Interarea Eliminations $ 683 105 5 33 2 (828) $ 716 80 4 14 2 (816) $ 740 125 1 11 17 (894) Total $- $- $- Following is a reconciliation of ex-U.S. operating income and total assets to the net income and net assets of consolidated ex-U.S. subsidiaries. 1992 1991 1990 Operating income (loss) Interest and other income (expense) - net Income taxes $ (71) $ 68 $ 269 (89) 17 (7) 54 (35) (84) Net Income (Loss) of Consolidated Ex-U.S. Subsidiaries $ (106) $ 50 $ 178 Total operating assets Total liabilities $2,968 1,416 $2,951 1,154 $2,788 1,020 Net Assets of Consolidated Ex-U.S. Subsidiaries $1,552 $1,797 $1,768 Operating Income (Loss)'" 1992 1991 1990 $ 181 (168) 50 18 29 7 (59) $440 74 19 13 (38) 24 (57) S601 200 36 17 16 (22) (40) $ 58 $475 $808 1992 $5,641 2,046 533 147 242 (324) 800 $9,085 Total Assets 1991 1990 $5,655 2,088 526 129 208 (304) 294 631 55,909 1,945 441 138 264 (426) 318 647 $9,227 $9,236 The reported operating income for the individual geographic areas does not include the full profitability generated by sales of Monsanto products imported from other locations, principally from the United States. Direct export sales from the United States to non-U.S. third party customers were $393 million, $473 million and $426 million for 1992-1990, respectively. The 1992 decline was principally in The Agricultural Group due to the lack of sales from the divested animal feed ingredients business. Sales and operating income for the geographic segments do not include the financial results from those joint venture companies in which Monsanto does not have management control. Monsanto's share of the income or loss of these companies is reflected in "Other income (expense) -- net" in the Statement of Consolidated Income. Monsanto's share of the unconsolidated net sales and income or loss of these companies for 1992 follows: Monsanto's Share Net Income Sales (Expense) United States Europe-Africa Asia-Pacific Latin America $ 99 37 111 88 $2 (1) 1 (^Geographic area operating income was affected by the 1992 and 1991 restructuring and other unusual items as follows: Income (Expense) 1992 1991 United States Europe-Africa Asia-Pacific Canada Latin America Corporate $(327) (295) 13 (8) (1) (6) $(296) (95) (4) (6) (47) (9) Total $(624) $(457) 38 Monsanto 1992 Annual Report *** 02164 LAM018282 QUARTERLY DATA Net Sales ) Gross Profit Operating Income (Loss) Income (Loss) from Continuing Operations Net Income (Loss) Earnings per Share: Income (Loss) from Continuing Operations Net Income (Loss) Dividends per Share Common Stock Price 1992 1991 ) 1992 1991 1992 1991 1992 1991 1992 1991 1992 1991 First Quarter $1,973 1,993 853 869 259 267 146 154 (388) 166 Second Quarter $2,045 2,234 831 1,018 185 (76) 95 (74) 105 (52) Third Quarter $1,880 1,818 766 761 119 168 46 107 54 116 Fourth Quarter $1,865 1,891 603 769 (505) 116 (413) 51 141 66. Total Year $7,763 7,936 3,053 3,417 58 475 (126) 238 (88) 296 1992 1991 1.17 1.21 0.78 (0.58) 0.39 (3.35) (1.01) 0.84 0.40 1.87 1992 1991 (3.16) 1.31 0.86 (0.42) 0.45 0.91 1.14 (0.71) 0.53 2.33 1992 0.52 0.56 0.56 0.56 2.20 1991 0.485 0.52 0.52 0.52 2.045 High Low High Low 71'/. 62 V, 62 Vi 46 68 y. 53 69% 56*4 57 Vi 52V. 76 6414 58V. 49 V, 71 Vs 57 Vs 71V, 49% 76 46 Monsanto's net income is historically higher during the first half of the year primarily because of the concentration of generally more profitable sales of The Agricultural Group during that part of the year. The net loss for the first quarter of 1992 included the net aftertax cumulative effect of accounting changes of $540 million, or $4.38 per share and $9 million of net aftertax expenses, principally associated with the damage to a glyphosate herbicide manufacturing unit. The effect of retroactively adopting the new accounting rules as of January 1,1992, decreased previously reported first-quarter net income by $549 million, or $4.44 per share. Previously reported second- and third-quarter net income were each reduced by $8 million, or $0.06 per share, from the effect of adopting the new accounting rules. The second quarter of 1992 included $26 million of aftertax expense associated with the settlement of certain litigation relating to the Brio Superfund site and $12 million of aftertax expense related to the damaged glyphosate manufacturing unit. The fourth quarter of 1992 included pretax expense of $625 million, $425 million aftertax, or $3.44 per share, for the restructuring program and other actions approved by the Board of Directors. The 1992 total pretax expense related to restructuring and other actions was $699 million, $472 million aftertax, or $3.82 per share. The fourth quarter also included an aftertax gain of $554 million, or $4.49 per share, from the sale of Fisher Controls. The net loss for the second quarter of 1991 included net pretax restructuring expense of $457 million, $325 million aftertax, or $2.54 per share. MAR 002165 LAM018283 Monsanto 1992 Annual Report 39 STATEMENT OAPONSOLIDATEO FINAN^|L POSITION (Dollars in millions, except per share) Assets Current Assets: Cash and cash equivalents Trade receivables, net of allowances of $33 in 1992 and $36 in 1991 Miscellaneous receivables and prepaid expenses Deferred income tax benefit Inventories Current assets - Fisher Controls Total Current Assets At December 31, 1992 1991 $ 729 1,405 375 395 1,156 4,060 5 189 1,422 296 249 1,214 341 3,711 Property, Plant and Equipment: Land Buildings Machinery and equipment Construction in progress Total property, plant and equipment Less accumulated depreciation Net Property, Plant and Equipment Investments in Affiliates Intangible Assets, net of accumulated amortization of $383 in 1992 and $1,422 in 1991 Other Assets Other Assets -- Fisher Controls Total Assets The above statement should be read in conjunction with pages 47 through 53 oj f/tis report. Previously reported amounts have been reclassified to present fisher Controls as discontinued operations. 106 1,240 5,939 317 7,602 4,597 3,005 248 1,066 706 $9,085 104 1,215 5,772 419 7,510 4,319 3,191 248 1,224 591 262 $9,227 ) 40 Monsanto 1992 Annual Report MAR 002166 LAM018284 (Dollar* in million>. except per *lmrel Liabilities and Shareowners' Equity Current Liabilities: 'Accounts payable Wages and benefits Income and other taxes Restructuring reserves Miscellaneous accruals Short-term debt Current liabilities - Fisher Controls Total Current Liabilities Long-Term Debt Deferred Income Taxes Postretirement Liabilities Other Liabilities Other Liabilities - Fisher Controls Shareowners' Equity: Common stock (authorized, 200,000,000 shares, par value $2) Issued, 164,394,194 shares in 1992 and 1991 Additional contributed capital Treasury stock, at cost (43,929,827 shares in 1992 and 41,466,707 shares in 1991) Reserve for ESOP debt retirement Accumulated currency adjustment Reinvested earnings jatal Shareowners' Equity Total Liabilities and Shareowners' Equity The above statement should be read in conjunction with pages 47 through 53 of this report. Previously reported amounts have been reclassified to present Fisher Controls as discontinued operations. At December 31, 1992 1991 $ 525 191 477 377 721 257 2,548 1,423 65 1,252 792 $ 530 217 155 186 585 335 167 2,175 1,871 512 294 685 36 329 820 (2,029) (233) 15 4,103 3,005 $9,085 329 726 (1,797) (250) 187 4,459 3,654 $9,227 MAR 002167 LAM018285 Monsanto 1992 Annual Report 41 ANGES IN FINANCIAL ITION FINANCIAL POSITION REMAINED STRONG Long-term debt at year-end 1992 was lower than Monsanto's financial position remained strong in that of the prior year-end. Monsanto retired 5565 million 1992, as evidenced by Monsanto's current "A" or better debt of outstanding debt and incurred $120 million of new debt. rating. Financial resources were adequate to support exist Monsanto uses financial markets worldwide for ing businesses and to fund new business opportunities. its financing needs and has available various short- and Working capital was lower at year-end 1992 due medium-term bank credit facilities, which are discussed principally to higher restructuring reserves and income in the Notes to Financial Statements (page 50). These credit tax accruals offset by increased cash and cash equivalent facilities provide the financing flexibility to take advantage balances, resulting from receipt of the sales proceeds from of investment opportunities that may arise and to satisfy the Fisher Controls divestiture, and deferred tax benefits future funding requirements. To maintain adequate finan principally related to the 1992 restructuring reserves. cial flexibility and access to debt markets worldwide, Inventories and trade receivables at year-end 1992 Monsanto management intends to maintain an "A" debt decreased slightly compared with the prior year-end. rating. An important factor in establishing that rating is The amount of net property, plant and equipment the ratio of total debt to total capitalization, which was was less than year-end 1991, as $586 million of capital 36 percent in 1992. additions were less than the depreciation expense and the In October 1991, Monsanto's Board of Directors write-down of property divested or to be divested under approved the establishment of an employee stock owner the restructuring actions. Intangible assets declined in 1992, ship plan (ESOP). In January 1992, the ESOP purchased due mainly to final amortization of the NutraSweet from Monsanto $250 million of common stock that will aspartame patent, which expired in December 1992. be used to match employee contributions under the As mentioned in the Notes to Financial Statements Company's existing savings and investment plan. A more on pages 49 and 51, Monsanto adopted in 1992 Statement detailed description of the ESOP is provided in the Notes of Financial Accounting Standards (SFAS) No. 106, the to the Financial Statements on page 52. accounting rule for postretirement benefits other than Monsanto's commitments and contingencies are pensions, and SFAS No. 109, the new income tax accounting described in the Notes to Financial Statements on page 53. rule. Adoption of SFAS No. 106 resulted in year-end 1992 The 1992 decline in Shareowners' Equity is due ) balances of liabilities for postretirement benefits other than pensions and the related deferred tax benefits exceeding principally to the adoption of SFAS No. 106 and the aftertax cost of the 1992 restructuring program, partially offset by the respective year-end 1991 balances by $1,013 million and the gain on the Fisher Controls divestiture. $370 million. Adoption of SFAS No. 109 resulted primarily Monsanto's return on shareowners' equity in $118 million lower noncurrent deferred tax liabilities. (ROE) was a negative 2.6 percent in 1992. Excluding the Total deferred tax benefits, both current and noncurrent, $463 million of aftertax unusual items summarized on of $514 million at year-end 1992 are primarily related to page 27, ROE would have been over 10 percent. Monsanto's operations in the United States, which generally has had principal financial target is a sustained ROE of 20 percent a strong earnings history. or greater. The ROE and other key financial statistics are presented in the table below. MAR 0 0 2 1 6 8 KEY FINANCIAL STATISTICS Return on Shareowners' Equity (ROE) (Net income divided by average shareowners'equity) Current Ratio (Current assets divided by current liabilities) Trade Receivables -- Days Sales Outstanding (Fourth-quarter trade receivables divided by fourth-quarter net sales times 30 days) Inventory Turnover Ratio (Cost of goods sold divided by inventory) Interest Coverage (Income before interest expense and income taxes divided by total interest cost) Cash Provided by Operations/Total Debt Total Debt/Total Capitalization0' "Total capitalization is the sum ofshort-term debt, long-term debt and shareowners' equity. 1992 (2.6)% 1.6 67 4.1 -- 54% 36% 1991 7.6% 1.7 68 3.7 2.7 53% 38% 1990 13.6% 1.6 63 4.2 4.4 50% 35% 42 Monsanto 1992 Annual Report LAM018286 STATEMENT OF COj|OLIDATED SHAREOWNB' EQUITY (Dollar> in millions, except per share) Common Stock: Balance, January 1 Par value of slock issued in tw'o-for-one stock split Balance, December 31 Additional Contributed Capital: Balance, January 1 Employee stock plans and ESOP Par value of stock issued in two-for-one stock split Balance, December 31 Treasury Stock: Balance, January 1 Shares purchased (6,732,300; 4,395,900; and 6,707,900 shares in 1992-1990, respectively) Shares issued under employee stock plans and ESOP (4,269,180; 1,545,333; and 193,072 shares in 1992-1990, respectively) Balance, December 31 Reserve for ESOP Debt Retirement: Balance, January 1 ESOP formation Allocation of ESOP shares Balance, December 31 . Accumulated Currency Adjustment: balance, January 1 Translation adjustments Income taxes Balance, December 31 Reinvested Earnings: Balance, January 1 Net income (loss) Dividends (net of ESOP tax benefits) Common stock purchase rights redemption Balance, December 31 The above statement should be read in conjunction with pages 47 through 53 of this report. 1992 $ 329 S 329 S 726 94 $ 820 $(1,797) (417) 185 $(2,029) $ (250) 17 $ (233) $ 187 (172) $ 15 $ 4,459 (88) (268) $ 4,103 1991 $ 329 $ 329 $ 714 12 $ 726 $(1,563) (296) 62 $(1,797) $ (250) $ (250) $ 188 (3) 2 $ 187 $4,421 296 (258) $ 4,459 1990 $ 164 165 $ 329 $ 877 2 (165) $ 714 $(1,244) (326) 7 $(1,563) $ 24 171 (7) $ 188 $ 4,120 546 (242) (3) $4,421 KEY FINANCIAL STATISTICS Stock Price(,) High Low Year-end Per Share Dividends Shareowners' Equity Average Daily Share Trading Volume (thousands of shares) 'ijiascd on daily reported high and low slock prices. MAR 002169 1992 $ 71 VS 49 VS 57s/. 2.20 24.95 392 1991 $ 76 46 67% 2.045 29.72 359 1990 $ 60H 38 VS 48 VS 1.88 32.51 425 Monsanto 1992 Annual Report 43 LAMO18287 STATEMENT CONSOLIDATED CASH (Dollars in millions) Increase (Decrease) in Cash and Cash Equivalents 1992 1991 Operating Activities: Income (loss) from continuing operations Add income taxes - continuing operations Income (loss) from continuing operations before income taxes Adjustments to reconcile to Cash Provided by Continuing Operations: Income tax payments Items that did not use cash: Depreciation and amortization Restructuring expense - net Incremental SFAS No. 106 expenses Other Working capital changes that provided (used) cash: Accounts receivable Inventories Accounts payable and accrued liabilities Other Nonoperating pretax gains from asset disposals Other items Cash Provided by Continuing Operations Cash Provided by Discontinued Operations Total Cash Provided by Operations $ (126) (48) (174) (162) 765 436 45 157 21 (30) (107) (125) (6) 28 848 64 912 S 238 116 354 (201) 714 457 37 (101) (141) (40) 7 (ID 37 1,112 68 1,180 Investing Activities: Property, plant and equipment purchases Acquisition and investment payments Investment and property disposal proceeds Proceeds from sale of Fisher Controls Discontinued operations - other Cash Provided by (Used in) Investing Activities Financing Activities: Net change in short-term financing Long-term debt proceeds Long-term debt reductions Treasury stock purchases Dividend payments Common stock issued to ESOP Other financing activities Cash Used In Financing Activities Increase (Decrease) in Cash and Cash Equivalents Cash and Cash Equivalents: Beginning of year End of year (586) (259) 177 1,275 (30) 577 (78) 120 (565) (417) (270) 250 11 (949) 540 189 $ 729 (554) (225) 324 10 (445) (245) 317 (291) (296) (258) 23 (750) (15) 204 $ 189 The above statement should be read in conjunction with pages 47 through 53 of this report. Previously reported amounts have been reclassified to present Fisher Controls as discontinued operations. The effect ofexchange rate changes on cash and cash equivalents was not material. Cash payments for interest (net ofamounts capitalized) were $176 million, $169 million and $161 million, for the years 1992-1990, respectively. During 1991, Monsanto established an employee stock ownership plan (ESOP). Monsanto uxts guarantor of$90 million of ESOP notes and $100 million ofESOP debentures at December 31,1992. 1990 $ 486 230 716 (229) 704 _ (171) (89) 122 60 (86) (49) 978 126 1,104 (711) (194) 100 (46) (851) 77 523 (351) (326) (242) 17 (302) (49) 253 $ 204 44 Monsanto 1992 Annual Report MAR 002170 LAM018288 REVIEW OF CASH F Monsanto's cash flow for the three-year period of 1992-1990 is shown in the Statement of Consolidated Cash Flow on the preceding page. CASH FLOW REMAINED STRONG Cash flow remained strong in 1992, with the cash proceeds from the Fisher Controls divestiture and that provided by operations. However, cash provided by oper ations of $912 million was 23 percent lower than the prior year. This was due to the lower selling prices and higher marketing expenses more than offsetting higher sales volumes and lower raw material costs. Cash from opera tions was generated primarily by The Chemical Group, The Agricultural Group and NutraSweet. As discussed in NutraSweet's operating unit segment data on page 35, future cash flow from NutraSweet is expected to be lower, due to anticipated lower future selling prices. Monsanto's operations have historically generated sufficient cash to fund existing businesses, growth-related research and investments. Management expects cash provided by operations, supplemented by periodic borrowings, to be adequate to fund future requirements. Cash Provided by Operations (Dollars in millionsl U00............. .............. 1,000................................ ) goo.............................. Long-term debt proceeds in 1992 included $61 million in ex-U.S. floating-rate notes and $45 million from the issuance of industrial development bonds. These proceeds were used essentially to refinance other borrowings. In 1991, long-term debt proceeds included $100 million of 30-year fixed-rate debentures and $194 million from the issuance of medium-term notes. Long-term debt repayments in 1992 included $145 million in 11% percent debentures, $141 million in 8% percent debentures, $104 million in 81/: percent debentures, and $51 million in industrial development bonds. Monsanto continually evaluates risk retention and insurance levels for product liability, property damage and other potential areas of risk. Monsanto devotes significant effort to maintaining and improving safety and internal control programs, which reduce its exposure to certain risks. Based on the cost and availability of insurance and the likelihood of a loss, management decides the amount of insurance coverage to purchase from unaffiliated com panies and the appropriate amount of risk to retain. Since 1986, Monsanto's liability insurance has been on the "claims made" policy form. Management believes that the current levels of risk retention are consistent with those of other companies in the various industries in which Monsanto operates. Monsanto's liquidity, financial position and prof itability are not expected to be affected materially by the levels of risk retention which the Company accepts. 600...................................... 400...................................... 200 ..................... 0........ ........ 00 Monsanto received $1,275 million of cash from the sale of Fisher Controls. A portion of the cash proceeds was used in 1992 to reduce debt and to purchase Monsanto common stock. Most of the income taxes related to the sale will be paid in the first quarter of 1993. Other invest ment and property disposals in 1992 generated $177 million of cash. The principal proceeds in 1992 and 1991 were related to the sale of various businesses associated with the 1991 restructuring, including in 1991 the animal feed ingredients business. Major uses of cash for the period 1992-1990 included capital expenditures, treasury stock purchases and dividends. The investment in various 1992 acquisitions and purchase of an interest in a Japanese pharmaceuticals firm in 1991 were \o major uses of cash. Monsanto's 1992 capital expendi<ures focused on improved technology, capacity expansions and environmental projects, and totaled $586 million. MONSANTO MAINTAINS STRONG ENVIRONMENTAL COMMITMENT Monsanto is subject to various laws and govern mental regulations concerning environmental matters, employee safety and employee health. It is anticipated that increasingly stringent requirements will be imposed upon Monsanto and industry in general. Monsanto is dedicated to a long-term environmental protection program that reduces emissions of hazardous materials into the environ ment, as well as to the remediation of identified existing environmental concerns. In 1988, management committed to a 90 percent reduction in toxic air emissions by the end of 1992, a goal that has been substantially met. The cost to accomplish this target did not materially affect operating results. In fact, some of the target projects lowered operat ing costs and improved operating efficiency. Expenditures in 1992 were approximately $123 million for environmental capital projects and approx imately $264 million for operation and maintenance of environmental protection facilities. Monsanto estimates that during 1993 and 1994 approximately $75 million$125 million per year will be spent on additional capital projects for environmental protection. Monsanto periodically receives notices from the Environmental Protection Agency (EPA) that it is a poten- MAR 002171 Monsanto 1992 Annual Report 45 LAM018289 REVIEW OF H FLOW Lri'lflMUdl/ tially responsible party (PRP) under Superfund. Monsanto has been designated by the EPA as a PRP at 88 Superfund sites; however, the EPA has provided notice deleting Monsanto from 2 of these sites. Monsanto has resolved disputes in 22 of these Superfund cases. In addition, partial consent decrees or administrative orders have been entered between Monsanto and the United States in 16 of these cases settling a portion of Monsanto's liability. Of the remaining sites, 6 are matters that involve allegations predi cated on tentative findings of reuse of drums by others that once contained products sold by Monsanto. These 6 matters have been inactive as to Monsanto for at least 8 years. At one other site, Monsanto has determined it has no liabil ity whatsoever. Monsanto's future Superfund remediation expenses will be affected by a number of uncertainties, including the method and extent of remediation, the percentage of material attributable to Monsanto at the sites relative to that attributable to other parties, and the finan cial capabilities of the other PRPs at most sites. Monsanto spent $46 million in 1992 for remedia tion of Superfund and other waste disposal sites. Most of these expenditures related to The Chemical Group, and similar or greater amounts can be expected in future years. Monsanto's policy is to accrue these costs in the accounting period in which the responsibility is established and the cost is estimable. At December 31,1992, Monsanto's Statement of Consolidated Financial Position included an accrued liability of $242 million for the remediation of identified waste disposal sites. Because of the uncertainties associated with remediation activities, Monsanto's future expenses to remediate these sites could approximate an additional $300 million. These potential future expenses would be expected to be incurred over the balance of the decade. While the costs and results of remediation of waste disposal sites cannot be predicted with certainty, manage ment believes that, with future developments in remediation technology, Monsanto's liquidity and prof itability in any one year will not be materially affected. COMMON STOCK PURCHASE PROGRAM CONTINUED In April 1992, Monsanto's Board of Directors authorized the purchase of 5 million shares of Monsanto common stock. In October 1992, the Board authorized the purchase of an additional 12 million shares. In 1992, Monsanto purchased 6.7 million shares at a cost of $417 million. Since June 1987, Monsanto has purchased 43.8 million shares at a cost of $2,170 million. Management believes the stock purchase program represents a sound economic investment for Monsanto's shareowners. DIVIDENDS INCREASE FOR THE 20TH CONSECUTIVE YEAR Monsanto has paid dividends on its common shares without interruption or reduction since 1928, and has increased the dividend per share in each of the past 20 years. Dividend payout for 1992 was 30 percent of cash provided by operations. Monsanto's dividend policy reflects a desired long-term payout percentage based on Monsanto's expectations of future growth and profitability levels. In any individual year, additional consideration is given to expected financial position and results, working and fixed capital needs, scheduled debt repayments and economic conditions, including inflation. Monsanto's common stock is traded principally on the New York Stock Exchange and is listed on the exchanges in Tokyo and 7 European cities. The number of shareowners of record as of February 26,1993, was 59,165, and the high and low common stock prices on that date were $51% and $50%. MAR 002172 46 Monsanto 1992 Annual Report LAM018290 NOTES TO FINANClA STATEMENTS SIGNIFICANT ACCOUNTING POLICIES Major elements include a realignment of selected research Monsanto's significant accounting policies are itali investments, reductions in employment and a number of cized in the following Notes to Financial Statements. The consolidations, closings, asset write-downs and sales of financial statements present the results of Fisher Controls nonstrategic businesses and facilities. The pretax expense as discontinued operations. Previously reported amounts related to these actions totaled $625 million ($425 million have been reclassified consistent with this presentation. aftertax) and principally affected Pharmaceuticals. These BASIS OF CONSOLIDATION The consolidated financial statements include the Company and its majority-owned subsidiaries. Intercompany transactions have been eliminated in consolidation. Other com panies in which Monsanto has a significant ownership interest (generally greater than 20 percent) are included in "Investments in Affiliates" in the Statement of Consolidated Financial Position, and Monsanto's share of these companies' income or loss is included in "Other income (expense) -- net" in the Statement of Consolidated Income. CURRENCY TRANSLATION Most ofMonsanto's ex-U.S. entities'financial state ments are translated into U.S. dollars using current exchange rates. Unrealized currency adjustments in the Statement of Consolidated Financial Position are accumulated in shareowners' equity. The financial statements ofex-U.S. entities that operate in hyperinflationary economies, principally Brazil, are translated at either current or historical exchange rates, as appropriate. These currency adjustments are included in net income. , Major currencies are the U.S. dollar, British pound /sterling, Belgian franc and Japanese yen. Other important currencies include the Brazilian cruzeiro, Canadian dollar, actions also include some further fine-tuning of other operating units and a reduction in corporate staff. Other unusual items, primarily in the first and second quarters of 1992, totaled a pretax expense of $74 million. These items principally were costs incurred as a result of damage to a manufacturing unit for a key raw material for Roundup herbicide in January 1992 and the settlement of certain lawsuits related to the Brio Superfund site in the second quarter of 1992. In June 1991, the Board of Directors approved restructuring steps, principally to strengthen The Chemical Group for the future. Corporate staff reductions were also approved. In September 1990, the Board of Directors approved a restructuring of The Agricultural Group. The 1990 and 1991 actions included the shutdown and consoli dation of various facilities and the sale of certain businesses, including the animal feed ingredients business, that did not meet Monsanto's long-term strategic direction. The components of the pretax expense related to the restructuring programs and the other unusual items were: 1992 1991 French franc, German mark and Italian lira. Currency Cost of employee reductions $224 $ 215 restrictions are not expected to have a significant effect Shutdown and consolidation of on Monsanto's cash flow, liquidity or capital resources. various facilities and departments 164 417 Currency option contracts are purchased to Asset write-downs 188 manage currency exposure for anticipated transactions Glyphosate plant damage costs 42 (for example, export sales for the following year). Currency Brio litigation settlement 41 option and forward contracts are used to manage other Other costs 111 64 currency exposures. At December 31,1992 and 1991, Gains on business sales (71) (239) Monsanto had currency forward and option contracts to purchase $53 million and $240 million, respectively, and to sell $597 million and $714 million, respectively, of other currencies, principally the British pound sterling, French Total $699 $457 These expenses were recorded in the Statement of Consolidated Income in the following categories: franc, Japanese yen and German mark. Gains and losses on contracts that are designated and effective as hedges are deferred and included in the recorded value of the transaction being hedged. Gains and losses on other currencyforward and option contracts are included in net income immediately. Monsanto is subject to loss in the event of nonperformance by the Cost of goods sold Restructuring expense - net Decrease in operating income Other expense 1992 $188 436 624 75 1991 $457 457 counterparties to these contracts. RESTRUCTURING AND OTHER ACTIONS Total decrease in income from continuing operations before income taxes $699 $457 In November 1992, the Board of Directors approved series of actions designed to make Monsanto's worldwide operations more focused, productive and cost-effective. LAM018291 MAR 002173 Monsanto 1992 Annual Report L. NOTES TO FI C I A L STATEMENTS Income from continuing operations was reduced by $472 million aftertax, or $3.82 per share, and $332 million aftertax, or $2.60 per share, for 1992 and 1991, respectively, from the effect of these restructurings and unusual items. Product sales of businesses targeted for divestiture in these restructurings were excluded from Monsanto's net sales after Board of Directors' approval. Product sales of these businesses in 1992-1990 included in Monsanto's net sales were $74 million, $299 million and $429 million, respectively. PRINCIPAL ACQUISITIONS AND DIVESTITURES In October 1992, Monsanto sold the worldwide business of Fisher Controls. Monsanto received $1,275 million in cash, which resulted in an aftertax gain of $554 million (net of applicable income taxes of $371 million). Financial data for Fisher Controls were: Property, plant and rijiiipiiit'iit is recorded aI cosf. The cost ofplant ami equipment is depreciated over weighted average periods of 22 years for buildings and 11 years for machinery and equipment, using the straight-line method. Intangible assets are recorded at cost less accumulated amortization. The components of intangible assets and their estimated remaining useful lives were: Estimated Remaining Life* Goodwill Patents Other intangible assets 30 7 15 1992 $ 692 85 289 1991 $ 687 275 262 Total $1,066 $1,224 'Weighted average, m years, at December 31,1992. Net sales Income before income taxes Income taxes Net income 1992* $679 $ 37 13 $ 24 1991 $928 $ 88 30 $ 58 1990 $927 $ 94 34 $ 60 *For the nine months ended September 30, 1992. In 1991, Monsanto purchased 12.25 percent of the shares of Hokuriku Seiyaku Co., a Japanese pharma ceuticals firm. The investment is included in "Other Assets." In June 1990, certain assets of a Monsanto joint venture in Japan were sold. Monsanto recognized a pretax gain of $45 million, or an aftertax gain of $31 million, or $0.24 per share, on the sale of these assets. On January 7,1993, Monsanto signed a letter of intent to purchase the assets, including working capital, of the Ortho Consumer Products Division of Chevron Chemical Co. The transaction is subject, among other condi tions, to a due diligence review of the Ortho business and the signing of a definitive agreement. Subject to the timing of the transaction in relation to Monsanto's seasonal work ing capital needs, financing of the acquisition is to be achieved through available cash balances and additional short-term borrowings. Ortho Consumer Products, with annual sales of approximately $250 million, is a leading U.S. marketer of lawn and garden products. DEPRECIATION AND AMORTIZATION 1992 Depreciation $473 Amortization of intangible assets 237 Obsolescence 55 1991 $453 233 28 1990 $437 229 38 Goodwill is the cost ofacquired businesses in excess of thefair value of their identifiable net assets and is amortized over the estimated periods of benefit (5 to 40 years). Patents obtained in a business acquisition are recorded at the present value of esti mated future cashflows resultingfrom patent ownership. The cost of patents is amortized over their legal lives. The cost ofother intangible assets (principally product rights and trademarks) is amortized over their estimated useful lives. INVENTORY VALUATION Inventories are slated 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, raw material and manufacturing overhead based on practical capacity. The cost ofcertain inventories (55 percent at December 31,1992) is determined by using the last-in,first-out (UFO) method, which generally reflects the effects of inflation or deflation on cost ofgoods sold sooner than other inventory cost methods. The cost of other inventories generally is determined by using thefirst-in,first-out (FIFO) method. The components of inventories were: 1992 1991 Finished goods Goods in process Raw materials and supplies Inventories, at FIFO cost Excess of FIFO over LIFO cost Total $ 743 298 426 1,467 (311) $1,156 $ 838 300 384 1,522 (308) $1,214 Inventories at FIFO cost approximate current cost. Total $765 $714 $704 48 Monsanto 1992 Annual Report MAR 002174 LAM018292 INCOME TAXES The components of income (loss) from continuing operations before income taxes were: 1992 1991 1990 United States Outside United States $ (14) (160) $269 85 $454 262 Total $(174) $354 S716 The components of income tax expense (benefit) charged to continuing operations were: 1992 1991 1990 Current: U.S. federal U.S. state Outside United States $ 56 24 19 $225 26 56 $102 17 83 99 307 202 Deferred: U.S. federal U.S. state Outside United States (59) (149) (15) (21) (73) (21) 26 1 1 (147) (191) 28 Total $ (48) $ 116 $230 . Factors causing Monsanto's effective tax rate for continuing Operations to differ from the U.S. federal statutory rate were: 1992 1991 1990 U.S. federal statutory rate Benefits attributable to: U.S. export earnings Puerto Rico operations Sale of investments Higher (lower) ex-U.S. rates Nondeductible goodwill Valuation allowances State income taxes Other (34)% (9) (4) -- (12) 3 19 2 7 34% (7) (3) (3) 4 2 1 5 34% (2) (2) -- (1) 1 2 Effective Income Tax Rate (28)% 33% 32% The income taxes netted against the gain on the sale of Fisher Controls and the cumulative effect of adopt ing Statement of Financial Accounting Standards (SFAS) No. 106 exceeded the 34 percent U.S. federal statutory rate primarily because of the effect of state income taxes. Monsanto adopted SFAS No. 109, 'Accounting for Income Taxes," effective as of January 1, 1992, and recog nized a gain of $118 million, or $0.96 per share. This gain has been reflected in the Statement of Consolidated Income ) a cumulative effect of an accounting change. Deferred income tax balances in 1992 reflect the impact of temporary differences between the amounts of assets and liabilities for income tax purposes, compared with the respective amounts for financial statement purposes. Deferred income tax balances at December 31, 1992, were related to: Property Postretirement benefits Restructuring reserves Environmental liabilities Inventory Other Valuation allowances Total Asset $(301) 392 184 83 71 147 (62) $ 514 Liability $43 12 2 10 $67 Included in the SFAS No. 109 adoption at January 1, 1992, were valuation allowances of $32 million. Under the previous income tax accounting rules, deferred income taxes were provided for significant timing differences in the recognition of revenue and expense for tax and financial statement purposes. The source of these timing differences and the tax effect of each were: Depreciation and obsolescence Restructuring State income taxes Other Total 1991 $ (14) (146) (21) (10) $(191) 1990 $9 19 1 (1) $28 Income and remittance taxes have not been recorded on $400 million of undistributed earnings ofsubsidiaries, either because any taxes on dividends would be offset substantially byforeign tax credits or because Monsanto intends to indefinitely reinvest those earnings. The estimated U.S. income tax if such earnings were paid as dividends would be approximately $55 million. SHORT-TERM DEBT AND CREDIT ARRANGEMENTS Short-term debt was: 1992 1991 Notes payable to banks Commercial paper Bank overdrafts Current portion of long-term debt $ 70 78 109 $ 75 66 125 69 Total $257 $335 Weighted average interest rates of notes payable at December 31: Banks'1' Commercial paper 9.8% 14.2% 4.9% "`Includes the effect ofnotes in certain countries where local inflation results in high interest rates. MAR 002175 Monsanto 1992 Annual Report LAM018293 NOTES TO FII^NCIAL STATEMENTS Monsanto has aggregate short-term loan facilities of $297 million, under which loans totaling $70 million were outstanding at December 31,1992. Interest on these loans is related to various bank rates. Monsanto's worldwide unused short-term loan facilities were $227 million at December 31,1992. In addition, Monsanto has a $750 million credit facility, which expires in 1996. There were no borrowings under this facility at December 31, 1992. The credit facility is used to support the issuance of commercial paper. Interest on amounts borrowed under this agreement would likely be at money market rates. Covenants under this credit facility restrict maximum borrowings. It is not anticipated that future borrowings will be limited by these restrictions. LONG-TERM DEBT Long-term debt (exclusive of current maturities) was: 1992 1991 Industrial development bond obliga tions, rates in 1992 ranging from 5.60% to 11.50%, due 1994 to 2022 Medium-term notes, rates in 1992 ranging from 7.85% to 9.00%, due 1994 to 2005 914% notes due 1996 8/4% sinking fund debentures due 2000 7.09% and 8.13% amortizing ESOP notes and debentures due 2000 and 2006, guaranteed by the Company 814% sinking fund debentures due 2008 8%% debentures due 2009 11%% sinking fund debentures due 2015 8.7% debentures due 2021 Other $ 363 300 150 180 99 100 231 Total $1,423 $ 371 364 150 104 200 141 99 145 100 197 $1,871 Maturities and sinking fund requirements on long-term debt are $109 million, $102 million, $98 million, $266 million and $73 million for 1993-1997, respectively. Interest rate swap options (interest options) are used to manage interest expense. At December 31,1992 and 1991, Monsanto had sold interest options with an aggregate notional principal amount of $395 million and $351 million, respectively, related to existing debt. Two interest options would effectively refinance, at 8'A percent, $150 million of 9% percent notes in the period 1993 through 1996. Another interest option would effectively convert $99 million of 87/S percent debentures to commercial paper rates in the period 1994 through 2000. Additional interest options would effectively convert $96 million of variable rate debt to fixed rates ranging from 8 - percent to 9;'. percent in the period 1993 to 2000. Another interest option would effectively convert $50 million of 7.09 percent amortizing ESOP notes to a variable rate in the period 1993 to 1996. Premiums from the sale of interest options are amortized over the related debt period. Interest differentials to be paid or received are accrued as interest rates changeover the related debt period. FINANCIAL INSTRUMENTS FAIR VALUES The estimated December 31,1992, fair values of Monsanto's financial instruments were: Recorded Amount Fair Value Assets: Foreign currency forward and option contracts Miscellaneous receivables Investments in securities Liabilities: Currency swaps and interest options Long-term debt $7 31 208 $ 21 26 206 11 1,423 26 1,496 The recorded amounts of cash, trade receivables, discounted receivables, third party guarantees, accounts payable and short-term debt approximate their fair values. Investments in securities are recorded at cost and reduced to market value when a decline is deemed other than temporary. Fair values are estimated using quoted market prices, estimates obtained from brokers and other appro priate valuation techniques based on information available as of December 31,1992. The fair value estimates are not necessarily indicative of values Monsanto could realize in the current market. POSTRETIREMENT BENEFITS - PENSIONS Most Monsanto employees are covered by noncon tributory pension plans. The components of pension cost (income) were: 1992 1991 1990 Service cost for benefits earned during the year $ 65 Interest cost on benefit obligation 272 Assumed return on plan assets* (291) Amortization of unrecognized net gain (41) $ 63 $ 61 259 (269) 230 (259) (33) (46) Total $ 5 $ 20 $ (14) 'Actual return (loss) on plan assets was 5230 million, $689 million and S(83J million in 1992-1990, respectively. 50 Monsanto 1992 Annual Report MAR 002176 LAM018294 Pension benefits are determined based on the employee's years of sendee and/or compensation level. Pension plans are funded in accordance with Monsanto's long-range projections of the plans' financial conditions, considering benefits earned and expected to be earned in the future, anticipated future returns on pension plan assets and income tax and other regulations. Pension cost is determined by using the preceding year-end assumptions. Assumptions used as of December 31 for the principal plans were: 1992 1991 1990 Discount rate Assumed long-term rate of return on plan assets Annual rates of salary increase (for plans that base benefits on final compensation level) 8/4% 914% 6% 8/4% 814% 614% 814% 814% 614% The funded status of Monsanto's pension plans at year-end was: 1992 1991 Plan Assets at Fair Value $3,751 $3,753 Actuarial present value of plan benefits: Vested Nonvested $2,848 123 $2,732 105 'Accumulated benefit obligation 2,971 Effect of projected future salary increases 426 2,837 384 Projected Benefit Obligation $3,397 $3,221 Excess of plan assets over projected benefit obligation Less: Unrecognized initial net gain Unrecognized prior service costs Unrecognized subsequent net gain $ 354 $ 532 221 (216) 538 266 (185) 624 Accrued Net Pension Liability $ 189 $ 173 The accrued net pension liability was included in: Postretirement liabilities Less: Other assets $ 232 $ 229 (43) (56) Accrued Net Pension Liability $ 189 $ 173 At December 31,1992, the accrued net pension liability included $101 million for unfunded plans. Projected benefit obligations and plan assets included in the above table for the principal U.S. plans were approximately $3,040 million and $3,425 million, respectively, at December 31,1992. Plan assets consist principally of ) common stocks and US. government and corporate obli gations. Because the Company's principal pension plans are well funded, contributions to these plans were neither required nor made in 1992-1990. POSTRETIREMENT BENEFITS - HEALTH CARE AND OTHER Monsanto provides certain health care and life insurance benefits for retired employees. Substantially all of Monsanto's 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 Monsanto. These postretirement benefits are generally determined based on the employee's years of service and/or compensation level and are unfunded. Monsanto adopted Statement of Financial Accounting Standards (SFAS) No. 106, "Employers' Accounting for Postretirement Benefits Other Than Pensions," effective as of January 1,1992, and recognized an aftertax expense of $658 million ($1,045 million pretax), or $5.34 per share for retiree benefits earned through 1991. The expense was included in the Statement of Consolidated Income as a cumulative effect of an accounting change. SFAS No. 106 requires that the cost of other postretirement benefits be accrued by the date the employees become eligible for the benefits. Under the previous accounting rule, these postretirement benefits were expensed as benefits were paid. The components of the cost of these postretirement benefits, principally health care and life insurance. were: 1992 Service cost for benefits earned during the year Interest cost on benefit obligation $ 26 88 Total $114 The 1991-1990 expense for these postretirement benefits under the previous accounting rule was $51 million and $43 million, respectively. The following assumptions were used for the principal plans in 1992: a discount rate of 8Vi percent and an initial assumed health care cost trend rate of 15 percent declining by 1 percent per year to an ultimate cost rate of 6 percent for years after 2000. A 1 percent increase in the assumed health care cost trend rate would have increased the cost of 1992 postretirement health care benefits by $6 million and the accumulated benefit obligation at December 31,1992, by $51 million. MAR 002177 -r-ijsr.' Monsanto 1992 Annual Report 51 LAW\018295 lNCIAL statements The status at December 31,1992, of Monsanto's postretirement health care and life insurance benefit plans and employee disability benefit plans was: 1992 Accumulated Benefit Obligation: Retirees Eligible active employees Other active employees $ 768 103 226 Accrued Liability $1,097 The accrued liability was included in: Miscellaneous accruals Postretirement liabilities $ 77 1,020 Accrued Liability $1,097 EMPLOYEE SAVINGS PLANS For some employee savings plans, employee contributions are matched in part by Monsanto. Matching contributions charged to expense for such plans were $33 million, $34 million and $34 million in 1992-1990, respectively. In October 1991, Monsanto established an employee stock ownership plan (ESOP). In December 1991, the ESOP issued $100 million each of 7.09 percent amortizing notes and 8.13 percent amortizing debentures guaranteed by Monsanto, and the ESOP borrowed $50 million from Monsanto. The unpaid balance of ESOP borrowings is included in "Reserve for ESOP debt retire ment" in Shareowners' Equity. The unpaid balance of notes and debentures guaranteed by Monsanto is included in "Long-term Debt" in the Statement of Consolidated Financial Position. In January 1992, the ESOP used the proceeds of the loans to purchase 3.7 million shares of common stock from Monsanto, a portion of which will be allocated each year to employee savings accounts as matching contributions. The proceeds from the issuance of common stock to the ESOP were used primarily for the purchase of an equivalent number of common shares under a treasury stock purchase program. Dividends on the common stock owned by the ESOP will be used to repay the ESOP borrowings. Total expense for the ESOP was $28 million in 1992, of which $19 million represented interest expense. In 1992, Monsanto's cash contribution to the ESOP was $19 million, and dividends of $8 million were paid on common shares held by the ESOP. 002178 ffAK STOCK OPTION PLANS Key officers and employees have been granted Monsanto stock options under the Company's 1974, 1984 and 1988 Management Incentive Plans, the Searle Monsanto Stock Option Plan (Searle Plan) and the NutraSweet/Monsanto Stock Plan (NutraSweet Plan). Information about the status of such stock options is presented below: Exercisable Shares December 31,1990 3,360,357 1991: Granted Exercised Expired December 31,1991 4,125,193 1992: Granted Exercised Expired Outstanding Shares Price per Share 7,051,529 $15.69-$61.44 3,628,172 (1,612,380) (189,879) 8,877,442 50.56- 74.25 15.59- 58.00 43.53- 62.13 19.33- 74.25 2,078,533 (485,094) (328,176) 51.56- 67.13 1933- 58.00 34.50- 73.56 December 31,1992 5,140,969 10,142,705 2131- 74.25 Under the 1988 Management Incentive Plans, the Searle Plan and the NutraSweet Plan, 6,471,826 shares remain available for grant. Prior to 1991, stock appreciation rights (SARs) were granted to certain Monsanto officers in tandem with stock options under the plans, including retroactive grants for unexercised options. In 1991, the SAR grants were canceled, and unexercised SARs held by current officers were forfeited. EARNINGS PER SHARE Earnings per share were computed using the weighted average number of common shares and common share equivalents outstanding each year (123,443,744; 127,126,216; and 129,107,666 in 1992-1990, respectively). Common share equivalents (1,041,096; 1,437,179; and 676,393 in 1992-1990, respectively) consist primarily of common stock issuable upon exercise of outstanding stock options. Earnings per share assuming full dilution were not significantly different from the primary amounts. CAPITAL STOCK At December 31,1992, there were 16,614,531 common shares reserved for employee stock options. In January 1990, the Company's Board of Directors declared a dividend of one Preferred Stock Purchase Right on each outstanding share of the Company's common stock. If a person or group acquires beneficial ownership of 20 percent or more, or announces a tender offer that would 52 Monsanto 1992 Annual Report LAM018296 result in beneficial ownership of 20 percent or more, of the Company's outstanding common stock, the rights become exercisable and each right will entitle its holder to purchase bne one-hundredth of a share of a new series of preferred stock for $450. If Monsanto is acquired in a business com bination transaction while the rights are outstanding, each right will entitle its holder to purchase, for $450, common shares of the acquiring company having a market value of $900. In addition, if a person or group acquires beneficial ownership of 20 percent or more of the Company's out standing common stock, each right will entitle its holder (other than such person or members of such group) to purchase, for $450, a number of shares of the Company's common stock having a market value of $900. Furthermore, at any time after a person or group acquires beneficial ownership of 20 percent or more (but less than 50 percent) of the Company's outstanding common stock, the 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 the Company's common stock on a one-for-one basis. At any time prior to the acquisition of such a 20 percent position, the Company can redeem each right for 1 cent. The Board of Directors is also authorized to reduce the 20 percent thresholds referred to above to not less than 10 percent. The rights expire in the year 2000. In connection with this dividend declaration, *he Board of Directors also authorized the redemption in February 1990 of the then existing Common Stock Purchase Rights at their redemption price of 5 cents per right. COMMITMENTS AND CONTINGENCIES Commitments, principally in connection with uncompleted additions to property, were approximately $92 million at December 31,1992. Excluding the ESOP notes and debentures, Monsanto was contingently liable as a guarantor of bank loans and for discounted customers' receivables totaling approximately $245 million and $223 million at December 31,1992 and 1991, respectively. Future minimum payments under noncancellable operat ing leases and unconditional inventory purchases are $172 million; $87 million; $59 million; $38 million; and $74 million for 1993-1997, respectively, and $120 million thereafter. The more significant concentrations in Monsanto's trade receivables at year-end were: 1992 1991 Management does not anticipate incurring losses on its trade receivables in excess of established allowances. Monsanto is a party to a number of lawsuits and claims, which it is vigorously defending. Such matters arise out of the normal course of business and relate to product liability, government regulation, including environmental issues, and other issues. Certain of the lawsuits and claims seek damages in very large amounts. While the results of litigation cannot be predicted with certainty, management believes, based upon the advice of Company counsel, that the final outcome of such litigation will not have a material adverse effect on Monsanto's consolidated financial posi tion. Costs for remediation of waste disposal sites are accrued in the accounting period in which the respomibility is established and the cost is estimable. SUPPLEMENTAL DATA Supplemental income statement data were: 1992 1991 1990 Raw material and energy costs Employee compensation and benefits Current income and other taxes Rent expense $2,247 2,016 393 138 $2,283 $2,441 1,983 580 130 1,867 471 130 Technological expenses: Research and development Engineering,' commercial development and patent 651 610 595 69 70 66 Total Technological Expenses 720 680 661 Interest expense: Total interest cost Less capitalized interest 185 (16) 190 205 (24) (29) Net Interest Expense 169 166 176 Currency gains (losses) including equity in affiliates' currency gains and losses (39) (10) (45) SEGMENT INFORMATION Certain operating unit segment data and geographic data for 1992-1990 appear on pages 31 and 38 and are integral parts of the accompanying financial statements. The principal product lines included in each operating unit are shown in the operating unit segment data. U.S. agricultural product distributors European agricultural product distributors Pharmaceutical distributors worldwide Aistomers in the Commonwealth of Independent States $175 149 315 75 $141 176 332 77 mrnnnUTTfomm^-- MAR 002179 Monsanto 1992 Annua/ Report 53 LAM018297 MARY (Dollars in millions, except per share) 1992"' 19910 1990' 1989|4) Operating Results Net Sales Operating Income As a Percent of Net Sales Income (Loss) from Continuing Operations As a Percent of Net Sales Income from Discontinued Operations Cumulative Effect of Accounting Changes Net Income (Loss) Return on Shareowners' Equity $ 7,763 58 1% (126) (2)% 578 (540) (88) (2.6)% $ 7,936 475 6% 238 3% 58 296 7.6% S 8,068 808 10% 486 6% 60 546 13.6% $ 7,829 1,006 13% 627 8% 52 679 17.6% Earnings per Share Income (Loss) from Continuing Operations Net Income (Loss) $ (1.01) (0.71) $ 1.87 2.33 $ 3.77 4.23 $ 4.63 5.01 Year-End Financial Position Total Assets Working Capital Property, Plant and Equipment: Gross Net Long-term Debt Shareowners' Equity Current Ratio Percent of Total Debt to Total Capitalization $ 9,085 1,512 $ 9,227 1,536 $ 9,236 1/323 $ 8,604 1/326 $ 7,602 3,005 $ 1,423 3,005 1.6 36% $ 7,510 3,191 $ 1,871 3,654 1.7 38% $ 7,226 3/316 $ 1,645 4,089 1.6 35% $ 6,578 3,009 $ 1,464 3,941 1.7 33% Other Data Property, Plant and Equipment Purchases Depreciation and Amortization Interest Expense Research and Development Expenses Income Taxes Cash Provided by Operations Stock Price: High Low Year-end Price/Earnings Ratio on Year-end Stock Price Per Share: Dividends Shareowners' Equity $ 586 765 169 651 (48) 912 $ 554 714 166 610 116 1,180 $ 711 704 176 595 230 1,104 $ 578 659 176 581 327 1,037 $ 71% 49% 57% -- $ 76 46 67% 29 $ 60% 38% 48% 11 $ 62% 40% 57% 12 $ 2.20 24.95 $ 2.045 29.72 $ 1.88 32.51 $ 1.65 29.79 Shareowners (year-end) 60,074 60,152 62,230 61,942 Shares Outstanding (year-end, in millions) 120 123 126 132 Employees (year-end) 33,797 39,281 41,081 42,179 l,,loss from continuing operations and net loss for 1992 includes an aftertax lossfor restructuring and other unusual items of $472 million, or S3.82 per share. <ilNet income for 1991 includes net restructuring expense of$325 million, or $2.54 per share. ,}lNet income for 1990 includes 556 million, or $0.43 per share, in gains resulting from divestitures, including the divestiture ofcertain assets ofa joint venture in japan. {iiNet incomefor 1989 includes a $36 million, or $0.27 per share, gain on the sale of the analgesics business. 1988 $ 7,453 919 12% 563 8% 28 591 15.4% $ 3.95 4.14 $ 8,461 1,117 $ 6,577 2,977 $ 1,406 3,800 1.6 34% $ 565 666 164 556 292 1/304 $ 46% 36% 40% 10 $ 1.475 27.60 66,066 138 45,635 54 Monsanto 1992 Annual Report MAR 002180 LAM018298 EXECUTIVE & OTHE Chairman and Chief Executive Officer Richard J. Mahoney* Vice Chairman Nicholas L. Reding* President and Chief Operating Officer Robert B. Shapiro* Chairman, Executive Committee of the Board of Directors Earle H. Harbison, Jr.* Executive Vice President Robert G. Potter* Senior Vice President and Chief Financial Officer Francis A. Stroble* Senior Vice President, Secretary and General Counsel Richard W. Ouesenberg* Vice Presidents Barry Blitstein Robert A. Clausen Leonard A. Cohn Grant W. Denison, Jr. A. Nicholas Filippello, Ph.D. Martin J. Kallen Philip Needieman, Ph.D.* James H. Nisbet Richard A. Overton Michael A. Pierle David L. Sliney Hendrik A. Verfaillie* Virginia V. Weldon, M.D.* Vice President and Controller Bruce R. Sents Vice President and Treasurer Juanita H. Hinshaw Chairman and Chief Executive Officer, The NutraSweet Company Robert E. Flynn* Chairman and Chief Executive Officer, G.D. Searle & Co. Sheldon G. Gilgore, M.D.* ADVISORY D CTORS Monsanto established advisory directors in 1981 to provide counsel from executive officers to the board of directors on board matters. Currently, seven executive officers serve as advisory' directors. Robert E. Flynn, 59, joined Monsanto in 1981 as executive vice president of Fisher Controls Inter national Inc., which was then a subsidiary of Monsanto. In 1990, he was named chairman and chief executive officer of The NutraSweet Company, a subsidiary of Monsanto. Flynn was appointed an advisory director effective Jan. 1,1993. Sheldon G. Gilgore, M.D., 61, is chairman and chief executive officer of G.D. Searle & Co., a subsidiary of Monsanto. He joined Searle in 1986 as president and chief executive officer, and was named chairman later that year. Gilgore was named an advisory direc tor effective Jan. 1,1993. Philip Needieman, Ph.D., 54, is vice president of research and development and chief scientist of Monsanto, and president of research and develop ment of G.D. Searle & Co. Needieman joined Monsanto in 1989 and has been an advisory director for two years. Robert G. Potter, 53, joined Monsanto in 1965 and has held a variety of sales, marketing and administrative positions in Monsanto's chemical businesses. Currently, he is an executive vice presi dent of Monsanto and president of The Chemical Group, a Monsanto oper ating unit. Potter has been an advisory director for seven years. Francis A. Stroble, 62, is senior vice president and chief financial officer of Monsanto. Stroble has been an advisory director for 11 years. He has 36 years of experience in accounting, finance, planning, manage ment information systems, and controllership assign ments at Monsanto. Hendrik A. Verfaillie, 47, is a vice president of Monsanto and president of The Agricultural Group, a Monsanto operating unit. He was appointed an advisory director effective Jan. 1,1993. Verfaillie joined Monsanto in 1976 and has served in marketing and administrative assignments in Brussels, Belgium, and St. Louis. Virginia V. Weldon, M.D., 57, joined Monsanto in 1989. She is vice president of public policy and is responsible for the policy analysis, government affairs and corporate communications functions. She has been an advisory director for two years. * Exrrufftv officers as difwcd by the Securities and Exchange Commission. Ages and years of service as ofMarch 1,1993. MAR 002181 Monsanto 1992 Annual Report 55 LAM018299 Richard J. Mahoney, 59, of St. Louis, is chairman and chief executive officer of Monsanto. He joined Monsanto in 1962 and was appointed to his current position in April 1986. He has been a director for 14 years. Mahoney is a member of the board's executive and finance committees. Joan T. Bok, 63, of Westborough, Massachu setts, is chairman of New England Electric System. She has been a Monsanto director for six years. Bok is a member of the board's audit and corporate social responsibility committees. Earle H. Harbison, Jr., 64, of St. Louis, is chairman of the executive committee of the board of Monsanto. He joined Monsanto in 1967. He was president and chief operating officer from May 1986 to January 1993, and has been a director for seven years. Harbison is also a member of the board's pension and savings funds committee. Robert M. Heyssel, M.D., 64, of Baltimore, is a con sultant and the president emeritus of The Johns Hopkins Health System. He is the retired president and chief executive officer of The Johns Hopkins Health System and The Johns Hopkins Hospital. He has been a Monsanto director for four years. Heyssel is a member of the board's audit, pension and savings funds, and executive compensation and devel opment committees. Monsanto 1992 Annual Report Philip Leder, M.D., 58, of Boston, is chairman of the Department of Genetics at Harvard Medical School. He is also senior investi gator for the Howard Hughes Medical Institute. He has been a Monsanto director for three years. Leder is a member of the board's pension and savings funds committee. Howard M. Love, 62, of Pittsburgh, is the retired chief executive officer of National Intergroup Inc. He has been a Monsanto director for 15 years. Love is chairman of the board's executive compensation and development commit tee, and a member of the finance and nominating committees. Frank A. Metz, Jr., 59, of Sloatsburg, New York, is a retired director, senior vice president of finance and planning, and chief financial officer of IBM Corp. He has been a Monsanto director for three years. Metz is a member of the board's finance, nominating and execu tive compensation and development committees. Buck Mickel, 67, of Greenville, South Carolina, is chairman and chief execu tive officer of R.S.I. Holdings Inc. He has been a Monsanto director for 18 years. Mickel is chairman of the board's audit and nominating committees, and a member of the executive compensa tion and development committee. Jacobus F.M. Peters, 61, of The Hague, Netherlands, is chairman of the executive board and chief executive officer of AEGON N.V., an international insurance and financial services company. He was elected a member of Monsanto's board effective Feb. 1,1993. Peters is a member of the board's pension and savings funds committee. Nicholas L. Reding, 58, of St. Louis, is vice chairman of the board of Monsanto. He joined Monsanto in 1956. He was elected a member of the board and vice chair man effective Jan. 1,1993. Prior to this position, Reding was executive vice president of environment, safety, health and manu facturing. He has also served as president of The Agricultural Group, an operating unit of Monsanto. John S. Reed, 54, of New York, is chairman and chief executive officer of Citicorp and Citibank N.A. He has been a Monsanto director for eight years. Reed is chairman of the board's finance committee. William D. Ruckelshaus, 60, of Houston, is chair man and chief executive officer of Browning-Ferris Industries Inc. He is also the former administrator of the U.S. Environmental Protection Agency. He has been a Monsanto director for eight years. Ruckelshaus is a member of the board's audit and corporate social respon sibility committees. Robert B. Shapiro, 54, of St. Louis, is president and chief operating officer of Monsanto. Shapiro joined Searle, a subsidiary of Monsanto, in 1979. He became chairman and chief executive officer of The NutraSweet Company, also a Monsanto subsidiary, and then an executive vice president of Monsanto and president of The Agricultural Group, an operating unit of Monsanto. He was named to his cur rent position and elected a member of the board effective Jan. 1,1993. John B. Slaughter, Ph.D., 58, of Los Angeles, is presi dent of Occidental College. He is the former director of the National Science Foundation. He has been a Monsanto director for 10 years. Slaughter is a member of the board's audit, executive and cor porate social responsibility committees. Admiral Stansfield Turner (U.S. Navy, Retired), 69, of McLean, Virginia, is a lecturer and writer, and a professor at the University of Maryland. He is also the former director of U.S. Central Intelligence and the CLA, and the former John M. Olin Professor of National Security at the U.S. Military Academy at West Point. He has been a Monsanto director for 12 years. Turner is chairman of the board's corporate social responsibility and pension and savings funds committees. Ages and years ofservice as of March 1,1993. ........................ _ MAX 002182 LAM018300 ------ * T SHAREOWNER INFOF Dividends Per Share (In itoKur^i < Monsanto's dividend has increased 112 percent in the last decade. CD O d> 1 03S 1.125 1 225 1.2SS 1.375 1.475 1.650 I Si>0 2.<W5 2.200 Dividend Policy The declaration and payment of quarterly dividends is made at the discretion of Monsanto's board of directors. Dividends are reviewed by the board annually. Monsanto has paid dividends on its common shares without inter ruption on a quarterly basis since 1928 and has increased the dividend in each of the past 20 years. Dividend Reinvestment Plan Registered shareowners (shareowners whose stock certificates state that they are the holders of shares in Monsanto) who are U.S. citizens may reinvest their dividends in common shares of Monsanto. To receive an enrollment form, please call or write: Shareholder Services Monsanto Company 800 North Lindbergh Boulevard St. Louis, Missouri 63167 U.S.A. (314) 694-5392 Duplicate Mailings If you receive duplicate mailings of Monsanto's annual report and would like for us to eliminate the extra copies, please send us your written permission. Duplicate mail ings can occur if shares are held in multiple accounts, are registered under different names, or are registered with slight differences in names and addresses. Please send us the labels from the copies you don't want or the names of the accounts. If you have the account numbers, that's also helpful. Please send this information to: Shareholder Services Monsanto Company 800 North Lindbergh Boulevard St. Louis, Missouri 63167 U.S.A. Additional Information About Monsanto You can receive additional information about Monsanto upon request. Available financial information includes quarterly reports for shareowners; the 1992 Form 10-K, which is filed with the Securities and Exchange Commission; and the Corporate Data Book, which provides a detailed analysis of Monsanto's financial results and businesses. Monsanto also has a strong commitment to the environment, and our progress is explained in our Environmental Annual Review. Please let us know which publication you would like to receive by writing or calling: Literature Fulfillment Monsanto Company 1723F 800 North Lindbergh Boulevard St. Louis, Missouri 63167 U.S.A. (314) 694-3155 Annual Meeting The next annual meeting of the shareowners of Monsanto will be held at 1:45 p.m., Friday, April 23,1993, in K Building at the company's world headquarters at 800 North Lindbergh Boulevard, St. Louis, Missouri. A formal notice of the meeting, together with a proxy statement, is being mailed to each shareowner. For Additional Information For additional information, shareowners can contact Monsanto's investor relations staff: A. Nicholas Filippello, Ph.D. Corporate Vice President, Financial Communications and Chief Economist (314) 694-8148 Donna B. Smith Director, Investor Relations (314) 694-7867 Stock Symbol -- MTC Stock Exchanges/Bourses Amsterdam Frankfurt Brussels Geneva Chicago (options) London New York Paris Tokyo Zurich Transfer Agent and Registrar The First National Bank of Boston Box 644 Boston, Massachusetts 02102-0644 U.S.A. MAR 002183 LAM018301 ^ Printed with soy-based inks Printed on recycled paper with 10 percent post-consumer waste Monsanto 1992 Annual Report 57 "5 \5f~*** Monsanto Company 800 North Lindbergh Boulevard St. Louis, Missouri 63167 U.S.A. AR 0021S* LAM018302