Document 444w5E5DNeDJ7Dmmm0eDq5VBj

Monsanto 1992 Annual Report DSW 021988 STLCOPCB4007297 MONSANTO 1992 OVERVIEW onsanto Company's net income in 1992 was affected by a number of significant nonrecurring items. As a result, the company had a net loss Mof $88 million, or 71 cents per share, on net sales of S7.8 billion. The largest of the charges against earnings was a one-time aftertax charge of $658 million, or $534 per share, to adopt Statement of Financial Accounting Standards No. 106. This rule recognizes the future costs of medical and other post-retirement bene fits for retirees. The company also took a one-time aftertax charge of $425 million, or S3.44 per share, to implement cost-cutting actions designed to make worldwide operations more focused, productive and cost-effective. Major elements include a realignment of selected research investments; reductions in employment; and a number of consolidations, closings and sales of nonstrategic businesses and facilities. The most significant gain in 1992 came from the sale of Fisher Controls International Inc. The aftertax gain from that sale was $554 million, or $4.49 per share. Although Fisher Controls was part of Monsanto for 23 years, its valve and process controls businesses were no longer a strategic fit for the company. The sale of Fisher Controls allows Monsanto to focus cm its four core businesses. The company also realized an aftertax gain of $118 million, or 96 cents per share, from the adoption of Statement of Financial Accounting Standards No. 109, which pertains to income-tax accounting. TABLE OF CONTENTS Letter to Shareowners 2 Chairman and Chief Executive Officer Richard J. Mahoney describes the steps the company will take to meet its main objective: to provide superior shareowner value. Review of Operations 8-21 Monsanto's four oper ating units implement strategies that contribute to the corporate objective of increasing value for shareowners. In this section, each unit defines its key goals, reviews the status of those goals in 1992, and provides an outlook for meeting those objectives in tire future. The Agricultural Group 6 Financial Section and The Chemical Group 10 Corporate Information 23-57 The NutraSweet Company 14 This section provides Searle 18 Monsanto's financial reports and statements; A Tribute to information on officers, Earle H. Harbison, ]r. 22 advisory directors and Monsanto's former presi the board of directors; and dent and chief operating shareowner information. officer retires Sept. 1,1993. Financial Section 23 This tribute to Earle H. Officers and Advisory Harbison, Jr. looks back on Directors ss bis almost 26-year career Board of Directors 56 with Monsanto. Shareowner Information 57 01993 Monsanto Company. Trademarta and atrrk* inaria erf Monsanto arid tttauimdkno are Indiated by ;oiia throughout thu publication. Kzsft and U^n'I>riymregLiteradtndMawfa of Kraft Omni Foodatnc. DSW 021989 STLCOPCB4007298 OPERATIONAL HIGHLIGHTS (Dollars m millions, except per share) Net Sales Income (Loss) from Continuing Operations Net Income (Loss) Per Share: Income (Loss) from Continuing Operations Net Income (Loss) Dividends Shareowners' Equity Depreciation and Amortization Cash Provided by Operations Research and Development Expenses Return on Shareowners' Equity Percent of Total Debt to Total Capitalization Shareowners (year-end) Shares Outstanding (year-end, in millions) Employees (year-end) 1992 $7,763 $(126) $ (88) 1991 $7,936 $ 238 $ 2% $(1.01) $(0.71) $ 2^0 $2195 $ 765 $ 912 $ 651 (2.6)% 36% 60,074 120 33,797 $ 1.87 $ 2.33 $2,045 $29.72 $ 714 $1,180 $ 610 7.6% 38% 60,152 123 392281 1990 $8,068 $ 486 $ 546 % Change 1992 vs. 1991 (2)% (153)% (130)% $ 3.77 $ 4.23 $ 1.88 $32.51 $ 704 $1,104 $ 595 13.6% 35% 62,230 126 41,081 (154)% (130)% 8% (16)% 7% (23)% 7% (134)% (5)% -- (2)% (14)% THIS IS MONSANTO Monsanto Company makes and markets high-value agricultural products, chemical prod ucts, pharmaceuticals and food ingredients. The company's best-known brands include Roundup herbicide. Lasso herbicide, Wear-Dated carpet, Saflex plastic interlayer, Calan calcium channel blocker, Cytotec ulcer preventive drug and NutraSweet brand sweetener. ABOUT THE COVER Monsanto Is paving the way to strategic goals that create superior shareowner value. Monsanto 1S?2 Annual Rem: DSW 021990 1 STLCOPCB4007299 LETTER TO SHAREOWNERS hareowners had a rough ride in 1992. In the preceding decade, Monsanto outperformed the market, with a total return to shareowners averaging some S20 percent per year. But 1992 closed with our stock down 15 percent from its January opening. There was a lot of good news during 1992, but there was some bad news as well. The all-important earnings result was a disappointment. The two previous pages and the financial section of this report describe the net negative effect of several one- time charges and gains for the year. These nonrecurring items include new accounting charges for retiree benefits required of most U.S.-based companies, charges for cost-cutting actions, asset sales, and other unusual items. Even so, earnings from operations weren't what we had projected at the start of the year. When we set out our plans for 1992, we had several objectives: Keep sales and earnings growing for Roundup herbicide. We got the sales increase, with worldwide volumes up 16 percent. What would have been a superb year for earnings from Roundup was only "pretty good" because of the cost of fixing a production outage. We simply shouldn't have let that outage happen, given our excel lent manufacturing record. Get new pharmaceutical product approvals to launch major sales growth. Searle received three new drug approvals in the United States and a number of impor tant approvals internationally -- a remarkable record. But 1992 also brought U.S. approval for the first generic competition for the sustained-release form of Searle's leading product, Calan caldum channel blocker. We're optimistic about the prospects for Searle's new products, but the competition will hurt Calan, at least in the short term. Complete the plan to manage the consequences of the U.S. patent expiration 2 Monsanto 1902 Annual Report DSW 021991 STLCOPCB4007300 for NutraSweet brand sweetener in 1992. We've retained most of our business for NutraSweet worldwide, as we had planned. To offset lower prices, we're driving down our cost of doing business, as well as our production costs. In addition, we're moving forward with research and development for Sweetener 2000, a high-intensity sweetener that promises a step change in cost and performance for the sweetener market. Our branded offerings were bolstered with new-product launches, especially NutraSweet Spoonful. This new product in tabletop serving jars is spoonable, like sugar. We expect good growth from products like NutraSweet Spoonful and from increasing sales of NutraSweet in cost- driven sugar-substitution markets worldwide. This business is solid now and has some interesting "wild cards" developing. Capitalize on our superb product positions in The Chemical Group during the expected 1992 economic recovery. We kept our market positions for our high-value chemical products in 1992, but the economy remained weak. Europe, usually an earn ings engine for us, sputtered. Dispose of nonstrategic assets and redeploy the proceeds. Fisher Controls International Inc. was sold for $1.3 billion, with a recorded aftertax gain of $554 million. Other asset sales brought in $177 million. We expect to use half the proceeds from these sales to retire high-price debt and , , _, , ,. to purchase the Ortho lawn-and-garden 1 business from Chevron Chemical Co. We'll continue to apply unrelenting pressure to reduce our costs and to ensure product quality gains that customers can recognize as value. Ortho's line will be an excellent addition to our family of home lawn-and-garden products. Sales of our lawn-and-garden products have been increasing significantly in the past few years; the Ortho addition will make us a major player. Share repurchases remain an important use for excess cash available after normal business requirements have been met. Our board of directors again authorized share repurchases in 1992. Cut overhead and operating costs in a major way. We expect pretax gains of $200 million annually from cost-cutting actions we announced in November 1992. These savings will be evident beginning in 1994, once we get through the interim expenses associated with the cuts. Sometimes potential cost gains like these melt away before being realized. We intend to ensure that these savings happen. Continue a reliable dividend policy for shareowners. For the 20th consecu tive year, the dividend was increased. Move major research and development (R&D) programs forward to commer cialization. The recent approvals for Searle products were impressive in number and quality. Bovine somatotropin (BST), a product that offers improved dairy productiv ity, has been an expensive investment in biotechnology. Currently, it's cleared for sale in nine countries. In the European Community, the Committee for Veterinary Medicinal Products has found BST safe and effective, but permission for sale has not yet been granted. In the United States, approval for sale is still pending at the Food and Drug Monsanto 1992 Annual Report 3 OSW 021992 STLCOPCB4007301 Administration. Meanwhile, we've developed commercial and public programs, and we're containing costs prior to the launch of the product. New crop and food products also based on biotechnology are moving well toward commercialization. These include an array of products with attractive consumer and environmental profiles. The highly publicized launch of Simplesse all natural fat substitute has been a "technical" success, with some 30 products containing Simplesse now offered by food com panies worldwide. But making money from Simplesse remains elusive. We intend to resolve that issue in 1993. We have demanding standards for all of our R&D and new-product programs: We either meet them or move on. CREATING VALUE FOR THE FUTURE For 1993 and beyond, the company's objective hasn't changed: to provide superior shareowner value and achieve the principal financial target of a sustainable 20 percent return on shareowners' equity by mid-decade. We have the product mix that We Intend to return Monsanto to the favored position-- . ___ or better -- that we had with shareowners In the late 1980s. can get us there, but to do so we must meet . , , ... T , several of the objectives I descnbed earlier: Take advantage of an economic recovery in the United States and Europe for The Chemical Group. Our market shares are excellent, and our costs are moving lower. However, to meet and sustain corporate financial targets, we need to operate our chemical plants at capacity utilization rates sev eral percentage points higher than our 1992 range. With our restructured chemical product lineup and a reasonable recovery, we can do it and demonstrate as well the impressive cost gains we've made. Sustain our continued success with Roundup herbicide. Our strategy to OUR COMMITMENT TO SHAREOWNER VALUE Monsanto is committed to consistendy increasing value for shareowners by achieving a superior level of financial performance. The principal financial target is to reach and sus tain a 20 percent return on shareowners' equity, while generating excess cash that can be returned to share owners in dividends and through share repurchases after normal business needs are met. We'll reach these goals by bringing superior value to our customers; by intro ducing new products and forming new alliances; by exiting businesses that cannot meet our targets; by hiring, training and motivating high-quality employees; and by acting responsibly and earning a favored right-to-operate in society. On pages 6-21 of this annual report, we describe the goals of each of our operating units. The achievement of these goals contributes to Monsanto's overall success in increas ing shareowner value. 4 Monsanto 1992 Annual Report DSW 021993 STLCOPCB4007302 preserve this extraordinary franchise looks secure. Volumes continue to grow profitably worldwide because of our pricing and new end-use strategies. There will doubtless be some erosion of share with new generic entries over time, but we're in good shape to prosper in a growing market. Move Searle through the current new-product launch costs and show sales success. We'll have a better appraisal later in 1993, but early signs look promising for Maxacjuin, a once-a-day quinolone anti-infective agent launched in the United States in 1992; for Daypro in the United States and Arthrotec in Europe, both for the treatment of the symptoms of arthritis; and for Ambien, a treatment for short-term insomnia. All of these products potentially offer important advances in performance and consumer accep tance, in keeping with the new realities of the pharmaceutical industry. For the long term, we intend to continue to develop innovative alliances that will ensure world-class strength in R&D and marketing. A number of initiatives are under review. We're going to restore shareowner enthusiasm that matches our own for this fine unit of the company. Convert biotechnology R&D from an expense to a profit in the coming years. We need no reminders that we've invested heavily in biotechnology. We've got to get it right or bring the costs way down. We're betting on success. Continue to apply unrelenting pressure to reduce our costs and to ensure product quality gains that customers can recognize as value. We made good progress in 1992. There's more to come. We're taking dozens of other steps to reach our financial targets: revving up our cash-generating capabilities, continuing share repurchases, and redeploying our assets, among other important actions -- all while still providing for vibrant growth. We're recognized by the financial community as great "counterpunchers" for our impressive defenses of Lasso and Roundup herbicides, NutraSweet brand sweetener, Saflex plastic interlayer, Wear-Dated carpet, and other powerful franchises. I would have included Calan calcium channel blocker in that group until the 1992 entry of a generic competitor for the sustained-release form. But even with Calan, a free fall isn't a fore gone conclusion in the marketplace. Every great defense needs a sustained offense to produce a winner, and that's what we'll be demonstrating as we develop the franchises of the future. Our overriding objective is to return Monsanto to the favored position -- or better -- that we had with shareowners in the late 1980s. We remain committed to shareowner value. We intend to make it happen! Our thanks go to Earle H. Harbison, Jr., chairman of the executive committee of the board ofdirectors and past president and chiefoperating officer,for his service to this company. A tribute to Earle, who retires on Sept. 1,1993, is on page 22 ofthis report. The board elected Robert B. Shapiro tofollow Earle as president and chiefoperating officer, and Nicholas L Reding as vice chairman. We have assembled a value-oriented management team across Monsanto. Richard}. Mahoney Chairman and Chief Executive Officer March 6,1993 DSW 021994 5 STLCOPCB4007303  The growth of conservation tillage -- a farming practice that reduces or eliminates plowing -- is generating new saies for Roundup herbicide as farmers substitute Roundup for tilling to control weeds. THE AGRICULTURAL GROUP The Agricultural Group adds value for Monsanto's shareowners by the strength of some of the world's leading weed control products: Roundup herbicide and other glyphosate-based herbicides, and the family of acetanilide herbicides. The unit is also creating a new generation of products based on research and devel opment in both agricultural chemistry and biotechnology. In 1992, volumes for Roundup herbicide increased by 16 percent. Excluding a charge for cost-cutting actions and unexpected costs from damage to a plant that makes a key raw material for Roundup, operating Income for the unit would have improved over Income in the previous year. or The Agricultural Group, there are two key questions: How long can we extend the growth of Roundup herbicide, and how soon can we turn biotechnology into a viable business? Roundup, the top-selling crop- protection chemical in the world, continues to be a growth product after 19 years on the market because farmers continue to find new ways to use it. Typically, customers respond to price reductions by using Roundup in ways that weren't economical at the previous prices. We've encouraged new applications by selectively lower '. ing prices in markets worldwide. Roundup herbicide continues to grow after 19 years on the market because of new uses. Our experience has been that higher volumes result in lower costs, which lead to increases in revenues and operating income. Also contributing to volume growth for Roundup her bicide is the expanding practice of conservation tillage, WHERE WE ARE AND WHERE WE WANT TO BE j goal H Generate continuously higher worldwide volumes of Roundup herbicide and other glyphosate-based herbicides. E3Z5ZQ Volumes for Roundup increased 16 per cent in 1992. However, income from Roundup was affected by the costs of damage to a plant that makes a key raw material for Roundup. The expiration of European 0223223 Volumes patents creates an opening and operating income for for generic competition; Roundup are forecasted to U.S. patent protection for continue to grow for several the active ingredient in years because of increasing Roundup remains in place demand. This demand is into the year 2000. caused by three factors; a competitive cost position, strategic reductions in sell ing price, and the rapid spread of conservation tillage practices in farming. Hendrik A,. VerfaUHc, vice president of Monsanto and president of The Agricultural Group 6 Monsanto 1992 Annual Report OSW 021995 STLCOPCB4007304 a farming method that reduces or eliminates plowing. "We've seen tremendous growth in the use of Roundup for no-till farming, and the current pricing makes great economic sense for conservation tillage," says Hendrik A. Verfaillie, vice president of Monsanto and pres ident of The Agricultural Group. Encapsulated formulations in the acetanilide family of herbicides are also being used in no-till farming. Based on the same chemistry as Lasso herbi cide, Micro-Tech and Bullet encapsulated herbicides and Partner dry encapsulated herbicide provide the farmer longer weed control. They also offer improved performance over certain other grass herbicides in no-till applications. Sales for the pyridine family of herbicides, which includes Dimension turf herbicide, were outstanding in 1992. Registrations of products from the pyridine family continue worldwide. New broadleaf herbicides for European cereal crops and for com in the United States are also moving through the approval process. The expanding practice of conservation tillage benefits both Roundup herbicide and the acetanilide family of herbicides. Income from Roundup in 1992 was reduced by the costs of damage to a manufacturing facility that makes a key raw material for Roundup. The availability of Roundup to customers wasn't affected, but the supply of raw materials used in the production of Roundup was interrupted. "The incident forced us to operate at lean inventory levels and fast response times -- beyond what many people thought was possible," Verfaillie says. "We'll carry those lessons forward." The second half of the 1990s should bring to market crops with a variety of ben eficial traits developed through biotechnology. For example, crops made tolerant to Roundup herbicide offer a potential source of further growth. Currently, Roundup must be Continued on page 8 A Encapsulated formulations in the acetanilide family of herbicides use microscopic shells of varying thickness, which release herbicide over time. This allows the farmer to appiy the products earlier for longer control of weeds and improved performance in no-till applications. iGoal H Use encapsu lated formulations to maintain the competitive position of our acetanilide family of herbicides. EUaiUdl Volumes and operating income grew in 1992 because of acreage increases, cost-cutting measures, and a strategy shift emphasizing sales of two encapsulated prod ucts, Micro-Tech and Bullet The Agricultural Group Salas ,1'As percent of total Monsanto soles) herbicides, and a dry encapsulated product. Partner herbicide. 22% EEQES31 Volumes will be subject to continued competitive pressures, A The Agricultural Group's revenues, which account for almost one-quarter of Monsanto's sales, are fueled by some of the leading herbicides In the world. although they should benefit from encapsulated and dry encapsulated formulations, and from conservation tillage practices. In 1993, volumes for these products may be affected by reduced U.S. com acreage due to government programs. i goal H Bring new agri cultural chemical products from the laboratory to the marketplace. ESQZE3 Sales in the pyridine family of herbi cides, including Dimension turf herbicide, were out standing. A herbicide for Continued on page 8 Monsanto 1992 Annual Report DSW 021996 STLCOPCB4007305  Monsanto and University of Florida scientists announced a biotechnology breakthrough in 1992: the first addition of a gene to wheat. Wheat is a significant crop for Monsanto to work with because of the size of the potential market. More acres worldwide are planted In wheat than in any other grain crop. `; THE AGRICULTURAL GROUP Continuedfrom page 7 used before a crop comes up, because the herbicide kills both weeds and valuable plants. Crops developed through biotechnology to tolerate Roundup will allow farmers to apply Roundup even after a crop has emerged without harming it. Soybeansand canola that are tolerant to Roundup herbicide Dis,rlbu,lon channels for biotechnology products will vary by crop, depending on where the value of our technology can best be realized. have been field-tested for the past four years. These tests continued in 1992, along with those of other crops developed through biotechnology, such as insect-resistant cotton, potatoes and com; tomatoes that have summertime flavor year-round; and potatoes that absorb less oil in cooking. Even as our first products of biotechnology enter advanced stages of field testing, new breakthroughs are occurring in the labs. In 1992, Monsanto and University of Florida scientists announced the first addition of a gene to wheat, the initial step toward improv ing this important crop through biotechnology. ' On the business side, we made significant advances in 1992 to bring these new technologies to market. Possible distribution channels include %/ licensing agreements, direct seed sales to farmers, and arrangements with food processors. The choice will vary from crop to crop, depending on where the "value of our technology can best be realized. For example, the value of insect-resistant cotton would be realized by the farmer, who could greatly reduce the use of insecticides. Therefore, we would be properly rewarded by die seed company that sells it to the farmer. In 1992, we completed such a licensing agreement with Delta and Pine Land Co., a cotton seed firm with the dominant market share in the southeastern United States. We also entered into a business Continued tree crops from this family from .. page 7 was registered in Spam and South Africa. Registrations of pyridine products continue in the United States and several other countries. Registrations of the pyridine herbicides should continue. Also moving toward commer cialization are a broadleaf herbicide for European cereal crops and a broadleaf herbicide for com in the United States. I opal n Introduce in this decade new products from biotechnology research and development, iaiiuei U,s. held trials continued for cotton, pota toes and com resistant to insects; for soybeans and canola tolerant to Roundup herbicide; for a potato that Glyphosato Volume Growth absorbs less oil when it's (By percent; 19S7 equals 100 percent) cooked; and for a tomato that has summertime flavor year-round. The first addi tion of a gene to wheat was achieved. The first licensing agreement with a major C& < CD 132) (3) Volumes for Roundup and other glyphosate herbicides have increased steadily, in part because of new uses encouraged by selective price reductions. seed producer was signed as a distribution channel for insect-resistant cotton. An agreement to develop, produce and market genet ically modified tomatoes 8 Monsanto 1992 Annual Report DSW 021997 STLCOPCB4007306 partnership with NTGargiulo Inc., one of the largest tomato growers and shippers in Florida. The new agreement, signed in December 1992, will combine Monsanto's expertise in genetically modifying plants with NTGargiulo's capabilities in tomato breeding, production and marketing. But before any new products can be marketed, we must gain regulatory approval for these technologies. In 1992, the U.S. Food and Drug Administration announced a new policy specifying that genetically improved foods are subject to the same regulatory procedures as foods developed through conventional breeding techniques. New growth potential also comes from our Residential Products Division. Products in this division include Roundup herbicide and Greenswetp lawn-care products. Regulatory approval* still must be gained before Improved foods and crops can be brought to market. In 1992, the residential formulation of Roundup maintained its double-digit growth. To take greater advantage of an expanding home lawn-and-garden mar ket, we signed a letter of intent in January 1993 to acquire Chevron Chemical Co.'s Ortho lawn-and-garden business. The combination of Monsanto's lawn-and-garden products with the Ortho line and potential new products would allow us to continue to expand in the residential market and to generate incremental sales growth Our achievements in 1992 provide positive answers to our two key performance questions: First Roundup herbicide is forecasted to remain a volume- and revenue-growth business into the middle of the decade. Second, we now have two major advantages that support biotechnology as a viable business in the second half of the decade: the demonstrated soundness of the technology and the availability of distribution channels that will allow us to benefit from the value we add. Monsanto's residential products -- including Roundup herbicide and Greensweep lawn-care products -- are wellpositioned for increased sales in the growing home lawn-and-garden market. U.S. No-till Acreage (Acres in millions) (Source: Conservation Tillage Information Center) 30.. . 25.. 20.... 15.... 10 . was signed with a leading tomato grower and ship per in December 1992. EBEBSSB Field trials will continue, distribution channels will be clarified, and product approvals will be sought from appro US) rfl* dfk A The Agricultural Group Is seizing the market opportunity created by a more than 100 percent increase in U.S. no-ti8 acreage In the last five years. priate regulatory agencies. The first commercial bio technology products could enter the market in the second half of the 1990s. GOAL Position our residential products to continue worldwide growth. BZ3ZDI The residential version of Roundup herbi cide continued double digit growth in 1992. In January 1993, we signed a letter of intent to acquire Chevron Chemical Co.'s Ortho lawn-and-garden business. __________ We've iden tified significant growth potential in the home lawn-and-garden market. Strong consumer market ing of Roundup, Greensweep lawn-care products, the Ortho products and other potential new products will allow us to expand in the residential market and generate incremental sales growth < Monsanto 1992 Annual Report DSW 021998 9 STLCOPCB4007307 A Food phosphates enhance the flavor, appearance and texture of processed poultry, meat and seafood. Food phos phate products have played a major role in the shift of Monsanto's phosphorus-based businesses from commodity markets to higher-value, performance-oriented markets. THE CHEMICAL GROUP The Chemical Group manages a portfolio of chemical businesses that bring high value to our customers, allowing the group to contribute significantly to Monsanto's financial targets. It also selectively develops higher-growth, higherreturn businesses that could offset the potential attrition of earnings from maturing operations. In 1992, operating income from the group's core businesses was sup pressed by the continuing effect of the weak worldwide economy, especially in the automotive, construction and home furnishings markets. More than half of The Chemical Group's products are sold Into these markets, income was also affected by a charge for cost-cutting actions and asset wrtte-downs. uture performance of The Chemical Group depends on our ability to manage its five core businesses for steady growth of sales and operating income. The Ffive largest businesses are plastics; rubber chemicals; nylon and acrylic fibers; Saflex plastic interlayer; and phosphorus and its derivatives. Together, they account for more than half of The Chemical Group's sales. Assuming a reasonable, sustained economic recovery through mid-decade, each of these businesses i.s expec.ted, ,to grow steadily year to year. We Given a reasonable, sustained economic recovery' through mid-decade, each of our largest chemical businesses Is expected to grow steadily year to year. anticipate that by 1996 their combined operating income will be significantly higher than their 1992 income. Saflex plastic interlayer for laminated glass serves three major markets: wind shields for new cars, replacement windshields, and architectural glazing. The short-term outlook in Europe and Japan appears sluggish, but Saflex WHERE WE ARE AND WHERE WE WANT TO BE j goal H Strengthen income. During 1992, we Monsanto's global leader commissioned new facili ship in key automotive and ties for the production architectural markets for of a superior windshield Saflex plastic interlayer product for the auto through timely investments motive market. in facilities and technology. With low- ESZ3333 Declining cost, state-of-the-art economies in several key capacity in North and markets resulted in below- South America, Europe forecast sales of Saflex. This and Japan, we're strongly resulted in lower capacity positioned to benefit utilization and depressed from a renewal of growth in world markets, given a reasonable economic recovery. [goal B Expand the performance plastics business by enhancing our geographic, market, and specialty product Robert G. Potter. executive vice president of Monsanto and president of The Chemical Group 10 Monsanto 7992 Annual Report DSM 021999 STLCOPCB4007308 is well-positioned in major North American markets to benefit from the anticipated recovery. To generate additional growth in this business, we're investing in facilities to meet laminated glass demand worldwide -- most recently in Western Europe, South To generate additional growth for Saflex plastic Interlayer, we're investing in facilities to meet laminated glass demand worldwide. America and Japan. We're also ., ., , . moving deeper into strategic seffoeois where we haven't been major participants. In addition, we're continuing our efforts to expand the use of Saflex in architectural markets where the product's advantages in safety, security, sound control and energy efficiency are valued. Our plastics business ranks in the industry's top tier worldwide. Our products-- targeted at the higher-value end of the market -- are used in hot tubs, camper tops, refrigerator interiors, hand tools and garden tools, trim and under-the-hood parts for automobiles, housings for business machines, and parts for medical delivery systems. Typical users of our plastic products are companies in the computer, commu nications and automotive industries -- global enterprises that expect consistent product performance as well as superior logistical and technical service. The fastest- growing market for Lustran ABS plastics today is the southern Asia/China region, which will account for more than one-third of world demand for ABS plastics by the end of this decade. To serve this region better, we entered a joint venture in 1992 to build and operate a plant for Lustran ABS in Thailand. When the plant becomes operational in 1995, we will be the only producer of ABS plastics to have manu facturing sites in all four major global markets. Our nylon and acrylic carpet fibers business serves the U.S. carpet industry, particularly makers of quality residential replacement carpeting. Our carpet fibers Continued on page 12 The 1993 Dodge Intrepid by Chrysler Carp, contains Monsanto plastics in highvalue applications on the console, interior door panel, steering column and instru ment panel. positions, while managing costs to improve near term operating income. OZSZEi Volumes increased in 1992, but margins decreased because of pressure on pricing. In 1992, we formed a joint venture in Thailand that by 1995 should make us the only producer of ABS plastics to have manufac turing plants in all four The Chemical Group Sales (As a pment of Mol Monsanto sales) major global markets. E0Q3S23 slow but steady sales growth is projected, with continuing pressure on pricing as 48% long as global oversupply persists. A The Chemical Group's solid core of business fran chises accounts for almost one-half of Monsanto's sales. | goal Q Maintain our position in the U.S. carpet market by focusing on sell ing our nylon and acrylic fibers to the residential replacement and commer cial carpet segments. E2ESS3 Volumes increased in 1992, but margins narrowed because of price deterioration. iiUllMsId Slow but steady volume growth is projected. Further cost reductions should help maintain profitability. Pricing will remain a key issue. Continued osi }>age 12 Monsanto 1992 Annual Report 11 OSW 022000 STLCOPCB4007309  The Mercedes 400SEL features Saflex plastic interlayer, the world's leading product for laminated wind shields. The three major markets for this product are now windshields, replace ment windshields, ana architectural uses. THE CHEMICAL GROUP Continued from page 11 command a preferred market share because of their superior performance in the carpet manufacturing process. Our warranty for Wear-Dated carpet is our commitment to quality all the way through to the consumer, and it adds value to this business. In 1992, we com pleted a manufacturing project that resulted in added capacity and product improvements. We'll continue to generate growth over the next five years with more advances in quality and with new generations of differentiated products. Rubber chemicals and phosphorus and its deriv Our nylon and acrylic carpet fibers command a preferred market share because of their superior performance for our carpet mill customers. atives are the most mature of our core businesses. We're finding ways to increase their sales and operating income within industries whose growth has leveled off. In rubber chemicals, we've started a major program to determine the commercial viability of new production technology that not only is more efficient but also could lead to a significant reduction in process waste. In phosphorus and derivatives, we continued to benefit in 1992 from our decisions to reduce costs and to shift our market focus away from commodity home-laundry detergents and toward a variety of higher-value, higher-margin markets. In 1992, we shipped our last pound of phosphate for heavy-duty home-laundry detergents to US. manufacturers. To supplement future earnings, The Chemical Group is investing in high-technology products with low fixed-capital require ments and high-growth potential. Among these products are Flectron metallized materials, a line that we bolstered with the acquisition of Devex S.A., a Swiss company that specializes in WHERE WE ARE AND WHERE WE WANT TO BE Continued I goal H Manage our from pageU world leadership position in rubber chemicals, while achieving the returns we experienced in previous years. STATUS| Sales declined in 1992 in an environment of global overcapacity, tire industry consolida tion, and turmoil in the Commonwealth of Independent States. 1992 Sales by Market (Dollars in millions) 1200 UXJO, 300. 600. Construction/ 400. Home furnishings Vehicles ZOO. Personal products 0. IHB.I Ail others The Chemical Group makes high-value products sold primarily to the automo tive, construction and home furnishings markets. The government of the Soviet Union had been one of the largest buyers of our rubber chemicals products. OUTLOOK Sales will grow slowly. Anew production technology holds promise for signi ficant improvements in manufacturing efficiency. 1 goal B Operate the lowest-cost, highestvalue phosphorus and derivatives business in the United States. UMiia Performance from operations improved in 1992, as we continued our move out of com modity home-laundry detergents into a variety of performance applica tions in food, dental and other high-value market segments. 12 Monsanto 1992 Annuat Report OSW 022001 STLCOPCB4007310 metallizing processes. We also acquired Diamonex Inc., a world leader in high-performance diamond and diamond-like coatings for industrial, optical and electronic uses. "We recognize that we're going to have to ramp up our invest ment in our businesses," says Robert G. Potter, executive vice president of Monsanto and president of The Chemical Group. "We'll invest to meet cus tomer needs with four intentions: to make a lower-cost product, to make a higher-quality product, to meet specific demands of strategic segments of a market, and to increase capacity as necessary to take advantage of any market growth opportunity." In 1992, we also initiated a process that should help us continue to reduce our Wa're investing to make lower-cost and higherquality products, to meet specific demands of market segments, and to increase capacity as needed to take advantage of market opportunities. cost of doing business. The Chemical Group's restruc- , . ____ , turings in 1985 and 1991 focused on closing ineffi cient plants and on getting out of businesses that didn't support our strategic objectives. The current initiative is designed to find more efficient ways to deal with inventories, to handle customer orders, to organize production runs, to use capital and human resources, and to manage all other essential business processes. The management of our core businesses for steady, dependable growth of sales and operating income has three parts. First, we'll launch initiatives to exploit the distinct opportunities that exist within each business. Second, we'll support those initiatives with increased capital investment. And third, we'll become more competitive by reducing our overall cost of doing business. 9 Woar-Dated carpet, made with nylon and acrylic; fibers irom Monsanto, is one of tho most respected names in top-quality, highperformance residential carpeting. Residential car peting makes up 65 percent of the U.S. carpet market. 1992 Sales by Division (By percent) 29% Fibers 18% Rams 18% Plastics 17% Performance Products 13% Rubber and Process Chemicals 5% Engineered Products The Fibers Division contributes the largest sales percentage in The Chemical Group, followed by Resins, Plastics, Performance Products and Rubber and Process Chemicals. OUTLOOK Sales growth should be moderate, despite continued intense competition. We expect to maintain our low-cost position because of improved manufacturing productivity. I goal H Build a portfolio of businesses based on high-technology concepts that have low fixed-capital requirements and high- growth potential. EQSE3 Flectron metal lized materials recorded its first commercial sales in 1992. We acquired the Swiss company Devex S.A. to complement Flectron. We also acquired Diamonex Inc., a two-year-old com pany that is a world leader in high-performance diamond and diamond like coatings for industrial. optical and electronic uses. OUTLOOK Flectron, Devex and Diamonex are expected to grow rapidly, with high margins and high returns. These and other high-performance products to follow will supplement future earnings of maturing products. 9 Mimsdrtto 1952 Annual Report 05W 022002 13 STLCOPCB4007311 T Orangina Light, made by Orangiria France, is one of the European beverages that contain NutraSweet brand sweetener. Europe is the fastest-growing world market for NutraSweet. THE NUTRASWEET COMPANY The NutraSweet Company contributes to shareowner value by generating cash and income tor Monsanto. The unit makes and markets innovative food ingredi ents that promote healthy lifestyles, such as NutraSweet brand sweetener and SImplesse alt natural fat substitute. In 1992, sales and operating Income were less than in the previous year. This decline was caused by reduced selling prices for NutraSweet due to competitive pressures leading up to the December 1992 expiration of the company's U.S. patent for aspartame. Operating income was also affected by a charge for cost-cutting actions and an asset write-down. he NutraSweet Company entered 1992 with two directives: one defensive, the other offensive. Defensively, we were concerned about the U.S. customer Tbase for NutraSweet brand sweetener that fueled our rise from a start-up operation in 1981 to a company with $879 million in sales in 1992. Those customers would have other supplier options after our U.S. patent for aspartame expired on Dec. 14,1992. Offensively, we had to identify new sources of sales growth in a post patent environment, recognizing that competitive pricing for our large-volume customers would restrict revenue growth for NutraSweet, our brand name for aspartame. Our defensive concerns have diminished: The Coca-Cola Co. and PepsiCo Inc., our two largest customers, each requested and signed sepa rate agreements stipulating Our two largest customers entered Into separate agreements stipulating The NutraSweot Company as their preferred supplier of aspartame. The NutraSweet Company as their preferred supplier of aspartame. Other carbonated soft drink companies sought similar assurances of supply. WHERE WE ARE AND WHERE WE WANT TO BE j goal H Retain and build our market position for NutraSweet brand sweetener with key carbonated soft drink customers, and sustain our competitive advantage in the carbonated soft drink industry. MfciWki Relationships with The Coca-Cola Co. and PepsiCo Inc. were solidified in 1992. Both entered into separate agreements stipulating The NutraSweet Company as their preferred supplier of aspartame. We remained the only company with the capacity to meet the requirements of customers who use large amounts of aspartame. We strength ened our position as the low-cost producer of aspartame and maintained our solid leadership in consumer brand loyalty. QJSB3S3 Aspartame volumes will continue to grow through mid decade, although at lower post-patent prices. Robert E. Flynn, chairman and chief executive officer of The NutraSweet Company . . 14 Monsanto 79.92 Annual Report DSW 022003 STLCOPCB4007312 As of year-end 1992, no other sup plier could produce aspartame in the quantities required by the top-tier users. "No one has yet built an aspar tame plant anywhere in the world that can compete with us," says Robert E. Flynn, chairman and chief executive officer of The NutraSweet Company. "And we have reduced our cost of manu facturing by almost 70 percent over the past decade through process improvements and capital investments." In the race to provide the huge volumes of aspartame required by the carbonated soft drink industry, our competitive advantages are taste, cost, scale, reliability, quality, Manufacturing costs for NutraSweet brand sweetener have been reduced by almost 70 percent during the past decade. safety, customer support, and con sumer brand loyalty. We have several options for growth in the carbonated soft drink market. One is fountain conversion--replacing the current blend of aspartame and saccharin in fountain products with 100 percent aspartame. Another is sugar blending, which substitutes aspartame as a lower-cost option for some of the sugar in nondiet prod ucts. A third is higher-concentration formulations that use more aspartame. We also anticipate sales growth from tabletop sweeteners and food ingredients in the United States and from our European operations. Continued on page 16 4 Kraft Light n' Lively Light is the iirst sour cream to use Simplesse all natural fat substitute, which helps reduce tat and calories in foods such as dips. 1 goal H Solidify category leadership for our family of tabletop sweeteners. SS1&03 Our 1992 adver tising campaign for Equal tabletop sweetener, featur ing actress and singer Cher, increased sales and built consumer interest in the tabletop sweetener category. Our successful launch of NutraSiveet Spoonful tabletop sweetener The NutraSweet Company Sales (As a percent of total Monsanto sates) 11% Sales for The NutraSweet Company in 1992 were affected by reduced selling prices for NutraSweet brand sweetener because of competitive pressures prior to the U.S. patent expiration for aspartame. expanded the category by attracting consumers who didn't previously use a tabletop sweetener. lysiUikui By expanding the market for existing tabletop products and by introducing new ones, we expect to double our penetration of U.S. house holds by 1995. I goal ll Retain exist ing food customers for aspartame while develop ing new business through regulatory approval of new ways to use aspar tame in food. STATUS aspartame for food uses increased in 1992 com pared with 1991 results. In 1992, aspartame was approved in the United States for use as a bulk Continued on page 16 Monsanto 1992 Annual Report 15 DSk 022004 STLCOPCB4007313 A The NutraSweet Company har> established a market leading position in the United States with Equal tabletop sweetener. Through aggressive marketing and new-product introductions, we Intend to double U.S. consumer use of our tabletop sweeteners. THE NUTHASWEETCOMPANY Continued rrcni va?e 1 Tabletop products include our established Equal tabletop sweetener and our new NutraSweet Spoonful tabletop sweetener. Equal leads the tabletop sweetener category in dollar sales, including significant increases in 1992 due to an aggressive advertising campaign featuring actress and singer Cher. %%! NutraSweet Spoonful was introduced in 1992, following U.S. Food , and Drug Administration approval to market aspartame in bulk form. The bulk formulation allows one teaspoon of NutraSweet Spoonful to contain the same sweetness as one teaspoon of sugar, with one-eighth the calories. The tar get market for this product is the 40 million to 60 million U.S. consumers who use products containing NutraSweet brand sweetener, but don't use a tabletop sweetener. Our food ingredients business in 1992 consisted primarily of nonbeverage aspartame uses and of Sintplesse all natural fat substitute. Sales of aspartame as a food ingredient increased in 1992. Simplesse is now featured in approximately 30 different product lines worldwide. Twenty-two nations have approved Simplesse for use as a food ingredient. Sales of NutraSweet brand sweetener In Europe are expected to outperform the total European market for aspartame In the second half of the decade. The product is now being used in reduced-fat cheese, frozen desserts, sour cream, baked goods, butter, margarine, mayonnaise, salad dressings, yogurt, puddings, soups and sauces. Current efforts are aimed at reducing the cost of Simplesse to allow greater pene tration of the food manufacturing industry, which is extremely cost-sensitive. Our European marketing joint venture with Ajinomoto Co. Inc. increased its sales of aspartame significantly in 1992, despite a heavy import duty. In the second half of the decade, sales of NutraSweet brand sweetener are expected to outperform the total WHERE WE ARE AND WHERE WE WANT TO BE Continued tabletop sweetener and in from page 15 hot breakfast cereals, in malt beverages containing fruit juice, and in refriger ated, ready-to-serve pud dings and fillings. It was also approved in Canada for baking applications. OUTLOOK Prices will be lower as a result of post-patent competition. Competition for the busi ness of food manufacturers will also intensify. US. approvals are pending for the use of aspartame in baked goods, confections and noncarbonated beverages. 1 goal j| Reduce the cost of Simplesse all natural fat substitute to the point where it will stimulate significant new sales to high-volume food manufacturers. European Aspartame Sales (Percent based an volume) BNutraSweet All other aspartame 75 <SJJ> @ (2D (2D A Sales of NutraSweetbrand sweetener have been more than half of the total estimated aspartame sales In Europe In the last five years. Kraft Light n' Lively Light sour cream led the new-product launches that featured Simplesse as an ingredient in 1992. We continued to demonstrate in 1992 that Simplesse works as a good tasting fat replacement. OUTLOOK questions have been answered. The remaining question is economic: Can 16 Monsanto 1992 Annual Report DSW 022005 STLCOPCB4007314 European market for aspartame, which is expanding at 15 percent annually. Our aspartame plant in Gravelines, France, is on schedule for completion and start-up in mid- Sweetener 2000, our next-generation high-potency sweetener, offers the long-term opportunity of competing in the world's overall sweetener market. 1993. The plant is also a joint venture with Ajinomoto, a Japanese food ingre dient company and long-time partner of The NutraSweet Company. The first European sales of Simplesse were recorded in 1992. We've demonstrated that Simplesse works as a fat sub stitute in the most important European categories of cheese, butter and dairy spreads. On the strength of sales to manufacturers of these products, European sales of Simplesse are expected to grow significantly over the next five years. Development of The NutraSweet Company's next- generation high-potency sweetener continued during 1992. "Sweetener 2000 is really moving along,'' Flynn says. "If we get it approved, we'll go after the world's sweetener business, not just the diet sweetener business." The pivotal year of 1992 ended with both of our directives accomplished. Our key customer base is intact, and sources of growth have been identified, from the near-term, new-product and new-market opportunities for NutraSweet brand sweetener and Simplesse all natural fat substitute, to the long-term possibilities of Sweetener 2000. "4 NutraSweet Spoonful, our newest entry in the tabletop sweetener market, is designed to attract the 40 million to 60 million U.S. consumers who like NutraSweet but don't use a tabletop sweetener. we sell Simplesse at a price in 1992 over 1991 results, that is profitable for us and despite a significant import for the food manufacturer, duty. Work continued on without requiring that construction of an aspar finished goods be priced tame plant in France, a at more than the consumer project with our long is willing to pay? We'll seek time partner in Europe, to resolve that issue in 1993. Ajinomoto Co. Inc. The Elj GOAL Stimulate plant is on schedule for growth of aspartame and start-up in mid-1993. The Simplesse in Europe. first European sales of UESEI Aspartame Simplesse occurred in 1992 sales in Europe increased The aspar tame market in Europe will continue its strong growth, and our sales are expected to outpace the market's annual growth rate. Growth for Simplesse will be determined by our ability to produce it at a cost that will allow us to price it favorably for European manufacturers of cheese, butter and dairy spreads. A U.S. Retail Market Share of Tabletop Sweeteners ("Percent ofdollar share volume} (Sourer. Nielsen Household Panel Data) 70 B The NutraSweet Company B All others The NutraSweet Company is increasing its presence in the U.S. retail market for tabletop sweeteners. Monsanto 1992 Annual Report 17 DSW 022006 STLCOPCB4007315 v Searle continues to expand its operations In the seven nations (dockwise from bottom left: the United States. Canada, the United Kingdom. Germany, Italy, Japan and France) that account for almost 30 percent of the world's pharmaceutical sales. SEARLE Searle contributes to Monsanto's value by bringing to market new pharmaceuti cal products that generate revenue and earninga growth. Results in 1992 were lowered primarily by new-product launches, charges associated with cost-cutting actions, and lower prices for drugs sold to managed health care groups and through Medicaid. We also had our first generic competition In the United States for the sustained-release form of Ca/an calcium channel blocker. While pricing pressures may become a long-term concern for the pharmaceutical industry, launch costs and the charge for cost-cutting steps represent near-term Invest ments that will position Searle for Improved growth and profitability. he year 1992 was pivotal for Searle, as we took dramatic steps to shift our product mix into a higher percentage of drugs with patent protection or T marketing exclusivity. Four new drugs received approvals in various coun tries: Maxaquin, a once-a-day quinolone anti-infective agent; Daypro, a once-a-day treatment for the symptoms of arthritis; Ambien, a treatment for short-term insomnia; and Arthrotec, a treatment for the symptoms of arthritis. These products were timely additions. The sustained-release form of Calart, our calcium channel blocker and a leading U.S. brand, faced its first generic com Resources are being shifted to support the U.S. launches and growth of three new drugs. petition in 1992. We'll shift the resources that have supported Calan to the U.S. launches and growth of Maxaquin, Daypro and Ambien. In light of these changes, we face one central question: How quickly can we convert the promise of new products into significant sales and earnings? [goal II Increase the introduction of new pharmaceutical products. Major pharma ceuticals were approved or launched in key markets in 1991 Maxaquin quinolone anti-infective agent was launched in the United States and approved in 11 other markets. Daypro, a treatment for the symptoms of arthritis, and Ambien, a treatment for short-term insomnia, were approved in the United States. Arthrotec, a treatment for the symptoms of arthritis, was approved in Sweden, France and the United Kingdom in 1992, and in Canada in early 1993. These last three products will be launched in 1993. In addition, global intro duction of Cytotec ulcer preventive drug proceed ed on schedule, with plans for a 1993 launch in Japan. blu4!&U| Sales of Maxaquin, Daypro, Ambien and Arthrotec will allow us to increase the percent age of our income from Sheldon G. Gilgore, M.D., chairman and chief executive officer of G.D. Searle & Co. 18 Monsanto 1992. Annual Report DSW 022007 STLCOPCB4007316 We've always planned to introduce major new products with marketing exclu sivity to continue our growth and improve our profitability. Sales of Maxaquin, Daypro, Ambieti and Arthrotec will allow us to increase the percentage of our income from prod ucts with marketing exclusivity. Patents protect two of the four into the next century. One exception is Daypro, whose marketing exclusivity extends until 1997, but for which we're Our challenge Is to quickly convert the promise of new products into significant sales and earnings growth. seeking an extension. Patent applica tions are also pending for Arthrotec. Although the U.S. patent for Maxaquin runs through the year 2002, we've applied for an extension of our exclusivity into 2005. "This product has been suc cessfully launched into the fastest-growing segment of the worldwide antibiotic market," says Sheldon G. Gilgore, M.D., chairman and chief executive officer of Searle. "In the United States alone, this market segment was well over $600 million in sales in 1992, twice what it was five years ago. With our once-a-day dosage for ' all approved indications, we're on our way toward being one of the major players in this category." Daypro, the first once-a-day treatment in the most prescribed class of arthritis therapies, was approved in the United States in 1992. "Daypro should be an important new product for the U.S. market," Gilgore says. "Research has demonstrated that patients are more likely to take the proper amount of their medication if they have to take it only once a day." Ambien, a treatment for short-term insomnia that preserves deep sleep with minimal unwanted aftereffects, v in 1993. Searle will launch two new treatments for the symptoms of arthritis: Daypro in the United States, and Arthrotec In the United Kingdom. Sweden and Canada. products with marketing exclusivity. Behind them, ESSSII The sustainedrelease form of Calm cal Searle Sales f As a percent of total Monsanto sales) the product pipeline includes potential treat cium channel blocker lost marketing exclusivity in 19% ments for diseases such as the United States in 1989 AIDS, thrombosis, psoriasis, and faced its first generic atrial arrhythmia, ulcerative colitis, and Alzheimer's and age-associated memory impairment [goal El Manage the life competition in 1992. We've prepared for this challenge by strengthening the brand image of Cairn and by pursuing a new patented A Searle's sales are almost one-fifth of total Monsanto revenues, but this percent age is expected to increase over time. cycles of existing products formulation. We'll manage as their patents expire. support costs to reduce the effect of declining sales on operating income. Canderel tabletop sweetener, which has been without patent protection for several years, continued its healthy performance in Europe on the strength of its brand image. I3S32333 Market share erosion for Calan appears inevitable, but holding the Continued on page 20 Monsanto 1992 Annual Report 19 OSW 022008 STLCOPCB4007317 A Maxaqum quinolone antiinfective agent, a once-a-day treatment for urinary tract and lower respiratory tract Infections, was launched in seven countries in 1992. It is part of the fastest-growing segment of the worldwide antibiotic market. SE ARLE Continued from page 19 was approved in the United States and is awaiting approval in Canada. The sleep-aid market has shrunk in recent years because of physicians' and patients' safety concerns over benzodiazepine hypnotics. Because Ambien is from a different class of drugs, it offers a new alternative to a largely dissatisfied market. Arthrotec arthritis treatment offers powerful pain relief with reduced risk of gas troduodenal ulcers through a combination of a leading anti-arthritis medication and our Cytotec ulcer preventive drug. Arthrotec was approved in Sweden, France and the United Kingdom in 1992, and in Canada in early 1993. Approval is pending in several other major European countries. These four new high-potential drugs should reinvigorate our existing product line. The launch costs will affect earnings near-term, but the long-term payback should be substantial. Behind these drugs, the . ,. , , .. ,, pipeline features new treatments for diseases such as AIDS, thrombosis, Launch costs for new drugs will affect Immediate earnings, but the long-term p.yback ahould ^ 8Ubstantial. psoriasis, atrial arrhythmia, ulcerative colitis, and Alzheimer's and age-associated memory impairment. They still must demon strate their safety, efficacy and economic value; some of them will never be commercialized. From their ranks, however, we expect the next generation of profitable Searle products. In addition, we continue to benefit from the contributions of two other solid performers. Cytotec ulcer preventive drug accounted for $124 million in sales in 1992. Launch plans for Cytotec in 1993 are being prepared for Japan, as we work toward com pleting its global introduction. Canderel, our tabletop sweetener made with NutraSweet brand sweetener and sold primarily in Europe, delivered $157 million in 1992 sales. It also WHERE WE ARE AND WHERE WE WANT TO BE continued line on costs should maintain this drug as a significant earnings con tributor throughout the decade. No other major Searle products face generic competition before 1997. Canderel, which prior to 1986 was sold only in pharmacies in Europe, will continue its expansion into food stores. Patented Product Sales (By percent) 20........................... ^^ A Searle is growing the percentage of its sales that comes from products with patent protection. 1 goal B1 Expand our presence in markets outside the United States. STATUS acquired the remaining shares of our U.S. and Italian joint venture with Alfa Schiapparelli Wassermann. We also acquired majority interest in Sanitas, a medical prod ucts distribution company in the Czech Republic, and Searle Sales by Country (By percent) 48% United States 11 % France 8% Germany 6% United Kingdom 5% Japan 4% Canada | 1---------- 3% Italy 1------------------17% All others More than 80 percent of Searle's sales in 1992 were in the seven countries that make up the largest share of the worldwide pharmaceuti cal market. 20 Monsanto 1992 Annual Report DSW 022009 STLCOPCB4007318 forms the foundation for an over-the-counter business that we'd like to expand. With an eye toward the over-the-counter market, we entered the Canadian diet food-supplement market in 1992 through the acquisition of Nutri-Bar and Nutri-Diet meal replacements. We continue to expand our presence in Western Europe and Japan, and to seek strategic alliances and other collaborations in emerging markets. Even as we benefit from the sales of our new products, we expect Calart calcium channel blocker to remain an earnings contributor. The name Calan conjures a powerful image for physicians and patients that, in many cases, will sustain it as the calcium channel blocker of choice. We're also developing an enhanced formulation based on a unique delivery system that promises significant benefits and the potential for future growth. Currently, we're decreasing administrative and marketing investments behind the brand to reduce the effect of declining sales on operating income. We're expanding the presence of our products in key global markets as well. In 1992, we acquired the remaining shares of our U.S. and Italian joint ven ture with Alfa Schiapparelli Wassermann. We also acquired a majority interest in Sanitas, a medical products distribution company in the Czech Republic, and we established a joint venture in Taiwan. In the years ahead, the challenge of turning our new-product launches into profitable brands worldwide will require the best efforts of everyone at , Searle. It will bolster these efforts by continuing to seek innovative alliances to complement our marketing and research and development "We don't underestimate the magnitude of our task," Gilgore says. "But we're con vinced that in 1992, we took actions that will help us achieve our goals." Ambien, a treatment for short-term insomnia, received approval in the United States in 1992. Ambien is the first product in a new class of compounds that offer physicians more options for their patients. m.. established a joint venture the emerging markets of in Taiwan. Central and Eastern Europe lafl'^STM Well and in the Commonwealth continue to expand our of Independent States. presence in the United I goal Jj Evaluate States, the United Kingdom, opportunities to re-enter France, Germany, Italy, the consumer health care Japan and Canada, which make up almost 80 percent business. E2ESB1 The strong of the global pharmaceutical performance of Canderel market. In addition, we're tabletop sweetener pro seeking strategic partners vides the foundation on and other collaborations in which to build an over- New Product Launches In Key Countries 1993 projected 4 B 3 fty 2..$,. 0- I <23> <3D CD <3E> <5> A Searle continues to launch new products in important world markets, averaging more than two a year for the last five years. the-counter consumer health care business. We entered the Canadian diet food-supplement mar ket in 1992 through the acquisition of Nutri-Bar and Nutri-Diet meal replacement products. K.WII.liffi We'll continue to look for over-the-counter product opportunities with multi national applications. Monsanto 1992 Annual Report 21 DSW 022010 STLCOPCB4007319 A TRIBUTE TO EARLE H. HARBISON, JR. Earle H. Harblson, Jr. will retire from Monsanto on Sept. 1, 1993, bringing to an end a distinguished career that spans almost 26 years. From May 1986 to January 1993, he was president and chief operating officer. He has been a member of the board of directors for 3even years, and he is currently chairman of the executive committee of the board. enure and titles are only a partial measure of Earle Harbison's gift to the company. Equally at ease with heads of state and entry-level workers, THarbison has been a strong and persuasive voice for free world trade, a passionate disciple of Monsanto's technologies, a mentor and role model to many aspiring managers, and a true patron and civic leader in the St. Louis community. He will leave Monsanto with a sense of satisfaction and confidence that the plans in place for the company's future are sound. "I firmly believe our people are our greatest asset. When you get the right people together with the right goals, you've got an unbeatable combination," Harbison says. Still, the thought of his pending retirement is bittersweet. "I've enjoyed virtually every day I've spent at Monsanto," he says, "but there comes a time to move on, and that time is at hand. I look forward to the future with the same enthusiasm I felt 26 years ago when I walked into Monsanto." Earle Harbison may be stepping aside, but he won't soon be forgotten. Certainly not by the thousands of Monsanto employees worldwide whose lives he touched over the years. In whatever he chooses to do, it's a sure bet he'll continue to make his mark as a true leader and a gentleman. 22 Monsanto 1992 Annual Report DSW 022011 STLCOPCB4007320 Unless otherwise indicated by the context, "Monsanto" means Monsanto Company and con solidated subsidiaries, and "the Company" means Monsanto Company only. All dollars are In millions, except per share data. FINANCIAL SECTION CONTENTS Management Report Audit Committee Report Independent Auditors' Opinion Statement of Consolidated Incoma Review of Consolidated Results of Operations Operating Unit Segment Data Geographic Data Quarterly Data Statement of Conaolldated Financial Poaitlon Review of Changes in Financial Position Statement of Consolidated Shareowners' Equity Statement of Conaolldated Cash Flow Review of Cash Flow Notea to Financial Statementa Significant Accounting Policies Basis of Consolidation Currency Translation Restructuring and Other Actions Principal Acquisitions and Divestitures Depredation and Amortization Inventory Valuation Income Taxes Short-Term Debt and Credit Arrangements Long-Term Debt Financial Instruments Fair Values Postretirement Benefits Employee Savings Plans Stock Option Plans Earnings per State Capital Stock Commitments and Contingencies Supplemental Data Segment Information Financial Summary 24 24 25 26 27 31 38 39 40 42 43 44 45 47 47 47 47 47 48 48 48 49 49 50 50 50 52 52 52 52 53 53 53 54 Moneento 1992 Annual Report 23 DSN 022012 STLCOPCB4007321 MANAGEMENT REPORT Monsanto Company management is responsible for the fair presentation and consistency of all financial information included in this Annual Report in accordance with generally accepted accounting principles. Where necessary, the information reflects management's best estimates and judgments. Management also is responsible for maintaining a system of internal accounting controls with the objectives of providing reasonable assurance that Monsanto's assets are safeguarded against material loss from unauthorized use or disposition and that authorized transactions are properly recorded to permit the preparation of accurate financial information. Cost/benefit judgments are an important consideration in this regard. The effectiveness of internal controls is maintained by: personnel selection and training; division of responsibilities; establishment and communication of policies; and ongoing internal review programs and audits. Management believes that Monsanto's system of internal accounting controls as of December 31,1992, is effective and adequate to accomplish the above described objectives. Richard J. Mahoney Chairman and Chief Executive Officer Francis A. Stroble Senior Vice President and Chief Financial Officer February 26,1993 AUDIT COMMITTEE REPORT The Audit Committee is composed of five non employee members of the Board of Directors and met five times during 1992. The Committee reviews and monitors Monsanto^ internal accounting controls, financial reports, accounting practices and the scope and effectiveness of the audits performed by the independent auditors and internal auditors. The Committee also recommends to the full Board of Directors tire appointment of Monsanto^ principal inde pendent auditors and approves in advance all significant audit and nonaudit services provided by such auditors. As ratified by shareowner vote at the 1992 annual meeting, Deloitte & Touche were appointed as independent auditors to examine, and to express an opinion as to the fair pre sentation of, the consolidated financial statements. This opinion follows. The Audit Committee discusses audit and financial reporting matters with representatives of tire Company^ financial management, its internal auditors and Deloitte & Touche. The internal auditors and Deloitte & Touche meet with the Committee, with and without management representatives present, to discuss the results of their examinations, the adequacy of Monsanto^ internal accounting controls and tire quality of financial reporting. The Committee encourages the internal auditors and Deloitte & Touche to communicate directly with the Committee. The Audit Committee has reviewed the financial section of this Annual Report. Pursuant to the recommen dation of the Committee, the Board of Directors has approved the financial section. Buck Mickel Chairman, Audit Committee February 26,1993 24 Monsanto 1992 Annual Report DSW 022013 STLCOPCB4007322 INDEPENDENT AUDITORS' OPINION To the Shareowners of Monsanto Company: We have audited tire accompanying statement of consolidated financial position of Monsanto Company and Subsidiaries as of December 31,1992 and 1991, and the related statements of consolidated income, shareowners' equity and cash flow for each of the three years in the period ended December 31,1991 These financial statements are the responsibility of the Company^ management Our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits in accordance with gener ally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and dis closures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, such consolidated financial state ments present fairly in all material respects the financial position of Monsanto Company and Subsidiaries at December 31,1992 and 1991, and the results of their operations and their cash flows for each of the three years in the period ended December 31,1992, in conformity with generally accepted accounting principles. As discussed in the Notes to Financial Statements, in 1992 Monsanto changed its methods of accounting for postretirement benefits other than pensions and for income taxes. 'TfatcAts Deloitte & Touche St. Louis, Missouri February 26,1993 Monsanto 1992 Annual Report 25 DSW 022014 STLCOPCB4007323 STATEMENT OF CONSOLIDATED INCOME (Dollars in millions, except per share) Net Sales Cost of goods sold Gross Profit Marketing expenses Administrative expenses Technological expenses Amortization of intangible assets Restructuring expense - net Operating Income Interest expense Interest income Other income (expense) - net Income (Loss) from Continuing Operations Before Income Taxes Income taxes Income (Loss) from Continuing Operations Discontinued Operations: Income from Fisher Controls Gain on sale of Fisher Controls Income from Discontinued Operations Income Before Accounting Changes Cumulative Effect of Accounting Changes: Postretirement Benefits Other Than Pensions Income Taxes Net Income (Loss) Earnings per Share: Income (Loss) from Continuing Operations Discontinued Operations Accounting Changes Net Income (Loss) The above statement should be reed m conjunction with peges 47 through S3 cf this report. Previously reported amounts have been reclassified to present Fisher Controls as discontinued operations. 1992 $7,763 4,710 3,053 1,115 487 720 237 436 58 (169) 43 (106) (174) (48) (126) 1991 $7,936 4,519 3,417 1,042 530 680 233 457 475 (166) 64 (19) 354 116 238 24 554 578 452 (658) 118 $ (88) 58 58 296 $ 2% $(1.01) 4.68 (4.38) $(0.71) $ 1.87 0.46 $ 2.33 1990 $8,068 4,787 3,281 1,113 470 661 229 808 (176) 51 33 716 230 486 60 60 546 $ 546 $ 3.77 0.46 $ 4.23 KEY FINANCIAL STATISTICS As a Percent of Net Sales: Gross Profit Marketing, Administrative and Technological Expenses Research and Development Expenses Operating Income Income (Loss) from Continuing Operations Net Income (Loss) Effective Income Tax Rate Return on Shareowners' Equity 1992 39% 30 8 1 (2) (1) (28) (16) 1991 43% 28 8 6 3 4 33 7.6 1990 41% 28 7 10 6 7 32 13.6 28 Monsanto 1992 Annual Report DSW 022015 STLCOPCB4007324 REVIEW OF CONSOLIDATED RESULTS OF OPERATIONS 1992 FINANCIAL RESULTS WERE BELOW EXPECTATIONS The year 1992 was one of transition for Monsanto. Several nonrecurring actions affected 1992 net income, and performance from continuing operations was a disappoint ment. The U.S. economy has been slow in rebounding, while the European economy deteriorated. This resulted in significant competitive pressures on The Chemical Group's selling prices. Pharmaceuticals profitability suffered from the high costs associated with the launch of Maxaquin quinolone anti-infective agent, the expansion of the U.S. sales force to support Maxaquin and other anticipated new product introductions, and lower selling prices. In addition, as expected, NutraSweet net sales declined as a result of lower selling prices. Bright spots in 1992 were the strong sales volume growth in Roundup and the acetanilide family of herbicides, prompted by successful marketing programs and good weather conditions, the completion of major NutraSweet customer contracts, and the governmental approval of several new Pharmaceutical products. THE YEAR WAS AFFECTED BY NUMEROUS UNUSUAL EVENTS The year 1992 was also significantly affected by numerous unusual events. Monsanto continued its restruc turing program, which primarily affected Pharmaceuticals, in 1992. The Fisher Controls business was sold. In addition, Monsanto implemented new accounting rules related to postretirement benefits and income taxes. NET LOSS INCURRED FOR THE YEAR These unusual events resulted in Monsanto incur ring a net loss of $88 million, or $0.71 per share, for 1992 The impact of the 1992 and 1991 unusual events is summarized in the following table: Net Income (Loss) 1992 1991 Gain on the sale of Fisher Controls Restructuring and other actions Other unusui items Accounting changes: Postretirement Benefits Other Than Pensions Income Taxes $554 (425) (47) (687) 118 $(332) Total Unusual Events Income from Fisher Controls Operations (487) 24 (332) 58 Total Impact on Net Income $(463) $(274) In October 1992, Monsanto sold Fisher Controls for $1275 million in cash, realizing an aftertax gain of $554 million, or $4.49 per share. The financial statements present the results of Fisher Controls as discontinued oper ations. Reported amounts for previous years have been reclassified consistent with this presentation. See page 48 in the Notes to Financial Statements for further information on Fisher Controls. In November 1992, the Board of Directors approved a series of restructuring actions in operating and staff units designed to make worldwide operations more focused, productive and cost-effective. Major elements include reduc tions in employment, a number of consolidations, closings and sales of nonstrategic businesses and facilities, and a realignment of selected research investments. These actions resulted in a one-time aftertax expense of $425 million, or $3.44 per share, in the fourth quarter of 1992. Other unusual items totaled an aftertax expense of $47 million, or $0.38 per share. These items principally were costs incurred as a result of damage to a glyphosate raw material manufacturing unit in January 1992 and the settlement of certain lawsuits related to the Brio Superfund site in the second quarter of 1992. Effective January 1,1992, Monsanto adopted Statement of Financial Accounting Standards (SFAS) No. 106, "Employers' Accounting for Postretirement Benefits Other Than Pensions," for its retiree benefit plans. The adoption of this rule resulted in a one-time aftertax expense of $658 million ($1,045 million pretax), or $5.34 per share. The incremental effect of SFAS No. 106 during 1992 decreased operating income by $45 million and income from continuing operations by $29 million, or $0.23 per share. Also effective January 1,1992, Monsanto adopted SFAS No. 109, "Accounting for Income Taxes.'' The adop tion of this rule resulted in a one-time aftertax gain of $118 million, or $0.96 per share. Excluding the unusual actions and events summa rized in the table above, 1992 net income would have been $375 million compared with $570 million for the prior year, a decline of 34 percent Earnings per share in 1992 would have been $3.04, a 32 percent decline from the prior year. NET SALES DECLINED DUE TO LOWER SELUNG PRICES Net sales in 1992 declined 2 percent as higher sales volume from continuing businesses did not offset the lack of sales from divested businesses and lower selling prices in all operating units. NutraSweet's average aspartame selling price declined, as expected, as NutraSweet approached the December 1992 expiration of the aspartame-use patent in the United States. Continued poor economic conditions in many of The Chemical Group's key markets resulted in significant pressures on chemical selling prices. Sales volume of The Chemical Group did improve modestly over that of the prior year. Monsanto 1992 Annual Report 27 DSN 022016 STLCOPCB4007325 REVIEW OF CONSOLIDATED RESULTS OF OPERATIONS Contmued Net sales of The Agricultural Group benefited from significantly higher sales volumes of Roundup and Lasso its pricing and new end-use strategies, farmers' conversion herbicides, lower manufacturing costs and cost savings to conservation tillage and good weather conditions, on from prior years' restructuring actions. Operating results balance, in many key markets, especially North America. in 1992 for The Chemical Group were hurt by lower selling Glyphosate sales volume increased 16 percent worldwide. prices and $26 million of incremental SFAS No. 106 costs. Lasso herbicide sales volume grew 8 percent. However, These factors were partially offset by lower raw material The Agricultural Group's total 1992 net sales were 2 percent costs and higher sales volumes. NutraSweet operating below the prior year, which included $132 million of sales income was adversely affected by lower selling prices, but associated with the subsequently divested animal feed benefited from cost savings from the 1991 reorganization. ingredients business. Operating income for Pharmaceuticals decreased in 1992, The Chemical Group's net sales declined in 1992 primarily because of costs to launch Maxaquin quinolone because of the lack of sales from divested businesses, lower anti-infective agent in the United States, expansion of the average selling prices worldwide, principally due to the U.S. sales force to support Maxaquin and other anticipated worsening economic conditions in Western Europe, Japan new product launches, and lower selling prices. and the Commonwealth of Independent States, and the Marketing expenses increased 7 percent in 1992, slow economic recovery in the United States. Sales volume principally from the above-mentioned costs incurred by in the United States gradually improved in 1992 as North Pharmaceuticals. Administrative expenses decreased American automobile production levels and housing starts 8 percent due to cost savings resulting from prior years' increased over the depressed 1991 levels. restructuring programs and lower incentive compensation. NutraSweet's net sales declined 8 percent in The loss in "Other income (expense) -- net" in 1992 due to lower average selling prices, partially offset 1992 wa9 larger than in the previous year, principally due by slightly higher aspartame sales volume. The 1992 sales to the 1992 write-down of investments to market value and volume increase was due primarily to significantly higher higher currency losses. sales of tabletop sweeteners. Pharmaceuticals net sales in 1992 were slightly below the prior year. Sales of the Calm family of calcium channel blockers declined 10 percent, primarily due to lower selling prices resulting from higher rebates to state Medicaid programs and the continued shift in demand from retail pharmacy to managed health care providers, coupled with the impact of generic competition for the sustained-release form. Sales of Canderel tabletop sweetener, made with NutraSweet brand sweetener, increased 7 percent In addition. Pharmaceuticals benefited from sales of new products, such as Maxaquin quinolone anti-infective agent Net sales in markets outside the United States represented 41 percent of Monsanto's total 1992 net sales, which is about the same level as the prior year. OPERATING RESULTS DECLINE Operating incrane was $58 million in 1992, a decline of 88 percent compared with 1991. Excluding the $624 million of pretax restructuring and unusual charges in 1992 and the $457 million of restructuring, charges in 1991, operating income would have decreased about 27 percent in 1992. Operating results in 1992 were hurt by lower selling prices but helped by improved sales volume and mix from certain products, as well as lower raw material costs. Excluding 1992 and 1991 restructuring and unusual charges, operating results declined for all business PRINCIPAL FINANCIAL TARGET REMAINS 20 PERCENT RETURN ON EQUITY Management's principal financial target is to reach and sustain a 20 percent return on shareowners' equity (ROE). Although the previously discussed 1992 restructuring actions, accounting changes and unusual events resulted in a negative ROE in 1992, these restructur ing actions will make the Company more cost competitive in its world markets. PRODUCT DEVELOPMENT AND COMMERCIALIZATION ARE TOP PRIORITY New product development and commercialization continue to be the most important strategic priority for Monsanto. Research and development expenditures were $651 million in 1992,8 percent of net sales, a level that reflects management's strong, long-term commitment to research and development Major investments continue to be the discovery and development of pharmaceutical and agricultural products. Research in existing product technology and new applications also continues across all business units. Monsanto's research program also includes acquisition of new technologies through licensing. The result is that Monsanto has many potential products in the research and development pipeline, several of which should be commercialized over the next few years. segments except The Agricultural Group. The core busi nesses of The Agricultural Group benefited from Monsanto 1992 Annual Report DSW 022017 STLCOPCB4007326 PRIOR YEAR REVIEW In 1991, Monsanto's operating performance was reasonably strong considering the depressed economic climate in several of Monsanto's major markets. In October 1990 and June 1991, the Board of Directors approved restructuring steps to strengthen The Agricultural Group, The Chemical Group and the corporate staff for the future. Net income for 1991 declined 46 percent because of the $325 million, $2.54 per share, aftertax restruc turing charge. Earnings per share were 45 percent lower in 1991. Excluding the restructuring charge, net income would have increased 14 percent. Net income in 1991 benefited from lower petrochemical-based raw material costs and improved sales volume and mix from continuing products. Net sales for 1991 were down only slightly from that of the prior year and were the second-best in Monsanto's history. Modest sales volume growth in con tinuing businesses was more than offset by the decrease in sales due to divested businesses. Average selling prices were marginally lower than those in 1990. Net sales for Pharmaceuticals, The Agricultural Group and NutraSweet increased compared with the prior year. Net sales for The Chemical Group declined. Pharmaceuticals net sales growth was led by the Cakn family of calcium channel blockers, up 9 percent; Cyioiec ulcer preventive drug, up 35 percent; and Qmderel tabletop sweetener, up 11 percent. Net sales for The Agricultural Group grew as weather conditions improved in most key markets. In addition, 1991 strategic price reductions in certain countries for Roundup glyphosate-based herbicide generated higher sales volume. Glyphosate sales volume increased 17 percent worldwide. NutraSweet's sales volume increased 5 percent, while selling prices decreased. The Chemical Group's net sales for 1991 were lower as a result of discontinued product lines and lower demand caused by the depressed North American automotive'industry, the delayed U.S. economic recovery and a slowdown in the European economy. Operating income declined 41 percent in 1991, as a result of the $457 million pretax restructuring charge. Operating results in 1991 were helped by lower raw material costs and improved sales volume and mix from continuing products. The effect of The Chemical Group's lower manufacturing capacity utilization reduced earnings when compared with 1990. Operating income for The Agricultural Group and Pharmaceuticals increased in 1991, while operating results declined for The Chemical Group and NutraSweet. The Agricultural Group's operating income benefited from higher sales volume, lower manufacturing costs and cost savings from restructuring actions implemented in late 1990. Operating income for Pharmaceuticals increased in 1991, primarily because of strong volume growth in key products, higher average selling prices and gains from the divestiture of nonstrategic product rights. The profit improvement was partially offset by the December 1990 divestiture of several consumer products to a third party under a prior agreement. The Chemical Group incurred an operating loss compared with operating income in 1990, because of its restructuring expense. Operating results for The Chemical Group were helped by lower petrochemicalbased raw material costs and hurt by the effect of lower sales volume, lower selling prices, and lower manufac turing capacity utilization. NutraSweet operating income benefited from higher sales volume, but was adversely affected by lower selling prices. Marketing expenses decreased 6 percent in 1991 because of lower advertising and promotional expenses. Administrative expenses increased in 1991, in part because of higher 1991 incentive compensatioa "Other income (expense) -- net" in 1991 decreased, principally because the prior year included higher gains from divestitures. Monsanto 1992 Annual Report OSW 022018 29 STLCOPCB4007327 REVIEW OF CONSOLIDATED RESULTS OF OPERATIONS ANALYSIS OF CHANGE IN EARNINGS PER SHARE - BETTER (WORSE) 1992 vs. 1991 Sales-Related Factors: Selling prices Sales volume and mix $(1.47) 0.66 Total Sales-Related Factors (0.81) . Cost-Related Factors: Raw material costs Manufacturing capacity utilization Other manufacturing costs Marketing, administrative and technological expenses 0.26 0.15 (0.11) (0.50) Total Cost-Related Factors (0.20) Interest expense Interest income Other income (expense) - net Change in income taxes Change in shares outstanding (0.02) (0.10) (0.06) (0.34) 0.10 Change in Earnings per Share Before Other Factors (1.43) Other Factors: Restructuring and other unusual actions Gain on sale of Fisher Controls Divestitures Accounting change for post retirement benefits Accounting change for income taxes (1.22) 4.49 (027) (5.57) 0.96 Total Other Factors (1.61) Change in Earnings per Share $(3.04) 1991 vs. 1990 $(0.35) 0.61 0.26 1.02 (0.26) 0.03 (0.28) 0.51 0.05 0.07 (0.26) 0.20 0.04 0.87 (160) (0.17) (177) $(1.90) Selling Price index (1987*10) 1.2.................. 1,0--m................... 0.8.................. 0.6.................. 0.4.............................. 0.2.................. 0.0 ........................ <Q> (Q) Sales Volume Index (1987*10) 1.5.............................. 1.2--m..................... 0.9.............................. 0.6.................. 0.3..................................... o.o......... M........... ^^ Raw Material Coat Index (M7*L0) 1.0.............. 0.8.................. 0.6.................. 0.4.............................. 0.2.................. 0.0-1.... 1.......... ^^^ Monsanto 1992 Annual Report DSW 022019 STLCOPCB4007328 OPERATING UNIT SEGMENT DATA The Agricultural Group The Chemical Group NutraSweet Pharmaceuticals Biotechnology Product Discovery Corporate Total 1992 $1,676 3,705 879 1,503 Operating Net SalesIncome (Loss)(1) 1991 1990 1992 1991 1990 $1,711 3,740 954 1,531 $1,676 4,035 933 1,424 $245 94 72 (232) $400 (154) 173 170 $327 297 183 93 Research and Development 1992 $149 109 44 276 1991 $140 105 41 259 1990 $151 115 41 228 $7,763 $7,936 $8,068 (62) (59) $ 58 (57) (57) $475 (52) (40) $808 62 11 $651 57 8 $610 52 8 $595 The Agricultural Group The Chemical Group NutraSweet Pharmaceuticals Biotechnology Product Discovery Corporate Fisher Controls Total 1992 $1,678 3,234 934 2,398 Total Assets 1991 . 1990 $1,592 3,162 1,155 2,342 $1,668 3,163 1,296 2,085 41 800 $9,085 51 294 631 $9,227 59 318 647 $9,236 Capital Expenditures 1992 1991 1990 $136 290 49 104 $ 93 300 58 96 $134 340 113 112 65 8 12 4 $586 $554 $711 Depreciation and Amortization 1992 1991 1990 $112 301 234 108 $104 272 233 94 $124 260 218 87 8 9 13 222 $765 $714 $704 (^Operating income was affected by the 1992 and 1991 restructuring and other unusual charges as follows: Income (Expense) 1992 1991 Operating Unit: The Agricultural Group The Chemical Group NutraSweet Pharmaceuticals Corporate $(135) (148) (70) (265) (6) $ 30 (478) (9) Sales between operating units were not significant Certain corporate expenses, primarily those related to the overall management of Monsanto, were not allocated to the operating units or geographic areas. Corporate assets primarily include investments in affiliates and a portion of the cash balance. 1992 Nt Sales (Pgmnt by operating unit) 48% The Chemical Group Total $(624) $(457) 22% The Agricultural Group Although inflation is relatively low in most of Monsanto's major markets, it continues to affect operating results. To mitigate the effect of inflation, Monsanto has implemented measures to manage working capital, control costs, improve productivity and raise selling prices where government regulations and competitive conditions permit. In addition, it is estimated that the current cost of replacing certain assets is greater than their historical cost presented in the financial statements. Accordingly, the depreciation expense reported in the Statement of Consolidated Income would be greater if the expense were stated on a current cost basis. 19% Pharmaceuticals 11%NutraSweet The principal factors that accounted for the operat ing units' performance in 1992 and 1991, along with the factors that are expected to affect operating results in the near term, are described on the following pages. Monsanto 1992 Annual Report 31 DSW 022020 STLCOPCB4007329 OPERATING UNIT SEGMENT DATA Continued THE AGRICULTURAL GROUP 1992 Net Sales: Crop chemicals Animal feed ingredients $1,647 29 1991 $1351 160 1990 $1308 168 The principal factors for the change in operating income were: Better (Worse) 1992 vs. 1991 1991 vs. 1990 Total Operating Income $1,676 245 $1,711 400 $1,676 Selling prices 327 Sales volume and mix $ (64) 95 $(31) 48 he Agricultural Group is a leading worldwide Raw material and other Tproducer and marketer of herbicides, including manufacturing costs Roundup, Lasso, Bullet, Harness, Mao-Tech, Tar-Go, Restructuring and other charges Avadex and Machete herbicides. More than half of the uniGt'slyphosate plant damage costs herbicide net sales are made to markets outside the United Inventory write-down States. Weather conditions in the agricultural markets Divestitures throughout the world affect sales volume. Other 38 56 (93) 30 (42) (30) (30) (38) (29) 8 The Agricultural Group Net Sales (Dollars in millions) Change in operating income $(155) $73 Worldwide sales volume of glyphosate herbicide 2,000......................... increased 16 percent, benefiting from the pricing and new end-use strategies, farmers' conversion to conservation 1300 tillage and good weather conditions, on balance, in many key markets, especially North America. The reductions 1XOO- in selling prices, principally in the United States on certain glyphosate products, continued to benefit glyphosate sales 500 O' Rest of world Europe ... United States volume by making the herbicide cost-effective for weed control for a broader range of crop and industrial uses. The operating income effect of the increased glyphosate herbi cide sales volume exceeded the effect of lower selling prices. Profitability on the acetanilide family of herbicides increased The Agricultural Group had a strong operating performance in 1992 excluding the adverse impact on oper ating income from the unusual items discussed below. The Agricultural Group 1992 net sales revenue was 2 percent below the prior year. However, excluding the 1991 sales of the subsequently divested animal feed ingredients business, 1992 net sales for The Agricultural Group would have been 6 percent higher than the prior year. Operating income in 1992 decreased 39 percent compared with 1991. The decline in 1992 operating income resulted from unusual items occurring in both 1992 and 1991. The unusual items included in 1992 operating income were the $42 million loss associated with damage to a manufacturing site of a raw material for Roundup herbicide, $30 million charge for the write-down of certain bovine somatotropin (BST) inventories because of expira tion of the shelf life, and $63 million in restructuring charges and other items, principally related to employment reduc tions. In 1991, operating income benefited from a $30 million gain from restructuring and $30 million in income from the significantly because of the combination of increased sales volumes and improved cost management. Expenditures for BST, while less than those in the prior year, continued to affect financial results adversely. Total manufacturing capac ity utilization for The Agricultural Group was 64 percent and 61 percent in 1992 and 1991, respectively. In 1991, The Agricultural Group's net sales and operating income increased 2 percent and 22 percent, respectively, as compared with that of 1990. A pretax restructuring gain of $30 million resulted from the 1990 restructuring program and was included in 1991 operating income. Lower raw material and other manufacturing costs, along with cost savings resulting from the restructuring actions, also helped to improve operating income. Worldwide sales volume of glyphosate herbicide increased 17 percent in 1991, benefiting from improved weather conditions in the United States and certain other key country markets. Reductions in selling prices, princi pally in die United States on certain glyphosate products, continued to benefit glyphosate sales volume. subsequently divested animal feed ingredients business. Monsanto 1992 Annual Report DSW 022021 STLCOPCB4007330 Profitability on the acetanilide family of herbicides increased significantly because of the combination of improved cost management, a new product form and a selling price increase, partially offset by a decrease in sales volume. Market share for these herbicides declined slightly during 1991. Net sales and profitability of Avadex herbicide decreased in 1991 due primarily to the poor farm economy in Canada. AGRICULTURAL GROUP OUTLOOK Patents protecting glyphosate herbicide in various countries expired in 1991, while compound per se patent protection for the active ingredient in Roundup herbicide continues in the United States until the year 2000. Management expects that manufacturing process patents that are important to Monsanto's cost position will maintain our competitive position after the expiration of the other patents. The Agricultural Group has a significant number of new products in the research and develop ment pipeline and some that are currently in the initial stages of commercialization. The focus continues to be on a number of chemical and biotechnologyrelated products. BST will have significant value to the dairy industry through the reduction of milk production costs, but BST continues to meet opposition from certain groups. BST has been approved in nine countries, but not yet in the United States. Management believes BST will be approved in the United States. However, if U.S. approval is not received, a material charge to earnings could result. Monsanto continues to maintain the tech nical capabilities needed to secure regulatory approval and is prepared to expand commercial capabilities to launch the product. As mentioned in the Notes to Financial Statements on page 48, Monsanto has signed a letter of intent to purchase the assets, including working capital, of the Ortho Consumer Products Division of Chevron Chemical Co. This business, with annual sales of approx imately $250 million, will complement the residential products business of The Agricultural Group. the chemical group 1992 1991 1990 Net Sales: Fibers $1,065 Performance products 619 Plastics 661 Resins 686 Rubber and process chemicals 471 Engineered products 203 Discontinued products $ 974 648 710 683 482 145 98 $ 971 668 850 660 530 137 219 Total Operating Income (Loss) $3,705 $3,740 $4,035 94 (154) 297 he Chemical Group produces a wide range of Tchemicals, plastics, fibers and other products listed in the table above. The unit's principal strengths are nylon carpet fiber, high-performance plastics, Saflex plastic interlayer, phosphorus and derivatives, and rubber chemicals. Tha Chemical Group Nat Salas (Dollars in millions) 5,000..................................... Rest of world Europe United States In 1992, The Chemical Group was impacted by the worsening economic conditions in Western Europe, Japan and the Commonwealth of Independent States (CIS) and by the slow economic recovery in the United States. The Chemical Group's net sales from continuing products for 1992 were 2 percent higher compared with 1991, as a result of a 4 percent increase in sales volume, partially offset by lower selling prices principally in fibers and plastics. The sales volume increase in 1992 was primarily in fibers as U.S. housing starts rebounded from 1991 levels. However, various product sales volumes to Europe, Japan and the CIS declined as a result of weak demand. In 1992, The Chemical Group had operating income of $94 million versus an operating loss of $154 million in the prior year. However, there were a number of unusual items affecting the profitability in both years. Specifically, 1992 operating income was adversely Monsanto 1992 Annual Report 33 DSW 022022 STLCOPCB4007331 ; > J*E R ATING UNIT- SEGMENT D AT A affected by $77 million in restructuring expenses associated with implementing further cost-cutting actions, $41 million in costs associated with the settlement of certain litigation related to the Brio Superfund site, $30 million in expenses related to a facility asset impairment, and $26 million of incremental SFAS No. 106 costs. In 1991, The Chemical Group had a $478 million expense associated with the 1991 restructuring program. An analysis of the change in operating income is provided below: Better (Worse) 1992 vs. 1991 1991 vs. 1990 Selling prices Sales volume and mix Manufacturing capacity utilization Raw material costs Restructuring charges Asset impairment Brio litigation settlement Incremental SFAS No. 106 costs Other $(83) 25 11 46 401 (30) (41) (26) (55) $ (33) (30) (52) 181 (478) (39) Change in operating income $248 $(451) Lower raw material costs were not sufficient to offset the 2 percent decline in average selling prices. Capacity utilization, an important factor for The Chemical Group profitability, was 78 percent in 1992, versus 75 percent in 1991. Fibers net sales in 1992 were 9 percent above those of 1991 despite lower selling prices. This strong performance is primarily due to increased sales to the home replacement carpet market in the United States, higher sales of Acrilan acrylic fiber and improved global demand for fiber intermediates. Sales of nylon carpet fiber were 7 percent higher than the prior year. Performance products net sales were below those of the prior year, principally due to the weak U.S. economy. Phosphorus and derivatives results were better in 1992 due to improved market conditions and reduced industry capacity. Plastics net sales in 1992 were lower than those of 1991, primarily because of lower selling prices throughout the world. Sales volume increased in tire United States as North American automobile production levels increased over those in 1991, but were partially offset by lower volumes in Europe, Brazil and Japan. Worldwide sales volume in 1992 of Saflex plastic interlayer, the largest resin product, was essentially flat with 1991. Increased demand for architectural products was offset by lower worldwide demand for automotive products, principally due to the worsening economic conditions in Western Europe and Japan. Rubber chemicals sales volumes were adversely affected by the depressed economies in Europe, as well as the economic disruption in the CIS. However, North American sales volumes increased over those in 1991. The Chemical Group's net sales for 1991 were 7 percent below 1990. This was primarily a result of discon tinued product lines and lower sales volumes of continuing businesses, a reflection of the lack of a U.S. economic recov ery, the lowest North American automotive production level since 1983, and the slowdown in the European economy. A pretax restructuring charge of $478 million resulted in the 1991 operating loss for The Chemical Group. Excluding this charge, operating income would have improved 9 percent compared with 1990. Operating income benefited from lower raw material costs and cost contain ment programs but was hurt by lower manufacturing capacity utilization. CHEMICAL GROUP OUTLOOK The Chemical Group outlook for 1993 is for improvement, but the degree is difficult to predict, primarily because of the unknown timing of the economic recovery in Western Europe and Japan, coupled with the uncertain pace of the U.S. economic recovery. Maintaining market share for strategic products with good cost positions and continuing cost reduction efforts will be the focus of The Chemical Group. Active management of environmental compliance activities is also a major focus. Monsanto 1992 Annual Report DSW 022023 STLCOPCB4007332 NUTRASWEET In 1991, net sales were up 2 percent, while operat Net Sales Operating Income 1992 $879 72 1991 $954 173 1990 $933 183 ing income decreased 5 percent compared with 1990. The effect of 5 percent higher sales volume was partially offset by the lower selling prices. Operating income was reduced by one-time costs of $10 million associated with various he NutraSweet Company manufactures and markets reorganizing actions taken during 1991. TNutraSweet brand sweetener, which is sold world wide, Equal tabletop sweetener, which is sold in the NUTRASWEET OUTLOOK United States, NutraSweet Spoonful brand tabletop sweetener, The prospects for NutraSweet brand sweetener and Sitnplesse all natural fat substitute. Sales of NutraSweet remain strong worldwide, despite the expiration of the brand sweetener in the European market are made by a U.S. patent. NutraSweet has built important competitive 50 percent-owned European joint venture and therefore are advantages, including: (a) brand name identity and not included in NutraSweet net sales and operating income. logo, recognition, ,(b) proprietary low-cost manufacturing NutraSweet's share of the European joint venture's earnings processes, (c) state-of-the-art manufacturing facilities, are reflected in "Other income (expense) -- net" in the (d)' technkalexpertise, (e) the reputation as a superior Statement of Consolidated Income. About 90 percent quafity, highly reliable supplier, (f) an economical of NutraSweet net sales were in the U.S. market replacementfor sugar in certain markets, and (g) the NutraSweet net sales and operating income in possibility of an internally developed, next-generation 1992 decreased 8 percent and 58 percent, respectively, high-potenCy sweetener compared with the 1991 amounts. Worldwide aspartame ' Competition from generic aspartame producers sales volumes were slightly higher while average selling and, others will lower, selling prices in the future. These prices were lower on planned price decreases. Operating lower prices will adversely affect operating income and income in 1992 also was reduced by a $46 million inventory cash flow. Operating,income in 1993 and beyond will write-down discussed below and restructuring actions benefit from lower annual amortization expense of totaling $24 million associated with plant consolidations, $173 million hecause.the aspartame-use patent is now employment reductions, and other actions. Operating fully amortized. income benefited from lower operating expenses from the . Hre United States will remain the principal 1991 reorganization. An analysis of the change in operating market for NutraSwed.brand sweetener in 1993, but income is provided below: growth in.intemational markets will continue. Accord Better (Worse) 1992 vs. 1991 1991 vs. . ingly, NutraSweet has'invested in a new manufacturing facility in France, through a European joint venture. The plantis scheduled to-begin production in 1993. f Simplesse, tnecompany1's99a0ll natural fat substi Sales decline (selling prices tute, is expected to be more broadly marketed for use offset by volume) $ (96) $ (3) in multiple food categories. However, Simplesse faces Restructuring charge (24) a challenging market iri which competition continues Inventory adjustment (46) to intensify. ' Other, principally lower operating costs in 1992 65 (7) Change in operating income $(101) $(10) NutraSweet inventories are valued using the last-in, first-out (UFO) method. Lower selling prices in post-patent contracts with customers necessitated a lower of cost or market adjustment to the UFO value of invento ries in the fourth quarter of 1992, concurrent with the patent expiration. Monsanto 1992 Annual Report DSW 022024 35 STLCOPCB4007333 OPERATING UNIT SEGMENT DATA Continued PHARMACEUTICALS 1992 1991 1990 Net Sales Operating Income (Loss) $1,503 $1,531 (232) 170 $1,424 93 earle is a research-based, worldwide pharma Sceutical business concentrating on drugs for the treatment of cardiovascular, gastrointestinal, immuno-inflammatory, central nervous system and infectious diseases. Pharmaceuticals Net Sales (Dalian in mi/fionsj 2,000.................................. 2400............................ IjOOO............................ 500............................ .............. <(E> Rest of world Europe United States sales of nonstrategic businesses. A pretax restructuring charge of $265 million resulted in a 1992 operating loss for Pharmaceuticals. In addition to the restructuring charges, costs to introduce Maxaquin quinolone anti-infective agent in the United States, the expansion of the U.S. sales force to support Maxaquin and other antidpated new product intro ductions, and lower selling prices negatively affected 1992 results. Operating income in 1991 benefited from the sales of nonstrategic product rights. The prindpal factors for the change in operating income were: Better (Worse) 1992 vs. 1991 1991 vs. 1990 Selling prices Sales volume and mix Product rights sales Restructuring Marketing, administrative and technological expenses Other Change in operating income $ (30) 39 (49) (265) (89) (8) $(402) $25 43 36 (20) (7) $ 77 Pharmaceuticals net sales declined 2 percent in 1992 when compared with 1991. Net sales of the Calm family of calcium channel blockers for hypertension and angina, sold primarily in the North American market, were $456 million, 10 percent lower than die prior yean This decline was due to lower selling prices and the introduction of generic competition for the sustained-release form of Calm. Continued growth of Canderel tabletop sweetener (which is marketed by Searle outside the United States and by NutraSweet in the United States under the brand name Equal) and new products, such as Maxaquin quinolone antiinfective agent, partially offset the sales decline. Net sales of Canderel were $157 million in 1992, up 7 percent from 1991. Sales of new products were $93 million, led by Maxaquin, which was launched in the United States in mid-1992. Sales volume of Cytotec ulcer preventive drug increased 2 percent in 1992. However, net sales were about the same level as the prior year due to increased sales of the lower dosage form. Average selling prices for Pharmaceuticals were moderately lower, resulting from rebates, principally for Calan, to state Medicaid programs and a continued shift in demand from retail pharmacy to managed health care providers in the United States. A significant part of the restructuring approved by the Board of Directors in November 1992 affected Pharmaceuticals. The restructuring steps included reductions in employment, plant dosings and consoli dations, a rationalization of research investments, and Pharmaceuticals investment in research and development (R&D) continues to be significant. R&D expenditures were 18 percent and 17 percent of the unit's net sales in 1992 and 1991, respectively. Although the 1992 restructuring realigned some research investments, the future R&D spending level is expected to continue to be significant. This spending level demonstrates the commit ment to product discovery and development that is aimed at securing sound, long-term financial performance for Pharmaceuticals. Pharmaceuticals net sales increased 8 percent in 1991 when compared with 1990. The improvement reflected continued growth for Cytotec ulcer preventive drug, the Calan family of calcium channel blockers for hypertension and angina, and Canderel tabletop sweetener, as well as higher selling prices. Net sales for Calm, sold primarily in the North American market, were $508 million, 9 percent higher than 1990 sales. Worldwide sales for Cytotec were $123 million, up 35 percent from 1990. Net sales of Canderel outside the United States were $147 million in 1991, up 11 percent from 1990. Net sales for Calan, Cytotec and other products in the United States were reduced by $30 million for rebates to state Medicaid programs mandated under the 1990 Omnibus Budget Reconciliation Act. Comparisons with 1990 also were affected by the December 1990 divesti ture of certain of Searle's consumer products outside the United States to a third party, under the terms of a 1985 agreement related to the Company's acquisition of Searle. Monsanto 1992 Annual Report DSW 022025 STLCOPCB4007334 Sales and operating income of these consumer products were $52 million and $30 million, respectively, in 1990. Pharmaceuticals operating income increased 83 percent in 1991 due to higher sales and the sale of certain nonstrategic product rights. PHARMACEUTICALS OUTLOOK Calan participates in an increasingly competi tive market for antihypertensive drugs and now faces generic competition. This increased competition is likely to adversely affect the future sales and profits of Calan. Searle is developing a formulation of Calan with propri etary delayed-release technology that could eventually enhance the product's competitive position. In 1992, Searle launched Maxaquin, the first once^a-day anti-infective drug in the quinolone class, in tine United States. bAaxaquin also received 1992 regu latory approvals in Italy, France, the United Kingdom, Canada and 7 other countries. Dasjpro, a nonsteroidal anti-inflammatory drug, and Ambien, the first of a new class of prescription sleep aids, have been approved by the U.S. Food and Drug Administration and will be launched in 1993. Ambien is awaiting regulatory approval in Canada. Cytotec ulcer preventive drug was approved in Japan. Cytotec has now been approved in all major markets. Arthrotec, a new product for the treatment of arthritis, is a combination of Searle's Cytotec and diclofenac, the world's best-selling prescription arthritis medication. Arthrotec has been approved in the U.K., France, Canada, Sweden and Portugal. As a result of these approvals, increased launch costs are expected in 1993. Products currently in various stages of scientific development include potential treatments for abnormal heart rhythms; Alzheimer's disease and age-assodated memory impairment; psoriasis and ulcerative colitis; thrombosis; acquired immune deficiency syndrome (AIDS), and other viral diseases. BIOTECHNOLOGY PRODUCT DISCOVERY The mission of Biotechnology Product Discovery is to generate a continuous pipeline of proprietary product opportunities and new technologies essential to success in the areas of human health, plant-related agriculture and chemical products. For human health care, Monsanto applies biotechnology to provide target proteins for the development of novel pharmaceutical chemicals. The strategy for plant-related agriculture is to isolate novel genes, the products of which are expressed in genetically transformed plants providing unique agronomic charac teristics. The chemical research programs provide novel high-performance chemicals and unique approaches to manufacturing processes and waste minimization. When product leads and new technologies are refined and clarified, they are transferred to the operating units for further development and commercialization. Monsanto 1992 Annual Hi'port 37 DSW 022026 STLCOPCB4007335 GEOGRAPHIC DATA Net Sales to Unaffiliated Customers Operating Income (Loss)TM Total Assets United States Europe-Africa Asia-Pacific Canada Latin America Interarea Eliminations Corporate Fisher Controls Total 1992 $4,964 1,652 566 290 291 1991 $5,100 1,708 530 305 293 1990 $5,131 1,776 486 341 334 $7,763 $7,936 $8,068 1992 $181 (168) 50 18 29 7 (59) 1991 $440 74 19 13 (38) 24 (57) 1990 $601 200 36 17 16 (22) (40) $ 58 $475 $808 1992 1991 1990 $5,641 2,046 533 147 242 (324) 800 $5,655 2,088 526 129 208 (304) 294 631 $5,909 1,945 441 138 264 (426) 318 647 $9,085 $9,227 $9,236 The data above are prepared on an "entity basis," which means that net sales, operating income and assets of a legal entity are assigned to the geographic area where the legal entity is located (for example, a sale from the United States to Latin America is reported as a US. sale). Interarea sales, which are sales between Monsanto locations in different world areas, were made on a market price basis. Interarea sales have been excluded from the above table and were: 1992 1991 1990 World area shipped from: United States Europe-Africa Asia-Pacific Canada Latin America Interarea Eliminations $ 683 105 5 33 2 (828) $ 716 80 4 14 2 (816) $ 740 125 1 11 17 (894) Total $- $- $- Following is a reconciliation of ex-U.S. operating income and total assets to the net income and net assets of consolidated ex-U.S. subsidiaries. 1992 1991 1990 Operating income (loss) Interest and other income (expense) - net Income taxes $ (71) $ 68 $ 269 (89) 17 (7) 54 (35) (84) Net Income (Loss) of Consolidated Ex-U.S. Subsidiaries $ (106) $ 50 $ 178 Total operating assets Total liabilities $2,968 $2,951 $2,788 1416 1,154 1,020 Net Assets of Consolidated Ex-U.S. Subsidiaries $1,552 $1,797 $1,768 The reported operating income for the individual geographic areas does not include the full profitability generated by sales of Monsanto products imported from other locations, principally from the United States. Direct export sales from the United States to non-U.S. third party customers were $393 million, $473 million and S426 million for 1992-1990, respectively. The 1992 decline was principally in The Agricultural Group due to the lack of sales from the divested animal feed ingredients business. Sales and operating income for the geographic segments do not include the financial results from those joint venture companies in which Monsanto does not have management control. Monsanto's share of the income or loss of these companies is reflected in "Other income (expense) -- net" in the Statement of Consolidated Income. Monsanto's share of the unconsolidated net sales and income ot loss of these companies for 1992 follows: United States Europe-Africa Asia-Pacific Latin America Monsanto's Share Net Income Sales (Expense) $ 99 37 111 88 $--2 (1) 1 (!)Geographic area operating income was affected by the 1992 and 1991 restructuring and other unusual items as follows: Income (Expense) 1992 1991 United States Europe-Africa Asia-Pacific Canada Latin America Corporate Total $(327) (295) 13 (8) (1) (6) $(624) $(296) (95) (4) (6) (47) (9) $(457) 38 Monsanto 1992 Annual Report DSW 022027 STLCOPCB4007336 QUARTERLY DATA Net Sales Gross Profit Operating Income (Loss) Income (Loss) from Continuing Operations Net Income (Loss) Earnings per Share: Income (Loss) from Continuing Operations Net Income (Loss) Dividends per Share Common Stock Price 1992 1991 1992 1991 1992 1991 1992 1991 1992 1991 1992 1991 First Quarter $1,973 1,993 853 869 259 267 146 154 (388) 166 Second Quarter $2045 2234 831 1,018 185 (76) 95 (74) 105 (52) Third Quarter $1580 1518 766 761 119 168 46 107 54 116 Fourth Quarter $1565 1,891 603 769 (505) 116 (413) 51 141 66 Total Year $7,763 7,936 3553 3,417 58 475 (126) 238 (88) 296 1992 1991 1992 1991 1992 1991 L17 121 (3.16) 1.31 0.52 0.485 0.78 (058) 056 (0-42) 0.56 052 059 0.84 0.45 0.91 0.56 052 (335) 0.40 1.14 053 0.56 052 (1.01) 1.87 (0.71) 2.33 220 2.045 High Low High Low Tiy, 68% 57% 58% 71% 62% 53 52% 49% 49% 62% 69% 76 717, 76 46 56% 64% 57% 46 Monsanto's net income is historically higher during the first half of the year primarily because of the concentration of generally more profitable sales of The Agricultural Group during that part of the year. The net loss for toe first quarter of 1992 included the net aftertax cumulative effect of accounting changes of $540 million, or $4.38 per share and $9 million of net aftertax expenses, principally associated with toe damage to a glyphosate herbicide manufacturing unit The effect of retroactively adopting the new accounting rules as of January 1,1992, decreased previously reported first-quarter net income by $549 million, or $4.44 per share. Previously reported second-and third-quarter net income were each reduced by $8 million, or $0.06 per share, frcm the effect of adopting toe new accounting rules. The second quarter of 1992 included $26 million of aftertax expense associated with toe settlement of certain litigation relating to the Brio Superfund site and $12 million of aftertax expense related to the damaged glyphosate manufacturing unit The fourth quarter of 1992 included pretax expense of $625 million, $425 million aftertax, or $3.44 per share, for toe restructuring program and other actions approved by the Board of Directors. The 1992 total pretax expense related to restructuring and other actions was $699 million, $472 million aftertax, or $3.82 per share. The fourth quarter also included an aftertax gain of $554 million, or $4.49 per share, from toe sale of Fisher Controls. The net loss for the second quarter of 1991 included net pretax restructuring expense of $457 million, $325 million aftertax, or $2254 per share. Monsanto 1992 Annual Report 39 OSH 022028 STLCOPCB4007337 STATEMENT OF CONSOLIDATED FINANCIAL POSITION (Dollars in millions, except per short) AaOOte Currant Aaaata: Cash and cash equivalents Trade receivables, net of allowances of $33 in 1992 and $36 in 1991 Miscellaneous receivables and prepaid expenses Deferred income tax benefit Inventories Current assets - Fisher Controls Total Currant Aaaata At December 31, 1992 1991 $ 729 1,405 375 395 1,156 4,060 $ 189 1,422 2% 249 1,214 341 3,711 Proparty, Plant and Equipment: Land Buildings Machinery and equipment Construction in progress Total property, plant and equipment Less accumulated depredation Not Proparty, Plant and Equipment Invoatmenta in Afflllatea Intangible Aaaata, net of accumulated amortization of $383 in 1992 and $1,422 in 1991 Othar Aaaata Other Aaaata - Flatter Controla Total Aaaata 7V tteot stttanat shnili be mi incmjiutdm with ptgai7tlmgk S3 ofthbrtporL Prmo^nfortMami^bntbemrtclm^eileprmiiiTi^erOmtnhmiiKmtBaudi^tntlcm. 106 1,240 5,939 317 7,602 4,597 3,005 248 1,066 706 $9,085 104 1,215 5,772 419 7,510 4319 3,191 248 1324 591 262 $9,227 40 Monsanto 1992 Annual Report DSW 022029 STLCOPCB4007338 (Dollars in millions, except per share) Liabilities and Sharaownara' Equity Currant Liabilities: Accounts payable Wages and benefits Income and other taxes Restructuring reserves Miscellaneous accruals Short-term debt Current liabilities - Fisher Controls Total Currant Liabilities Long-Term Debt Deferred Income Taxes Postretirement Liabilities Other Liabilities Other Liabilities - Fisher Controls Shareowners' Equity: Common stock (authorized, 200,000,000 shares, par value $2) Issued, 164,394,194 shares in 1992 and 1991 Additional contributed capital Treasury stock, at cost (43,929327 shares in 1992 and 41,466,707 shares in 1991) Reserve for ESOP debt retirement Accumulated currency adjustment Reinvested earnings Total Shareowners' Equity Total Liabilities and Shareowners' Equity The above statement should bt rtai h conjunction vitk ptga 47 through S3 nport Pirviousty reported mounts toe been rtdosnfitd to pmeni firiw Cmtnb a daamtvatdofmtian$. At December 31, 1992 1991 $ 525 191 477 377 721 257 2448 1,423 65 1,252 792 $ 530 217 155 186 585 335 167 2,175 1371 512 294 685 36 329 820 0029) (233) 15 4,103 3305 $9385 329 726 (1,797) (250) 187 4,459 3354 $9,227 Monsanto 1992 Annual Report DSW 022030 41 STLCOPCB4007339 REVIEW OF CHANGES IN FINANCIAL POSITION FINANCIAL POSITION REMAINED STRONG Monsanto's financial position remained strong in 1992, as evidenced by Monsanto's current 'A" or better debt rating. Financial resources were adequate to support exist ing businesses and to fund new business opportunities. Working capital was lower at year-end 1992 due principally to higher restructuring reserves and income tax accruals offset by increased cash and cash equivalent balances, resulting from receipt of the sales proceeds from the Fisher Controls divestiture, and deferred tax benefits principally related to the 1992 restructuring reserves. Inventories and trade receivables at year-end 1992 decreased slightly compared with the prior year-end. The amount of net property, plant and equipment was less than year-end 1991, as $586 million of capital additions were less than the depredation expense and the write-down of property divested or to be divested under the restructuring actions. Intangible assets declined in 1992, due mainly to final amortization of the NutraSweet aspartame patent, which expired in December 1992. As mentioned in the Notes to Financial Statements on pages 49 and 51, Monsanto adopted in 1992 Statement of Financial Accounting Standards (SFAS) No. 106, the accounting rule for postretirement benefits other than pensions, and SFAS No. 109, the new income tax accounting rule. Adoption of SFAS No. 106 resulted in year-end 1992 balances of liabilities for postretirement benefits other than pensions and the related deferred tax benefits exceeding the respective year-end 1991 balances by $1,013 million and $370 million. Adoption of SFAS No. 109 resulted primarily in $118 million lower noncurrent deferred tax liabilities. Total deferred tax benefits, both current and noncurrent, of $514 million at year-end 1992 are primarily related to operations in the United States, which generally has had a strong earnings history. Long-term debt at year-end 1992 was lower than that of the prior year-end. Monsanto retired $565 million of outstanding debt and incurred $120 million of new debt. Monsanto uses financial markets worldwide for its financing needs and has available various short- and medium-term bank credit facilities, which are discussed in the Notes to Financial Statements (page 50). These credit facilities provide the financing flexibility to take advantage of investment opportunities that may arise and to satisfy future funding requirements. To maintain adequate finan cial flexibility and access to debt markets worldwide, Monsanto management intends to maintain an "A" debt rating. An important factor in establishing that rating is the ratio of total debt to total capitalization, which was 36 percent in 1992. In October 1991, Monsanto's Board of Directors approved the establishment of an employee stock owner ship plan (ESOP). In January 1992, the ESOP purchased from Monsanto $250 million of common stock that will be used to match employee contributions under the Company's existing savings and investment plan. A more detailed description of the ESOP is provided in the Notes to the Financial Statements on page 52. Monsanto's commitments and contingencies are described in the Notes to Financial Statements on page 53. The 1992 decline in Shareowners' Equity is due principally to the adoption of SFAS No. 106 and the aftertax cost of the 1992 restructuring program, partially offset by the gain on the Fisher Controls divestiture. Monsanto's return on shareowners' equity (ROE) was a negative 2.6 percent in 1992. Excluding the $463 million of aftertax unusual items summarized on page 27, ROE would have been over 10 percent. Monsanto's principal financial target is a sustained ROE of 20 percent or greater. The ROE and other key financial statistics are presented in the table below. KEY FINANCIAL STATISTICS Return on Shareowners' Equity (ROE) (Net income divided by average shareowners' equity) Current Ratio (Current assets divided by current liabilities) Thade Receivables - Days Sales Outstanding (Fourth-quarter trade receivables divided by fourth-quarter net sales times 30 days) Inventory Turnover Ratio (Cost of goods sold divided by inventory) Interest Coverage (Income before interest expense and income taxes divided by total interest cost) Cash Provided by Operatlona/Total Debt Total Dobt/Total Capitalization11) (l)Total capitalization is the turn of short-term debt, long-term debt end shareowners' equity. 1992 (16)% 1.6 67 4.1 -- 54% 36% 1991 7.6% 1.7 68 3.7 2.7 53% 38% 1990 13.6% 1.6 63 4.2 4.4 50% 35% 42 Monsanto 1992 Annual Report DSW 022031 STLCOPCB4007340 1| STATEMENT OF CONSOLIDATED SHAREOWNERS' EQUITY (Dollars in millions, except per share) Common Stock: Balance, January 1 Par value of stock issued in two-for-one stock split Balance, December 31 Additional Contributed Capital: Balance, January 1 Employee stock plans and ESOP Par value of stock issued in two-for-one stock split Balance, December 31 Treasury Stock: Balance, January 1 Shares purchased (6,732,300; 4,395,900; and 6,707,900 shares in 1992-1990, respectively) Shares issued under employee stock plans and ESOP (4,269,180; 1,545,333; and 193,072 shares in 1992-1990, respectively) Balance, December 31 Reserve tor ESOP Debt Retirement: Balance, January 1 ESOP formation Allocation of ESOP shares Balance, December 31 Accumulated Currency Adjustment: Balance, January 1 Translation adjustments Income taxes Balance, December 31 Reinvested Earnings: Balance, January 1 Net income (loss) Dividends (net of ESOP tax benefits) Common stock purchase rights redemption Balance, December 31 47 S3The above statement should be read m conjunction with pages though of this report. 1992 1991 1990 $ 329 $ 329 $ 329 $ 329 $ 164 165 $ 329 $ 726 94 $ 820 $ 714 12 $ 726 $ 877 2 (165) $ 714 $(1,797) (417) 185 $(2^)29) $(1,563) (296) 62 $(1,797) 5(1,244) (326) 7 $(1,563) $ (250) 17 $ (233) $ (250) $ (250) $ 187 (172) $ 15 $ 188 (3) 2 $ 187 $ 24 171 (7) $ 188 $4459 (88) (268) $4,103 $4,421 296 (258) $4,459 $ 4,120 546 (242) (3) $4,421 KEY FINANCIAL STATISTICS Stock Priced High Low Year-end Per Share Dividends Shareowners' Equity Average Daily Share Trading Volume (thousands of shares) n i8ased on daily reported high end low stock prices. 1992 $ 71% 49% 57% 2.20 24.95 392 1991 $ 76 46 67% 2.045 29.72 359 1990 $ 60% 38% 48% 1.88 32.51 425 Monsanto 1992 Annual Report DSW 022032 43 STLCOPCB4007341 STATEMENT OF CONSOLIDATED CASH FLOW (Dollars m millions) 1992 1991 Increase (Decrease) In Cash and Cash Equivalents Operating Activities: Income (loss) from continuing operations Add income taxes - continuing operations $ (126) (48) $ 238 116 Income (loss) from continuing operations before income taxes Adjustments to reconcile to Cash Provided by Continuing Operations: Income tax payments Items that did not use cash: Depreciation and amortization Restructuring expense - net Incremental SFAS No. 106 expenses Other Working capital changes that provided (used) cash: Accounts receivable Inventories Accounts payable and accrued liabilities Other Nonoperating pretax gains from asset disposals Other items (174) (162) 765 436 45 157 21 (30) (107) (125) (6) 28 354 (201) 714 457 37 (101) (141) (40) 7 (ID 37 Cash Provided by Continuing Operations Cash Provided by Discontinued Operations 848 1,112 64 68 Total Cash Provided by Operations 912 1,180 Investing Activities: Property, plant and equipment purchases Acquisition and investment payments Investment and property disposal proceeds Proceeds from sale of Fisher Controls Discontinued operations - other (586) (259) 177 1,275 (30) (554) (225) 324 10 Cash Provided by (Used In) Investing Activities 577 (445) Financing Activities: Net change in short-term financing Long-term debt proceeds Long-term debt reductions Treasury stock purchases Dividend payments Common stock issued to ESOP Other financing activities Cash Used In Financing Activities (78) 120 (565) (417) (270) 250 11 (949) (245) 317 (291) (2%) (258) 23 (750) Increase (Decrease) in Cash and Cash Equivalents Cash and Cash Equivalents: Beginning of year End of year 540 189 $ 729 (15) 204 $ 189 The above statement should be read in conjunction with page* 47 through 53 of this report. Preciously reported amounts have been reclassified to present Fisher Controls as rftsccntonud operations. The effect of exchange rate changes on cash end cash epumalentsiBas not matericd. Cash paymentsfor interest (net ofamounts capitalized) wen $776 mSlm, $169 mdlkm ami $161 mdlkm, for the yean 1992-1990, respectively. During 1991, Monsanto established an employee stock ownership plan (lSOP). Monsanto was guarantor of$90 million ofESOP notes and $100 million ofZSOP debentures at December 31,1992. 44 Monsanto 1992 Annual Report 1990 $ 486 230 716 (229) 704 -- (171) (89) 122 60 (86) (49) 978 126 1,104 (711) (194) 100 (46) (851) 77 523 (351) (326) (242) 17 (302) (49) 253 $ 204 DSW 022033 STLCOPCB4007342 REVIEW OF CASH FLOW Monsanto's cash flow for the three-year period of Long-term debt proceeds in 1992 included 1992-1990 is shown in the Statement of Consolidated Cash $61 million in ex-U.S. floating-rate notes and $45 million Flow on the preceding page. from the issuance of industrial development bonds. CASH FLOW REMAINED STRONG Cash flow remained strong in 1992, with the cash proceeds from the Fisher Controls divestiture and that provided by operations. However, cash provided by oper ations of $912 million was 23 percent lower than the prior year. This was due to the lower selling prices and higher marketing expenses more than offsetting higher sales volumes and lower raw material costs. Cash from opera tions was generated primarily by The Chemical Group, The Agricultural Group and NutraSweet. As discussed in NutraSweet's operating unit segment data on page 35, future cash flow from NutraSweet is expected to be lower, due to anticipated lower future selling prices. Monsanto's operations have historically generated sufficient cash to fund existing businesses, growth-related research and investments. Management expects cash provided by operations, supplemented by periodic borrowings, to be adequate to fund future requirements. These proceeds were used essentially to refinance other borrowings. In 1991, long-term debt proceeds included $100 million of 30-year fixed-rate debentures and $194 million from the issuance of medium-term notes. Long-term debt repayments in 1992 included $145 million in 11% percent debentures, $141 million in 8% percent debentures, $104 million in 8 % percent debentures, and $51 million in industrial development bonds. Monsanto continually evaluates risk retention and insurance levels for product liability, property damage and other potential areas of risk. Monsanto devotes significant effort to maintaining and improving safety and internal control programs, which reduce its exposure to certain risks. Based on the cost and availability of insurance and the likelihood of a loss, management decides the amount of insurance coverage to purchase from unaffiliated com panies and the appropriate amount of risk to retain. Since 1986, Monsanto's liability insurance has been on the "claims made" policy form. Management believes that the current Cash Provldsd by Oparations levels of risk retention are consistent with those of other (Dollars in millions) companies in die various industries in which Monsanto 1200............................... operates. Monsanto's liquidity, financial position and prof irn......................... 800............................... 600............................... itability are not expected to be affected materially by the levels of risk retention which the Company accepts. . MONSANTO MAINTAINS STRONG ENVIRONMENTAL COMMITMENT 400............................... 200.................. Monsanto is subject to various laws and govern mental regulations concerning environmental matters, employee safety and employee health. It is anticipated that 0......... M........... increasingly stringent requirements will be imposed upon Monsanto and industry in generaL Monsanto is dedicated to a long-term environmental protection program that Monsanto received $1,275 million of cash from reduces emissions of hazardous materials into tire environ the sale of Fisher Controls. A portion of the cash proceeds ment, as well as to the remediation of identified existing was used in 1992 to reduce debt and to purchase Monsanto environmental concerns. In 1988, management committed common stock. Most of the income taxes related to the to a 90 percent reduction in toxic air emissions by the end sale will be paid in the first quarter of 1993. Other invest of 1992, a goal that has been substantially met The cost ment and property disposals in 1992 generated $177 million to accomplish this target did not materially affect operating of cash. The principal proceeds in 1992 and 1991 were related to the sale of various businesses associated with results. In fact, some of the target projects lowered operat ing costs and improved operating efficiency. the 1991 restructuring, including in 1991 the animal feed Expenditures in 1992 were approximately ingredients business. $123 million for environmental capital projects and approx Major uses of cash for the period 1992-1990 included imately $264 million for operation and maintenance of capital expenditures, treasury stock purchases and dividends. environmental protection facilities. Monsanto estimates The investment in various 1992 acquisitions and purchase of that during 1993 and 1994 approximately $75 million- an interest in a Japanese pharmaceuticals firm in 1991 were $125 million per year will be spent on additional capital also major uses of cash. Monsanto's 1992 capital expendi projects for environmental protection. tures focused on improved technology, capacity expansions Monsanto periodically receives notices from the and environmental projects, and totaled $586 million Environmental Protection Agency (EPA) that it is a poten- Monsanto 1992 Annual Report 45 DSW 022034 STLCOPCB4007343 REVIEW OF CASH FLOW Continued tially responsible party (PRP) under Superfund. Monsanto has been designated by the EPA as a PRP at 88 Superfund sites; however, the EPA has provided notice deleting Monsanto from 2 of these sites. Monsanto has resolved disputes in 22 erf these Superfund cases. In addition, partial consent decrees or administrative orders have been entered between Monsanto and the United States in 16 of these cases settling a portion of Monsanto's liability. Of the remaining sites, 6 are matters that involve allegations predi cated on tentative findings of reuse of drums by others that once contained products sold by Monsanto. These 6 matters have been inactive as to Monsanto for at least 8 years. At one other site, Monsanto has determined it has no liabil ity whatsoever Monsanto's future Superfund remediation expenses will be affected by a number of uncertainties, including the method and extent of remediation, the percentage of material attributable to Monsanto at the sites relative to that attributable to other parties, and die finan cial capabilities of die other PRPs at most sites. Monsanto spent $46 million in 1992 for remedia tion of Superfund and other waste disposal sites. Most of these expenditures related to The Chemical Group, and similar or greater amounts can be expected in future years. Monsanto's policy is to accrue these costs in the accounting period in which the responsibility is established and the cost is estimable. At Deirember 31,1992, Monsanto's Statement of Consolidated Financial Position included an accrued liability of $242 million for the remediation of identified waste disposal sites. Because of the uncertainties associated with remediation activities, Monsanto's future expenses to remediate these sites could approximate an additional $300 million. These potential future expenses would be expected to be incurred over the balance of the decade. While the costs and results of remediation of waste disposal sites cannot be predicted with certainty, manage ment believes that, with future developments in remediation technology, Monsanto's liquidity and prof itability in any one year will not be materially affected. COMMON STOCK PURCHASE PROGRAM CONTINUED In April 1992, Monsanto's Board of Directors authorized the purchase of 5 million shares of Monsanto common stock. In October 1992, the Board authorized the purchase of an additional 12 million shares. In 1992, Monsanto purchased 6.7 million shares at a cost of $417 million. Since June 1987, Monsanto has purchased 43.8 million shares at a cost of $2,170 million. Management believes the stock purchase program represents a sound economic investment for Monsanto's shareowners. DIVIDENDS INCREASE FOR THE 20TH CONSECUTIVE YEAR Monsanto has paid dividends on its common shares without interruption or reduction since 1928, and has increased the dividend per share in each of the past 20 years. Dividend payout for 1992 was 30 percent of cash provided by operations; Monsanto's dividend policy reflects a desired long-term payout percentage based on Monsanto's expectations of future growth and profitability levels. In any individual year, additional consideration is given to expected financial position and results, working and fixed capital needs, scheduled debt repayments and economic conditions, including inflatioa Monsanto's common stock is traded principally on the New York Stock Exchange and is listed on the exchanges in Tokyo and 7 European cities. The number of shareowners of record as of February 26,1993, was 59,165, and the high and low common stock prices on that date were |5T/j and $505t Montanto 1992 Annual Rtport DSW 022035 STLCOPCB4007344 NOTES TO FINANCIAL STATEMENTS SIGNIFICANT ACCOUNTING POLICIES Monsanto's significant accounting policies are itali cized in the following Notes to Financial Statements. The financial statements present the results of Fisher Controls as discontinued operations. Previously reported amounts have been reclassified consistent with this presentation. BASIS OF CONSOLIDATION The consolidatedfinancial statements include the Company and its majority-owned subsidiaries. Intercompany transactions have been eliminated in consolidation. Other com panies in which Monsanto has a significant ownership interest (generally greater than 20 percent) are included in "Investments in Affiliates" in the Statement ofConsolidated Financial Position, and Monsanto's share ofthese companies' income or loss is included in "Other income (expense) -- net" in the Statement ofConsolidated Income. CURRENCY TRANSLATION Most ofMonsanto's ex-U.S. entitiesfinancial state ments are translated into U.S. dollars using current exchange rates. Unrealized currency adjustments in the Statement of Consolidated Financial Position are accumulated in shareowners' equity. Thefinancial statements ofex-U.S. entities that operate in hyperinflationary economies, principally Brazil, are translated at either current or historical exchange rates, as appropriate. These currency adjustments are included in net income. Major currencies are the U.S. dollar, British pound sterling, Belgian franc and Japanese yen. Other important currencies include fire Brazilian cruzeiro, Canadian dollar, French franc, German mark and Italian lira. Currency restrictions are not expected to have a significant effect on Monsanto's cash flow, liquidity or capital resources. Currency option contracts are purchased to manage currency exposure for anticipated transactions (for example, export sales for the following year). Currency option and forward contracts are used to manage other currency exposures. At December 31,1992 and 1991, Monsanto had currency forward and option contracts to purchase $53 million and $240 million, respectively, and to sell $597 million and $714 million, respectively, of other currencies, principally the British pound sterling, French franc, Japanese yen and German mark. Gains and losses on contracts that are designated and effective as hedges are deferred and included in the recorded value of the transaction being hedged. Gains and losses on other currencyforward and option contracts are included in net income immediately. Monsanto is subject to loss in the event of nonperformance by the counterparties to these contracts. RESTRUCTURING AND OTHER ACTIONS In November 1992, die Board of Directors approved a series of actions designed to make Monsanto's worldwide operations more focused, productive and cost-effective. Major elements include a realignment of selected research investments, reductions in employment and a number of consolidations, closings, asset write-downs and sales of nonstrategic businesses and facilities. The pretax expense related to these actions totaled $625 million ($425 million aftertax) and principally affected Pharmaceuticals. These actions also include some further fine-tuning of other operating units and a reduction in corporate staff. Other unusual items, primarily in the first and second quarters of 1992, totaled a pretax expense of $74 million. These items principally were costs incurred as a result of damage to a manufacturing unit for a key raw material for Roundup herbicide in January 1992 and the settlement of certain lawsuits related to the Brio Superfund site in the second quarter of 1991 In June 1991, the Board of Directors approved restructuring steps, principally to strengthen The Chemical Group for the future. Corporate staff reductions were also approved. In September 1990, the Board of Directors approved a restructuring of The Agricultural Group. The 1990 and 1991 actions included the shutdown and consoli dation of various facilities and the sale of certain businesses, including the animal feed ingredients business, that did not meet Monsanto's long-term strategic direction. The components of die pretax expense related to the restructuring programs and die other unusual items were: 1992 1991 Cost of employee reductions Shutdown and consolidation of various facilities and departments Asset write-downs Glyphosate plant damage costs Brio litigation settlement Other costs Gains on business sales $224 $215 164 417 188 42 41 111 64 (71) (239) Total $699 $457 These expenses were recorded in the Statement of Consolidated Income in the following categories: 1992 1991 Cost of goods sold Restructuring expense - net $188 436 $457 Decrease in operating income Other expense 624 457 75 Total decrease in income from continuing operations before income taxes $699 $457 Monsanto 1992 Annual Report 47 DSW 022036 STLCOPCB4007345 NOTES TO FINANCIAL STATEMENTS Continued Income from continuing operations was reduced by $472 million aftertax, or $3.82 per share, and $332 million aftertax, or $160 per share, for 1992 and 1991, respectively, from the effect of these restructurings and unusual items. Product sales of businesses targeted for divestiture in these restructurings were excluded from Monsanto's net sales after Board of Directors' approval. Product sales of these businesses in 1992-1990 included in Monsanto's net sales were $74 million, $299 million and $429 million, respectively. PRINCIPAL ACQUISITIONS AND DIVESTITURES In October 1992, Monsanto sold the worldwide business of Fisher Controls. Monsanto received $1175 million in cash, which resulted in an aftertax gain of $554 million (net of applicable income taxes of $371 million). Financial data for Fisher Controls were: Property, plant and equipment is recorded at cost. The cost ofplant and equipment is depreciated ooer weighted average periods of 22 yearsfor buildings and 11 yearsfor machinery and equipment, using the straight-line method. Intangible assets are recorded at cost less accumulated amortization. The components of intangible assets and their estimated remaining useful lives were: Estimated Remaining Life* Goodwill Patents Other intangible assets 30 7 15 Total 1992 S 692 85 289 $1,066 1991 $ 687 275 262 $1,224 'Weighted avenge, in years, ei December 31, 1992. 1992* 1991 1990 Net sales $679 $928 $927 Income before income taxes Income taxes Net income $ 37 13 .$ 24 $ 88 30 $ 58 $ 94 34 $ 60 `For the nine months ended September 30.1991 In 1991, Monsanto purchased 1215 percent of the shares of Hokuriku Seiyaku Co., a Japanese pharma ceuticals firm. The investment is included in "Other Assets." In June 1990, certain assets of a Monsanto joint venture in Japan were sold. Monsanto recognized a pretax gain of $45 million, or an aftertax gain of $31 million, or $024 per share, on the sale of these assets. On January 7,1993, Monsanto signed a letter of intent to purchase the assets, including working capital, of the Ortho Consumer Products Division of Chevron Chemical Co. The transaction is subject, among other condi tions, to a due diligence review of the Ortho business and the signing of a definitive agreement Subject to fire timing of the transaction in relation to Monsanto's seasonal work ing capital needs, financing of the acquisition is to be achieved through available cash balances and additional short-term borrowings. Ortho Consumer Products, with annual sales of approximately $250 million, is a leading U.S. marketer of lawn and garden products. Goodioill is the cost ofacquired businesses in excess of thefair value of their identifiable net assets and is amortized over the estimated periods ofbenefit (5 to 40 years). Patents obtained in a business acquisition are recorded at the present value ofesti matedfuture cashflows resultingfrom patent ownership. The cost ofpatents is amortized over their legal lives. The cost ofother intangible assets (principally product rights and trademarks) is amortized over then estimated useful lives. INVENTORY VALUATION Inventories are stated at cost or market, whichever is less. Actual cost is used to value raw materials and supplies. Standard cost, which approximates actual cost, is used to value finished goods and goods in process. Standard cost includes direct labor, raw material and manufacturing overhead based on practical capacity. The cost ofcertain inventories (55 percent at December 31,1992) is determined by using the last-in,first-out (UFO) method, which generally reflects the effects ofinflation or deflation on cost ofgoods sold sooner than other inventory cost methods. The cost ofother inventories generally is determined by using thefirst-in,first-out (FIFO) method. The components of inventories were: 1992 1991 Finished goods Goods in process Raw materials and supplies $ 743 298 426 $ 838 300 384 DEPRECIATION AND AMORTIZATION 1992 1991 Depreciation $473 Amortization of intangible assets 237 Obsolescence 55 $453 233 28 1990 $437 229 38 Inventories, at FIFO cost Excess of FIFO over UFO cost 1,467 (311) Total $1,156 Inventories at FIFO cost approximate current cost. 1,522 (308) $1,214 Total $765 $714 $704 Monsanto 1992 Annual Report DSW 022037 STLCOPCB4007346 INCOME TAXES The components of income (loss) from continuing operations before income taxes were: 1992 1991 1990 United States Outside United States $ (14) (160) $269 85 $454 262 Total $(174) $354 $716 The components of income tax expense (benefit) charged to continuing operations were: 1992 1991 1990 Current: U.S. federal U.S. state Outside United States $ 56 24 19 $225 26 56 $102 17 83 99 307 202 Deferred: U.S. federal U.S.state Outside United States (59) (149) (15) (21) (73) (21) 26 1 1 (147) (191) 28 Total $ (48) $ 116 $230 Factors causing Monsanto's effective tax rate for continuing operations to differ from the US. federal statutory rate were: 1992 1991 1990 U.S. federal statutory rate Benefits attributable to: U.S. export earnings Puerto Rico operations Sale of investments Higher (lower) ex-U.S. rates Nondeductible goodwill Valuation allowances State income taxes Other (34)% 34% (9) (7) (4) (3) -- (3) (12) 4 32 19 21 75 34% (2) (2) -- (1) 1 2 Effective Income Tax Rate (28)% 33% 32% The income taxes netted against the gain on the sale of Fisher Controls and the cumulative effect of adopt ing Statement of Financial Accounting Standards (SFAS) No. 106 exceeded the 34 percent US. federal statutory rate primarily because of the effect of state income taxes. Monsanto adopted SFAS No. 109, "Accounting for Income Taxes," effective as of January 1,1992, and recog nized a gain of $118 million, or $0.96 per share. This gain has been reflected in the Statement of Consolidated Income as a cumulative effect of an accounting change. Deferred income tax balances in 1992 reflect the impact of temporary differences between the amounts of assets and liabilities for income tax purposes, compared with the respective amounts for financial statement purposes. Deferred income tax balances at December 31, 1992, were related to: Property Postretirement benefits Restructuring reserves Environmental liabilities Inventory Other Valuation allowances Ibtal Asset $(301) 392 184 83 71 147 (62) $514 Liability $43 12 2 10 $67 Included in the SFAS No. 109 adoption at January 1, 1992, were valuation allowances of $32 million. Under the previous income tax accounting rules, deferred income taxes were provided for significant timing differences in the recognition of revenue and expense for tax and financial statement purposes. The source of these timing differences and the tax effect of each were: 1991 1990 Depreciation and obsolescence Restructuring State income taxes Other Total $ (14) (146) (21) (10) $(191) $9 19 1 (1) $28 Income and remittance taxes have not been recorded on $400 million ofundistributed earnings ofsubsidiaries, either because any taxes on dividends xoould be offset substantially byforeign tax credits or because Monsanto intends to indefinitely reinvest those earnings. The estimated U.S. income tax if such earnings were paid as dividends would be approximately $55 million. SHORT-TERM DEBT AND CREDIT ARRANGEMENTS Short-term debt was: 1992 1991 Notes payable to banks Commercial paper Bank overdrafts Current portion of long-term debt Total Weighted average interest rates of notes payable at December 31: Banks*11 Commercial paper $ 70 78 109 $257 $ 75 66 125 69 $335 9.8% 14.2% 4.9% n>Includes the effect ofnotes m certain countries wherelocal inflation results h higft interest rates. Monsanto 1992 Annual Report 49 DSW 022038 STLCOPCB4007347 NOTES TO FINANCIAL STATEMENTS Continued Monsanto has aggregate short-term loan facilities of $297 million, under which loans totaling $70 million were outstanding at December 31,1992. Interest on these loans is related to various bank rates. Monsanto's worldwide unused short-term loan facilities were $227 million at December 31,1992 In addition, Monsanto has a $750 million credit facility, which expires in 1996. There were no borrowings under this facility at December 31, 1992 The credit facility is used to support the issuance of commercial paper. Interest on amounts borrowed under this agreement would likely be at money market rates. Covenants under this credit facility restrict maximum borrowings. It is not anticipated that future borrowings will be limited by these restrictions. LONG-TERM DEBT Long-term debt (exclusive of current maturities) was: 1992 1991 Industrial development bond obliga tions, rates in 1992 ranging from 5.60% to 11.50%, due 1994 to 2022 $ 363 Medium-term notes, rates in 1992 ranging from 7.85% to 9.00%, due 1994 to 2005 300 9%% notes due 19% 150 814% sinking fund debentures due 2000 7.09% and 8.13% amortizing ESOP notes and debentures due 2000 and 2006, guaranteed by the Company 180 8)4% sinking fund debentures due 2008 8%% debentures due 2009 99 11%% sinking fund debentures due 2015 8.7% debentures due 2021 100 Other 231 $ 371 364 150 104 200 141 99 145 100 197 Total $1423 $1371 Maturities and sinking fund requirements on long-term debt are $109 million, $102 million, $98 million, $266 million and $73 million for 1993-1997, respectively. Interest rate swap options (interest options) are used to manage interest expense. At December 31,1992 and 1991, Monsanto had sold interest options with an aggregate notional principal amount of $395 million and $351 million, respectively, related to existing debt Two interest options would effectively refinance, at 8)4 percent, $150 million of 9)4 percent notes in the period 1993 through 19%. Another interest option would effectively convert $99 million of 8)4 percent debentures to commercial paper rates in the period 1994 through 2000. Additional interest options would effectively convert $% million of variable rate debt to fixed rates ranging from 8)4 percent to 9K percent in the period 1993 to 2000. Another interest option would effectively convert $50 million of 7.09 percent amortizing ESOP notes to a variable rate in the period 1993 to 1996. Premiumsfrom the sale of interest options are amortized over the related debt period. Interest differentials to be paid or received are accrued as interest rates change over the related debt period. FINANCIAL INSTRUMENTS FAIR VALUES The estimated December 31,1992, fair values of Monsanto's financial instruments were: Recorded Amount Assets: Foreign currency forward and option contracts Miscellaneous receivables Investments in securities Liabilities: Currency swaps and interest options Long-term debt $7 31 208 11 1,423 Fair Value $ 21 26 206 26 1,496 The recorded amounts of cash, trade receivables, discounted receivables, third party guarantees, accounts payable and short-term debt approximate their fair values. Investments m securities are recorded at cost and reduced to market value when a decline is deemed other than temporary. Fair values are estimated using quoted markrt prices, estimates obtained from brokers and other appro priate valuation techniques based on information available as of December 31,1992 The fair value estimates are not necessarily indicative of values Monsanto could realize in the current market POSTRETIREMENT BENEFITS - PENSIONS Most Monsanto employees are covered by noncon tributory pension plans. The components of pension cost (income) were: 1992 1991 1990 Service cost for benefits earned during the year $ 65 Interest cost on benefit obligation 272 Assumed return on plan assets* (291) Amortization of unrecognized net gain (41) $ 63 $ 61 259 (269) 230 (259) (33) (46) Total $ 5 $ 20 $ (14) *Actual retam (lossj on plan mets um $230 million, $699 million and $(83) million n 1992-1990, respectweiy. Monsanto 1992 Annuel Rqtort DSW 022039 STLCOPCB4007348 Pension benefits are determined based on the common stocks and U.S. government and corporate obli employee's years of service and/or compensation level. gations. Because the Company's principal pension plans Pension plans are funded in accordance with Monsanto's are well funded, contributions to these plans were neither long-range projections of the plans' financial conditions, required nor made in 1992-1990. considering benefits earned and expected to be earned in the future, anticipated future returns on pension plan assets and income tax and other regulations. Pension cost is determined by using the preceding year-end assumptions. Assumptions used as of December 31 for the principal plans were: POSTRETIREMENT BENEFITS - HEALTH CARE AND OTHER Monsanto provides certain health care and life insurance benefits for retired employees. Substantially all of Monsanto's regular, full-time U.S. employees and certain employees in other countries may become eligible for these 1992 1991 1990 benefits if they reach retirement age while employed by Discount rate Assumed long-term rate of return on plan assets Annual rates of salary increase (for plans that base benefits on final compensation level) 854% 934% 6% 814% 814% 614% 814% 814% 614% The funded status of Monsanto's pension plans at year-end was: Monsanto. These postretirement benefits are generally determined based on the employee's years of service and/or compensation level and are unfunded. Monsanto adopted Statement of Financial Accounting Standards (SFAS) No. 106, "Employers' Accounting for Postretirement Benefits Other Than Pensions," effective as of January 1,1992, and recognized an aftertax expense of $658 million ($1,045 million pretax), or $5.34 per share for retiree benefits earned through 1991. Plan Assets at Fair Value 1992 $3,751 1991 $3,753 The expense was included in the Statement of Consolidated Income as a cumulative effect of an accounting change. SFAS No. 106 requires that the cost of other postretirement Actuarial present value of plan benefits: benefits be accrued by the date the employees become Vested $2^48 $2,732 eligible for the benefits. Under the previous accounting Nonvested 123 105 rule, these postretirement benefits were expensed as Accumulated benefit obligation 2,971 Effect of projected future salary increases 426 Projected Benefit Obligation $3,397 Excess of plan assets over projected benefit obligation Less: $ 354 2,837 384 $3,221 $ 532 benefits were paid. The components of the cost of these postretirement benefits, principally health care and life insurance, were: 1992 Service cost for benefits earned during the year Interest cost on benefit obligation $ 26 88 Unrecognized initial net gain 221 266 Total $114 Unrecognized prior service costs Unrecognized subsequent net gain (216) 538 (185) The 1991-1990 expense for these postretirement 624 benefits under the previous accounting rule was $51 million Accrued Net Pension Liability $ 189 $ 173 and $43 million, respectively. The accrued net pension liability was included in: Postretirement liabilities Less: Other assets $ 232 (43) $ 229 (56) The following assumptions were used for the principal plans in 1992: a discount rate of 8Vi percent and an initial assumed health care cost trend rate of 15 percent declining by 1 percent per year to an ultimate cost rate of Accrued Net Pension Liability $ 189 $ 173 At December 31,1992, the accrued net pension liability included $101 million for unfunded plans. Projected benefit obligations and plan assets included in the above table for the principal US. plans were approximately $3,040 million and $3,425 million, respectively, at 6 percent for years after 2000. A1 percent increase in die assumed health care cost trend rate would have increased the cost of 1992 postretirement health care benefits by $6 million and the accumulated benefit obligation at December 31,1992, by $51 million. December 31,1992. Plan assets consist principally of Monsanto 1992 Annual Report 51 DSW 022040 STLCOPCB4007349 NOTES TO FINANCIAL STATEMENTS Continued The status at December 31,1992, of Monsanto's postretirement health care and life insurance benefit plans and employee disability benefit plans was: 1992 Accumulated Benefit Obligation: Retirees Eligible active employees Other active employees $ 768 103 226 Accrued Liability $1,097 The accrued liability was included in: Miscellaneous accruals Postretirement liabilities Accrued Liability $ 77 1,020 $1397 EMPLOYEE SAVINGS PLANS For some employee savings plans, employee contributions are matched in part by Monsanto. Matching contributions charged to expense for such plans were $33 million, $34 million and $34 million in 1992-1990, respectively. In October 1991, Monsanto established an employee stock ownership plan (ESOP). In December 1991, the ESOP issued $100 million each of 7.09 percent amortizing notes and 8.13 percent amortizing debentures guaranteed by Monsanto, and the ESOP borrowed $50 million from Monsanto. The unpaid balance of ESOP borrowings is included in "Reserve for ESOP debt retire ment" in Shareowners' Equity. The unpaid balance of notes and debentures guaranteed by Monsanto is included in "Long-term Debt" in the Statement of Consolidated Financial Position. In January 1992, the ESOP used the proceeds of the loans to purchase 3.7 million shares of common stock from Monsanto, a portion of which will be allocated each year to employee savings accounts as matching contributions. The proceeds from the issuance of common stock to die ESOP were used primarily for the purchase of an equivalent number of common shares under a treasury stock purchase program. Dividends on the common stock owned by the ESOP will be used to repay the ESOP borrowings. Total expense for the ESOP was $28 million in 1992, of which $19 million represented interest expense In 1992, Monsanto's cash contribution to the ESOP was $19 million, and dividends of $8 million were paid on common shares held by tire ESOP. STOCK OPTION PLANS Key officers and employees have been granted Monsanto stock options under the Company's 1974, 1984 and 1988 Management Incentive Plans, the Searle Monsanto Stock Option Plan (Searle Plan) and the NutraSweet/Monsanto Stock Plan (NutraSweet Plan). Information about the status of such stock options is presented below: Exercisable Shares Outstanding Shares Price per Share December 31,1990 1991: Granted Exercised Expired 3360357 7,051329 $15.69-$61.44 3,628,172 (1,612380) (189379) 50.56- 74.25 15.59- 58.00 43.53- 62.13 December 31,1991 4,125,193 8,877,442 19.33- 74.25 1992: Granted Exercised Expired 2,078333 (485,094) (328,176) 51.56- 67.13 19.33- 58.00 34.50- 73.56 December 31,1992 5,140,969 10,142,705 21.31- 7435 Under toe 1988 Management Incentive Plans, the Searle Plan and toe NutraSweet Plan, 6,471,826 shares remain available for grant. Prior to 1991, stock appreciation rights (SARs) were granted to certain Monsanto officers in tandem with stock options under toe plans, including retroactive grants for unexercised options. In 1991, toe SAR grants were canceled, and unexercised SARs held by current officers were forfeited. EARNINGS PER SHARE Earnings per share were computed using the weighted average number of common shares and common share equivalents outstanding each year (123,443,744; 127,126,216; and 129,107666 in 1992-1990, respectively). Common share equivalents (1,041,096; 1,437,179; and 676393 in 1992-1990, respectively) consist primarily of common stock issuable upon exercise of outstanding stock options. Earnings per share assuming full dilution were not significantly different from toe primary amounts. CAPITAL STOCK At December 31,1992, there were 16,614,531 common shares reserved for employee stock options. In January 1990, toe Company's Board of Directors declared a dividend of one Preferred Stock Purchase Right on each outstanding share of toe Company's common stock. If a person or group acquires beneficial ownership of 20 percent or more, or announces a tender offer that would Monsanto 1992 Annual Report DSM 022041 STLCOPCB4007350 result in beneficial ownership of 20 percent or more, of the Company's outstanding common stock, the rights become exercisable and each right will entitle its holder to purchase one one-hundredth of a share of a new series of preferred stock for $450. If Monsanto is acquired in a business com bination transaction while the rights are outstanding, each right will entitle its holder to purchase, for $450, common shares of the acquiring company having a market value of $900. In addition, if a person or group acquires beneficial ownership of 20 percent or more of the Company's out standing common stock, each right will entitle its holder (other than such person or members of such group) to purchase, for $450, a number of shares of the Company's common stock having a market value of $900. Furthermore, at any time after a person or group acquires beneficial ownership of 20 percent or more (but less than 50 percent) of the Company's outstanding common stock, die Board of Directors may, at its option, exchange part or all of the rights (other than rights held by the acquiring person or group) for shares of the Company's common stock on a one-for-one basis. At any time prior to the acquisition of such a 20 percent position, the Company can redeem each right for 1 cent. The Board of Directors is also authorized to reduce the 20 percent thresholds referred to above to not less than 10 percent. The rights expire in the year 2000. In connection with this dividend declaration, the Board of Directors also authorized the redemption in February 1990 of the then existing Common Stock Purchase Rights at their redemption price of 5 cents per right COMMITMENTS AND CONTINGENCIES Commitments, principally in connection with uncompleted additions to property, were approximately $92 million at December 31,1992. Excluding the ESOP notes and debentures, Monsanto was contingently liable as a guarantor of bank loans and for discounted customers' receivables totaling approximately $245 million and $223 million at December 31,1992 and 1991, respectively. Future minimum payments under noncancellable operat ing leases and unconditional inventory purchases are $172 million; $87 million; $59 million; $38 million; and $74 million for 1993-1997, respectively, and $120 million thereafter. The more significant concentrations in Monsanto's trade receivables at year-end were; 1992 1991 Management does not anticipate incurring losses on its trade receivables in excess of established allowances. Monsanto is a party to a number of lawsuits and claims, which it is vigorously defending. Such matters arise out of the normal course of business and relate to product liability, government regulation, including environmental issues, and other issues. Certain of the lawsuits and claims seek damages in very large amounts. While the results of litigation cannot be predicted with certainty, management believes, based upon the advice of Company counsel, that the final outcome of such litigation will not have a material adverse effect on Monsanto's consolidated financial posi tion. Costsfor remediation ofwaste disposal sites are accrued in the accounting period in which the responsibility is established and the cost is estimable. SUPPLEMENTAL DATA Supplemental income statement data were: 1992 1991 1990 Raw material and energy costs Employee compensation and benefits Current income and other taxes Rent expense $2,247 2,016 393 138 $2,283 $2,441 1,983 580 130 1,867 471 130 Technological expenses: Research and development Engineering, commercial development and patent 651 610 595 69 70 66 Total Technological Expenses 720 680 661 Interest expense: Total interest cost Less capitalized interest 185 190 205 (16) (24) (29) Net Interest Expense 169 166 176 Currency gains (losses) including equity in affiliates' currency gains and losses (39) (10) (45) SEGMENT INFORMATION Certain operating unit segment data and geographic data for 1992-1990 appear on pages 31 and 38 and are integral parts of the accompanying financial statements. The principal product lines included in each operating unit are shown in the operating unit segment data. U.S. agricultural product distributors European agricultural product distributors Pharmaceutical distributors worldwide Customers in the Commonwealth of Independent States $175 149 315 75 $141 176 332 77 Monsanto 1992 Annual Report 53 DSW 022042 STLCOPCB4007351 FINANCIAL SUMMARY (Dollars in miliums, except per share) 1992<u 1991<2) 1990(3) 1989) Oprating Result* Net Sales Operating Income As a Percent of Net Sales Income (Loss) from Continuing Operations As a Percent of Net Sales Income from Discontinued Operations Cumulative Effect of Accounting Changes Net Income (Loss) Return on Shareowners' Equity $ 7,763 58 1% (126) (2)% 578 (540) (88) (2.6)% $7,936 475 6% 238 3% 58 296 7.6% $ 8,068 808 10% 486 6% 60 546 13.6% $ 7,829 1,006 13% 627 8% 52 679 17.6% Earnings per Share Income (Loss) from Continuing Operations Net Income (Loss) $ (1.01) (0.71) $ 1.87 2.33 $ 3.77 4.23 $ 4.63 5.01 Year-End Financial Position Total Assets Working Capital $ 9/185 1,512 $ 9,227 1,536 $ 9,236 1,323 S 8,604 1326 Property, Plant and Equipment Gross Net $ 7,602 3,005 $ 7,510 3,191 $ 7,226 3,316 $ 6378 3,009 Long-term Debt Shareowners' Equity $ 1,423 3,005 $ 1,871 3,654 $ 1,645 4,089 $ 1,464 3,941 Current Ratio Percent of Total Debt to Total Capitalization 1.6 36% 1.7 38% 1.6 35% 1.7 33% Other Data Property, Plant and Equipment Purchases Depreciation and Amortization Interest Expense Research and Development Expenses Income Taxes Cash Provided by Operations $ 586 765 169 651 (48) 912 $ 554 714 166 610 116 1,180 $ 711 704 176 595 230 1,104 $ 578 659 176 581 327 1337 Stock Price: High Low Year-end Price/Eamings Ratio on Year-end Stock Price $ 71% 49% 57% -- $ 76 46 677, 29 $ 60Vs 38% 48% 11 $ 62% 40% 57% 12 Per Share: Dividends Shareowners' Equity $ 2^0 24.95 $2,045 29.72 $ 1.88 32.51 $ 1.65 29.79 Shareowners (year-end) 60,074 60,152 62,230 61,942 Shares Outstanding (year-end, in millions) 120 123 126 132 Employees (year-end) 33,797 39,281 41,081 42,179 a,LoMfrom continuing operations and net bafor 1992 includes an aftertax lossfor restructuring and other unusual items of$472 million, or S3.82 per stum. mNd incomefor 1991 mduda net restructuring expense of $325 million, or $254 per short. 0>Nd incomefor 1990 indudes $56 million, or $0.43 per shore, in gams resultingfrom divestitures, indudbtg the divestiture of certain assets ofa joint venture in japan. '^Nd incomefor 1989 indudes a $36 mdlion, or $0.27 per shore, gain on the sde of the analgesia business. 1988 $ 7,453 919 12% 563 8% 28 591 15.4% $ 3.95 4.14 $ 8,461 1,117 $ 6377 2,977 $ 1,406 3,800 1.6 34% $ 565 666 164 556 292 1304 $ 46% 36% 40% 10 $ 1.475 27.60 66,066 138 45,635 54 Monsanto 1992 Annual Report DSN 022043 STLCOPCB4007352 EXECUTIVE & OTHER OFFICERS ADVISORY DIRECTORS Chairman and Chief Executive Officer Richard J. Mahoney* Vice Chairman Nlcholaa U Reding* President and Chief Operating Officer Robert B. Shapiro* Chairman, Executive Committee of the Board of Directors Earle H. Harbiaon, Jr.* Executive Vice President Robert <3. Potter* Senior Vice President and Chief Financial Officer Francla A. Stroble* Senior Vice President, Secretary and General Counsel Richard W. Dueeenberg* Vice Presidents Barry Blitstain Robert A. Clauaen Leonard A. Cohn Grant W. Denlaon, Jr. A. Nlcholaa Flllppello, Ph.D. Martin J. Kalian Philip Needleman, Ph.D.* Jamea H. Nlabet Richard A. Overton Michael A. Plerle avid 1- Sllney Hendrik A. Verfaillie* Virginia V. Weldon, M.D.* Vice President and Controller Bruce R. Santa Vice President and Treasurer Juanita H. Hlnahaw Chairman and Chief Executive Officer, The NutraSweet Company Robert E. Flynn* Chairman and Chief Executive Officer, G.D. Searle k Co. Sheldon Q. Qllgore, M.D.* Monsanto established Robert Q. Potter, 53, advisory directors in 1981 joined Monsanto in 1965 to provide counsel from and has held a variety executive officers to the of sales, marketing and board of directors on board administrative positions matters. Currently, seven in Monsanto's chemical executive officers serve as businesses. Currently, he advisory directors. is an executive vice presi Robert E. Flynn, 59, joined Monsanto in 1981 as executive vice president of Fisher Controls Inter national Inc, which was then a subsidiary of dent of Monsanto and president of The Chemical Group, a Monsanto oper ating unit Potter has been an advisory director for seven years. Monsanto. In 1990, he was Francla A. Stroble, 62, named chairman and chief is senior vice president and executive officer of The chief financial officer of NutraSweet Company, Monsanto. Stroble has been a subsidiary of Monsanto. an advisory director for Flynn was appointed an 11 years. He has 36 years advisory director effective of experience in accounting, Jan. 1,1993. finance, planning, manage Sheldon Q. Qllgore, M.D., 61, is chairman and chief executive officer of G.D. ment information systems, and controllership assign ments at Monsanto. Searle & Co., a subsidiary Hendrik A. Verfaillie, of Monsanto. He joined 47, is a vice president of Searle in 1986 as president Monsanto and president and chief executive officer, of The Agricultural Group, and was named chairman a Monsanto operating unit. later that year. Gilgore was He was appointed an named an advisory direc advisory director effective tor effective Jan. 1,1993. Jan. 1,1993. Verfaillie joined PhIRp Needleman, Ph.D., 54, is vice president of research and development and chief scientist of Monsanto, and president Monsanto in 1976 and has served in marketing and administrative assignments in Brussels, Belgium, and Si Louis. of research and develop Virginia V. Weldon, M.O., ment of G.D. Searle k Co. 57, joined Monsanto in Needleman joined 1989. She is vice president Monsanto in 1989 and has been an advisory of public policy and is responsible for the policy director for two years. analysis, government affairs and corporate communications functions. She has been an advisory director for two years. * Extcutm officers as defined by the Securities and Exchange Commotion. Ages and years ofservice as ofMarch 1,1993. Monsanto 1992 Annual Report 55 OSW 022044 STLCOPCB4007353 BOARD OF DIRECTORS Richard J. Mahonay, 59, of St Louis, is chairman and chief executive officer of Monsanto. He joined Monsanto in 1962 and was appointed to his current position in April 1986. He has been a director for 14 years. Mahoney is a member of the board's executive and finance committees. Joan T. Bok. 63, of Westborough, Massachu setts, is chairman of New England Electric System. She has been a Monsanto director for six years. Bok is a member of the board's audit and corporate social Philip Ladar, M.D., 58, of Boston, is chairman of the Department of Genetics at Harvard Medical School. He is also senior investi gator for the Howard Hughes Medical Institute. He has been a Monsanto director for three years. Leder is a member of the board's pension and savings funds committee. Howard M. Lova, 62, of Pittsburgh, is the retired chief executive officer of National Intergroup Inc. He has been a Monsanto director for 15 years. Love is chairman of die board's Jacobus F.M. Pstsrs, 61, of The Hague, Netherlands, is chairman of the executive board and chief executive officer of AEGON N.V., an international insurance and financial services company. He was elected a member of Monsanto's board effective Feb. 1,1993. Peters is a member of the board's pension and savings funds committee. Nicholas 1_ Rsdlng, 58, of St Louis, is vice chairman of the board of Monsanto: He joined Monsanto in 1956. He was elected a member of tire board and vice chair Robert B. Shapiro, 54, of St. Louis, is president and chief operating officer of Monsanto. Shapiro joined Searle, a subsidiary of Monsanto, in 1979. He became chairman and chief executive officer of The NutraSweet Company, also a Monsanto subsidiary, and then an executive vice president of Monsanto and president of The Agricultural Group, an operating unit of Monsanto. He was named to his cur rent position and elected a member of the board effective Jan. 1,1993. responsibility committees. executive compensation man effective Jan. 1,1993. John B. Slaughter, Ph.D., Earla H. Harblson, Jr., 64, of St Louis, is chairman of the executive committee of the board of Monsanto. He joined Monsanto in 1967. He was president and chief operating officer from May 1986 to January 1993, and has been a director for seven years. Harbison is also a member of the and development commit tee, and a member of the finance and nominating committees. Frank A. Mats, Jr., 59, of Sloatsburg, New York, is a retired director senior vice president of finance and planning, and chief financial officer of IBM Corp. He has been a Prior to this position. Reding was executive vice president of environment, safety, health and manu facturing. He has also served as president of The Agricultural Group, an operating unit of Monsanto. John 8. Raad, 54, of New York, is chairman and 58, of Los Angeles, is presi dent of Occidental College. He is the former director of the National Science Foundation. He has been a Monsanto director for 10 years. Slaughter is a member of the board's audit, executive and cor porate social responsibility committees. board's pension and Monsanto director for three chief executive officer of Admiral StanafMd Turner savings funds committee. years. Metz is a member Citicorp and Citibank N.A. (U.S. Navy, Ratlrad), 69, Robart M. Haysaal, M.D., 64, of Baltimore, is a con sultant and the president emeritus of The Johns Hopkins Health System. He is the retired president and chief executive officer of The Johns Hopkins Health System and The Johns Hopkins Hospital He has been a Monsanto director for four years. Heyssel is a member of the board's audit, pension and savings funds, and executive compensation and devel opment committees. of tire board's finance, nominating and execu tive compensation and development committees. Buck Mlckal,62of Greenville, South Carolina, is chairman and chief execu tive officer of RSI Holdings Inc. He has been a Monsanto director for 18 years. Mickel is chairman of tire board's audit and nominating committees, and a member of the executive compensa tion and development committee. He has been a Monsanto director for eight years. Reed is chairman of the board's finance committee William O. Ruckalahaus, 60, of Houston, is chair man and chief executive officer of Browning-Ferris Industries Inc. He is also the former administrator of tire US. Environmental Protection Agency. He has been a Monsanto director for eight years. Ruckelshaus is a member of the board's audit and corporate social respon of McLean, Virginia, is a lecturer and writer, and a professor at the University of Maryland. He is also the former director of US. Central Intelligence and tile CIA and the former John M. Olin Professor of National Security at the US. Military Academy at West Point He has been a Monsanto director for 12 years. Turner is chairman of the board's corporate social responsibility and pension and savings funds committees. sibility committees. Aja and years ofservice as of March1993. 58 Monsanto 1992 Annual Report DSW 022045 STLCOPCB4007354 SHAREOWNER INFORMATION Dividends Per Share (In dollars) < Monsanto's dividend has Increased <Sr I I .1 112 percent in the last decade. <25 <55 <335 ^5 <Q) flP 1.03J 1.225 2.225 1.2JS 1.375 2.475 1.650 1.530 2.0*5 2.200 Dividend Policy The declaration and payment of quarterly dividends is made at the discretion of Monsanto's board of directors. Dividends are reviewed by the board annually. Monsanto has paid dividends on its common shares without inter ruption on a quarterly basis since 1928 and has increased the dividend in each of the past 20 years. Additional Information About Monsanto You can receive additional information about Monsanto upon request. Available financial information includes quarterly reports for shareowners; the 1992 Form 10-K, which is filed with the Securities and Exchange Commission; and the Corporate Data Book, which provides a detailed analysis of Monsanto's financial results and businesses. Monsanto also has a strong commitment to the environment, and our progress is explained in our Environmental Annual Review. Please let us know which publication you would like to receive by writing or calling; Literature Fulfillment Monsanto Company 1723F 800 North Lindbergh Boulevard St. Louis, Missouri 63167 USA (314)694-3155 Dividend Reinvestment Plan Registered shareowners (shareowners whose stock certificates state that they are the holders of shares in Monsanto) who are US. citizens may reinvest their dividends in common shares of Monsanto. To receive an enrollment form, please call or write: Shareholder Services Monsanto Company 800 North Lindbergh Boulevard St. Louis, Missouri 63167 U.S.A. (314) 694-5392 Duplicate Mailings If you receive duplicate mailings of Monsanto's annual report and would like for us to eliminate the extra copies, please send us your written permission. Duplicate mail ings can occur if shares are held in multiple accounts, are registered under different names, or are registered with slight differences in names and addresses. Please send us the labels from tne copies you don't want or tire names of the accounts. If you have tire account numbers, that's also helpful. Please send this information to: Shareholder Services Monsanto Company 800 North Lindbergh Boulevard St. Louis, Missouri 63167 U.S.A. Annual Meeting The next annual meeting of the shareowners of Monsanto will be held at 1:45 p.m., Friday, April 23,1993, in K Building at the company's world headquarters at 800 North Lindbergh Boulevard, St Louis, Missouri. A formal notice of the meeting, together with a proxy statement, is being mailed to each shareowner. For Additional Information For additional information, shareowners can contact Monsanto's investor relations staff: A. Nicholas Filippello, Ph.D. Corporate Vice President, Financial Communications and Chief Economist (314) 694-8148 Donna B. Smith Director, Investor Relations (314) 694-7867 Stock Symbol -- MTC Stock Exchangea/Bourses Amsterdam Frankfurt Brussels Geneva Chicago (options) London New York Paris Tokyo Zurich Transfer Agent and Registrar The First National Bank of Boston Box 644 Boston, Massachusetts 02102-0644 U.S.A. ^ Printed with soy-besed ink* ^ Printed on recycled peper with 10 percent pcebccnsumer west*. Monsanto 1992 Annual Report DSW 022046 57 STLCOPCB4007355 Monsanto Company 800 North Lindbergh Boulevard St. Louis, Missouri 63167 U.S.A. DSW 022047 STLCOPCB4007356