Document 3XazQL8dk3kY3BVmB5nv424E

`Monsanto intends to be the best in whatever we choose to do -- it's that simple." Monsanto Annual Report 1983 DSW 021508 STLCOPCB4006817 Monsanto at a Glance Monsanto Company's objective is to consistently increase shareowner value through market leadership in over 100 countries where we do business. We do this by developing and manufacturing products to meet growing customer needs in such areas as chemicals and chemical products, agricultural products, man-made fibers, electronic materials, health care, process controls, fabricated products and oil and gas -- the whole linked by a strong technological heritage. And we earn the right to operate by acting as a responsible citizen in our communities and creating a healthy climate for our employees. Italics throughout the Annual Report identify Monsanto's trademarks. OSW 021509 STLCOPCB4006818 Operational Highlights (Dollars in millions, except per share) 1983 1982 1981 Net Sales Net Income Per Common Share: Net Income Dividends Shareowners' Equity Property, Plant and Equipment Additions Depreciation and Obsolescence $6,299 $ 402 $ 9.78 4.15 89.66 $ 560 $ 517 $6,325 $ 352 $ 8.79 3.95 85.97 $ 673 $ 439 $6,948 $ 445 $11.50 3.75 84.37 $ 668 $ 263 Research and Development $ 290 $ 264 $ 233 Net income for 1983 includes extraordinary tax benefits of $33 million, or $0.81 per share, from the utilization of ex-U.S. loss carryforwards. Net income for 1982 includes an extraordinary gain of $23 million, or $0.58 per share, from an exchange of debt for common shares Contents To Our Shareowners The Hanley Years The Best at What We Do Agriculture Construction and Home Furnishings Pharmaceuticals and Personal Products Capital Equipment Motor Vehicles Chemicals and Hydrocarbons Apparel Other Markets Financial Report Directors and Officers 4 7 8 9 14 17 18 23 26 29 30 32 58 DSW 021510 STLCOPCB4006819 Monsanto 1983 Sales by Operating Unit & Major Market (Mars in millions) Operating Units Net sales of each Monsanto Operating Unit, and percent of total Agricultural and Nutritional Products Major Markets Net sales of each Monsanto Operating Unit in major markets Agriculture and percent of total $1,272 20.2% 51,319 Agricultural Products Nutrition Chemicals $1,197 Fibers and Intermediates Man-made Fibers Textile Intermediates 51,170 r $23 Industrial Chemicals S856 Detergent and Fine Chemicals Specialty Chemicals r $36 Polymer Products SI,830 Plastics Resin Products Rubber Chemicals and Instruments I Engineered Products Engineered Products and Materials Oil and Gas 5596 9.5% 1 Fisher Controls Valves, Regulators and Electronic Process Controls S528 8.4% $2 $14 Total $6299 100% Construction and Home Furnishings $1,217 19.3% $512 r $54 $623 r $28 DSW 021511 STLCOPCB4006820 Pharmaceuticals nd Personal Products *792 12.6% Capital Equipment *721 11.5% Motor Vehicles *897 9.5% Chemicals and Hydrocarbons Apparel $820 $437 8.2% 6.9% Other Markets $743 11.8% *122 $497 1 193 $102 *7 13 $170 *28 *42 428 *138 1 1 88 *134 *12 *87 *808 1 *103 *10 *241 *387 1 1*31 $828 DSW 021512 STLCOPCB4006821 Letter to Shareowners On the cover of this year's Annual Report, we make a bold assertion: "Monsanto intends to be the best in whatever we choose to do -- it's that simple." It is a goal that we are convinced we can reach. In many areas, we have already reached that level of excellence. In others, we are well along the path. That statement reflects the strategic redirection Monsanto has pursued these past few years as it moves away from a largely com modity petrochemical-based company towards a company of higher value-added, higher profit specialty products and processes. It also speaks to our role in society as a pro ducer of safe and reliable products, a good neighbor in our plant and location com munities worldwide, and an active participant in shaping the dialogue on public policy. We are proud to report to you that, in 1983, we made signifi cant progress towards this goal of excellence and we are continuing to acuvely manage our assets, technology, people, market opportunities, and products in the best tradidons of Monsanto. Your company in 1990 will look quite differ ent, but the strengths which make these changes possible President Richard J. Mahoney (left) with Chair man Louis Fernandez DSW 021513 STLCOPCB4006822 will still be with us, particularly the creativity and dedication of our worldwide family of employees. Fundamentally, we see the future Monsanto as a com pany with three roughly equal parts: a successful and profitable chemical products business; a major presence in the biological sciences includ ing agriculture, nutrition and health care; and expanded activities in fabricated goods, process controls, electronic materials and oil and gas. In 1983 we took steps in many areas to forge our strategies into realities, and emerged from the worldwide recession better positioned lor the coming years. In this past year, ourCompany: Earned $402 million, an increase over 1982 of 14 percent. Increased financial commit ment to research and development by 10 percent over 1982. We intend to continue that trend. Carefully managed our assets, eliminating busi nesses which drained profits with no hope of a turnaround. More than tripled our poly mers earnings and brought our fibers business to prof itability with further improvements in hand. Capably managed our wav through reduced demana for farm chemicals result ing from poor weather and the government's Paymentin-Kind program, which took unprecedented crop acres out of producuon. Made excellent progress towards developing new herbicides and new seeds from plant science. Our first genetically engineered product -- designed to increase animal food effi ciency -- moved to the ad vanced development stage. Established a Health Care Division and developed a blueprint for market entry, agreeing in principle to buy the Belgian company, Condnental Pharma S.A., as an important first step. Took over full ownership of Fisher Controls Interna tional Inc. to permit us to accelerate this high-growth business. Started up the world's larg est maleic anhydride plant which uses a new low-cost Monsanto process. Began fresh iniuatives for sales in China and the USSR with results rang ing from new levels of agricultural programs to expanded chemicals and mechanical goods. Fought off infringements and strengthened patent protecuon for our most profitable product. Roundup herbicide. Entered a research agree ment with Oxford University, while continuing our bio logical effort through major agreements with Washington University in St. Louis and other institu tions around the world. Added importantly to our Board of Directors through the election of Dr. John B. Slaughter, Chancellor of the University of Maryland at College Park and former director of the Nauonal Science Foundauon. Completed a major cor porate reorganizauon designed to better focus our technical strengths on worldwide market opportunities. There is still much to be done, and, in certain areas, we were not as successful in 1983 as we would have liked. Although we have more new roducts entering the maretplace now than at any other ume in our recent his tory, we need to -- and will -- shorten the elapsed time from idea to commercializadon. There continue to be parts of Monsanto that are not operaungat acceptable profit levels, particularly in some of our remaining commodity petro chemicals. We have repaired parts of these units ana are ag gressively working on the rest. The promise ofa highly profit able silicon business remains DSW 021514 STLCOPCB4006823 only a forecast. While long term prospects are excellent, our silicon business had unsatisfactory financial results in 1983. Building on and acceleraung our strengths and improving results on all of our assets will remain'our operating philosophy. The Company's performance, of course, must meet another, very important test: our obli gation to society. In this cate gory, Monsanto also intends to be second to none. For example, the public has a genuine concern about toxic wastes and dump sites. Monsanto agrees with the need for effective manage ment of hazardous waste disposal, and we are responding. In 1984 we expea to spend $25 million to clean up old dump sites -- a level of expenditure likely to continue for several years. We are providing strong leadership in mobilizing the chemical industry to seek positive solutions to the haz ardous waste problem. We think that is what the public would expect from a com pany like Monsanto. On another front, many citi zens are uncertain about the new technology of genetic engineering. Since this is an important growth area for Monsanto, we intend to be a leader in communicating with the public about the safety inherent in properly regulated biotechnology. Finally, Monsanto people throughout the world will be working for open avenues of trade for our products. Pro tectionism is not the avenue to international prosperity. And consistent with a free and fair trading environment, nations must be continually urged to protect property rights. We intend to defend these rights, particularly in patents ana produa registration, which are so critical to our Com pany's future. As a result of the new direc tions charted over the past few years and the corporate reorganization designed to implement them, our Com pany is much better able to manage its future. We know where we want to go, and what it will take to get there. We harbor no illusions that the course ahead will be easy as we face swiftly changing market demands, increasing competition, accelerating technological challenges, and escalating public expectations. Nevertheless, our aspiration to excel serves as a unifying force in a time of divisive complexities. Our Company is astir with a renewed sense of optimism, and indeed a spirit of excitement. As we move ahead, we are measuring ourselves con stantly against our visions of the future as well as our traditions from the past -- traditions which have evolved over the decades of strong leadership from John F. Queeny to John W. Hanley -- traditions from which compa nies derive their ideals and standards -- traditions of quality in our products, ser vice to our customers, fair ness to our shareowners, loy alty to our employees, and commitment to our plant and office communities. Our broad strategies are in place, and the task now is to carry them out effectively. How we intend to do this is described in this Annual Report. The good year we enjoyed in 1983 is a hearten ing milestone along the way to being "the best in whatever we choose to do." Our plans Erovide the direction -- we now what we have to do. Richard J. Mahoney President and Chief Executive Officer rt j Dr. Louis Fernandez Chairman of the Board March 5,1984 DSW 021515 STLCOPCB4006824 The Hanley Years John VV. Hanley retired March 1, 1984, after 11 years as Chief Executive Officer of Monsanto. As the first CEO recruited from outside the Company's ranks, Mr. Hanley took over a $2 billion multinational enterprise with a proud heri tage of achievement dating back to 1901, and directed it through one of the most important transitions in its history. He moved Monsanto from a loosely knit group of chemical businesses to a more broadly based, markeungoriented organization with a highly professional manage ment team and a carefully defined strategy for the future. Under Mr. Hanley's leader ship, Monsanto dramatically expanded its highly profita ble agricultural chemical business. He guided the corporadon into promising sciendfic fields, in part through strong in-house capability, but also by way of construcdve partnerships with leading academic institutions. He enhanced an already strong sense of corporate responsi bility within Monsanto. This began with his own personal commitment to his subordi nates and extended through out the company. In all these areas, his imprint on the organization was deep, and his perceptive insights enduring. A good measure of any corporadon's performance is what happens to its common stock price over a sustained period. During the Hanley tenure, Monsanto's stock rose 119 percent, outdistancing the Dow Jones' 24 percent rise as well as those of the other major chemical companies. The notable progress made under Mr. Hanley in build ing stronger professional management, enhancing technical expertise, and developing a well-balanced product line will stand Monsanto in good stead dur ing the rest of this decade and into the next. His voice will condnue to be heard with clarity, articulating a legacy of people, planningand purpose. DSW 021516 STLCOPCB4006825 The Best At What We Do ... our market strengths in the late 1980s To be the best at whatever we choose to do ... to ensure that Monsanto is a business enterprise worthy of the con fidence and enthusiasm of shareowners and investors between now and the 1990s. We are in transition -- away from largely petrochemicalbased commodity chemicals toward a broader range of higher-value specialty prod ucts. By 1990 we expect Monsanto to be involved in three broad areas: traditional chemicals and chemical prod ucts, innovative biological products and high-growth engineered goods and systems. We have the fundamental strengths with which to forge this three-part Monsanto. There is a solid base of lead ership businesses -- ranging from long-time leaders like rubber chemicals to premier growth products like Roundup herbicide. We expect a strong array of developmental busi nesses to begin to add substantial revenues to our earnings base within the next few vears. Our research and technologi cal capability will not only produce new products for the future but also supple ment existing products, For instance, significant increases in technology spending for our fibers businesses over the past five years have resulted in a broad range of new products with great promise. Our financial strength ena bles us to support our growth programs and to pursue a realistic acquisitions strategy. We know what we must do to reach our goal. In the next few pages, we offer evidence that we are turning our objectives into realities, through: new products -- witness Ricochet herbicide for vine yards and Scout herbicide for rubber plantations, Santoprene thermoplastic rubber and Cadcm engi neering thermoplastics, PRoVOX instrumentation and many others. new markets and new appli cations -- as with Roundup herbicide uses in conserva tion tillage, or Saflex plastic interlayer in glass for new architectural uses. solid marketing -- demon strated by the growing market strength of Lasso herbicide and the phenom enal growth of Wear-Dated carpets. international market devel opment -- ranging from long-established worldwide businesses like plastics to the rapid international expansion of growth busi nesses like electronic materials. strategic acquisitions -- including total ownership of Fisher Controls, pur chase of a soybean seed company and an agree ment in principle to acquire the European pharmaceuti cal firm Continental Pharma S.A., all in 1983. The fundamental principle to excel translates into mar ket strengths in the late 1980s and beyond. DSW 021517 STLCOPCB4006826 Agriculture Providing 20 percent of our total sales, world agriculture is Monsanto's most profitable market. Monsanto is the larg est international manufacturer and marketer of herbicides, with Lasso and Roundup her bicides continuing to lead the industry. Agriculture will be an even more important market in the future, and we are invest ing heavily in research and development for new prod ucts and technologies, such as plant sciences and feed addi tives. We are also increasing worldwide investments in local manufacture of herbicides. During 1983, our sales in this market were down, largely because of the U.S. govern ment's Payment-ln-Kind (PIK) program, w'hich paid farmers to leave un planted Many new reduced-til lage practices rely on Roundup herbicide. Here, capeweed crowds out clover in an Austra lian pasture. Roundup applied at low rates when capeweed is in flower kills the weed before it sets seed, thereby reducing infesta tion in the next crop. DSW 021518 STLCOPCB4006827 acres that would normally have gone into corn, sorghum, wheat, rice and cotton. Corn planting, the largest market for Lasso her bicide, was down by 22 million acres. Nevertheless, Monsanto made the best of that situa tion. Although sales of Lasso herbicide declined from 1982 levels, market share increased in both corn and soybeans. Acreage will increase to near 1982 levels in 1984 as farmers place idle acres back into full production. Scout herbicide controls troublesome weeds among rubber trees on this Malaysian plantation. Scout complements the use off Roundup herbicide in the total weed manage ment system for planta tion crops in tropical Asia. OSH 021519 STLCOPCB4006828 000 _ 300 _ 300 _ 79 ao SI 82 S3 Sales to Agricultural Marfcat (In Millions) One benefit of PIK for Monsanto was increased sales of Roundup herbicide for weed control on idle PIK acres. Nevertheless, worldwide sales of Roundup in 1983, up 11 percent over 1982, were less than we had expected because of the depressed international economy, a strong dollar and unusually bad weather primarily in western Europe. We expect Roundup to return to histori cally higher growth rates in the vears ahead. logical sciences will result in new products for both exist ing and new agriculturerelated markets. We bolstered our already first-rate research capabilities during 1983. as we neared comple tion of two major research centers -- one near Tokvo and another near St. Louis. We also purchased another leading seed company in 1983, providing us with a southern U. S. soybean genepool. Considerable research attention is being focused on plant sciences, a long-term effort with enormous potential. The challenge for the near term, however, is to maintain and enhance the markets of Lasso and Roundup herbicides as patents in some countries begin to expire in the late 1980s and early 1990s. While there are a number of options available, Monsanto will use a three-pronged approach: continuing to price to value; developing new uses and applications; Future Products from Increased Research In the future, Monsanto's greatlv increased research efforts in agriculture and bio and creating new formula tions, based on each herbicide's active ingredient, that can serve specific, welldefined market segments. Maintaining Lasso Herbicide Market Position Lasso herbicide is the more mature product with clearlv defined markets. To enhance Lasso's position and prepare for patent expiration in late 1987, we will build on its several strengths: well-estab lished reputation for qualitv, strong brand identity and the largest and best field sales and technical support team in the agricultural chemical business. In addition, we expect to have new and better herbi cides available in the market before expiration of the pat ent on Lasso. Furthermore, there will be new superior formulations and new mixes with other herbicides. We are confident that Lasso and related herbicides will main tain a strong market position in the late 1980s and beyond. Patent expiration is not quite the same concern for Roundup herbicide for two DSW 021520 STLCOPCB4006829 reasons. First, in the United States a recently issued patent, gives protection to the year 2000, even though patents in other parts of the world begin to expire earlier. Sec ond, Roundup is still very much a growth product. Roundup Herbicide: A Multiplicity of Applications Roundup is so versatile that it may be considered not one but several products. A mul tiplicity of new markers are being identified, and with reformulations and new applications. Roundup is spreading to new markets throughout the w'orld. Measuring milk yields is part of nearly completed experimental studies on methionyi bovine somato tropin (MBS), a compound which improves the effi ciency of conversion of feed to milk in dairy cat tle. To be introduced in the late 1980s, MBS should help reduce the cost of milk production. DSW 021521 STLCOPCB4006830 ________________________ m For example, as a pre-harvest herbicide, applied to a field with matured crops, Roundup destroys weeds, thus permitung a cleaner harvest, and prepares the field for the planting of a second crop almost immediately. After only two years, it is the stan dard in the United Kingdom and continental Europe, and we intend to establish pre harvest application in the United States. Roundup continues to find favor as an integral tool in ever-expanding reduced til lage agriculture. For instance, low rainfall in some wheat growing areas in the United States and Australia requires that fields lie fallow one year out of every three or four in order to build up moisture for the next crop. Chemical fallowing conserves soil, time, labor, and energy by replac ing ten to twelve plowings a year with a one-pass applica tion of Roundup. In another reduced tillage practice in Australia, Roundup herbicide, applied at low rates, effec tively controls capeweed, which has taken over broad expanses of Australian pas ture land. New Products for New World Markets We are developing several new products for lower cost and more effective control of both perennial and annual weeds. Bronco herbicide, a special formulation of the active ingredients in Lasso and Roundup introduced in 1981, has grown in reduced tillage uses in com and soybeans. Within the last few months we have also introduced Ricochet herbicide for vine yard use in France and in other grape-growing coun tries. Also just introduced, Scout herbicide controls trou blesome weeds in rubber plantations in Malaysia. It has potential for other crops throughout tropical Asia. Through these new formula tions and new uses, products based on glyphosate, the active ingredient in Roundup, are being introduced into new markets worldwide. While we enhance the markets of our herbicides, we will also move rapidly ahead on products for the animal feed industry. We have com pleted and successfully started up a 100-millionpound-per-year facility in Texas for producing Alimet feed supplement, liquid methionine hydroxy analog. Santoquin antioxidant contin ues to be the leading antioxidant used in the poultry feed industry. We expect to market a new product for animal agricul ture within the near term. Methionyl bovine somatotro pin, an experimental product made through genetic engi neering techniques, improves the efficiency of milk produc tion in dairy cows. It is showing attractive test results. DSW 021522 STLCOPCB4006831 Construction and Home Furnishings The construction and home furnishings market is 2.000 1.800 Monsanto's second largest 1.600 market, accounting for 19 1,400 percent of total sales in 1983. 1,200 It will continue to be one of 1.000 our largest as we enhance the position of strong established 800 products and new products 600 through quality, value and increased technological support. This is a highly cyclical 400 200 0 7t M tl *2 ta market, heavily dependent on the volume of residential construction. Depressed for three years, construction and Sal*s to Construction and Homo Furnishings Market (In Millions) home furnishings rebounded strongly in 1983, and Monsanto's sales were up 13 percent. Sales of Santicizer plasticizers, which impart flexibility to vinyl materials used in flooring and wall cov erings, followed the strong surge in construction during the year, as did sales of resins used in paints and industrial coatings. Sales of Lustran ABS plastics did well in small appliances, a growing new market for this product. Lustran Ultra ABS plastic, a higher quality new plastic, gained increasing acceptance for consumer electronics and telecommuni nological commitment to develop new products and modify existing products in acrylic fibers, Monsanto intends to become a larger supplier to these markets. Particularly strong during 1983 and projected as large growth products for the next several years are two wellestablished Monsanto prod ucts -- Ultron nylon fibers for carpet and Saflex polyvinyl butyral plastic interlayer for laminated glass. Both moved well ahead of market recov ery during 1983. cations uses. Sales of Acrilan acrylic fibers, used in upholstery, draperies and wall coverings, also grew in 1983. With a major tech Strong Growth for Wear-Dated Carpets The success of Ultron nylon fiber rests on its strong per formance characteristics backed up by our warranty for Wear-Dated carpets. This is the best-known product warranty in the business and has been in use for more than two decades in the apparel industry. It stands today behind Wear-Dated car pets made with our branded fibers. The symbol for WearDated carpets assures the con sumer that the carpet being purchased has passed our rigorous testing standards and will provide excellent performance in the home. Sales of Ultron fibers have grown dramatically since Wear-Dated carpet was intro duced in 1980. Today more than 60 percent of our nylon carpet fiber is sold as branded fibers, and over 90 percent of ail retail carpet stores carry Wear-Dated carpets. At the January 1984 carpet trade shows, Monsanto had the majority of all the new nylon staple carpets introduced. DSW 021523 STLCOPCB4006832 Expanded Uses for Saflex Interlayer Saflex polyvinyl butyral inter layer for laminated glass has been a market leader for four decades in automobile safety glass. It also has wide acceptance for safety reasons as skylight glass in buildings and in structures where safety glass is required by the Consumer Product Safety Commission. Laminated glass made with Saflex plastic interlayer meets today's archi tectural designs for a versatile, high-performance glazing product that offers safety and security as well as solar and sound control. Consumers can be sure of quality and value in Wear-Dated carpets made with Uttron nylon. Since Monsanto began offering a five-year warranty for Wear-Dated carpets in 1980, sales of Monsanto's branded premium carpet fibers have increased by 28 percent. DSM 021524 STLCOPCB4006833 Dramatic evidence of the qualities of laminated glass in windows occurred during August 1983, when Hurri cane Alicia hit southeast Texas. Many buildings with ordinary glass suffered weather damage and inter ruption of business. However, those with lami nated glass were protected from such damage and disruption. This demonstration of the qualities of laminated glass for architectural use will help promote the rapid growth of this older Monsanto product, whose sales grew by more than 25 percent worldwide during 1983. An old product finds new uses. The market for Saflex polyvinyl butyral interlayer, for 40 years an essential part of laminated safety glass in automo biles, has grown with the use of laminated architec tural glass, as in the exterior walls of Pepperdine University Plaza in Los Angeles. DSW 021525 STLCOPCB4006834 Pharmaceuticals and Personal Products Monsanto will broaden its ' a position in pharmaceuticals and personal products through new product and market development, inter national expansion and acquisitions. Markets for pharmaceuucals, detergents, and personal goods provided 13 percent of Monsanto's total sales in 1983. These markets tend to be less cyclical than others, but they benefited from the general recovery in 1983, and Monsanto's sales increased 7 percent over 1982. Sai*s to Pharmaceuticals and Personal Product Marfcat (In Millions) Sales of Monsanto's plastic bottles, most of which become packaging for prod ucts in these markets, were particularly healthy in 1983. We intend to strengthen our position in this market through a continuing empha sis on higher value-added products. During 1983, detergent products benefited from the recovery in the U. S. econ omy, where we have for years been the largest maker of raw materials for the soap and detergent industry. builders and bleaches. For example, Monsanto is devel oping a potential new bleach product with characteristics particularly attractive for lowtemperature laundering, the prevalent practice in the United States and a growing one in Europe. We expea to market this product within the next few years. Traditionally, Monsanto has focused on U.S. detergents markets, even though we already supply NTA (nitrilo- New Detergent Products in Global Markets Monsanto is poised to take advantage of opportunities in worldwide detergents mar triacetic acid) and other ingredients to non-U.S. mar kets. Our developmental products, however, have equally great potential in kets for the rest of this decade. We are working to develop new surfactants, _________ m other world markets, where we are increasing our efforts. We are pursuing plans to test the potential for investment in the local manufacture of detergent products not only in Europe but also in South east Asia, China, Japan and Brazil. Moving Into Prescription Drug Markets Monsanto intends to become a major participant in the global prescription pharma ceutical market. Our newly created Health Care Division expects to begin marketing Monsanto-discovered prod ucts in the late 1980s. During 1983, the Health Care Divi sion built its organization through the appointment of several top managers with extensive experience in the pharmaceutical business. We also negotiated an agreement in principle during 1983 to acquire Continental Pharma S.A., a Belgian pharmaceuti cal company, which has firstclass research and develop ment capability. DSW 021526 STLCOPCB4006835 Capital Equipment 18 Our move into health care markets is based on a careful consideration of Monsanto's strengths and market oppor tunities. For instance, we have technological and research skills relevant to the pharmaceutical field, particu larly with our strong position in biotechnology. Another strength is our series of rela tionships with major scientific research universities, includ ing Washington University in St. Louis, Harvard University and Oxford University. Sup plementing these is equity interest in two biotechnology companies, Biogen N.V. and Collagen Corporation. Aside from our technological and research strengths, phar maceuticals are attractive to Monsanto for other reasons. It is an international business with no dominant world leader. It is also a high valueadded business, consistent with Monsanto's move toward proprietary products. Finally, it is a large and growing market. We expect pharmaceutical sales in the non-Communist world to grow to more than J'000 $150 billion by 1990, more 900 than double 1983 sales. o suo Monsanto is also involved in other pharmaceutical mar kets, primarily as a supplier to final formulators. We are the world's leading supplier to the over-the-counter analgesics market, with strong positions in aspirin and acetaminophen. During 1983, we maintained our position in world aspirin markets, while we increased our participauon in the higher-growth acetaminophen market. too ^ * 300 2" ioo 0 7* to ti ta S3 Salas to Capital Equipment Market (In Millions) We are also the only U. S. manufacturer of L-Dopa, a prescription drug used in the treatment of Parkinson's Dis ease. The bulk manufacture of this drug is based on chemistry pioneered by Monsanto scientists. Currently providing 11 per cent of our sales, capital equipment markets should be the arena of some of Monsanto's greatest growth during the next decade. Superior technology, worldclass products and excellent service give us a strong posi tion from which to expand. Most segments of the capital equipment market remained depressed during 1983, and our overall sales dropped by 5 percent. Sales of Fisher Controls International, Inc., manufacturer of control valves, field measurement instrumentation and distrib uted digital control systems for industrial processes, were down by 10 percent. That is a DSW 021527 STLCOPCB4006836 IS far better performance than our competitors, however, who averaged a sales decline of more than 30 percent. The electronics industry resumed growth in 1983, and our sales of silicon-wafer products used in the manu facture of integrated circuits rose 36 percent. We expect our electronic materials income to turn positive after several years of heavy investment. In engineered products and facilities, results varied. Sales Initially developed to recover hydrogen from waste gas, PRISM sepa rators in expanded appli cations now separate other gases, including nitrogen, oxygen, carbon dioxide and methane. At this Warren Petroleum installation in California, a PRISM separator removes carbon dioxide from a natural gas stream, making it suitable for sale. OSW 021528 STLCOPCB4006837 of sulfuric acid plants bv Fisher has long been the pre Monsanto Enviro-Chem mier manufacturer of control Svstcms. Inc., and PRISM valves and regulators. The hollow-fiber gas separators introduction of a unique were directly affected by high-performance rotary depressed capital equipment valve in 1984, coupled with spending. However, Enviro- the recent introduction of a Chem introduced an impor severe service valve, will fur tant energy-saving technology ther strengthen Fisher's in 1983. .Monsanto also com leadership in this area. mercialized four new' The Field measurement seg applications for PRISM sepa ment of the business, which is rators. which found growing the largest market, is frag international favor during mented. To enhance its the past year with sales in position, Fisher Controls has Brazil. Japan, Norway and been a leader in adapting the United States. electronic technology to proc For the remainder of the ess control. Last year, Fisher 1980s, Monsanto expects introduced a unique, pro significant revenues from prietary vortex flow developments in the capital transmitter for more reliable equipment markets. and accurate flow measure Fisher Controls Builds on Technological Leadership Fisher Controls will continue to build on its leadership in the global process-control industry toward becoming ment. Fisher also brought out a new series of quick-reacting valve positioners that not only "fine tune'' perfor mance, but offer tremendous customer flexibility as well. the number-one worldwide manufacturer of complete process-control systems. To reach that goal, Monsanto purchased the one-third share of Fisher Controls held by the General Electric Com pany, p.l.c., of the United Kingdom. Fisher Controls is now a wholly owned subsidiary. In control room instrumenta tion. Fisher established itself among the top three manu facturers with the 1980 introduction of PRfA'OX instrumentation. PRdVOX establishes Fisher as a leading supplier of distributed digital control, which is the pre ferred form of instrumen tation today. Such control means that a series of micro processor "brains" are distributed throughout the process, instead of all control emanating from a central source. The result is more secure, efficient and flexible process control. Electronic Materials Poised for Market Growth Monsanto in 1983 reaffirmed its commitment to the silicon wafer business by forming the Monsanto Electronic Materials Company as an operating unit. Monsanto is the largest supplier of silicon to the United States market and is a leader in world markets. Monsanto has moved awav from largely commodity sili con toward differentiated silicon-wafer products which DSW 021529 STLCOPCB4006838 m offer greater value to cus tomers and thus command higher prices. After a twoand-a-half year slump, we expect the industry to return to a high growth rate, and Monsanto believes it is better poised than any to take advantage of this expansion. By the 1990s, Monsanto's goal for its electronic materials business is annual sales approaching three-quarters of a billion dollars. This growth will be based on several strengths. PRoVOX process-control instrumentation has be come a leader in a rapidly growing market. Well estab lished for continuousprocess control, PRoVOX is now recognized for superior qualities in batch-process control, as at this resins plant in Massachusetts. DSW 021530 STLCOPCB4006839 First, there is the current strong market position in the United States and around the world. Second, previous heavy investments in capacity expansion means that Monsanto now is better able than our competitors to take advantage of worldwide mar ket growth. Third, the quality of our products is sec ond to none among international market participants. Although current sales of silicon-wafer products to the Japanese semicon ductor industry are small compared to our U.S. sales, Monsanto is committing the resources necessary to become a major sup plier in Japan by the 1990s. Here, NEC Corporation, Japan's largest maker of chips for the electronics industry, processes Monsanto silicon wafers into integrated circuits. OSU 021531 Motor Vehicles Fourth, we are producing high-technology value-added silicon products permitting chip manufacturers to pro duce higher yields of more complex integrated circuits on smaller chips. Currendy, these account for 37 percent of our total sales for inte grated circuits, up from 11 percent in 1981. Commercial Development Strengthens Enviro-Chem Monsanto Enviro-Chem Systems, Inc., is the world's leader in design and construcuon of sulfuric acid plants. In 1983 that division introduced a new technology to recover the tremendous heat generated by producing acid and to turn it into elec tricity that can be sold to public utiliues. A plant using this technology was com pleted in Florida last year. Monsanto is also the world wide technological and sales leader in membrane gas sep aration. New applicauons such as enhanced oil recov- ` ery, natural gas refining, landfill-gas recovery and nitrogen separauon appear promising. RDI, Inc., a wholly owned subsidiary acquired in 1980, produces the world's most powerful and highest quality electron beam accelerators, used to strengthen plasdc, sterilize disposable medical devices and vulcanize rubber without the use of sulfur. RDI, Inc., is also moving into an expanded service role for its customers, with a new eastern U. S. center expected to be operauonal by 1985. El Several Monsanto product lines have long been leaders in world motor vehicle mar kets, where we made 9 percent of total 1983 sales, lo extend our successes in these mar kets, we will rely on our established market positions, a well-developed interna tional presence, and superior technology to customize products to meet special customer needs. Virtually all Monsanto products in this market had robust sales in 1983, primar ily because of a vigorous 30 percent increase in North American automobile pro duction. The oudook is even more encouraging, since the historically high seven-year age of the average automo bile in the United States indicates continuing con sumer demand. Established Products Will Have Strong Growth Sales of Saflex polyvinyl butyral interlayer for lami nated automobile safety glass should have strong growth for the rest of the decade as governments and manufac turers increasingly specify laminated safety glass for automobiles. Monsanto will benefit from this market OSH 021532 STLCOPCB4006841 Si 000 ________ 900 _______ 800 ? Saiam to Motor VoMclos Morfcot (In Millions) growth, with manufacturing facilities in the three largest markets: the United States, Europe and Japan. Sofiac is also becoming less subject to the cycles of the automobile industry with its rapidly growing popularity for nonresidential architectural uses. We also intend to extend the position of our rubber chem icals, in which we are the world leader. Today about two-thirds of our total sales are outside the United States. New products in the late 1980s will strengthen our lead and maintain our preeminence in this market. A product with significant opportunity in tire markets is low-twist nylon tire cord. This product, made with our nylon yams, provides tire manufacturers with a new range of tire design and geometry options, which can lead to lighter-weight tires with reduced rolling resist ance and, therefore, improved fuel economy and better handling and ride characteristics. Monsanto plastics have many automouve uses, both for body trim and under-thehood components. Among the most successful has been Lustran ABS plastic, two new grades of which were launched during the year. One better withstands weath ering in various components and the other provides lower gloss for interior trims. Innovative Plastics Gain Acceptance Two other new Monsanto plastk products are growing rapidly in automotive uses. Cadon engineering thermo plastics offer excellent heat and chemical resistance as well as the ability to withstand impact. Rapid acceptance of Cadon during 1983 resulted in significant sales gains in just its second full year of commercialization. During the year, Cadon gained acceptance in wheel covers, mirrors, consoles and interior trim parts in many 1984 models. This product is growing beyond automotive applications into other mar kets such as appliances and electrical equipment. A unique cross between rub ber and plastic, Santoprene thermoplastic rubber is gain ing wide acceptance in high- performance rubber applica tions such as hose, rack-andpinion steering boots and vacuum connectors for emis sion control systems. Monsanto opened a labora tory in 1983 to support the design and development of advanced automotive compo nents made from Santoprene. In addition, we began to build a plant in Newport, Wales, to supply the growing European demand for Santoprene. DSW 021533 STLCOPCB4006842 New Products for Motor Vehicles Other new products also promise market growth during the 1980s. Montac structural adhesive will see its first commercial use in 1984 on a French vehicle. As auto mobile makers increasingly use plastics to help improve durability, lower maintenance costs and achieve fleet-mile age targets, we expect adhesive bonding to grow rapidly in the assembly of body panels. Montac should meet many needs in this changing market. Offering the qualities of rubber and the process ing ease of plastics, Santoprene thermoplastic rubber will thrive in many markets now dominated by conventional thermo* set rubber materials such as neoprene. Here, a TRW quality inspector checks rack-and-pinion steering gears made with dust bel lows of Santoprene. DSW 021534 STLCOPCB4006843 Chemicals and Hydrocarbons 26 A new high-performance vooo silicon-wafer product that allows higher circuit density in microprocessor-based eoo__________________________ $710 $710 emission and engine controls will go into production in 1984. Monsanto has strongly positioned itself to be a major supplier to the totally integrat ed control and information systems needed in the motor vehicles of the future. Other Monsanto products in the automotive markets are gaining favor. Spray-control flaps conunue to win wide acceptance with major truck 79 80 SI $2 Sates to Chamlcals and Hydrocarbons Market (In Millions) $0 and trailer manufacturers in both the United States and the United Kingdom. ForneCor polystyrene foam board laminate is used in automo bile headliners because of its light weight, economy and durability. Responding to changed economic and industrial con ditions, Monsanto is moving away from commodity petro chemicals toward proprietary products with greater added value where we can distin guish our products by their excellence. However, we remain in certain basic chem ical businesses where we hold premier technological and market positions. We also have a subsidiary engaged in oil and gas exploration and production. Together, they accounted for 8 percent of our total sales in 1983. During the year commodity chemicals markets in the U nited States recovered from the recession, growing by more than 10 percent. European markets remained weak, showing signs of recovery only in early 1984. In all mar kets, however, Monsanto's acetic acid, maleic anhydride and other commodity chemi cals outpaced economic recovery. Despite a reduced demand for hydrocarbons during 1983, Monsanto Oil Com pany extended its record to five years of sustained profitable growth. Both pro duction volumes and revenues were greater than in 1982. Combined hydrocarbon reserve additions again exceeded the rate of with drawal. Although natural gas reserves were down by 3 per cent at the end of the year, the oil company's emphasis on finding and developing crude oil resulted in an 11 percent increase in oil reserves. By various measures these petroleum and commoditychemicals businesses are leaders in their industry segments. They will retain and increase their leadership positions throughout the 1980s, providing substantial revenues to the Company. DSM 021535 STLCOPCB4006844 Leadership in Maleic Anhydride, Acetic Acid Maleic anhydride has broad uses in unsaturated polyester resins for boats, motor vehi cles and buildings, as well as uses in lubricating oil, agri cultural chemicals and food additives. Not only is Monsanto the world's largest producer of this important intermediate, we also have technological leadership through our proprietary butane feedstock process for maleic anhydride. Increas- An oil strike was verified by the semi-submersible rig "Ocean Rover" which drilled appraisal wells on Green Canyon Block 18, about 90 miles offshore from Louisiana. Monsanto Oil Company holds a 25-percent interest in this block, which has considerable potential. DSW 021536 STLCOPCB4006845 ________________________ ingly, butane will become cheaper and more plentiful than benzene, the traditional feedstock for maleic anhydride. Building upon our market place and technological leadership, we brought into full production in 1983 the world's largest maleic anhy dride plant, located in Pensacola, Florida. This increased the company's capacity from 170 million to 300 million pounds annually. Overall, our maleic sales were greater than general eco nomic recovery in 1983. Monsanto is also the world technology' leader in acetic acid, which is used in a broad range of products, including pharmaceuticals, man-made fibers, safety glass and agri cultural chemicals. In 1983, Monsanto announced plans to increase acetic acid pro duction by some 75 million pounds through a debottle necking program at our Texas City plant. This addi tional capacity will allow us to strengthen our overall busi ness by serving more custo mers. We expect most if not all acetic acid plants of the future to employ Monsanto's proprietary technology through licensing arrange ments. Since its introducdon in 1971, Monsanto's process has accounted for 90 percent of the world's new acetic acid capacity High Potential for Oil Company Monsanto's wholly owned oil and gas subsidiary may be small in size by major oil company standards, but it makes strong contributions to our performance. Monsanto Oil Company's cost of finding and developing oil and gas is below industry averages, largely as a result of a drilling success rate of 79 percent. Monsanto Oil Company has positioned itself well for the future. Following a strategy of balancing exploration and development in higher-risk, higher-potential areas with that in lower-risk, mature areas, the oil company has been able to acquire several attracuve prospects. One particularly significant discovery was confirmed dur ing 1983 by Monsanto Oil Company and its partners. Flow tests on wells drilled in Block 18 of the Green Can yon area of the Gulf of Mexico have verified the existence of significant oil reserves. Should this prospect prove to be commercially fea sible, Monsanto's 25-percent share could produce consid erable revenues by the end of the 1980s. Monsanto Oil Company was also successful in the U.S. government's offshore lease sale in May. We leased several high-potential properties with characterisucs similar to those of Green Canyon Block 18. These additional blocks could also increase reserves and revenues bv the late 1980s. ' Iniual test results on a well drilled in the North Sea off the United Kingdom were highly encouraging. We con tinue to conduct studies to determine the size and com mercial potential of this find. DSW 021537 STLCOPCB4006846 Apparel $1,000 900 eoo TOO Saiaa to Apparel Markat (In Millions) Monsanto has strong U.S. manufacturing, technical and market positions in acrylic and nylon fibers for the apparel industry, including the world's largest acrylic plant in Decatur, Alabama. Through aggressive market ing and innovative research, we are moving to a volume business in branded, pre mium fibers. In mid-1983, Monsanto com pleted the sale of its acrylic fiber business in Europe, where we had small plants in a market with severe overca pacity. This enabled us to redirect resources to our nylon and acrylic businesses in the United States. Sales to the apparel industry pro vided 7 percent of our total sales in 1983. Research Leads to Innova tive Apparel Fibers We are combining our low cost position in the United States with increased techni cal support for our Acrilan acrylic fibers to develop the products desired by our cus tomers and by consumers. A number of new and modified products to be commercial ized in the next one to three years will provide Monsanto with an increased share of markets such as sweater and half-hose. We have developed rapid color change technology that provides Monsanto with the capability to deliver to our customers an expanded range of colored acrylic fibers. In nylon fibers we commer cialized a new product that allows texturizers to use higher speed equipment, significandy improving their productivity. We also intro duced No-Shock conductive nylon in 1983, for use in gar ments that are worn in settings where static electric ity is a problem. We are making the most of our strong technical and marketing positions by build ing on our program for WearDated apparel. Monsanto offers the most successful and highly recognized con sumer warranty in the textiles industry for WearDated apparel, and billions of dollars worth of clothing items have carried our war ranty tag in the 22 years since such apparel was first intro duced. To provide for the introduction of new products for the apparel industry, we have increased merchandis ing resources in support of Wear-Dated products. DSW 021538 STLCOPCB4006847 Other Markets SI.000 Other Monsanto Sales (In Millions) Monsanto also sells a wide range of products to a variety of markets not discussed above, ranging from food processing to industrial water treatment. Most of these industries benefited from the 6 percent rise in U.S. indus trial production during 1983 and taken together accounted for 12 percent of our sales last year. We are a major supplier for many of these markets, with significant raw material advantages. In others, we are well positioned to take advan tage of new product opportu nities and to supply fast growing market segments. Developing New Market Niches We are ready to move on growth opportunities offered by selected segments of the food industry, where we are actively pursuing new com mercial developments. As the world's leading producer of sorbate food preservatives, we are developing new mar ket niches, as with Sentinel food preservative for the fast-growing tortilla market. Monsanto also is the leading manufacturer of lactic acid, supplied to the dough condi tioner market to keep bread smooth and homogeneous. We are working with custo mers and consumers on the development of hot-fillable lightweight polyethylene terephthalate (PETO bottles for use in the fruit juice and other markets. This technol ogy was cross-licensed from Yoshino Kogyosho Co., Ltd., ofJapan and should be fully commercialized within two years. Monsanto is aggressively expanding the uses for FomeCor polystyrene foam board laminate. Originally devel oped for the packaging industry, Fome-Cor today is used in autos, manufactured housing and the graphic arts industry. Our new framing product, add-free Fome-Cor board, protects keepsake items such as diplomas and marriage licenses for years. We are developing new uses for our Cerex spunbonded nylon fabric, which has long been used in carpet under pads and various industrial applications. In 1983 we gained new customers in medical applications, where Cerex is increasingly used to make high-quality disposable surgical gowns and drapes. Monsanto has strong market positions in the paper indus try with our rosin sizes, surface sizes and wet strength resins. During 1983 we testmarketed a new product, GRASP 111 fiber-bonding paper resin. This resin, with cost effidenries compared to competitive products, will be commercialized in 1984. DSW 021539 STLCOPCB4006848 Monsanto is a major supplier of both commodity and spe cialty chemicals to the industrial water treatment market. For example, sales of Dequest phosphonates, used to reduce the buildup of . silt and calcium-based scales in cooling and boiler water systems, were up 8 percent in 1983. Our market leadership, based on technical innova tions and a fully integrated raw material position, will generate condnued sales gains in the years ahead. Sorbate-based Sentinel food preservative, being delivered here, is a new product to keep tortillas from spoiling. It fills a niche in the rapidly grow ing market for Mexican foods. DSW 021540 STLCOPCB4006849 Financial Report Management Report Review of the Results of Operations Review of Liquidity and Capital Resources Financial Statements Financial Summary Contents Responsibility For Financial Data Consolidated Sales Consolidated Net Income Quarterly Data Research and Development Foreign Currency Raw Material and Selling Price Indexes Operating Unit Segment Data Oil and Gas Activities World Area Basis Data Inflation-Adjusted Data Short-Term Liquidity and Capital Resources Long-Term Liquidity and Capital Resources Independent Auditors' Opinion Summary of Signmeant Accounting Policies Statement of Consolidated Income Statement of Consolidated Financial Position Statement of Changes in Consolidated Financial Position Statement of Consolidated Shareowners' Equity Notes to Financial Statements Principal Acquisitions and Divestitures Supplemental Income and Expense Data Pension Plans Income Taxes Earnings per Share Inventories Short-Term Debt and Credit Arrangements Long-Term Debt Commitments and Contingencies Capital Stock Stock Option Ran Segment Information Page 33 34 35 36 37 37 37 38 40 41 42 44 45 46 46 47 48 50 51 52 52 52 53 53 53 53 54 54 54 54 55 56 Unless otherwise indicated by the context, "Monsanto" means Monsanto Company and consolidated subsidianes and "the Company" means Monsanto Company only. All dollars are m millions, except per share data. DSW 021541 STLCOPCB4006850 Management Report Monsanto Company management is responsible for the far presentation and consistency of all financial data included in this Annual Report. Where necessary, the data reflect management estimates. Management is also responsible for maintaining a system of internal accounting control to provide reasonable assurance that assets are safeguarded against mate rial loss from unauthorized use or disposition and that authorized transactions are property recorded to permit the preparation of accurate financial data. Cost-benefit judgments are an important consideration in this regard. The effectiveness of inter nal controls is mantained by: (1) personnel selection and training; (2) division of responsibilities: (3) establishment and communication of policies; and (4) ongoing internal review programs and audits. As ratified by shareowner vote at the 1983 Annual Meeting, Deloitte Haskins & Sells was appointed to examine, and express an opinion as to the fair presentation of, the consolidated financial statements. This opinion appears on page 46. Monsanto's Audit Committee, consisting of four non-employee directors, meets with Controllership, Internal Audit and Deloitte Haskins & Sells personnel to review inter nal controls, financial reporting and accounting practices. Deloitte Haskins & Sells and internal auditors meet with the Committee, with and without management pres ent, to discuss their examinations, the adequacy of internal controls and the quality of financial reporting. Responsibility For Financial Data Richard J. Mahoney President and Chief Executive Officer February 24,1984 Francis A. Stroble Senior Vice President and Chief Financial Officer DSW 021542 STLCOPCB4006851 Review of the Results of Operations Sales by Product Group Agricultural and Nutritional Products Agricultural products Nutrition chemicals fetal Fibers and Intermediates Man-made fibers Textile intermediates fetal Industrial Chemicals Detergent and fine chemicals Specialty chemicais Tbtal Polymer Products Plastics Resin products Rubber chemicais and instruments Tbtal Engineered Products and Other Businesses Engineered products and materials Oil and gas Tbtal Fisher Controls Valves, regulators and electronic process controls Tbtal consolidated 1983 $1,167 152 1,319 824 346 1,170 587 269 856 809 742 279 1,830 358 241 596 528 $8,299 1982 $1,165 146 1,311 880 377 1.257 552 258 810 775 742 269 1,786 357 216 573 588 $6,325 1981 $1,099 135 1.234 1,014 418 1.432 609 289 898 1,052 813 282 2,147 414 186 600 637 $6,948 Sales even year-to-year Impact of stronger U.S. economy offset by other factors Worldwide sales for 1983 were essentially level with the previous year. A 1 percent sales volume increase, net of divestitures, was offset by lower selling prices. In 1982, sales declined 9 percent with volume down 11 percent, while selling prices increased approximately 2 percent. The 1983 volume improvement resulted from the strengthened United States economic climate, especially in housing and automotive related businesses. Oil and gas and detergent and fine chemicals' volumes also increased in 1983. In addition, agricultural products' sales strongty rebounded in the last half of 1983, following the adverse impact earlier in the year from the United States government's Payment-In Kind (PIK) program. Partially offsetting the 1983 volume improvement were the effects of the continuing depressed capital goods market, divested businesses (principally polyester staple and European acrytics), and lower United States export sales as the U.S. dollar continued strong against other major currencies. The 1982 sales volume decline resulted from the worldwide recession, especially in those businesses dependent upon the automotive and housing industries -- polymer products, industrial chemicals, and fibers. Sales for 1982 were also impacted by divestitures (see "Principal Acquisitions and Divestitures'' note to the financial statements). DSW 021543 STLCOPCB4006852 IS Net income for 1983 increased 14 percent from the prior year, reaching the second highest level in Monsanto's history. Higher sales volume with related improvement in capacity utilization, along with lower manufacturing costs, increased 1983 results. Gross profit margin improved to 25 percent of sales versus 24 percent for the prior year. The Company's comprehensive programs of asset management and cost reduction over the past few years positioned Monsanto to take advantage of the 1983 economic upturn. In 1982, net income declined 21 percent from 1981, reflecting the recessionary conditions, excess manufacturing capacity and depressed sales volume in the worldwide chemical industry. In comparing the last three years' net income, nonrecurring items are significant. Extraordinary tax benefits from prior years' operating loss carryforwards increased 1983 net income by $33 million, as operating results of an ex-U.S. subsidiary improved substantially. In 1982, net income benefited from a $23 million extraordi nary gain on the exchange of outstanding debt for common shares. Also, in 1982 and 1981, as a result of curtailing inventory levels, net income increased by $43 million and $21 million, respectively, from non-replacement of low cost inventories under the UFO (last-in, first-out) inventory method. Lower income in 1982 from affiliated companies, including nearly all of the Mexican peso devaluation impact, adversely affected that year's results. Net income for 1981 included a $68 million gain from the sale of assets related to a joint venture. Aftertax foreign currency gains and losses in 1983 and 1982, reported under a new accounting method (see the "Summary of Significant Accounting Policies"), were relatively small. However, for 1981, net income includes foreign currency gains of $29 million reported under prior accounting rules. The effective tax rate, before the extraordinary item, for 1983 was slightly higher than in 1982, primarily due to the lower impact of investment tax credits. The 1982 effec tive tax rate, before the extraordinary item, was lower than the prior year -- the result of higher investment tax credits. Earnings per share were $9.78 in 1983, versus $8.79 and $11.50 in 1982 and 1981, respectively. The earnings per share for each of the last three years have been lowered by higher levels of shares outstanding. Consolidated Not Income nun Nonrecurring factors affect year-to-year comparisons Analysis of Change In Earnings per Share-- Better (Worse) Selling prices Sales volume and mix Raw material prices Other manufacturing ccets Divestitures Nonmanufacturing expenses Operating Income Interest expense Interest income All other income and expenses Effective tax rate Extraordinary items Shares outstanding Change In earnings per share 1963 vs. 1982 5(1-25) 222 0.22 022 (0.20) (0.33) 0.88 (0.23) 0.17 0.31 (0.09) 0.23 (0.28) $0.99 1982 vs. 1981 $2.30 (3.96) 2.77 (1.31) (2.01) Income improves; (1.13) (3.34) higher volumes and 0.31 reduced costs offset (0.08) lower selling prices (0.28) 0.40 0.58 (0.30) $(2.71) OS Ini 021544 STLCOPCB4006853 m Quarterly Data Nat Sales Groat Profit Income Before Extraordinary Items Net Income Earning* per Share Before Extraordinary Items PM* tiiwt TMrtf 1--a Qwrfrfy lit lwo-- PiwUi After Extraordinary Items Dividends per Share Common Stock Price High Lew 1983 1982 1983 1982 1983 1982 1983 1982 First Quarter $1,483 1,732 385 470 99 147 101 147 Second Quarter $1,612 1,623 423 385 105 87 114 87 Third Quarter $1,553 1,505 383 341 99 71 115 71 Fourth Quarter $1,651 1,465 404 325 66 24 72 47 Total Year $6,299 6.325 1,595 1.521 369 329 402 352 1983 2.42 2.54 2.42 1.59 8.97 1982 3.71 2.17 1.79 0.54 8.21 1983 2.47 2.76 2.80 1.75 9.78 1982 3.71 2.17 1.79 1.12 8.79 1983 1.00 1.05 1.05 1.05 4.15 1982 0.95 1.00 1.00 1.00 3.95 1983 92Vi 94 ii6y4 116% 116% 1982 70% 68% 79% 89 89 1983 74V* 79% 84% 100% 74% 1982 60 56% 57% 72 56% U.S. economy and PIK program affect quarterly results Quarterly sales and income typically exhibit the seasonality of the agricultural busi ness. Agricultural products' sales are heavily concentrated in the first half of the year and have greater profitability than other lines of business. In 1983, agricultural prod ucts' sales and income were lower in the first half as a result of the United States government's Payment-In-Kind (PIK) program, which reduced planted acres. Other businesses' 1983 results reflect the quarter-to-quarter improvement in general economic conditions, especially in the United States, as compared to 1982. Major nonrecurring and/or unusual items increasing (decreasing) 1983 and 1982 earnings per share are as follows: Nonrecurring items include 1983 tax loss carr/forward benefits First Second Third Fourth Quarter Quarter Quarter Quarter 1983 Extraordinary tax benefits from loss carryforwards $ 0.05 Change in accounting estimate of annud effective tax rate (0.12) Gain (loss) from facilities shut down or sold $0.22 (0.18) (0.14) $0.38 0.30 (0.04) $0.16 (0.28) Total $(0.07) ${0.10) $0.64 $(0.12) 1982 Extraordinary gain on exchange of debt fof common shares Gain from non-replacement of low cost inventory tiers under LIFO method Mexican peso devaluation $ 0.06 0.25 $ 0.13 0.02 $ $ 0.58 0.13 (0.18) 0.76 (0.27) Earty retirement program cost Gain (loss) from facilities shut down or sold (0.22) (0.05) 0.03 (0.21) (0.07) Tbtal $ 0.31 $(0.07) $(0.07) $ 0.79 Total Year $ 0.81 (0.46) $ 0.35 $ 0.58 1.08 (0.18) (0.26) (0.26) $ 0 96 DSW 021545 STLCOPCB4006854 ____________________ _ia Research and development expenses include the costs of discovering knowledge to develop new products or processes or to significantly improve existing products or processes, including the translation of such knowledge into designs and plans, but not including commercial development. In 1983, these expenses continued to increase to record levels, and were 5 percent of sales as compared to 4 percent in 1982 and 3 percent in 1981. This increase is a combination of both real growth and higher costs of ongoing programs. The level of funding reflects Monsanto's strategy to develop new markets from emerging technologies, to exploit traditional market opportunities with new products and new applications and to maintain competitive advantages through continued support and service to existing markets. The princi pal growth in research and development expenditures over the last three years has been in those efforts associated with creating new business opportunities. Monsanto has intensive and growing R&D programs in plant biology, animal nutri tion, electronic materials, biotechnology, molecular biology, and human health care. For 1983, one-third of the R&O expenditures were directed towards these emerging technologies. In 1983, the Company formed a Health Care Division to coordinate biomedical research and development programs. Research agreements with several leading universities, both in the United States and Europe, supplement in house efforts in health care and plant biology. Monsanto has an agreement in princi ple to acquire Continental Pharma S.A., a Belgian pharmaceutical company. This planned acquisition is an important step in Monsanto's development of growth opportunities in health care products. Research in traditional areas of strength such as catalysis, polymer science, industrial chemicals, agricultural chemistry, chemical engineering systems and application research, is also ongoing. Construction continues on the new research complex in St. Louis County, Missouri, whose principal focus will be biological and biomedical research. Initial occupancy is planned for 1984. Research and Development ei 62 M WmbtoN m4 Plopmirrt Iirne R&D efforts expand to support new business direction Classification of Gains (Losses) Income Statement: Aftertax gains (losses) Balance Sheet: Accumulated currency adjustment net change 1983 1982 (SFAS No. 52) (SFAS No. 52) 1981 (SFAS No. 8) $6 *78) $ (6) $(106) $ 29 The 1983 aftertax gain reflects the general strengthening of the U.S. dollar against several currencies. In 1982, the foreign currency loss was due principally to the Mexican peso devaluation. The strengthening of the U.S. dollar over the last two years also accounts forthe netchange in the accumulated currency adjustment amount. Ex-U.S. entities generally use the local currency as the functional currency since working and fixed capital needs are met through local operations, supplemented by additional funding from the Company when appropriate. Monsanto has operations in Argentina, Brazil and Mexico, for which the U.S. dollar was designated the func tional currency because of hyperinflationary conditions. Major currency exposures are the United Kingdom pound sterling and Belgian franc. Other important curren cies include the French franc, Canadian dollar, Australian dollar, Japanese yen and Mexican peso. Currency restrictions are not expected to have a significant impact on the Company's total cash flow, liquidity or capital resources. Foreign Currency Minimal foreign currency impact on income Composite United States indexes for Monsanto's selling prices and raw material costs have trended downward in 1983 and 1982 because of worldwide recession ary pressures and the resulting overcapacity in the chemical industry. For selling prices, the 1983 price index decreased by 1 percent, following a 1982 increase of 2 percent. Selling price decreases were not uniform across product lines and a move upward did begin the last half of 1983. The raw materials price index decreased 4 percent in 1983, and 9 percent in 1982. Dunng the last half of 1983, overall raw material prices began to increase again. Raw Material and Selling Price Indexes Selling prices and raw material costs declined OSW 021546 STLCOPCB4006855 38 Operating Unit Sagmant Data Net Sales 1983 1982 1981 Agricultural and Nutritional Products Fibers and Intermediates Industrial Chemicals Polymer Products Engineered Products and Other Businesses Fisher Controls Corporate expenses and eliminations $1,319 1,170 856 1,830 596 528 $1,311 1,257 810 1.786 573 588 $1,234 1,432 898 2,147 600 . 637 Total consolidated $8,299 $6,325 $6,948 Depreciation and Obsolescence 1983 1982 1981 Agricultural and Nutritional Products Fibers and Intermediates Industrial Chemicals Polymer Products Engineered Products and Other Businesses Fisher Controls Corporate expenses and eliminations $ 84 117 76 98 123 16 3 $ 71 136 56 76 85 13 2 $ 55 96 68 (25) 54 13 2 Tbtal consolidated $ 517 $ 439 $ 263 'Corporal* RAO expense* ara t aiiccated to operating units in detarmining operating income floss). Ibtal Assets 1983 1982 1981 Agricultural and Nutritional Products Fibers and Intermediates Industrial Chemicals Polymer Products Engineered Products and Other Businesses Fisher Controls Nonoperating assets $1,401 1,090 830 1,177 948 487 496 $1,180 1,152 779 1,138 985 418 425 $1,011 1,300 670 1,390 853 435 410 Total consolidated $8,427 $6,077 $6,069 The above data should be read In conjunction with the "Segment Information" note to financial statements on page 55. Operating Income (Loss) 1983 1982 1981 $375 48 85 89 (29) 37 (50) $426 (25) 100 23 (30) 52 (45) $414 36 140 77 5 68 (38) $555 $501 $702 Research and Development 1983 1982 1981 $ 92 41 22 40 24 10 61* $ 78 39 18 44 23 14 48" $ 63 32 18 49 21 12 38* $290 $264 $233 1983 $157 87 67 72 143 27 7 $560 Capital Expenditures 1982 1981 $125 91 163 73 188 27 6 $108 118 105 97 210 24 6 $673 $668 Agricultural products results lower; hurt by PIK program in first half; rebounds in second half Agricultural and Nutritional Products. Sales for 1983 increased slightly. Operating income declined 12 percent, principally due to the United States govern ment's Payment-In-Kind (PIK) program early in the year, which reduced planted acres, and to increased R&D expenditures, for both agricultural and nutritional prod ucts. Second half 1983 volume improvement was not sufficient to offset income lost earlier in the year. Roundup herbicide sales grew overall. The United States experi enced good growth. Certain areas outside the United States were impacted by adverse economic and weather conditions, especially Europe. Nutrition chemicals' 1983 sales improved, but operating results were lower due to MHA (Methionine Hydroxy Analog)/Alimet facility start-up costs and research expenditures. Agricul tural and Nutritional Products' 1982 sales gained 6 percent and operating income was up 3 percent as selling prices and worldwide volume improved over the prior year. DSW 021547 STLCOPCB4006856  Fibers and intermediates. The significant year-to-year turnaround in profitability was due to higher nylon sales volume, lower manufacturing, raw material and other costs, and the elimination of losses from divested businesses. Lower selling prices, principally exports, were a partial offset to the favorable factors. Sales for 1983 were 7 percent lower due to divested businesses and lower selling prices. Improved nyton operating results in 1983 were led by higher carpet staple shipments, reflect ing the economic recovery in housing. The worldwide market fa acrylonitrile also improved during 1983. In 1982, sales were 12 percent lower due to recessionary conditions and the third quarter divestiture of polyester staple. The 1982 operating loss reflected significant reduction in man-made fiber demand and $35 million obsolescence charges for the polyester staple and European acrylic fibers divesti tures. Favorably impacting 1982 was an $18 million reduction in costs related to prior year shutdowns and a $20 million impact from the non-replacement of lower cost LIFO inventories. Fibers operations improve substantially Industrial Chemicals. Sales increased in 1983 by 6 percent, principally in detergent materials. Operating income fa 1983 was off 15 percent as compared to the prior year, entirely from nonrecurring gains in 1982. Sales in 1982 declined 10 percent as compared to 1981 due to the depressed activity in several worldwide markets. Operating income was lowered 29 percent in 1982 from reduced sales volume, somewhat offset by a $27 million favaable impact of non-replacement of lower cost LIFO inventories and a $11 million net gain from divested facilities. Industrial chemicals sales improve but income lower Polymer Products. Sales fa 1983 were up over 2 percent on the strength of higher volume, especially to the housing and automotive industries, although selling prices were lower reflecting lower raw material costs. Manufacturing performance overall reflected significant year-to-year improvement. In 1983, the improved results Stronger automotive and housing markets were offset partially by net charges of $24 million relating to various divestments and shutdowns of facilities. Sales fa 1982 were down 17 percent because of the recession. Operating income fa 1982 was reduced 70 percent from the pria year. Impacting the comparison of 1982 operating income with the pria year was a $124 million gain in 1981 from the sale of net assets related to a joint venture. Oper help polymer products performance ating income in 1982 included a $35 million favorable impact from non-replacement of lower cost LIFO inventories. Engineered Products and Other Businesses. This segment includes fabricated products, electronic materials, chemical and environmental systems and Monsanto 011 Company, a subsidiary. Sales fa 1983 were up 4 percent, with volume gains in Monsanto Oil Company, electronics and fabricated products offset somewhat by a decreased level of construction project activity in Monsanto Enviro-Chem Selected volumes improve; weak capital goods Systems, Inc. (Enviro-Chem), a subsidiary. Operating results in 1983 were substan tially the same as the pria year. The depressed capital goods market in 1983 limited Enviro-Chem activities and offset improved fabricated products, Monsanto market impacts Enviro-Chem Oil Company and electronics results. Sales decreased 4 percent in 1982 from the prior year due to fewer Enviro-Chem construction projects. Operating results decreased in 1982 because of higher idle plant costs in the electronics business, and lower sales volume. Fisher Controls. During 1983, Monsanto acquired the outstanding one-third mina- Fisher's marketsity interest in the FtsherControls subsidiary (see ''Principal Acquisitions and Divestitures" remained depressednote to the financial statements). Sales fa 1983 were down 10 percent as improved selling prices did not offset lower volumes. Operating income in 1983 was lower by 29 percent reflecting the depressed capital goods markets worldwide. Sales and operating income were down 8 percent and 24 percent, respectively, in 1982 versus the pria year as the capital goods markets were similarty depressed last year. DSW 021548 STLCOPCB4006857 ________________ Oil and Gas Activities 275 Monsanto continues to pursue exploration and development of hydrocarbon reserves through a wholly-owned subsidiary, Monsanto Oil Company. Certain oper ating data regarding Monsanto Oil Company follow. Sales to Outside Customers Costs Incurred Acquisition Exploration Development Production 1983 $241 $ 55 55 32 62 1982 $216 $ 40 46 73 79 1981 $186 $ 61 68 69 65 Total $204 $238 $263 Capital Spending Exploration expense Capital expenditures $ 26 97 $ 27 122 $ 35 156 81 82 S3 Total $123 $149 $191 Monsanto 0(1 Company1! lahw Costs and spending levels are lower partially due to industry conditions that have Sales increase; costs mitigated the increasing price spiral of recent years. Exploration efforts in 1983 were concentrated principally in the United States and the U.K. North Sea. Oil and gas and spending lower production is substantially in the United States. Changes in proved reserves follow. Proved reserve position maintained Net Quantities of Developed and Undeveloped Proved Reserves 1983 1982 1981 OH(1) Beginning of year Revisions of previous estimates Purchases of minerals-in-place Extensions and discoveries Production End of year 38 34 12 1 75 (4) (4) 42 38 30 (1) 2 6 (3) 34 Natural Gas (2) Beginning of year 607 599 619 Revisions of previous estimates (4) (26) Purchases of minerals-in-place 1 Extensions and discoveries 28 46 45 Production (44) (38) (40) End of year 587 607 599 Combined -- Oil Equivalent (3) (1) Stated in miUton* of barrels. (2) Stated In billions of cubic feet (Bcf). End of year 140 139 134 (3) Stated in millions of barrels (six thousand cubic feet of gas equals one barrel of oil). Estimated future cash inflows data related to proved reserves follow. The data was compiled as prescribed by Statement of Financial Accounting Standards No. 69, "Disclosures about Oil and Gas Producing Activities." Accordingly, future selling prices and costs were determined by using the actual 1983 yearend levels, with a 10 percent interest rate used for discounting. Standardized Measure of Discounted Future Net Cash Flows Future cash inflows Future production and development costs Future income tax expenses Future net cash flows Annual discount for estimated timing of cash flows Standardized measure of discounted future net cash flows 1983 $3,222 761 1,047 1,414 926 $ 488 1982 $3,491 736 1,190 1.565 1,113 $ 452 1981 $3,003 530 1 064 1,409 950 $ 459 DSW 021549 STLCOPCB4006858 As required by generally accepted accounting principles, world area segment data in the financial statement notes (page 55) are prepared on an "entity basis." This means sales and income of the legal entity are assigned to the area where the entity is located (e.g., a sale from the U.S. to Brazil is reported as a U.S. sale). However, Monsanto normally views its results on an "area basis" wherein sales and income are assigned to the customer location (e.g., a sale from U.S. to Brazil is reported as a Brazilian sale). The table and discussion which follow summarize Monsanto's "area basis" results. World Area Basis Data UnltSdltltM 9453 World Area Basis Salas and Operating Income 1983 Ex-U.S. entities' sales U.S. export sales Less inter-area eliminations $1,926 879 (749) Ex-U.S. area basis sales U.S. area basis sales 2,056 4,243 Consolidated sales $6,299 Ex-U.S. entities' operating income Less ex-U.S. entities' operating income on sales to U.S. U.S. export operating income, net of allocated costs Ex-U.S. affiliates' equity income (loss) $ 206 (56) 2 15 Ex-U.S. area basis operating income U.S. area basis operating income Unallocated corporate expenses 167 453 (50) Consolidated operating Income plus equity Income $ 570 1982 $1,976 864 (601) 2,239 4,086 $6,325 $ 80 (10) 35 (11) 94 441 (45) $ 490 1981 $2,218 1,042 (698) 2,562 4,386 $6,948 $ 104 (13) 76 34 201 577 (38) $ 740 United States. Sales for 1983 were up 4 percent to $4,243 million, principally because of a stronger economy. Automotive and housing markets rebounded in 1983, but the capital goods maiket remained depressed. Operating income in 1983 increased 3 percent to $453 million due to lower raw material costs and better utili zation of production facilities as a result of the higher volumes, partially offset by the PIK program. For 1982, sales decreased 7 percent from 1981 to $4,086 million due to the recession, and operating income was 24 percent lower than the prior year at $441 million. Operating income in 1982 included an $83 million gain from non replacement of low cost UFO inventories. In 1981, operating income included a $124 million gain from the sale of assets related to a joint venture. Europe-Africa. Sales decreased 14 percent to $943 million in 1983, reflecting the divestiture of the acrylic fibers business, reduced agricultural sales due to drought and adverse economic conditions. Operating income improved in 1983 to $44 million. The improvement in operating income was due principally to the divestiture of acrylic fibers. For 1982, sales decreased 14 percent from the prior year to $1,092 million. Operating income was down 33 percent to $33 million, due to a $20 million charge for the acrylic fibers divestiture. Comparison of 1981 results with 1982 is affected by the change in accounting principles for foreign currency transla tion (see "Summary of Significant Accounting Policies'' on page 46). Canada-Latin America. Sales in 1983 decreased slightly to $579 million, as Brazil continues to suffer from recession induced conditions. However, there was a good increase in Canadian sales volume. Operating income in 1983 was up 129 percent to $96 million as improved Canadian operations and significantly better results from a Mexican equity affiliate more than offset poor results in Brazil, where a charge of $8 million for a facility shutdown was recorded. For 1982, sales of $597 million and operating income of $42 million were both down from 1981 due to the Mexican peso devaluation and the recession in Canada. Asla-Pacific. Sales were off 3 percent to $534 million in 1983, principally due to depressed U.S. exports resulting from a strong U.S. dollar. Operating income for 1983 was up 42 percent to $27 million due to improved results in Australia and increased earnings from a Japanese equity affiliate, in 1982, sales and operating income declined from the prior year to $550 million and $19 million, respectively, as U.S. exports were adversely impacted by the stronger U.S. dollar. Improved economy boosts U.S. sales and income Acrylic fibers divestiture helps Europe operating results Canadian economy better; recession in Brazil; improvement by Mexican affiliate Asia-Pacific results benefit from Japanese affiliate and better Australian economy DSW 021550 STLCOPCB4006859 B_____________ Inflation-Adjusted Data 5300 ftl 92 Cyw--t C--t Inciwi ifws 4liMi4nify ltW (Aren-- 1M4 D*ftar| Year Ended December 31,1983 Net saies Cost of goods sold, excluding depreciation Depreciation expense All other expenses -- net Income taxes Income before extraordinary item Hi8torlcal Coat $6,299 4,248 456 1,025 201 $ 369 Current Co8t $6,299 4,252 554 1,025 201 $ 267 The "current cost" disclosures, which reflect adjustments based on estimates of the current cost to replace existing assets in kind, attempt to measure the impact of inflation on specific assets. Items aajusted for inflation are: inventories; property, plant and equipment; cost of goods sold; and depreciation. Other items, including income taxes, are not adjusted for inflation. All current cost data above is stated in average 1983 dollars using the U.S. Consumer Price Index (the "translaterestate" method). S3 The 1983 decrease in current cost of inventories and. property, plant and equipment, stated in average 1983 dollars, was $28 million. At December 31,1983, the current cost of inventory and property, plant and equipment (net of accumulated depre ciation) was $1,231 million and $3,898 million, respectively, stated in yearend 1983 dollars. . FIFO (first-in, first-out) basis inventories were used to approximate current cost. LIFO basis cost of goods sold (after adjustment for the impact of non-replacement of low cost inventories) or similar techniques were used to approximate current cost. The current cost of property, plant and equipment was estimated generally using construction and equipment indexes. Current cost accumulated depreciation and related expenses were estimated using the same overall methods and rates as used for historical cost. Inflation moderates, but continues to distort historical comparisons Selected Financial Data 1983 1982 1981 1980 1979 Historical coat, as reported (1) (2): Net sales Income - Before extraordinary items -Per share Total assets Long-term debt Dividends per common share $ 6,299 369 8.97 6,427 937 4.15 $6,325 329 8.21 6,077 1,003 3.95 $6,948 445 11.50 6,069 1,110 3.75 $6,574 149 4.10 5,796 1,371 3.55 $6,193 331 9.11 5.539 1,203 3.35 Currant coat (average 1983 dollars): Net sales $ 6,299 Income (loss) - Before extraordinary items 267 -Per share 6.50 Purchasing power gain on monetary items 29 Increase in specific prices of inven tory and property over (under) increase caused by general inflation (225) Aggregate foreign currency adjust ment net of taxes Net assets (99) 4,655 $6,529 98 2.45 34 (226) (170) 4.833 $7,611 252 6.50 108 (13) 5,345 $7,950 (10) (0.28) 163 (310) 4,915 $8,500 289 794 168 163 5.111 Other data (average 1983 dollars): Dividends per common share $ 4.16 Yearend common stock price 103.48 $ 4.09 77.82 $ 4.14 74.34 $ 4 34 79.27 $ 4.66 77.38 Average consumer price index 298.4 289.1 272.4 246.8 217 4 (1) In 1982, requirements of Statement of Financial Accounting Standards No. 52, "Foreign Currency Transla tion,'' were adopted. (2) Beginning in 1980, interest costa related to conetructlon-irvorogresa expenditures were capitalized in accord ance with Statement of Financial Accounting Standards No. 34, "Capitalization of Interest Cost." DSW 021551 STLCOPCB4006860 jg The Company has also used inflation-adjusted data to evaluate, on a broad finan cial basis, the interrelated questions of real investment versus decapitalization and whether current profitability levels are providing sufficient investment funds for future earnings growth. This perspective confirms the funding of future growth opportunities beyond existing replacement requirements. Management also believes that Monsanto is generating cash flow from operations to fund a significant portion of those investments required. Total Investment Capital expenditures Investments R&D expenditures total (historical cost) total (average 1983 dollars) 1983 $ 560 208 290 $1,058 $1,058 1982 $ 673 11 264 $ 948 $ 979 1981 $ 668 2 233 $ 903 $ 989 1980 $ 781 64 208 $1,053 $1,273 1979 $ 566 1 161 $ 728 $ 999 Monsanto's "total investment" level -- capital expenditures, investments (acquisi tions, venture capital, etc.), and research and development expenditures -- continues high, but with a pronounced shift in the underlying components. Expendi tures for research and development and investment (principally acquisitions) are growing substantially, compared to traditional capital expenditure levels, which have moderated. This is consistent with the strategy shift from certain commodity and capital intensive businesses to selected high technology, specialty products with a higher value added component. This 'total investment" includes both that required to: (1) maintain the existing earn ings base; and (2) grow future income levels. Current cost depreciation and an estimate of "maintenance" research and development costs for existing businesses are proxies for the investment needed to maintain existing earnings. tl t2 (AwifitlM IhMiri) t3 .St.200 Invaatmant Analysis Investment to maintain existing earnings base New growth investment total (average 1983 dollars) 1983 $ 646 412 $1,058 1982 $ 665 314 $ 979 1981 $ 683 306 $ 989 1980 $ 663 610 $1,273 1979 $ 630 369 $ 999 Investments support earnings growth While investment funds are not always reinvested in existing businesses, they are being invested in development and acquisition of those businesses and other opportunities which are expected to provide for an expanded future earnings base. Based on a discretionary cash flow analysis, Monsanto is generating sufficient cash flow from operations to fund a significant portion of those investments made for future earnings growth. Discretionary Cash Flow 1983 1982 1981 1980 1979 nW-C--OnC--MCO-t $488 $245 $171 $206 $ 17 Average 1963 dollars $489 $253 $187 $249 $ 23 OfrcreUoiwy CMft Itow H d(ln>d c--h floo Iron opretion, wortdng capital chng. imwuiinl to maintain adating aaminga baaa, dMdanda and dabt reduction, Out More reaaarch and davatopmant coata, tire* ttaM ir% inciudid in th* ctoArtttori of tnvMtnntnt. Monsanto's welt ingrained cost reduction and asset management programs, coupled with the pruning of unprofitable businesses have been significant cash flow contributors. Proceeds from the sale of assets have also contributed funds for growth. In addition, Monsanto's strong financial position results in substantial unused debt and equity capacity for funding future investment requirements. From all of the above, the Company has demonstrated its ability to generate suffi cient earnings and cash flow to provide for real future growth beyond that required to maintain its existing earnings base, including inflation-adjusted replacement capital requirements. DSN 021552 STLCOPCB4006861 Review of Liquidity and Capital Resources Short-Term Liquidity and Capital Resources______ #1 M S3 Strong working capita! performance Short-term debt increases from Fisher acquisition Monsanto's 1983-1981 sources and uses of funds, defined as cash, time deposits, certificates of deposit and short-term securities, are shown in the Statement of Changes in Consolidated Financial Position on page 50. Monsanto increased its cash and short-term securities position to $657 million at yearend 1983, an increase of 59 percent as compared to the 1982 level of $414 million. Funds provided from operations, before working capital changes, also increased in 1983. An emphasis on asset management continues to produce excellent working capital performance levels. Capital expenditures in 1983 have declined. This decline reflects adequate existing production capacity to absorb expected growth as well as a shift in emphasis from commodity to less capital intensive, high technology products. In 1983, $208 million was used for acquisitions and other investments, principally to purchase the minority interest in the Rsher Controls subsidiary. Substantial funds in 1981 were provided by issuing common shares, which proceeds were used to liqui date outstanding debt, and from the sale of assets related to a joint venture. The current ratio (current assets divided by current liabilities), an indication of liquid ity, was 2.3:1 at yearend 1983. The 1982 current ratio was 2.6:1 compared to 2.4:1 in 1981. Management believes a current ratio of at least 2.0:1 is desirable. Working capital (current assets less current liabilities) increased in 1983 to $1,535 million as compared to $1,503 million in 1982, as cash and receivables increased more rapidly than current liabilities. Inventories were again reduced in 1983, but were still appropriate for current and expected business levels. Yearend 1983 receivables increased from 1982 due to better business levels. Good control over inventories and receivables is attributable to a well ingrained asset management program. The Company has available various short-term bank facilities, which are discussed further in the ``Short-Term Debt and Credit Arrangements" note to the financial state ments. When necessary, short-term lines of credit and commercial paper are used to finance working capital and provide "bridge'' financing for capital requirements until more attractive rates prevail in long-term debt markets. Short-term debt increased to $253 million in 1983 as compared to $131 million in 1982, principally reflecting a $75 million note exchanged in the purchase of the Fisher Controls' minority interest. OSH 021553 STLCOPCB4006862  At December 31,1983, Monsanto had purchase orders and contracts outstanding of approximately $136 million in connection with uncompleted property additions. Capital equipment expenditures are typically financed by a combination of cash from operations and long-term debt. Long-term debt has been reduced in each of the last three years including, in 1982, by a "debt/equity" exchange and, in 1981, by a new common share issuance with the proceeds used for debt reduction. As a result, the long-term debt to capitalization ratio improved to 20 percent in 1983 as compared to 22 and 25 percent in 1982 and 1981, respectively. Since over the long term Monsanto believes its appropriate long-term debt to capitalization ratio should be approximately 33 percent, the Company's available financing capability has been considerably enhanced. The interest coverage ratio (times), excluding extraor dinary items and the effect of capitalized interest, was 5.3 in 1983, as compared to 4.6 in 1982 and 5.5 in 1981. Long-Term Liquidity and Capital Resources .$1,000 900 300 The Company has made extensive use of pollution control and industrial develop ment bonds to finance qualified projects. Because the tax status of these obligations makes the associated interest rates very favorable, the Company will pursue this form of financing when available. Industrial development bond obligations comprised 26 percent of all outstanding long-term debt at December 31,1983. Monsanto occa sionally has used other forms of financing, principally lease arrangements and joint venture arrangements involving take-or-pay contracts, when the effective interest cost is attractive or the nature of the capital project requires their use. t t CigWal liMwitoii *3 Virtually all assets reflected in Monsanto's financial statements are free from lien and not used to collateralize debt. Accordingly, these assets represent a source of addi tional debt capacity. Through its Monsanto Oil Company subsidiary, the Company owns oil and gas reserves with current value in excess of the amount reflected in the accompanying financial statements. These oil and gas reserves and the undeveloped acreage represent valuable assets that could also be used to increase total debt capacity. The Company has no present plans to pursue these sources of financing. Lower long-term debt and financing alternatives enhance flexibility During 1982 and 1981, the Company issued nearly 4,000,000 new common shares in two major transactions. In addition, the Company has convertible securities and stock options outstanding which result in periodic issuances of common stock. Monsanto's common stock is traded principally on the New York Stock Exchange. The number of common shareowners of record as of February 16,1984, was 69,225 and the high and low common stock price on that date was $90'/4-$89. The Company has paid dividends on its common shares -- without interruption or reduction -- since 1928 and has increased the dividend in each of the past eleven years. Dividend payout for 1983 was 42 percent of net income. The Company's dividend policy reflects a desired long-term payout percentage based on Monsanto's expectation 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 condi tions, including inflation. Dividends increased for 11th consecutive year DSW 021554 STLCOPCB4006863 Financial Statements Indepsndsnt Auditor*' Opinion To the Shareowners of Monsanto Company: We have examined the statement of consolidated financial position of Monsanto Company and Subsidiaries as of December 31.1983 and 1982 and the related statements . of consolidated income, shareowners' equity and changes in financial position for each of the three years in the period ended December 31,1983. Our examinations were made in accordance with generally accepted audit ing standards and. accordingly, included such tests of the accounting records and such other auditing procedures as we considered necessary in the circumstances. In our opinion, such consolidated financial statements present fairly the financial position of Monsanto Company and Subsidiaries at December 31,1983 and 1982, and the results of their operations and changes in their financial position for each of the three years in the period ended December 31,1983, in conformity with generally accepted accounting principles consistently applied during the period except for the change, with which we concur, in 1982 in the method of translating foreign currency transac tions and financial statements as described in the Summary of Significant Accounting Policies. Saint Louis. Missouri February 24,1984 Summary of Significant Accounting Policies Basis of Consolidation. The consolidated financial statements include the Company and its majority-owned subsidiaries. Intercompany transactions have been elimi nated in consolidation. Investments in affiliates in which Monsanto has an ownership interest between 20 and 50 percent are accounted for by the equity method. Foreign Currency Thinsiation. Foreign currency transactions and financial statements are translated in accordance with Statement of Financial Accounting Stan dards No. 52 (SFAS No. 52). The functional currency of substantially all ex-U.S. subsidiaries, except those operat ing in hyperinflationary countries, is the local currency. Intercompany advances to ex-U.S. subsidiaries are gener ally presumed to be of a tong-term investment nature. The hyperinflationary countries in which Monsanto or its affili ates have significant operations are Brazil, Mexico and Argentina. For 1981, foreign currency transactions and financial state ments were translated in accordance with Statement of Financial Accounting Standards No. 8. It was not practical to restate 1981 under SFAS No. 52. Depreciation. Depreciation is computed by the straight line method over weighted average periods of 23 years for buildings and 12 years for machinery and equipment. Intangible Asset Amortization. The excess purchase price above the net assets of acquired businesses is written off on a straight-line basis, over periods of 5 to 20 years. Income Dues. Investment tax credits are recorded as a reduction of income tax expense in the year they offset the Federal income tax liability. Income taxes have not been provided on undistributed earnings of subsidiaries either because any taxes on divi dends would be substantially offset by foreign tax credits or because Monsanto intends to indefinitely reinvest those earnings. Inventory Valuation. Inventories are stated at cost or market, whichever is less. Actual cost is used for raw materials and supplies, and standard cost, which approxi mates actual cost, is used for finished goods and goods in process. Standard cost includes direct labor, raw mate rial and manufacturing overhead based on practical capacity. The cost of substantially all U.S. inventories is determined by the last-in, first-out (UFO) method. The cost of other inventories is generally determined by the first-in, first-out (FIFO) method. Oil and Gaa Activities. Oil and gas exploration and production activities are accounted for using the success ful efforts method. Pension Plans. Pension costs are funded as accrued and include current service and amortization of unfunded prior service costs generally over periods of 10 to 30 years. Other postemployment benefits (principally medical and life insurance) are expensed as incurred. OSW 021555 STLCOPCB4006864 Statement of Consolidated Income (Dollars in millions, except per share) Monsanto Company * lufcsMUrto* Net Sales Cost of goods sold Gross Profit Marketing and administrative expenses Technological expenses Operating Income Other income (expense): Interest expense Interest income All other Income Before Income Duces and Extraordinary Items Income taxes Income Before Extraordinary Items Extraordinary Herns: Tax benefits from utilization of ex-U.S. loss carryforwards Gain from exchange of debt for common shares Net Income Earnings per Share: Before extraordinary items Extraordinary items After extraordinary items Tho obcvo jtttofflom should bo mad In conjunction with pogo 40 and pagos 52 through 55 ol this mport 1983 $6,299 4,704 1,595 681 359 1,040 555 1982 $6,325 4.804 1,521 691 329 1.020 501 1981 $6,948 5,293 1,655 656 297 953 702 (96) 73 38 15 570 201 389 (82) 63 19 -- 501 172 329 (101) 68 24 0) 693 248 445 33 $ 402 23 $ 352 $ 445 $ 8.97 0.81 S 9.78 $ 8.21 0.58 $ 8.79 $11.50 $11.50 Kay Financial Statistics Net Sales as a Percent of Total Assets Net Income as a Percent of Net Sales Percent Return on Average Shareowners' Equity Percent Return on Average Capital Employed* 8efore Extraordinary Items After Extraordinary Hems Before Extraordinary Items After Extraordinary Items 98% 6% 10% 11% 9% 10% 104% 6% 10% 10% 8% 9% 114% 6% 15% 15% 11% 11% 'Capital atnployod la tha turn ot thort-tstnt doPt, long-tsnn d*Pt and shataownara' equity. Tha boglnntng of tha year and tho and of tho yaar capital employed am avsragad and divided Into Incoma aftar adding back tha aftertax affact of imams! coats. OSW 02X556 STLCOPCB4006865 m Statement of Consolidated Financial Position (Dollars m millions, except per share) Assets Current Assets: Cash, time deposits and certificates of deposit Short-term securities, at cost which approximates market Trade receivables, net of allowances of $44 in 1983 and $38 in 1982 Miscellaneous receivables and prepaid expenses Inventories Investments and Other Assets: Investments in affiliates Other assets Property, Plant and Equipment, at Cost: Land Buildings Machinery and equipment Mineral rights and oil and gas properties Construction-in-progress Less accumulated depreciation Total Assets Th* bov ihouW ba r*d m conjunction wi pag* 46 md pagaa S2 through 58 of mi* rapon. Key FlnaneW Statistics Working Capital (Current assets less current liabilities) Current Ratio (Current assets divided by current liabilities) Quick Ratio (Cash and equivalents plus trade receivables divided by current liabilities) At December 31 1983 1982 $ 164 493 1,115 205 778 2,755 S 143 271 1,076 140 824 2,454 113 137 275 173 388 310 74 667 4,938 716 244 6,639 3,355 3,284 $6,427 61 675 4,920 625 249 6,530 3,217 3,313 $6,077 $1,535 2.3 1.5 $1,503 26 *6 OSW 021557 Mwwnto Company Ml Subsidiaries Liabilities and Shareowners' Equity Current Liabilities: Accounts payable Wages and commissions Income and other taxes Miscellaneous accruals Short-term debt Long-Term Debt Deferred Credits and Other Liabilities: Deferred income taxes Other liabilities Minority Interests In Subsidiaries Shareowners' Equity: Preferred stock--authorized, 10,000,000 shares, no par value; issued and outstanding, 54,211 shares in 1983 and 91,902 shares in 1982 Common stock -- authorized, 100,000,000 shares, par value $2; issued, 40,977,448 shares in 1983 and 40,966,159 shares in 1982 Additional contributed capital Accumulated currency adjustment Reinvested earnings Less treasury stock, at cost (common shares of 56,152 in 1983 and 368,548 in 1982) Total Liabilities and Shareowners' Equity At December 31 1983 1982 $ 500 108 104 255 253 1,220 937 $ 379 102 123 216 131 951 1,003 558 493 32 31 590 524 13 109 82 936 (200) 2,853 3,671 4 3,667 $6,427 82 931 (122) 2,621 3,512 22 3,490 $6,077 KtyHimieMItrtlito Percent of Long-Term Debt to Total Capitalization* Percent of Long-Term Debt to Total Shareowners' Equity Shareowners' Equity Per Common Share Total capitalization la the turn of long-tarm data pfua aharaownara' equity. 20% 26% $89.66 22% 29% $85.97 DSInl 021558 STLCOPCB4006867 Ei Statement of Changes in Consolidated Financial Position (Dollars in millions) MonansadnStoubCsoimdipaarnyy* Sources(Uses)of Funds Operations: Income before extraordinary items Charges not using (credits not providing) funds: Depreciation and obsolescence Deferred income taxes Other Funds provided from operations, before changes in working capital and extraordinary items Investment and Other TVansactlons: Extraordinary tax benefits from utilization of ex-U.S. loss carryforwards Working capital changes: Trade receivables Inventories Other current assets Accounts payable and accrued liabilities Short-term debt Property, plant and equipment additions Proceeds from property disposals Foreign currency adjustments Acquisitions and investments Other Financial TVansactlons: Issuance of common stock Long-term financing Long-term debt reduction Extraordinary gain from exchange of debt for common shares Dividends Increase (Decrease) In Funds 1983 1982 1981 $369 517 71 0) 948 $ 329 439 85 27 880 S 445 263 83 15 806 33 (39) 46 (65) 147 122 (560) 39 (47) (208) 35 (497) _ 49 (87) (170) (208) $243 (3) 49 38 (69) (44) (673) 31 (60) (11) 21 (721) 75 38 (149) 23 (158) (171) S (12) 33 (41) 51 (23) (64) (668) 252 (2) 53 (409) 205 32 (273) (145) (181) S 216 Increase (Decrease) in Elements of Funds: Cash, time deposits and certificates of deposit Short-term securities Increase (Decrease) in Funds Th* afiov* miamanf ihould b rad In conjunction with page 46 and pagaa 52 through 55 of this report. $ 21 222 $ 243 S (66) 54 S (12) $ 60 '56 S 216 OSW 021559 STLCOPCB4006868 Statement of Consolidated Shareowners' Equity (Dollars in millions, except per share) comply *"4 1983 1982 1981 Common Stock: Balance, January 1 New shares issued (11,289, respectively) 988,075 and 3,000,000 shares in 1983-1981, Balance, December 31 V* GO IO -- S 82 $ 80 2 $ 82 $ 74 6 $ 80 Additional Contributed Capital: Balance, January 1 New shares issued Other Balance, December 31 S 931 -- 5 $ 936 $ 853 73 5 $ 931 $ 652 199 2 $ 853 Accumulated Currency Adjustment: Balance, January 1 Initial translation adjustment for SFAS No. 52 Translation adjustments Income taxes Transferred to net income Balance, December 31 $ (122) (84) 6 $ (200) $ (16) (111) 9 (4) $ (122) Reinvested Earnings: Balance, January 1 Deferred taxes adjustment for SFAS No. 52 Net income Preferred dividends ($2.75 per share) Common dividends ($4.15, $3.95 and $3.75 per share for 1983-1981, respectively) Balance, December 31 $2,621 402 -- (170) $2,853 $2,423 4 352 -- (158) $2,621 $2,123 445 -- (145) $2,423 Common Stock In Iheaeury: Balance, January 1 Shares purchased (159,570,171,940 and 21,641 shares in 1983-1981, respectively) Conversion of convertible securities and issuances under employee stock plans (471,966, 313,192 and 320,276 shares in 1983-1981, respectively) Balance, December 31 hh* mow sumrwnt should Da rsad in conjunction with paga 46 and pagaa 52 througn 55 of thla raport $ (22) (14) 32 $ (4) $ (26) (13) 17 $ (22) $ (41) (1) 16 $ (26) OSH 021560 STLCOPCB4006869 Notes to Financial Statements Principal Acquisition* and Divestitures In June 1983, Monsanto completed the sale of the European acrylic fibers business to Montefibre, a subsidi ary of Montedison (Italy)- A loss provision of $18 million ($0.46 per share) net of related taxes was established in 1982. The 1982 pretax loss of $20 million was reflected in obsolescence expense in cost of goods sold. The European acrylic fibers business was part of the Fibers and Intermediates operating unit and had 1982 sales of approximately $139 million. As part of the above agreement, Monsanto acquired, in June 1983, at underlying net book value, Montefibre's 50 percent interest in Polyamide Intermediates Limited (PIL), a nylon intermediates joint venture in the United Kingdom. This resulted in Ivtonsanto having sole owner ship in PIL whose operations are now reported as part of the Fibers and Intermediates operating unit. In July 1983, the Company finalized an agreement with The General Electric Company p.I.c., (GEC) of the United Kingdom whereby Monsanto increased its owner ship of Fisher Controls International, Inc. (FCII) to 100 percent from the previous 66Vi percent. Monsanto's purchase price was $178 million. The excess purchase price above FCIi's net assets attributable to GEC's interest was $81 million as of the acquisition date. In August 1981, the Company sold its assets related to the Monsanto'Conoco joint venture. The Company's gain on the sale was recorded as a reduction of obsolescence expense in cost of goods sold in 1981 of $124 million, or $68 million ($1.75 per share) net of related tax effects. The facilities were a part of the Polymer Products operating unit in the United States and had 1981 sales of approxi mately $167 million. As of December 31,1983, the remaining accruals for divestitures have been reduced to immaterial amounts through actual expenditures for shutdown or withdrawal costs, disposal of certain facilities, and operating results subsequent to the recording of the provisions. The remaining accruals are expected to be sufficient to absorb any future costs related to these divestitures. The effects of including the acquisitions discussed above in Monsanto's 1983 consolidated financial statements as if they occurred at the beginning of the year would not be material. Supplemental Income and Expense Data 1983 1982 Depreciation and obsolescence: Depreciation Obsolescence (includes gains and losses from divestitures) Total depreciation and obsolescence $456 61 $517 $396 43 $439 Rent expense $ 83 $ 78 Technological expenses: Research and development Engineering, commercial development and patent $290 69 $264 65 Total technological expenses $359 $329 Interest expense: Total interest costs incurred Less capitalized interest $126 (30) $128 (46) Net Interest expense $ 96 $ 82 Equity Income (loss): Equity in affiliates' income and losses Equity in affiliates' foreign currency gains and losses Total equity Income (loss) $ 13 2 $ 15 $ (6) (5) $(11) Foreign currency gains and losses (Including equity In affiliates' gains and losses) $5 $(15) 1981 $361 (98) $263 $ 74 $233 64 $297 $145 (44) $101 $ 22 16 $ 38 $(28) Pension Plane Most Monsanto employees are covered by noncontribu tory pension plans. The pension expense for all plans was $131 million, $136 million and $127 million in 1983-1981, respectively. Estimated benefit and asset information at yearend for Monsanto's pension plans is presented below. Net assets were measured at market value and accumulated benefits were estimated from actuarial valuations made earlier in the year. Actuarial present value of accumulated plan benefits: Vested Nonvested Total Net assets available for benefits 1983 $1,483 178 $1,641 $1,958 1982 $1,366 177 $1,543 $1,697 U.S. salaried and hourly employees are covered by two principal plans. Assumptions for the principal plans DSW 021561 STLCOPCB4006870 include an investment return of 7.5 percent used in deter mining the actuarial present values, and an overall average salary increase of 6.5 percent for a "final pay" plan. Accumulated plan benefits included in the above table for these major U.S. plans were approximately $1,515 million at December 31,1983. The actuarial present value of additional projected benefits from future salary increases for the U.S. "final pay" plan at December 31, 1983 was approximately $260 million. 51--------------------------- --__________________________________________ Additional taxes have not been provided on $741 million of undistributed earnings of subsidiaries as of December 31, 1983. Taxes may be payable in the event of distribution. Ex-U.S. loss carryforwards at December 31,1983, for which no tax benefits have been recorded, were approxi mately $78 million. A substantial portion of this has an unlimited carryforward period. Earning* per Share Income fixes The components of income before income taxes were: Total U.S. Ex-U.S. 1983 $419 151 $670 1982 $425 76 $501 1981 $549 144 $693 The components of income tax expense were: Currant: Federal State Ex-U.S. 1983 $103 6 45 154 1982 $ 53 8 39 100 1981 $ 91 a 38 137 Deferred: Federal State Ex-U.S. 11 72 103 449 (1) (4) (1) 14 72 111 Ihx effect of loss carryforward: Ex-U.S. 33 Tbtal $201 $172 $248 Earnings per share were computed using the weighted average number of common and common equivalent shares outstanding each year (41,107,578, 39,975,498 and 38,703,604 in 1983-1981, respectively). Common share equivalents consist of common stock issuable upon exercise of outstanding stock options (281,811,159,858 and 200,801 in 1983-1981, respectively), and conversion of loan stock of Monsanto p.I.c. (99,348, 109,904 and 144,952 in 1983-1981, respectively). Earnings per share assuming full dilution were not significantly different from the primary amounts. Inventor!** Inventories at December 31,1983 and 1982 would have been $453 million and $447 million, respectively, higher than reported if the FIFO basis of inventory valuation (which approximates current cost) had been used fa all inventories. The LIFO inventory method makes it impracti cal to identify inventories by classification (i.e., finished goods, goods in process, raw materials and supplies). The liquidation of lower cost inventory 'Tiers" under the LIFO method increased 1982 earnings approximately $83 million before taxes. Investment tax credits for 1983-1981 were $26 million, $53 million and $22 million, respectively. The sources of timing differences in the recognition of revenue and expense for tax and financial statement purposes and the tax effect of each were: Stiort-Ttorm D*bt and Credit Arrangement* 1983 Note* payable: Banks Others Currant portion of long-term debt $154 75 24 1982 $105 26 1983 1982 1981 fetal $253 $131 Depreciation and obsolescence Intangible drilling and development costs Interest capitalization Other Total $ 19 (3) 8 (10) $ 14 S 49 19 18 (14) $ 72 $ 66 23 14 8 $111 Factors causing the effective tax rate to differ from the statutory rate were: 1983 1982 1981 Federal statutory rate Investment tax and R&D credits Benefits attributable to DISC earnings Non-tax effected ex-U.S. subsidiaries' results Other Effective Income tax rata 48% W 46% (11) (3) (3) (2) 2 35% 34% 46% (3) (3) (3) (D 36% The Company has available a $200 million domestic Revolving Credit Agreement with fourteen banks. The Agreement provides fa revolving credit through 1989. The interest rates on any borrowings under these domestic facilities wiH generally be at or near prevailing prime rates. The Company also has available $100 million under Eurocurrency Revolving Credit Agreements subject to mandatory reductions beginning in 1985 and terminating in 1987. Interest rates under these agreements are at a margin above the London or Luxembourg interbank offered rates. No borrowings were made under the above credit facili ties through February 24,1984. In addition, certain ex-U.S. subsidiaries have aggregate short-term loan facilities of $325 million, under which loans totaling $59 million were outstanding at December 31, 1983. Interest on these loans is related to various ex-U.S. bank rates. DSW 021562 STLCOPCB4006871  Long-Turn Debt Lonq-term debt (exclusive of current maturities) was: 1983 1982 Monsanto Company: 8% notes due 1985 4y% promissory notes due 1993 9'/s% sinking fund debentures due 1997 8 V2% sinking fund debentures due 2000 3<% income debentures due 2002 4 Vt% income debentures due 2008 8*4% sinking fund debentures due 2008 4V5%-iiy,o% industnal development bond obligations due 1985/2021 Capitalized lease obligations Monsanto (Sulssa) S.A. (Swiss subsidiary): 6'/2% sinking fund debentures due 1986 Monsanto Europe, S.A. (Belgian subsidiary): 9k*%-l4'/2% bank loans due 1985/1991 Other, principally ex-U.S. subsidiaries Total $100 44 67 127 77 50 169 247 7 9 40 $937 $ 100 49 67 127 85 50 169 247 10 24 25 50 $1,003 Other long-term debt above at December 31,1983 includes S3 million of Monsanto International Finance Company 4'/2% sinking fund debentures (due 1985) convertible into Common Stock at $85 per share, and $3 million of Monsanto p.I.c. (U.K. subsidiary) 5% loan stock (due 1985/1986) convertible into Common Stock at a rate equivalent to $55 per share. Maturities and sinking fund requirements on long-term debt are $24 million, $130 million, $22 million, $17 million and $23 million for the five years ending December 31, 1984-1988, respectively. Covenants of certain loan agreements restrict maximum borrowings and dividend payments. It is not anticipated that additional future borrowings will be affected by these restrictions, and none of the Company's reinvested earn ings were restricted as to dividend payments at December 31,1983. Monsanto has various loans payable to other companies where the agreements provide for the legal right of offset of related Monsanto assets, principally loans receivable from the same companies or their affiliates. Monsanto's total borrowings under these agreements were $149 million at December 31,1983. Since both parties to the agreements have the legal right of offset in case of default, borrowings and related receivables or other assets are reflected net in the accompanying Statement of Consolidated Financial Position. These agreements expire at various dales through 1986. Because of currency denomination and other factors, interest rates on the loans payable are somewhat higher than the rates on the related receivables or other assets. Substantially all long-term debt of subsidiaries is guaran teed by the Company. Commitments and Contingencies Commitments in connection with uncompleted additions to property were approximately $136 million at December 31. 1983. Monsanto was contingently liable as guarantor of bank loans and for discounted customers' receivables totaling approximately $56 million at December 31.1983. Monsanto is a party to a number of lawsuits, which it is vigorously defending, arising in the normal course of busi ness. Certain of these actions 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 position. Capitol Stock The outstanding $2.75 Cumulative Convertible Preferred Stock is stated at $2.24 per share and is convertible into 1.12 shares of Common Stock. Preferred stock may be redeemed solely at the Company's option at $73 per share (the voluntary liquidation preference) and has an involuntary liquidation preference of $35 per share. At December 31,1983, there were 195,249 common shares reserved fa conversion of convertible securities and 1,424,598 common shares for employee stock options. Stock Option Plan At December 31,1983, there were 1,093,778 shares under options outstanding for the Company's 1974 Plan at pnces ranging from $48.50 to $115.19. Options for 617,754 shares were exercisable at December 31,1983. During 1983, 258,250 options were granted and 320,348 options, granted at prices ranging from $48.50 to $88.06 per share, were exercised. Stock appreciation rights (SAR's) are authorized to be granted under the 1974 Plan, including retroactive grants for unexercised options. At December 31,1983, SAR's related to options for 257,233 shares were outstanding; of these, 145,010 were exercisable. During 1983, SAR's related to options for 61.000 shares were granted and 98,495 were exercised. OSH 021563 STLCOPCB4006872 Segment Information Certain operating unit segment data for 1983-1981 appearing on page 38 are integral parts of the accompa nying financial statements. The principal product lines included in each operating unit are shown in the "Sales by Product Group" data on page 34. Unusual or non recurring charges or credits were included in the operat ing units and world areas as discussed in the "Principal Acquisitions and Divestitures" note. The liquidation of lower cost inventory "tiers" under the LIFO method increased 1982 operating income by $20 million, $27 million and $35 million for Fibers and Intermediates, Industrial Chemicals and Polymer Products, respectively. Total sales between operating units (made on a market price basis) were $297 million, $311 million and $393 million in 1983-1981, respectively. These sales were not significant for any operating units except Industrial Chemicals ($140 million, $151 million and $162 million in 1983-1981, respectively) and Rbers and Intermediates ($101 million, $91 million and $102 million in 1983-1981, respectively). Inter-area sales, which are sales from one Monsanto location to another Monsanto location in a different world area, were made on a market price basis. Certain corporate expenses, primarily those related to the overall management of the Company, were not allocated to the operating units or world areas. Other income (expense), as shown in the Statement of Consolidated Income, is the only reconciling item between operating income and income before taxes. Nonoperating assets principally include cash, time deposits and certificates of deposit, short-term securities and investments. Net sales by world area entities were: United States Europe-Africa Canada-Latin America Asia-Pacific Eliminations Total consolidated Outside Customer Sales 1983 1982 1981 $4,596 924 451 328 $4,483 1,079 448 315 $4,874 1,247 486 341 $6,299 $6,325 $6,948 Operating income and total assets by world area entities were: Operating Income (Loss) 1983 1982 1981 United States Europe-Africa Canada-Latin America Asia-Pacific Eliminations Corporate expenses Nonoperating assets $ 434 137 54 15 (35) (50) $ 458 39 30 11 8 (45) $ 652 38 41 25 (16) (38) Total consolidated $ 555 $ 501 $ 702 1983 $ 526 188 10 25 (749) $- Inter-Area Sales 1982 '981 $ 467 108 5 21 (601) $ 554 115 4 25 (698) $- $- 1983 $5,122 696 272 203 (362) 496 $8,427 Total Assets 1982 1981 $4,711 790 247 172 (268) $4,437 1 049 280 227 (334) 425 $6,077 410 $6,069 Following is a reconciliation of ex-U.S. operating income and total assets to the Company's equity in the net income and net assets of consolidated ex-U.S. subsidiaries: Operating income Other income (expense) Income taxes (including extraordinary tax benefits of loss carryforwards) Net Income of consolidated ex-U.S. subsidiaries Total operating assets Total liabilities, net of nonoperating assets Net assets of consolidated x-U.S. subsidiaries 1983 S 206 (35) 45 $ 126 $1,171 470 $ 701 1982 $ 80 (14) 35 $ 31 $1,209 440 $ 769 1981 $ 104 38 30 $ 112 $1,556 691 $ 865 DSW 021564 STLCOPCB4006873 Financial Summary (Dollars in millions, except per spare) Operating Results Earnings Per Share Yearend Financial Position Other Data Net Sales Operating Income Net Income As a Percent of Net Sales As a Percent of Average Shareowners' Equity As a Percent of Average Capital Employed Primary Fully Diluted Total Assets Working Capital Property, Plant & Equipment: Gross Net Long-Term Debt Shareowners' Equity Current Ratio Percent of Long-Term Debt to Total Capitalization Property, Plant & Equipment Additions Depreciation and Obsolescence Interest Expense Research and Development Expense Income Taxes Stock Price: Price/Eamings Ratio on Yearend Stock Price High Low Per Common Share: Dividends Shareowners' Equity Shareowners: Common Preferred Common Shares Outstanding (in millions) Employees 1983(1) $6,299 555 $ 402 6 11 10 $ 9.78 9.74 $6,427 1,535 $6,639 3,284 $ 937 3,667 2.3 20 $ 560 517 96 290 201 $ 116s/. 74'A 11 $ 4.15 89.66 69,787 632 41 50,889 1982(2)(3) $6,325 501 S 352 6 1981 S6.948 702 S 445 6 10 15 9 $ 8.79 8.74 $6,077 1.503 $6,530 3,313 $1,003 3.490 2.6 11 $11 50 11 43 $6,069 1.486 $6,218 3,184 $1,110 3.330 2.4 22 25 $ 673 439 82 264 172 $ 89 56% 9 $ 3.95 85.97 75.943 709 $ 668 263 101 233 248 $ 87'/z 59/2 6 $ 3.75 84 37 79.029 775 41 52.199 40 57,391 (1) Net income for 1963 inciudM extraordinary tax benefits of $33 million, or $0.81 per primary share, from the utilization of ex-U.S. loss carryforwards. (2) Net income for 1982 includes an extraordinary gain of $23 minion, or $0.56 per pnmary share, from an exchange of debt for common shares (3) In 1982. the requirements of Statement of Financial Accounting Standards No. 52. "Foreign Currency Translation." were adopted. OSW 021565 STLCOPCB4006874 _________ Monsanto Company nd Subsidiaries 1980(4) $6,574 210 $ 149 2 5 5 $ 4.10 4.06 $5,796 1.226 $6,074 3,109 $1,371 2,808 2.1 33 1979 $6,193 487 $ 331 5 12 10 $ 9.11 9.03 $5,539 1,323 $5,529 2,818 $1,203 2,782 2.2 30 1978 $5,019 632 $ 303 6 12 9 $ 8.29 8.21 $5,036 1,296 $5,167 2,605 $1,224 2,579 2.5 32 1977 $4,595 610 $ 276 6 12 9 $ 7.46 7.37 $4,350 1,080 $4,745 2,409 $1,031 2,401 2.6 30 1976 $4,270 668 $ 366 9 17 13 $10.05 9.77 $3,959 1,106 $4,208 2.090 $ 915 2,253 2.9 29 1975 $3,625 547 $ 306 8 16 13 $ 8.63 8.22 $3,451 1,150 $3,620 1,660 $ 845 1,977 3.4 30 1974(5) $3,498 550 $ 323 9 20 15 $ 9.25 8.73 $2,938 968 $3,157 1.312 $ 587 1,755 2.9 25 1973 $2,648 406 $ 238 9 17 13 $ 6.90 654 $2,545 855 $2,852 1,152 $ 579 1,484 3.1 28 $ 781 547 112 208 57 $ 70'A 42'A 17 $ 3.55 77.63 82,441 871 $ 566 413 123 161 150 $ 62 45 7 $ 3.35 77 20 85,608 952 $ 480 288 103 136 274 $ 60'A 44 Va 6 $ 3.175 71.26 86,775 1.156 $ 607 296 86 132 248 $ 88% 52 8 $ 3.025 66.16 85,021 1,404 $ 647 226 80 114 251 $ 100 76 9 $ 2.75 61.79 84,647 1.956 $ 528 173 56 116 230 $ 80% 41 9 $ 2.55 56.62 91,725 2,836 $ 313 172 43 87 251 $ 69% 39% 4 $ 2.30 51.39 98,542 3,709 $ 205 170 39 71 173 $ 75% 43% 8 $ 1 90 44.26 98.964 3.855 36 61,836 36 63,926 36 62,851 36 61,519 36 61,903 35 59,242 34 60,926 33 58.277 (4) In 1980, intsrsst costs related to constnjctton*irvprogresa expenditures were capitalized in accordance with Statement of Financial Accounting Standards No. 34. Prior to 1980, ail Intsrsst costs wsrs txpsnssd ss incurred. The offset of ths now accounting pnnople was to inersass i960 not income Cry $28 million or $0.76 por primary sharp. (5) in 1974, ths Company and certain of its domestic subsidiaries changed their method of inventory valuation for substantially aW United States inventones from ths FIFO basis to the UFO basis. The effect of this change wea to decrease 1974 income by $78 million or $2.26 per primary share. DSM 021566 STLCOPCB4006875 Directors and Officers _______________________ Board of Directors Dr. Louis Fernandez St. Louis Chairman of the Board Monsanto Company Dr. Donald C. Carroll Philadelphia Professor of Management University of Pennsylvania C. Raymond Dahl San Francisco Retired Chairman of the Board Crown Zellerbach Corporation Richard I. Fricke Montpelier, Vermont President and Chief Executive Officer National Life Insurance Company John W. Hanley North Palm Beach, Florida Retired Chairman of the Board and Chief Executive Officer Monsanto Company Howard M. Love Pittsburgh Chairman of the Board and Chief Executive Officer National Intergroup, Inc. Richard J. Mahoney St. Louis President and Chief Executive Officer Monsanto Company Dr. Jean Mayer Medford, Massachusetts President Tufts University Buck Mickel Greenville, South Carolina Chairman of the Board Daniel International Corporation (a subsidiary of Fluor Corporation) Edward L. Palmer New York Retired Chairman of the Executive Committee Citicorp and Citibank, N.A. Francis E. Reese St. Louis Senior Vice President Monsanto Company- Dr. John B. Slaughter College Park, Maryland Chancellor University of Maryland at College Park Monte C. Throdahl St. Louis Senior Vice President Monsanto Company- Admiral Stansfieid Turner U.S. Navy, Retired McLean, Virginia Consultant and Lecturer Margaret Bush Wilson St. Louis Attorney Wilson, Smith and McCullin Advisory Directors Robert L. Berra Francis J. Fitzgerald Earle H. Harbisonjr. Nicholas L. Reding Dr. Howard A. Schneiderman Francis A. Stroble Committees of the Board Audit Dr. Jean Maver Buck Mickel Edward L. Palmer Margaret Bush Wilson Corporate Social Responsibility Dr. Louis Fernandez Dr. Jean Maver Admiral Stansfieid Turner Margaret Bush Wilson Executive Dr. Louis Fernandez John W. Hanley Richard J. Mahoney Margaret Bush Wilson Executive Compensation and Development Richard I. Fricke Howard M. Love Buck Mickel Finance Dr. Donald C. Carroll C. Raymond Dahl John W. Hanley Richard J. Mahoney Edward L. Palmer Nominating C. Raymond Dahl Howard M. Love Buck Mickel Pension and Savings Funds Dr. Donald C. Carroll Dr. Louis Fernandez Richard I. Fricke Admiral Stansfieid Turner DSW 021567 STLCOPCB4006876 Officers President and Chief Executive Officer Richard J. Mahoney Chairman of the Board Dr. Louis Fernandez Executive Vice Presidents Francis J. Fitzgerald Earle H. Harbisonjr. Nicholas L. Reding Senior Vice Presidents Robert L. Berra Francis E. Reese Dr. Howard A. Schneiderman Monte C. Throdahl Senior Vice President and Chief Financial Officer Francis A. Stroble Senior Vice President, Secretary and General Counsel Richard W. Duesenberg Group Vice Presidents Robert E. Burke Harold J. Corbett* Thomas L. Gossage Robert G. Potter Vice Presidents Dr. Constantine E. Anagnostopoulos Leonard A. Cohn Stewart D. Daniels Richard U. DeSchutter*** Charles A. Faden Dr. S. Allen Heininger Martin J. Kallen Thomas H. Lafferre Dr. Joseph T. Nolan Sam Pickard James H. Senger*** Donald H. Swan** Vice President and Treasurer Lawrence B. Skatoff Vice President and Controller Michael F. Mee Annual Meeting The next Annual Meeting of the shareowners of Monsanto Company will be held at 1:45 p.m., Friday, April 27. 1984. in K Building at the Company's General Offices, 800 N. Lindbergh Blvd.. St. Louis, Missouri. A formal notice of the meeting, together with a proxystatement is being mailed to each shareowner. 10-K Report, Corporate Data Book and Investor News A copy of Monsanto Company's Form 10-K Report filed with the Securities and Exchange Commission for 1983; 1983 Corporate Data Book, which contains additional information relating to Monsanto; and Investor News can be obtained by writing to: Investor Relations Department Monsanto Company800 N. Lindbergh Blvd. St. Louis, Missouri 63167 Stock Symbol: MTC Transfer Agent and Registrar The First National Bank of Boston To become Senior Vice President on April 1. 1984. To become Group Vice President on April 1. 1984. Effective April 1, 1984. OSW 021568 STLCOPCB4006877 Monsanto Monsanto Company 80o N. Lindbergh Blvd. St. Louis, Missouri 63167 DSW 021569 STLCOPCB4006878