Document 7MmJ9Xq30xaR4RjvxJLBpr7xa

Monsanto Annual Report Strategies aLn Action MAR 002015 Monsanto 1990 OLOBAL SALU 'Dollars in millions: S9.000 VALU1ADDID iDollars in millions r.ooo MARKIT MIX f.Percent of total sales Overview Monsanto Company had hoped to make 1990 its fifth successive vear of earnings increases, but higher oil prices, poor weather and a slow U.S. economy kept us from reaching that goal. While results from Monsanto Agricultural Company and Monsanto Chemical Company were disappoint ing. Searle. The NurraSweet Company and Fisher Controls International performed at record levels in 1990. Net income for 1990 was S546 million, compared with record earn ings of S679 million in 1989. Earn ings per share for 1990 were S4.23. versus S5.01 per share earned the previous vear. Consolidated net sales grew to S9 billion in 1990 from S8.7 billion recorded in 1989. Return on shareowners' equity dropped to 13.6 percent from 17.6 percent in 1989. Monsanto's Commitments Monsanto Company makes and markets high-value agricultural products: chemical products, includ ing man-made fibers and plastics: pharmaceuticals: food products, including low-calorie sweeteners and an all natural fat substitute: indus trial process control equipment: and other performance materials. In doing so. we are committed to serving the interests of all those worldwide who hold a stake in our company by: Aiming for a consistent and superior return on equity for our shareowners: Meeting the needs of our customers with the highest standards of value, quality and service: Providing our employees with safe and rewarding w ork in an envi ronment where each has an equal opportunity to succeed: and Striving for a lasting and reward in'! partnership with our neighbors. 8.000 7.000 I---- 6.000 5.000 I----- 4.000 3.000 2.000 I---- 1.000 1 xc rx~ ox; csc- c~- 0 oe0os iOe--e'- aeOos' oOOs''' ocO' I Value Added (Sales less energy and raw materials i MARKETING, ADMINISTRATION AND TICHNOLOGY EXPCNSIS (Dollars in millionsj S2.500 2.000 1.500 1.000 500 Agriculture Construction and Home Furnishings I___ Pharmaceuticals Vehicles Food Capital Equipment Personal Products . Chemicals . Other Sales in the Lntted States Sales outside the L ntted States : 1991 Monsanto Company. Trademarks and aervice mark* of Monsanto and Its aubaldlarlaa ar* Indicated by special type throughout rhlc publication. ``tat freedom" la a trademark and "iaklmo Pie" la a reglatered trademark of the Eaklmo Pie Corporation. MAR 002016 LAM018134 Operational Highlights Dollars in millions, exceptpershare Net Sales Net Income Per Share:1 Net Income 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 Outstanding1 year-end. in millions'1 Employees year-end 'Adjusted forthe 1990 two-for-one common stock split. 1990 S 8.995 S 546 S 4.23 1.88 32.51 S 739 S 1.104 S 612 13.6% 35% 62.230 126 41.081 1980 S 8.681 S 670 S 5.01 1.65 26.76 S 660 S 1.03" S 598 17.6% 33% 61.642 132 42.1 ^6 1688 S 8.263 S 561 S 4.14 1.475 27.60 S 703 S 1.304 S 575 15.4% 34% 66.066 138 45.635 ABOUT THE COVER Piece by piece, Monsanto employees worldwide turn strategies into action to achieve the company's goals. TABLE OP CONTENTS Letter to Shareowners Executive Summary Monsanto Agricultural Company Monsanto Chemical Company Searle The NutraSweet Company Fisher Controls International Financial Section Officers Board of Directors MAR 002017 Shareowner Information 2 5 6 9 12 15 18 21 49 50 51 CONFIDENTIAL _ LAM018135 F The steady upward rend toward our goal of a 20 percent return on equity was deflected -- but only deflected, not stopped. ^p expected 1990 to be out- W fifth vear in a row of earning? increases at record level? for the company. It didn't happen: Earnings dropped by 20 percent. We wound up with 1990 as our second-best year of earnings per share: however, the steady upward trend toward our finan cial goal of a 20 percent return on shareowners equity was deflected. But only deflected, not stopped. The long term strategies we put in place were tested in 1990. and they remain sound and appropriate. Here s why: Searle. The NutraSweet Company and Fisher Controls International met their targets, and each had a record financial year. However, the Agricul- Strategies In Action Monsanto Company's strategy was tested in 1990, yet remains the right course for the company to reach its long-term objectives. rural and Chemicals units fell short. After analyzing the full-year results, we've concluded that the earnings drop in those two important units was Richard J. Mahoney, chairman and chief executive officer (left), and Earle H. Harblson, Jr., president and chief operating officer. MAR 002018 2 LAmo 18136 i i In 17 years of sales of Roundup herbicide, weather has been adverse in only two. We'll stick with the long term weather odds. MAR 002019 caused essentially by three elements: The sudden increase in the price of petroleum-based raw materials following the Iraqi invasion of Kuwait. We weren't able to pass these increases through in our selling prices in 1990. We've positioned ourselves as buyers rather than producers of petro chemical raw materials. Despite the run-up in oil prices, that strategy remains correct in view of the clear prospect for a long-term excess supply of petrochemicals worldwide. The severe drought in Europe and California. Roundup herbicide is our leading profit performer, and the drought caused it to grow' at well under the expected rate. However. Roundup maintained or increased market share in all major market segments. In 17 vears of sales of Roundup, weather has been adverse in only two. We'll stick with the long-term weather odds and look for a healthy rebound in 1991. To a lesser extent, the slowdown in the U.S. economy. We've said that one major element of our corporate strategy has been to reduce the effect of industrial business cycles on our earnings. We've clearly done that with our value-added mix of businesses, although our Chemicals unit is still highly dependent on auto motive and housing markets. We could have handled that single negative ele ment -- a weaker economy -- in 1990 without a drop in corporate earnings. The stock market leaned heavily on these events. Our stock closed the year down 16 percent versus the year-end 1989 close, compared with a 4 percent decline in the Standard be Poor's 400 year-to-year. However, for the five-year period from 1986 to year-end 1990. Monsanto provided an annualized return to shareowners stock appreciation plus reinvested dividends of 19 percent, versus 8.4 percent for the Standard be Poor's chemical index and 13.7 percent for the Standard be Poor's 400. We want to ensure the financial market s confidence in Monsanto that brought our previous recognition, and we intend to do so. Here are the major elements we re counting on: We have a rapidly growing pharma Saarle has bean ceutical business in Searle. Searle made launching ons new good earnings gains in 1990. led by product a year, Calan brand calcium channel blocker, and its robust now one of the top U.S. pharmaceuti pipeline can cals. with U.S. sales of S432 million in support this pace. 1990. and by Cvfofec ulcer preventive drug, with worldwide sales of S91 mil lion in 1990. We expect to take another big step forward in 1991. Searle has been launching one new' product a year, and its robust pipeline can sup port this pace. Of particular near-term importance are Maxaquin, a novel quinolone-class antibiotic: Arthrotec. a non-steroidal anti-inflammatory drug (NSAID) for arthritis with built- in protection against gastric ulcers: and zolpidem. a treatment for insomnia. We've discussed the expected volume rebound of Roundup in the Agricul tural Company. During 1990. overhead costs were reduced as well. A new her bicide awaits clearance by the U.S. Environmental Protection Agency, and our first biotechnology-based product, bovine somatotropin (BST). for increasing dairy productivity, is w'ell into the review' process at the U.S. Food and Drug Administration (FDA). The safety of BST in food has been confirmed by leading health orga nizations. including the FDA. the U.S. National Institutes of Health, the American Medical Association and more than 20 regulator)- bodies world wide. BST has been a long time com ing. We think our belief in the value of this innovation and our shareowners' patience will be rewarded. AutraSweet brand sweetener for CONriDCNTIAl soft drinks, food ingredients and branded table-top equivalents will continue its worldwide market growth. I3 LAM018137 Ths long-term outlook for the Chemicals unit remains solid, but protections for 1991 are difficult to make. sP c& As we approach the December 1992 date for U.S. patent expiration for XutraSuvet. our position is strong in cost and consumer loyalty. ^ e ve invested substantial sums in research, process work and consumer marketing to get to this position -- all money well spent. Simplesse all natural fat substi tute was launched successfully in 1990 in The NutraSweet Company's own brand. Simple Pleasures frozen dairy dessert. Further worldwide launches of Simplesse as an ingredient in our food customers' products are expected in 1991. Fisher Controls began to show its earnings potential in 1990. and further gains are expected in 1991 and beyond. Our worldwide customers' drive for quality and environmental improve ment in their own businesses means major opportunities for Fisher's PROVOX instrumentation and highperformance valves that will offset the expected decline in capital spending in the United States. The long-term outlook for the Chemicals unit remains solid, but pro jections for 1991 are difficult to make. A U.S. recession in several key indus tries is under way. but business out side the United States, accounting for 4l percent of Chemical Company sales, is still growing. The depth and length of the U.S. recession and the price of oil-derived raw materials in the short term will be the real questions for the Chemicals unit in 1991. Our best esti mate now is for earnings in Chemicals to rebound in 1991. The company's balance sheet and cash flow continue to be strong. In 1990. we used excess cash to purchase 6.7 million shares and increased the dividend for the 18th year in a row. In the current uncertain economy, we've initiated contingency plans to hold costs in check. We have-not, how ever. taken actions that'would deter us from our long-term goals. Environmental issues are of great importance to this company. Through the Monsanto Pledge, we've committed ourselves to serious, reportable improvement aimed at an appropriate long-term target of zero environmental effect. Our job will be to take this leadership role and ensure that it doesn't result in an uncompetitive cost, but becomes a commercial advantage. We intend to do so. One of the most gratifying results of 1990 has been further progress in empowering our people at all levels to get their job done with maximum personal involvement and minimal bureaucracy. Results so far have been stunning in reducing costs and improving quality and safety. We're moving now to innovative reward systems designed to keep the momentum going. Empowerment promises to be a real competitive edge, indeed, a necessity in the worldwide marketplace. In this chairman's letter. I think it's worthwhile to restate our long-term objectives and to describe our progress -- "Strategies in Action." as our cover describes it -- to make sure that what turned out to be less than we had hoped for in 1990 can be understood as a variant. We aren't returning to the historic up-and-down annual perform ance of some years ago. when we were at the mercy of wide swings in com modity chemical products. It will be our job in 1991 and beyond to turn those words into results and get the trend lines back on target. Chairman and Chief Executive Officer March 7. 1991 MAR 002020 Our |ob In 1991 will be to get the trend lines back on target. 4I LAM018138 By Earle H. Harbison, Jr. President and Chief Operating Officer f hen we restructured W Monsanto Company in 1985, our intent was to create and develop a family of comple mentary businesses that would benefit from our existing knowledge bases and would respond to different economic forces to make the company substan All of our units are committed to Introducing significant new products and to meeting challenging flnandol targets. tially less cyclical. We believe our progress has been significant. In 1990, for example, when a variety of circumstances adversely affected our traditional agricultural products and chemicals businesses, our pharmaceuticals, food and process controls units came through with resounding sales and profits. In 1985. our embryonic business mix was but a promising strategy. Today, it's the touchstone of the enterprise. At Monsanto Agricultural Company, the new product pipeline 20 years. Today, this powerful organi zation is strengthening its reputation by providing its customers marketing and product-development support, while continually lowering its own manufacturing costs. The result of this customer focus is an array of exciting new foods for the healthy lifestyles of today and tomorrow. Fisher Controls International has become known to its customers as the quality leader in process control valves includes many candidates for regula tory approval. Some emanate from and instrumentation. That reputation is paying off: Fisher sales in 1990 set our established strength in innovative a record for the fourth straight year. chemistry: others will be in the first wave of genetically improved agricul tural products. Considered individually -- as an agricultural products business, a chemicals business, a pharmaceuticals Monsanto Chemical Company continues to provide the largest per centage of our sales, while opening doors into new markets through strate gic alliances and new-product develop ment to optimize growth opportunities. Searle's record performance in 1990 was just a hint of things to come. New product candidates abound. The unit's competitive standing has been established in the global pharmaceuti cals market. Searle is on track to become a leader in its industry. The NutraSweet Company started as an enterprise based on the most suc business, a food business and a process controls business -- these operating units have their own strategic impera tives and plans. Considered as pieces of a whole, they represent a successful comple mentary mix of businesses, as we intended when we restructured in 1985. All are committed to continuing new-product introductions of signifi cant value and to meeting extremely challenging financial targets. The pages that follow offer an exciting update on our "Strategies in Action." cessful new food ingredient of the past * c. * t x ti \-> V MAR 002021 LAM018139 Robert B. Shapiro, executive vice Dresident, Monsanto Company, and ^resident, Monsanto Agricultural Company. Next from the Agricultural unit's >ipeline is Dimension herbicide for control of crabgrass. Crabgrass on the left was treated with Dimension; crabgrass on the right was not. onsanto Agricultural Com Mpany 'MAC produces and markets agricultural products that are used in more than 100 countries. It is one-of the leading Agriculturalherbicide producers in the world. .......H __________ MACs leading product in 1990 was Roundup herbicide, the world's top-selling crop-protection chemical Company also known for its favorable environ - mental characteristics. Continued growth of Roundup is central to the unit's strategy- ofpreparing for increasing competition. In many parts of the world. MAC prepares its herbicide business for continued profitability, while organizing for a new wave of agricultural Roundup is subject to direct compe products. tition because ofpatent expiration. In the United States, the product's "method of use" patent offers protec streams. Dimension herbicide, which tion into 1991. and its "composition kills crabgrass without harming desir of matter" patent remains in effect able grasses, is awaiting regulatorv into the year 2000. approval in the United States. To prepare forpatent expirations. Other products on track for com ,1/dC increased volumes and lowered mercialization include a herbicide for unit costs and selling prices for transplanted rice; a fungicide for rice, Roundup. peanuts and turf; and a chemical "He see good growth for Roundup hybridizing agent for wheat. in the years ahead." says Robert B. Bovine somatotropin (BST has Shapiro, executive vice president. proceeded slowly through regulatory Monsanto Company, and president. channels. Once approval is granted, MAC. "ffe intend to build on our cost this biotechnology--derived product and marketing advantages to help this should improve the efficiency and great product achieve itsfullpotential." profitability of dairy farmers. Meanwhile, the new-product pipe In the area ofplant biotechnol line is ready to provide new revenue ogy. insect-resistant cotton will be the first of more than a dozen genetically improved crops that d/dCplans to bring to market in the 1990s. MAC reorganized in 1990 along product lines. In addition to focusing attention on product lines, the new structure will result in a lower cost base for MAC as it enters a new phase ofproduct introduction. "It 's our job to supply the technol ogies that will help growers provide better foods at lower costs to more people, using methods that are environ mentally sound, "says Shapiro. "And that's /ust what our new products in the 1990s are going to do. " MAR 002022 Agricultural Company Net Sales `dollars irt millions! ------------------------------$2,000 LAM01814Q The word is out: Monsanto has harvested a crop of insect-resistant cotton. Farmers are calling to ask when they can buy it. A new agricultural age has begun-- the age of commercial biotechnology. p* irezta-vSL. In*eet-rslstan cotton by Monsanto should aid formats, such as Brian Cobb of Texas, and the environment by reducing insecticide use. 002023 n the spring of 1990. a researcher Iplanted a cotton patch in central Texas, just as neighboring cotton farmers have done all their lives. In the falL he harvested his crop just as evervbodv else did. In between, however, he left out a customary step. He didn't spray to kill the caterpillar larvae of destructive insects such as the cotton bollworm and the tobacco budworm. \^hv? Because the seeds he had planted were genetically unproved by Monsanto to resist these specific insects Similar field trials were conducted across the U.S. cotton belt. Experimen tal crops were planted in Alabama. .Arizona. California. Louisiana and Mississippi. At harvest time, insect damage was measured. The Monsanto cotton showed only 4 percent insect damage, compared with 31 percent damage in the untreated control group. This new breed of cotton has demonstrated the potential to eliminate 35 to 40 percent of total insecticide use for the fifth-largest crop in the United States. At that rate, the use of chemi cals by U.S. cotton farmers would be reduced by almost 6 million pounds. ord spread quickly throughout the farming communitv. "I get phone calls from cotton farmers asking me howr soon thev can get seeds of insect-resistant 7 LAM018141 coiton for planring.'' says Dr. Robert T. Fralev. director, plant science tech nology. Monsanto Agricultural Company MAC 'if you're a Mississippi cotton farmer, you spray your fields seven to 10 times during the growing season to control insects. But you still lose 10 to 15 percent of your crop. Insectresistant cotton offers these farmers the promise of less insecticide use. higher yields and lower costs." Monsanto will license the crop srene to the leading cotton seed compa nies, which will sell the seed. This type of marketing is a new' experience for Monsanto, but. within the seed indus try-. interest is high. "] The specific gene that provides insect resistance in cotton should work just as well in other crops, such as com. However, com is a monocot. It sprouts with one seed leaf as opposed to dicots such as cotton, which sprout with two seed leaves. Plant biotechnologists had diffi culty transferring genes into com until 1990, w'hen Monsanto and the U.S. Department of Agriculture announced their success. Genetically improved com cells have now been nurtured into fertile com plants in Monsanto's St. Louis laboratories. This scientific breakthrough should speed the introduction of Com plants grown In Monsanto greenhouses were among the first in the world to accept genes introduced by scientists and to pass those genes on to the next generation of corn plants. valuable new traits into com and other monocots, such as wheat and rice. Sci entists are already developing the tech nology to make com insect-resistant. "One of the biggest unmet needs in a major crop is controlling the Euro pean com borer." Fraley say's. "In this case, we won t be displacing chemi cals; we'll be creating a way to control an important pest the farmer has not been able to control before." Insect-resistant cotton will be the first genetically improved crop to be submitted by Monsanto for regulatoryapproval. "By the mid- to late 1990s. we hope to receive approval for more than a dozen different combinations of crops and genetic traits." says Milton P. Wilkins, vice president, plant sciences division, MAC. Some of them will provide pest control; some, disease control. Others will provide better taste, storage poten tial or nutritional qualities. Still others will provide tolerance to Roundup her bicide. All of them will be the products of a revolutionary, world-class science. "We're looking at a technology that has the ability to reorder the markets it's applied to." Wilkins savs. "not merely to compete, but to reorder marketing competition, cost competi tion. price competition. "It has the potential to make much of what has come before obso lete. We're talking about a fundamen tal change that will create important new choices for growers, processors and consumers." Wilkins adds; "If you consider the overall food demands of the next five, 10. even 40 years, and the desire to continue the move toward an increas ingly clean environment, plant biotech nology offers a realistic promise of meeting those needs. "This is a timely technology, geared to the most fundamental worldwide needs and demands. And Monsanto is considered one of the worldwide leaders in this field." MAR 002024 LAM018142 Hobart G. Potter, executive vice president, Monsonto Company, ond president, Monsanto Chemical Company. The latest family of Chemical Company products, Flectron metallized materials, uses proprietary technology for applying thin metal coatings to fabrics, fibers and films. MAR 002025 onsanto Chemical Company M 'MCC is a S-t billion busi ness that provides the larg est percentage of Monsanto Company's sales. MCC makes and sells market- leading products in fibers, resins, plas tics. detergent ingredients and phos phates. rubber and process chemicals, and specialty chemicals. Company The current product mix is the outcome of a strategic decision in I9S5 to get out of commodity petro chemicals and to concentrate on MCC builds a five-year growth record with high- performance products that provide value to cus products, targeting new tomers beyond the sum oftheir growth from existing raw-material components. resources. "For example." says Robert G. Potter, executive vice president. Monsanto Company, and president. MCC. "we don't sell Saflex interlayer based on the cost of the resins required to make the sheet. "We sell the value ofa system that allows the customer to have a lami nated windshield or architectural glass that offers safety, acoustic protection and sun filtration. new-product research and development spending three times what it was in 1955. S300 million a year in capital reinvested in manufacturing facilities, and an average of 15 new products introduced each year. However, results in 1990 didn't keep pace with results in the previous four years because of two negative factors. The Iraqi invasion ofKuwait and the ensuing rise in oil prices led to runaway costs for MCC's most-used raw materials, propylene and benzene, both of which are petroleum derivatives. Also, the recessionary economy in the United States slowed demand for many MCC products. Despite these negative external forces. MCC perceives no inherent long-term weaknesses in its existing product portfolio. MCC is targeting new growth opportunities through knowledse-intensive ventures, as opposed to the capital- and people "The value of our products is intensive initiatives that had been determined by the way they perform the rule in the past. in our customers'final products. " MCC's intellectual insight will be The results generated by this coupled with existing resources inside portfolio of high-performance mate and outside the company to deliver rials speak for themselves: five years new products, new markets, new tech ofsales growth in continuing businesses nologies and an expanded global at 7percent compounded annually. presence throughout the 1990s. ft zrn Chemical Company Nat Sales '{iollart in millions) ------------------- iss>oo II 4.000 3400 h 2,000 II 1.000 II 0 LAM018143 Relying on technical knowledge, existing resources and strategic alliances. Monsanto Chemical Company finds new growth opportunities to reach global markets with high-performance products. n Jan. 1. 1986. Monsanto OChemical Company (MCC) took its place in the restruc tured corporate lineup. With approximately half the cor poration's sales. MCC s task was to be highly profitable immediately. It met that goal in the first year. By the end of 1989. MCC had put together four years of exceptional performance. Dur ing that time, many new opportunities had been identified outside the com pany's core businesses. Because of its success. MCC asked for and received the corporate goahead to reinvest its excess cash in its own growth initiatives. "But growth can be expensive and time-consuming." says Robert G. Potter, executive vice president. Monsanto Company, and president. MCC. "A new plant, for example, can cost millions of dollars to build and take three years to bring on-line." But MCC's customers didn't want Alliances have allowed MCC to grow while minimizing costs, maximizing speed and strengthening its competitive position. to wait years for new products to become available. For these reasons, the company began to target new growth through joint ventures and alliances. These collaborative efforts have provided a wide range of benefits. In basic research. MCC is work ing widi four laboratories in the Soviet Union to develop a thin protec tive surface that can be applied to MCC plastics. The surface will be as hard as diamonds, slicker than ice. more heatconductive than copper and as trans parent as glass. "There's no way we could afford this solely as an internal program." says Dr. Robert E.W. Jansson. director, technology, advanced performance materials. "We bought 20 years of experi ence from a pioneer in the technology. Because we re moving so fast, we should have product prototypes in 1991. We expect it to be a consider able business." For product development. MCC has entered into a strategic alliance with Vista Chemical Company to cre ate products that combine the rawfmaterial strengths of both companies. The first product of this alliance is Triax CBE\1. a flame-retardant plastic for use in business machine enclosures. MCC began marketing this prod uct in 1990. and at least tw'o global computer manufacturers have already specified Triax CBE\1 for their com puter and printer housings. Near their lab in Kiev, Soviet researchers display a surface coating being developed with Monsanto. LAM018144 Monsanto and Vista Chemical Company worked together to produce a flameretardant plastic alloy used in products such as this computer printer housing. I .?-- L C ~r X-i4r r For new market access. MCC entered a 50/50 joint venture with Toray Industries Inc. of Tokyo in 1990. Called Montor Performance Plastics Company, the new venture supplies nylon compounds to the North American manufacturing arms of Japanese automobile companies. Montor combines MCC's North American manufacturing and product strengths with Torav s long-standing supplier relationship with Japanese carmakers. MCC spent much of 1990 negoti ating a joint venture to merge the thermoplastic elastomer ,TPE; busi nesses of MCC and Exxon Chemical Company. The new stand-alone com pany is called Advanced Elastomer Systems. L.P. TPEs are substances that combine the properties of rubber with the moldability of plastic. They are used in products as diverse as under-the-hood parts in automobiles and plunger tips for hypodermic needles. The venture combines Monsanto s proprietary position in the higherperformance end of the product line with Exxon's sources of raw materials and market-leading raw-material technologies. The combined strengths of MCC and Exxon create a powerful entry in a field that is expected to attract intense global competition during the 1990s. These and other cooperative efforts enable MCC to act on growth opportunities while minimizing costs, maximizing speed and strengthening its competitive position globally. "We've proved." Potter says, "that we can be the foundation of the new Monsanto in profitability and cash generation, and be so successful at it that w'e can grow our own businesses at the same time. "And by using existing resources instead of investing massive amounts of capital, w'e have the potential for a high return." MAR 002027 LAM018145 Sheldon G. Gilgore, M.D., chairman, president and chief executive officer, Searle. Searle's presence In the Important German pharmaceutical market is stronger since Its acquisition of Heumann Pharma GmbH and Company. ire years ago. the new manage Fment team at Searle set out to make the company one of the world 's top-tier pharmaceutical pro viders by the mid-1990s. Searle, fueled Then the pharmaceutical world by a full changed. Mergers, acquisitions and product pipeline, assorted business ventures created b on schedule to global giants from the ranks of ordi nary pharmaceutical companies. This development hasn V slowed Searle's advance on world-class per become a top-tier pharmaceutical company by the mid- 1990s. formance and a leadership position. "Our objective to reach the top tier is the reference pointfor everyone in this company, "says Dr. Sheldon G. Gilgore. chairman, president and chief executive officer ofSearle. "The main strategy- and the best indication of that success is the development of a steady stream of important new therapeutic agents coming out of our product pipeline." More than 10 major new products were in clinical trials at the close of 1990. Five others were pending regula tory approval to enter major markets. Marketing approval is pending in Canada for Arthrotec. a non-steroidal anti-inflammatory drug for arthritis with built-in protection against gastric ulcers. Regulatory-filings for this product also were made in the L nited kingdom. France and other European markets. Maxaquin. a once-a-day. quinolone-class antibiotic in the fastest growing segment of the anti-infective market, is pending marketing approval in the United States. It was also sub mitted for approval in Canada, the United Kingdom. France. Italy and 10 other countries. Acquisitions in Italy and Germany and an increase in ownership in our business in Japan have added to Searle s competitive presence in each of the seven largest geographical markets in the world. These critical pharma ceutical markets are the United States. Japan. France. Germany. Italy, the L nited Kingdom and Canada. Searle's presence in these markets is supported by the company's empha sis on a combination of science and marketing. "Science drives our marketms and the marketplace influences our scien tific interests. " says Gilgore. Ihth a full product pipeline, a growing presence in the key global markets, a productive interplay of sci ence and marketing, and a manage ment style that fosters innovation and entrepreneurial spirit. Searle is pro ceeding on schedule toward its goal of achieving S3 billion in annual sales by the mid-1990s. "There's no question in my mind that we're well-positioned to attain that goal "says Gilgore. t l IU O w MAR 002028 Searle Net 5a!es Idaliurs in millions/ ------------------- $woo LAM018146 I Searle's marketing power pulls its products through the pack with a little innovation here, a steady diet of the basics there. Good seiance and good marketing combined to bring a new lower dosage of Calan SR antihypertensive drug, made In Puerto Rico, to market. Kerlone antihypertensive Adrug entered the L.S. market in 1990. it fulfilled the Searle objective of introducing at least one significant new product each year. Aerlone is a long-acting, once-adav beta blocker. It offers an advan tage in addressing health problems that occur during the body's daily "waking up process. However, competition among beta blockers is strong. An innovative marketing program was required to help Kerlone break through the pack. The result was Patient Plus, a program that offered Kerlone free of charge during the introductory period. Nothing like it had ever been done in the pharmaceutical industry. "it really was unusual." says Dr. John Olivieri of Oak Lawn. Illinois. "Searle was the first pharmaceutical company to have a program like this. I've put a lot of people on Kerlone beta blocker, and I think they'll stick with it." That kind of marketing innova tion doesn't spring from a vacuum. At Searle. it builds from an effective, efficient, ongoing practice of basic marketing disciplines -- the kind of marketing strength that propelled Calan SR. a different type of anti hypertensive drug, from introduction in 198" to S432 million in U.S. sales in 1990. Says Product Director Frederick [~13 LAM018147 A. Howaveck. Jr.: "The best way to began on a lower dose/lower price prove your worth is to do it with the line extension. patients that are toughest for a doctor In March 1990. a 180-milligram to treat. That's exactly how we posi \mg; version of Calan SR was intro tioned the launch of Calan SR anti duced as the low-dosage alternative hypertensive drug." to the original 2-lO-milligram dosage. The physician's most difficult In clinical studies, efficacy of the two hypertension cases are the elderly and dosages was similar. patients with high fluid retention. "Calan SR 180 mg is now the They were the bull's eye of the initial primary product we promote," says target audience for Calan SR calcium Howaveck. "It's the optimal effective channel blocker. dosage for the majority of patients In the launch phase, all advertis with mild hypertension and. therefore, ing. medical education and sales force fits nicely with the Joint National Com contact with physicians drove home the mittee recommendations." core message: Calan SR is an effective "In four years, product position agent for the most difficult hyperten ing has evolved from focusing on the sion patient. patients who are more difficult to treat "Once we developed a niche to showing physicians how Calan SR for the most difficult patients, we is appropriate for a much broader expanded the positioning to all hyper array of patients, including those with tension patients." says Howaveck. Richard E. Hinson, vice president, marketing, United States, adds: "First you hit the bull's eye, then you work vour way out through the rings of the mild hypertension," Hinson notes on the progress the product has made. "In essence, the product moved from the specialty' niche to the broadest scope of hypertension cases." More than 8,000 physicians. Including Dr. John Olivieri of Illinois, have new j target, taking your cues from the mar Marketing innovation and mar patients on Kerfone I ketplace itself." keting basics. Positioning and reposi antihypertensive For example, in 1988, the U.S. tioning. Good science intertwined with drug, first offered Joint National Committee on the good marketing. That is how' Searle is through Searle's Detection, Evaluation and Treatment moving toward the top tier of pharma Patient P/us of Hypertension issued a set of recom ceutical companies. program. mendations for physicians who treat hypertension. Among those recommendations: that calcium antagonists, such as Calan SR. should be added to the first line of agents to treat hypertension, and that the physician's goal should always be to use the fewest drugs at the lowest doses. On the heels of those recommen dations. Calan SR wras repositioned as an appropriate first-line agent for mild hypertension, and development MAR 002030 14 j Robert E. Flynn, chairman and chief executive officer, The NutraSweet Company. The Fat Freedom Eskimo Pie Sandwich, enjoyed here by two St. Louis students, is the first frozen dairy dessert novelty to use Simplesse all natural fat substitute. O TheLti Dec. l-t. 1992. NutraSweet I brand sweetener goes off patent in the l hited States. Thereafter, the most successful new food ingredient of the past 20 years will be subject to generic competition, as well as continuing competition from other sweeteners, in its larsest market. From the outset. The .\utraSweet Company Company has adhered to a branded ingredient strategy- as a way to make its sweetener stand out in a market The NutraSweet Company plans to maintain a that was destined to become more powerful sweetener competitive. Today: the trademarks franchise while NutraSweet and the Swirl Logo are expanding to serve recognized by 96 out of 100 con healthy lifestyles sumers in the L nited States. worldwide. "Our overwhelming strategic priority is to maintain a powerful sweetener franchise." sa vs Robert E. by helping to steer them through the Flynn, chairman and chiefexecutive regulator)-process. officer of The .XutraSweet Company. In manufacturing, by investing in This priority is being advanced process technologv to solidify the worldwide on every front: unit's low-cost manufacturing position. In customer service, by building a In research and development, by level of quality and responsiveness that working to develop the next genera takes the buying decision beyond price tion of high-potency sweeteners. and availability. There is a future beyond the sweet In marketing, by assisting customers ener business, too. as The .XutraSweet to develop product formulations and Company moves toward its vision of being a healthy lifestyles company. In 1990. the company intro duced its second commercial product. Simplesse all natural fat substitute, which can provide good taste with less fat and cholesterol in foods such as cheese, butter, salad dressing and yogurt. Simple Pleasures, a frozen dain-dessert that includes Simplesse as an ingredient, debuted as a low-fat. lou -cholesteroL good-tasting alterna tive to super-premium ice cream. The company's line o/Desserve reduced-calorie desserts will be dis tributed on a test basis in 1991 by Mrs. Fields, the baked goods entrepreneur. Through these and other products. The .\utraSweet Company expects to become known as the global leader in providing innovative food choices that contribute to healthier lifestyles. NutraSweet Company Net Salas (dollars in millions) $1,000 C O N F ID E N T , MAR 002031 15 LAM018149 The NutraSweet Company demonstrates an axiom of globalization: Think globally, act locally. This story began with a market short on immediate opportunity but long on potential he collective pulse of The TNutraSweet Company's inter national marketing team quick ened in 1987 as the members looked at Brazil and saw three indicators of market potential for NutraSweet brand sweetener. Brazil w'as the third-largest con sumer of carbonated soft drinks in the world. The population was youthful. And with 5.000 miles of beaches, body consciousness was widespread. Only one thing was missing from The NutraSweet Company's checklist for market potential: a diet segment. In Brazil, diet products were sold only in pharmacies, only with a physician's prescription, and only with a large color bar across the labeL as if to warn people away. One of the lessons The NutraSweet Company learned as it pursued a strat egy of globalization was that evenarea of the w'orld has its own special circumstances. The company that shies away from unfamiliar problems will never be truly global. So off to Brazil the company went. diet segment or not. There was. at least, already a Monsanto presence in the country. Corporate Monsanto had opened its Brazilian offices more than 25 years before. With S200 million in annual sales. Monsanto's businesses There was no such thing as a diet segment in Brazil when The NutraSweet Company arrived. were a growing component of the Brazilian economy. For NutraSweet. MonsantoBrazil associates provided corporate, legal, financial, human resources, administrative and manufacturing support. "If NutraSweet had had to start from zero here.'' savs Francisco Cespede. Monsanto-Brazil's financial director, "it would have been much more difficult. " With the help of Monsanto-BraziL The NutraSweet Company applied for government approval of NutraSweet brand sweetener as a food ingredient. Approval was granted in August 1988. but not exactly the way the com pany wanted it. The rectangle logo with the red and white swirl for NutraSweet wasn't allowed to appear on products. Without the ability to use the logo, the branded ingredient strategy of The NutraSweet Company -- the very core of the company's approach to the market -- couldn't be implemented. A logo-approval campaign was the first order of business for the com pany's Brazilian business manager. Moses Benzaquen. After a determined campaign led by Benzaquen. the logo for NutraSweet brand sweetener was approved for use on food labels in July 1989. Soon, the Swirl Logo was every where -- on billboards, on bumper stickers, on kites, even on a ban ner towed by an airplane over the renowned Brazilian beaches. But there was more to Benzaquen's job than introducing this one product. As a food ingredient. NutraSweet brand sweetener requires diet prod ucts. which didn't exist in Brazil. Therefore, a top priority for Benzaquen Since 1989, NutraSweet brand sweetener has become an ingredient in more than 150 Brazilian products. LAM018150 MAR 002032 was to build a diet segment from zero. The beaches were no small part of the Benzaquen strategy. He explains: "In the south of the country, people spend their vacations, their weekends, much of their leisure time on the beaches. In mv opinion. Brazil is a country where people are most concerned about their personal appearances. "Ni if you show up with a new product and tell people that the taste i- the same as sugar and they'll be avoidim: a lot of calories, it's not hard to persuade them to change. By the end of 1990. the Brazilian diet segment included 150 products m l-t cateizorie- that u^e 100 percent .\utraSirrct brand -weetener. .''ale- of .\utr(iSweet brand sweetener have grown dramatically, more than doubling since logo approval. Expectations are high for 1991 because of anticipated conver sions of major carbonated soft drink brands to formulations using 100 percent AutraSweet. In Mav 1900. The NutraSweet Company also opened its first produc tion facility outside the Lnited States -- in Sao Jose do~ Campos. Brazil. This plant can supply 100 metric tons of .\utraSuret brand sweetener annually to a growing family of good tasting. low-calorie products that didn t exist until The NutraSweet Company found a way to execute its global strategy in a country without a diet segment. Francisco C6spede (left) and Moses Benzaquen are part of the team that made NutraSweet brand sweetener a key ingredient In such Brazilian products as Diet Dolly, the first soft drink in Brazil to use 100 percent NutraSwoet. It %Sr LAM018151 MAR 002033 Larry W. Solley, chairman, president and chief executive officer, Fisher Controls International. Pulp and paper mills, such as Canadian Pacific Forest Products in British Columbia, are key markets for Fisher Controls' PROVOX instrumentation. M A mhy is a company that lllff makes and sells calces and W W instrumentation part of the Monsanto strategy'? That question has been asked about Fisher Controls International many times since the .Monsanto restructuring in /9b.5. The answer, which may hare preceded the endence. is that Fisher remains a part of Monsanto because it fits strategi cally. and it works financially. Fisher has strengthened the finan cial part of the answer by steadih' impronng its return on capital ROC. moring two or three percentage points a year toward its target. "There is no question that we are on track to achiere our 20 percent ROC objectire. "says Larn- If. Solley. chairman, president and chief executire officer of Fisher Controls. In 1990. ROC was 13.4 percent. The strategic part of the answer is gaining strength on sereral lerels. First. Fisher has mored away from being orerreliant upon one industry -- in this case, oil and gas. Before, when oil and gas had a bad year. Fisher's results suffered too. The company con- Fisher Controls International Fisher demonstrates its value to Monsanto with strategic significance and financial performance. tinues to be a major supplier in oil and gas. but it has increased its scope to a cross section of industries that offers both growth and stability. Second, the growing emphasis on continuous quality improrement at Fisher as well as at other Monsanto operating units blurs the line between supplier and customer. Fisher and Monsanto Chemical Company, in par ticular. harejointly pioneered manu facturing solutions that Fisher now markets to other industries. Third. Fisher's presence around the world supports Monsanto 's objec tire to be a global corporation. Solley says. "Ereryone talks about being global, but we really are. " Fisher backs that claim with worldwide sales and sernce offices, manufacturing facilities and educational centers. Fourth. Fisher's undisputed top position worldwide m control ralres and its leading position in segments of the instrumentation business support Monsanto's commitment to market leadership. And fifth. Fisher's growing fam ily of ralue-added. problem-solring products brings it increasingly in line with Monsanto s strateg}' for a perfor mance-oriented. high-margin portfolio of businesses. It does work, and it does fit. < x S Ur w Fisher Controls Net Sales `(Mlnrx tn millions' $1,000 18 MAR 002034 U*N\0^52 Using time as a competitive advantage. Fisher Controls International announces a new product in advance of the r1 ergulations it's desis^ med to address. Fisher employees saw the chance to turn new environmental regulations into a market opportunity. > i i j he L.S. Clean Air Act Amend voted upon by the U.S. Congress, Tments. siirned into law bv Presi representatives from Fisher Controls dent George Bush in November International were attending open 1t)CH). carry an estimated cost of comeetings of a committee formed to pliance of S25 billion annually bv the develop standards for "fugitive emis t ear 2005. sions" of hazardous air pollutants as Thouiih an expense to industry, pan of the final clean air regulations. those dollars also represent poten Fugitive emissions are those gases tial income to the companies that that escape in minute amounts from will provide the means to meet the the seals of any pump, valve or flange. lawrequirements. Current regulations issued by the Before the new requirements L.S. Environmental Protection Agency became law. before thev were even EPA' require that leaking pumps. valves or flanges be repaired if organic fugitive emissions to the atmosphere are 10,000 parts per million or greater. New' regulations to be issued under the Clean Air Act Amendments will require that such equipment be repaired if fugitive emissions of anv chemical identified as hazardous bv the EPA are 500 parts per million or more, a reduction of 95 percent. Also, the number of hazardous air pollutants was increased from eight to 189. Here's what that means: If vou MAR 002035 LAM018153 operate a plant with potential fugitive emissions of any hazardous air pollu tant. you will be required to test everv pump. valve and flange to determine w hether repairs are required. In January 1990. Fisher's industry managers for the chemical industry. Meredith Miller and Bruce Grumstrup. began attending the open sessions about the standards. Miller and Grumstrup were only the tip of the Fisher iceberg. They w'ere feeding timely information to a speciallv organized team of design engineers, drafting professionals, lab engineers and technicians, and marketing professionals. Thev had the backing of manage ment to do whatever was necessary to develop a new control valve that would reduce fugitive emissions to meet the new standards. The objective wasn't extraordinarv. but the timing was. Fisher was actually developing the product in parallel with the negotiations over the standard. The result: In September 1990. at the control valve industrv's major trade show of the year. Fisher announced newlv modified valves designed for compliance with regula tions to be issued under the new law. "What we've done in 1990 will ultimately differentiate the company in the customer's eyes," Miller says. leaped beyond responding to customer needs to anticipating them. "both because of the technical prod ucts and services we provide and because of the understanding we have of the customer's requirements. This is indicative of the positioning of Fisher Controls for the 1990s." Some credit for the speed of these developments can be given to a pair of prominent strategic concepts at fisher: concentration on key industries and an ongoing quality effort. In this case. Fisher's chemical industry managers looked beyond customer requirements to their source, the EPA. and saw change coming. They no longer merely responded to customer needs: they anticipated them. The potential market for newfugitive emission control valves from Fisher is huge. Everyone w'ho processes anything on the EPA's list of hazardous air pollutants will have to comply with the new standards. Fisher initially will have the only control valves specifically designed to meet the new EPA standards for fugitive emissions, which means Fisher products will be specified in the design phase of new projects. The scope of Fisher's market potential includes the entire installed base of control valves that handle hazardous air pollutants, as well as all new construction in this field. It all happened thanks to a cus tomer focus that not only adapts to change, but gets to the source of it. i- u..' (:. L-. A new Enviro-Seal packing system in a Fisher control valve enables processing plants to achieve drastic cuts in emissions that can escape around valve seals. LAM018154 nl h* S ft ft z 6 MAR 002037 WHANCm SICTION CONTIMTS_____________________ Page Management Repon 22 Audit Committee Repon 22 Independent Auditors' Opinion 23 STATIMINT OF CONSOUDATIDINCONU 24 Review of Consolidated Results of Operations 25 Operating Unit Segment Data 27 Geographic Data 34 STATIMINT OP CONSOUDATID FINANCIAL POSITION 36 Review of Changes in Financial Position 37 STATIMINT OP CONSOUDATID CASH FLOW 38 Review of Cash Flow 39 Quarterly Data 40 STATIMINT OF CONSOUDATID SHARIOWNIRS' IQIIITY 41 NOTIS TO FINANCIAL STATIMINTS 42 Significant Accounting Policies 42 Basis of Consolidation 42 Currency Translation 42 Principal Acquisitions and Divestitures 42 Restructuring 42 Depreciation and Amortization 43 Inventory Valuation 43 Income Taxes 43 Short-Term Debt and Credit Arrangements 44 Long-Term Debt 44 Pension Benefits 45 Other Postretirement Benefits 45 Stock Option Plans 46 Earnings per Share 46 Capital Stock 46 Commitments and Contingencies 47 Supplemental Data 47 Segment Information 47 FINANCIAL SUMMARY 48 Unless otherwise indicated by the context, "Monsanto " means Monsanto Company and consolidated subsidiaries, and "the Company'' means Monsanto Company only. All dollars are in millions, except per share data. Monsanto Company and Subsidiaries 21 MANAOIMINT RWORT Monsanto Company management is responsible for the fair presentation and consistency of all financial data included in this Annual Report in accordance with gener ally accepted accounting principles. Where necessary, the data reflect management s best estimates and judgments. Management also is responsible for maintaining a system of internal accounting controls with the objectives of pro viding 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 data. Cost-benefit judgments are an important considera tion in this regard. The effectiveness of internal controls is maintained bv: (1) personnel selection and training; (2 ) division of responsibilities: .3) establishment and com munication of policies: and (4: ongoing internal review programs and audits. Management believes that Monsanto s system of internal accounting controls as of December 31. 1990 is effective and adequate to accomplish the above described objectives. Richard J. Mahoney Chairman and Chief Executive Officer February 22.1991 Francis A. Stroble Senior Vice President and Chief Financial Officer AUDIT COMMITTEE REPORT The Audit Committee is composed of five non-employee members of the Board of Directors and met four times in 1990. It reviews and monitors Monsanto's internal account ing controls, financial reports, accounting practices and the scope and effectiveness of the audits performed by the independent auditors and internal auditors. The Committee also recommends to the full Board of Directors the appoint ment of Monsanto's principal independent auditors and approves in advance all significant audit and non-audit services provided by such auditors. As ratified by shareowner vote at the 1990 Annual Meeting, Deloitte & Touche were appointed as independent auditors to examine, and express an opinion as to the fair presentation of. the consol idated financial statements. This opinion follows. The Audit Committee discusses audit and financial reporting matters with representatives of the Company's financial management, its internal auditors and Deloitte & Touche. The internal auditors and Deloitte & Touche meet with the Committee, with and without management repre sentatives present, to discuss the results of their examina tions. the adequacy of Monsanto's internal accounting controls and the quality of financial reporting. The Com mittee 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 recommendation of the Committee, the Board of Directors has approved the financial section. Buck Mickel Chairman. Audit Committee February 22. 1991 i t MAR 002038 22 | Monsanto Company and Subsidiaries LAM018156 i i i HIDiPBUDINT AUDITORS' OPINION To the Shareowners of Monsanto Company : We have audited die accompanying statement of consoli dated financial position of Monsanto Company and Subsid iaries as of December 31. 1990 and 1989. and the related statements of consolidated income, shareowners' equity and cash flow for each of the three years in the period ended December 31. 1990. These financial statements are the responsibility of the Company s management. Our responsibilitv is to express an opinion on these financial state ments based on our audits. We conducted our audits in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assur ance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, such consolidated financial statements present fairly in all material respects the financial position of Monsanto Company and Subsidiaries at December 31. 1990 and 1989. and the results of their operations and their cash flows for each of the three years in the period ended December 31. 1990. in conformin' with generally accepted accounting principles. Deloitte & Touche Saint Louis. Missouri February 22. 1991 MAR 002039 as/ LAM018157 Monsanto Company and Subsidiaries 23 STATIMINT OP CONSOUDATI0INCOMI [Dollars in millions, except per share. Net Sales Cost of goods sold Cross Profit Marketing expenses Administrative expenses Technological expenses Amortization of intangible assets Operating Income Interest expense Interest income Other income -- net Income Before Income Taxes Income taxes Net Income Earnings per Share The abore statement should be read in conjunction with pages 42 through 47 of this report. 1990 $8,995 5,366 3.629 1.270 523 692 235 909 (179) 52 27 809 263 $ 546 $ 4.23 1989 S8.681 5.035 3.636 1.153 516 672 226 1.078 (182) 57 62 1.015 336 S 679 S 5.01 1988 $8,293 3.0-2 3.321 1.013 373 638 231 955 (174' 36 66 893 302 S 591 S 3.13 KIY FINANCIAL STATISTICS Percent Change from Prior Year: Net Sales Operating Income Net Income Earnings per Share As a Percent of Net Sales: Cross Profit Marketing. Administrative and Technological Expenses Research and Development Expenses Operating Income Net Income Effective Income Tax Rate Return on Shareowners' Equity 1990 4% (16) (20) (16) 40 28 7 10 6 33 13.6 1989 5% 13 15 21 32 27 7 12 8 33 17.6 1988 9% 30 36 47 40 26 7 12 7 34 15.4 Kb =* IU 3 Kl IU A. if? 24 Monsanto Company and Subsidiaries ab 020i LAM018158 RfVIIW OP CONSOLIDATED RESULTS OP OPERATIONS llff INCOME AllOW EXPECTATIONS, BUT STILL THIRD BIST While 1990 net income was below management s earlier expectations, it represented the third-best net income and the second-best earnings per share year in Monsanto s historv. Net income in 1990 declined 20 percent and earnings per share decreased 16 percent compared with that of 1989. The decline in net income was caused by dramati cally higher costs for petrochemical-based raw materials during the latter part of the year, extreme weather condi tions in kev world agricultural markets and. to a lesser extent, depressed automotive and construction industries in North America. However. Pharmaceuticals. Fisher Controls and NutraSweet had record performances in 1990. Although benefiting from Monsanto's treasury stock pur chase program, return on shareowners' equity (ROE) was lower than that of 1989. Notwithstanding the fact that ROE declined to 13.6 percent in 1990. management s goal of reaching and sustaining a 20 percent ROE remains unchanged. hit sales sit mcorp Net sales set a record for the fourth consecutive year, up 4 percent in 1990. Sales volume increased 2 percent. The selling price increase was entirely due to the effect of trans lating non-U.S. dollar denominated sales into a generally weaker U.S. dollar. Net sales in markets outside the United States continued to be significant and represented 42 percent of Monsanto's 1990 total net sales. Monsanto's worldwide sales growth was led by Pharmaceuticals, largely as a result of growth in the family of Calan calcium channel blockers (up 28 percent ) and Cvfofec ulcer preventive drug (up 52 percent). Fisher Controls net sales increased with higher selling prices and sales volume. Sales volume of NutraSweet brand sweetener increased 11 percent, while average selling prices decreased 6 percent. Sales volumes of Agricultural Products were hurt by adverse weather conditions. In addition, selling price reductions for Roundup, a glvphosate-based herbi cide. were implemented, principally in Europe. Despite the effect of adverse weather conditions, worldwide sales volume of Roundup was slightly above that of 1989. Chemicals net sales were about level with the prior year. Chemicals benefited from continued strong European busi ness. but was hurt by lower demand caused by the depressed North .American automotive and construction industries. UNUSUAL EVENTS UNFAVORABLY AFFBCT OPERATING INCOME Operating income declined 16 percent in 1990. Operat ing results were helped by improvements in sales volume and mix. However, higher raw material and other manufac turing costs, lower manufacturing capacity utilization and a 10 percent increase in marketing expenses reduced earn ings compared with 1989's. The higher marketing expenses were concentrated on NutraSweet s Simplesse all natural fat substitute and Simple Pleasures frozen dairv dessert and on Pharmaceuticals product launches. As mentioned above, net sales increased, in part, because of the effect of translating non-U.S. dollar denominated sales into a generally weaker U.S. dollar. Conversely, pan of the increase in manufacturing costs and marketing and administrative expenses is the result of the same currency translation effect. Agricultural Products operating income declined pri marily due to the modest sales volume growth in glyphosate herbicides not compensating for the reductions in selling prices for those products. In addition. Agricultural Products operating income was hurt by low use of new manufacturing capacity and higher raw material costs. Chemicals operating income was hurt by increased costs of petroleum-based raw materials, lower sales volume and lower manufacturing capacity utilization. Pharmaceuticals operating income improved as a result of the continued sales volume growth. Fisher Controls operating income surged 48 percent as a result of selling price improvements, strong customer demand and improved production turn around of booked orders. NutraSweet operating income increased slightly, as the benefit of higher sales volume was reduced by costs associated with new product introductions and lower average selling prices. "Other income -- net" decreased in 1990. due primar ily to higher 1990 currency losses and higher losses from affiliated companies in which Monsanto does not have management control. Gains from divestitures in 1990 were comparable to those of the prior year. A $45 million pre tax gain ($31 million after-tax. or $0.24 per share) on the sale of certain assets of a Monsanto joint venture in Japan was the principal divestiture in 1990. COMMITMENT TO NEW PRODUCT DEVELOPMENT CONTINUES New product development and commercialization continues to be the most important strategic priority for Monsanto. Research and development expenditures were $612 million in 1990. 7 percent of net sales, a significant level which management believes reflects its strong, long term commitment to research and development. A major focus continues to be the discovery and development of pharmaceutical and agricultural products. Research in existing product technology and new applications also con tinues across all business units. Universitv collaborations and opportunities for licensing are an integral part of Monsanto's research program. The result is that Monsanto has more potential products in the research and develop ment pipeline now than at any other time in its historv. MAR 002041 Monsanto Company and Subsidiaries 25 LAM018159 REVIEW OP CONSOLIDATED RESULTS OP OPERATIONS (continued; niOR YEAR REVIEW--1989 WAS RECORD YEAR Monsanto net sales and earnings reached record levels in 1989. Net sales increased, principally from higher sales volume (up 9 percent for retained businesses), as demand was strong across most business and geographic markets. Roundup and other glyphosate herbicides experienced a 25 percent worldwide sales volume increase, more than compensating for the effect of selling price reductions. Net sales of the family of Calan calcium channel blockers grew about 50 percent. Strong consumer demand for NutraSweet brand sweetener resulted in 20 percent world wide volume growth. Chemicals 1989 net sales remained strong. Fisher Controls net sales were level with 1988. but excluding divestitures, net sales grew 14 percent on continuing operations. Chemicals. Fisher Controls and Pharmaceuticals selling prices increased, while selling prices declined for glyphosate-based herbicides. Alimet animal feed supplement and NutraSweet brand sweetener. Selling price increases gener ated $29 million in additional sales revenue, in spite of the $131 million adverse effect of translation of sales denominated in other currencies into a generally stronger U.S. dollar. Operating income was a record $1,078 million in 1989. the fourth consecutive year of improvement. Monsanto s improved sales mix was principally responsible for the higher operating income because a larger portion of sales were from higher-margin products in the Agricultural Products. NutraSweet and Pharmaceuticals units. Higher selling prices and lower raw material costs also contributed to the improvement. Fisher Controls operating income in 1989 was more than double its 1988 income. Agricultural Products. Chemicals. NutraSweet and Pharmaceuticals had record operating income from continuing businesses. Marketing expenses increased in 1989 due to greater sales through commission agents, higher promotional expenditures and higher costs associated with product introductions. Administrative expenses in 1989 increased, principallv due to the higher cost of various employee incentive programs and. to a lesser extent, inflation. Other income was down slightly in 1989 compared with that of 1988. The effect of higher currency losses and lower miscellaneous income exceeded the benefit of significantly higher gains from 1989 divestitures. The principal 1989 divestiture gain was the analgesics business, which resulted in a pre-tax gain of $56 million ($36 million after-tax. or $0.2~ per share,;. The record profit in 1989. aided by the treasury stock purchase program, improved ROE to 17.6 percent 16.b percent excluding the analgesics divestiture gain) from 15.4 percent in 1988. v !*T*T X ANALYSIS OP CHANOB IN EARNINOS NR SHAKE SETTEE (WORSE) 1990 vs. 1989 1989 Vs. 1988 Sales-Related Factors: Selling prices Sales volume and mix S 0.72 ' 0.77 S 0.13 1.9- Total Sales-Related Factors 1.49 2.10 Cost-Related Factors: Raw material costs Manufacturing capacity utilization Other manufacturing costs Marketing, administrative and technological expenses (0.57) (0.38) (0.74) (0.70) 0.09 :o.i4(0.22' ; 1.09 Total Cost-Related Factors (2.39) (1.36 Divestitures 0.11 (0.20 Operating Income (0.79) 0.54 Interest expense Interest income Other income -- net Change in income taxes Change in shares outstanding 0.02 (0.02) (0.17) (0.03) 0.21 (0.04: 0.05 (0.02, 0.08 0.26 Change in Earnings per Share $(0.78) S 0.8- Increase was entirely due to the effect oftranslating non-U.S. dollar denominated sales into a generally weaker U.S. dollar. SALES VOLUME INDEX (7955= 1.0 1.4 1.3 1111.2 1,1 1.0 0.9 1988 1989 1990 SELLINO PRICE INDEX .7955= 1.0/ 1.3 1.2 1.1 1.0 0.9 1988 1989 1990 RAW MATERIAL COST INDEX ,'19S5 = 1.0/ 1.3 1.2 III1.1 1.0 0.9 1988 1989 1990 26 Monsanto Company and Subsidiaries MAR 002042 LAM018160 OPUATINO UNIT SIOMINT DATA Agricultural Products Chemicals Fisher Controls NutraSweet Pharmaceuticals Electronic Materials Biotechnology Product Discovery Corporate Total Net Sales 1990 1986 1988 $1,676 4.035 927 933 1.424 S1.717 4.065 852 869 1.178 S1.546 3.989 840 736 973 209 $8,995 S8.681 S8.293 Operating Income (Loss) 1990 1989 1988 $327 S 432 297 49" 95 64 183 180 93 6 (52) (47' (34) ;54; S424 48b 29 154 162) 11 (47) (40> $909 SI.078 S955 Research and Development 1990 1989 1988 $151 115 17 41 228 52 8 S162 104 r 39 218 4" 11 Si 53 108 19 35 198 6 4" 9 $612 S598 S5"5 Agricultural Products Chemicals Fisher Controls NutraSweet Pharmaceuticals Electronic Materials Biotechnologv Product Discovert' Corporate Total Total Assets 1990 1989 1988 $1,668 3.163 647 1.296 2.085 59 318 SI.489 2.993 634 1.344 1.814 54 276 S1.261 2.883 682 1.484 1.604 217 67 263 $9,236 S8.604 S8.461 1990 $134 340 39 113 112 8 4 $750 Capital Expenditures 1989 1988 S148 300 29 49 71 6 4 $123 329 25 36 56 10 *7 4 S607 $590 Depreciation and Amortization 1990 1989 1988 $124 260 35 218 87 13 2 $106 247 31 215 79 10 2 $110 235 37 209 79 20 11 2 $739 S690 $703 The abore data should be read in conjunction with the Segment Information note to the financial statements on page 47. 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 reg ulations 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 finan cial statements. Accordingly, the depreciation and amorti zation expenses reported above would be greater if the expenses were stated on a current cost basis. The 1988 operating results of the Electronic Materials business, which was sold in March 1989. included the 10 months ended October 31. 1988. This business was not reported as a discontinued operation in the Statement of Consolidated Income because the effect was immaterial. The principal factors that accounted for the operating units' performance in 1990 and 1989. along with the fac tors that are expected to affect operating results in the near term, are described on the following pages. 1990 NIT SALKS (percent by operating unit; MAR 002043 Monsanto Company and Subsidiaries LAM018161 OPIRATINO UNIT IIOMINT DATA -continued AORICULTURAL PRODUCTS 1990 1989 1988 Net Sales: Crop chemicals Animal feed ingredients $1,508 168 SI.558 159 SI.377 169 Total Operating Income $1,676 327 SI .717 432 SI.546 424 The Agricultural Products operating unit is a leading worldwide producer and marketer of herbicides, including Roundup. Lasso. Far-Go. Avadex and Machete herbicides. More than half of the unit's herbicide net sales are made to markets outside the United States. Weather conditions in the agricultural markets throughout the world affect sales volume. The unit also produces animal nutrition and growth products, which include Ahmet animal feed sup plement and Santoquin feed antioxidant. APRICU1TURA1 PRODUCTS WKT SAilS (dollars in millions L'.S. Europe Rest of World S2.00II ----------------------------------------------------------------------------------------------- 1988 1989 1990 In the fourth quarter of 1990. the Board of Directors approved a restructuring of the Agricultural Products unit. The restructuring included a reorganization of the crop chemicals business along product lines and a decision to sell the animal feed ingredients business. In line with the restructuring and the related organizational changes, results for the crop chemicals and animal sciences subunits have been combined to provide more meaningful reporting of the unit's results. The costs of the restructuring were $108 million, with the largest component related to a reduction in employ ment. The sale of the animal feed ingredients business is expected to result in a gain in excess of the restructuring costs. Accordingly, the restructuring costs have been deferred until 1991. when management expects to sell the animal feed ingredients business. Agricultural Products net sales and operating income in 1990 decreased 2 percent and 2-1 percent, respectively. Droughts in Europe and in the western United States, extremely wet weather in the southern United States, and a freeze in Florida that damaged the citrus crop combined to limit the growth in sales volume of glyphosate herbicides to a modest increase. Reductions in selling prices on most glyphosate products and new formulations continued to make the herbicide cost-effective for weed control for a broader range of crop, industrial and residential uses. Actual customer usage of glyphosate herbicides grew about 14 percent, as customers reduced their inventories. Operat ing income in 1990 declined primarily due to the sales vol ume growth in glyphosate herbicides not compensating for the ongoing strategically planned selling price reductions for those products. In addition, operating income was hurt by low use of expanded plant capacity and higher raw material costs. Net sales for Lasso herbicide decreased 5 percent. Selling prices increased for Lasso herbicide, but sales volume declined 13 percent. Sales volume of Lasso declined due to a shift in the timing of customer purchases and a slight drop in market share. Net sales of Avadex herbicide decreased 17 percent because of adverse weather in North America, a poor farm economy in Canada and poor eco nomic conditions in the Soviet Union. Alimet animal feed supplement experienced significant sales volume growth, but competitive pricing pressures reduced average 1990 selling prices. However, average selling prices at December 1990 were higher than those of the prior year-end. Total manufacturing capacity utilization for Agricultural Products fell to 60 percent from 74 percent in 1989. Biotechnology -produced bovine somatotropin (BST). a naturally occurring protein that has been shown in research studies to enhance the efficiency of milk produc tion in dairy cows, is awaiting approval by the U.S. Food and Drug Administration (FDA). Expenditures for BST and the ongoing research and development costs associ ated with porcine somatotropin (PST), a feed efficiency and growth rate enhancer that has been shown in research studies to result in leaner pork, continued to adversely affect financial results. Expenditures for BST and PST 28 I \fnnxnntf> ('twtpanv and SnhsiHtaries 002044 JHAR onRATINO UNIT MOMINT DATA /continued were about the same as in the prior year. The BST-related assets are significant. In 1989. net sales increased 11 percent, and operating income improved 2 percent. Sales volume of Roundup and other glvphosate herbicides was up 25 percent despite dry weather in northern Europe. Selling price reductions for glvphosate products stimulated demand, resulting in the expansion of existing markets and the entrance into new markets. Sales volume for Lasso herbicide was strong because of increased plantings of com and soybeans in the United States. Sales volume of Alimet animal feed supple ment grew substantially in 1989. but net sales and earnings declined because of lower selling prices. Expenditures for BST and PST were higher in 1989 than in 1988. OUTLOOK - AGRICULTURAL PRODUCTS Market research indicates that the slowdown in the 1990 sales growth of Roundup herbicide was essentially a weather-related problem that will improve when weather conditions return to normal. Roundup herbicide will con tinue to be a major product for many years to come. The remaining patents protecting glvphosate herbicide expire in 1991 (in the United States and certain other countries) and 2000 fin the United States). Agricultural Products has a significant number of new products in the research and development pipeline and some that are currently in the initial stages of commercial ization. The focus continues to be on a number of tradi tional as well as biotechnology-related, products. Products in the pipeline or in the initial stages of commercialization include Dimension herbicide for the effective control of crabgrass. which is now awaiting registration by the U.S. Environmental Protection Agency (EPA'j. and Expedite lawn care products, launched in late 1989. which consist of containers of premixed herbicides along with lightweight backpacks and sprayer lances. BST has been approved in seven countries. However, it has not yet been approved in the United States. BST will have significant value to the dairy industry through the reduction of milk production costs, but it continues to meet opposition from vocal factions that resist any products using biotechnology'. Monsanto is preparing to commer cialize BST immediately after its approval by regulatory bodies. The cost to maintain that state of readiness will continue in 1991. The animal feed ingredients business, comprised of Alimet animal feed supplement and Santoquin feed anti oxidant. is expected to be sold in 1991. CHIMICAU 1990 Net Sales: Detergents and phosphates S 509 Engineered products 137 Man-made fibers 971 Plastics 850 Resin products 527 Rubber and process chemicals 634 Specialties 407 Total Operating Income $4,035 297 1989 S 492 134 98b 855 512 62~ 459 S4.065 49- 1988 S 465 109 962 887 509 588 469 S3.989 48b The Chemicals operating unit produces a wide range of chemicals, plastics, fibers and other products listed in the table above. The unit's principal strengths are nvlon carpet fiber, high-performance plastics. Saflex plastic interlayer, detergent ingredients, phosphates, rubber chemicals and maleic anhvdride. CMIMICAL* NIT SAUS (dollars in millions; U.S. S5.000 I Europe I Rest of World 4.000 3.000 2.000 1.000 1088 1989 1990 Chemicals net sales were essentially level with those of the prior year, but operating income in 1990 was down 40 percent from 1989's record performance. Net sales were adversely affected by the soft automotive and commercial construction sectors of the North American economy. Chemicals net sales in Europe and Asia-Pacific remained strong. The effect of translating non-U.S. dollar denomi nated sales into a generally weaker U.S. dollar increased net sales S100 million. *** 002045 UAW1018163 Monsanto Company and Subsidiaries | 29 OMRATINO UNIT SIOMINT DATA 'continued\ Operating income in 1990 was hurt by rapid escalation in the cost of petrochemical-based raw materials during the latter part of 1990. which occurred because the crisis in the Middle East caused the rapid escalation of world oil prices. To a lesser extent, operating income was hurt by lower sales demand for plastics and resins used in the North American automotive industry: and plastics, resins and fibers used in the construction industry. Average raw material costs increased about 6 percent during 1990. Sell ing prices were increased in late 1990. but those increases did not take effect quickly enough to counter the effect of higher petrochemical-based raw material costs. Late in 1990. some raw material costs showed signs of improving: however, the overall situation was still highly volatile. The lower customer demand resulted in reduced manufacturing capacitv utilization. Capacity utilization, an important fac tor for Chemicals profitability, was 78 percent in 1990. ver sus 82 percent in 1989. Operating profit margin declined to 7 percent, versus 12 percent in 1989. Detergents and phosphates net sales improved in 1990. Detergent ingredient product sales grew, but reduced Brazilian demand resulted in lower phosphate sales. Man-made fibers net sales in 1990 were slightly below those of 1989 because of moderate weakness in industry pricing, primarily as a result of softness in final consumer demand. Operating income was adversely affected by the escalating cost of petrochemical-based raw materials during the latter part of 1990. Nylon carpet staple sales volume was higher than that of the prior year due to the successful introduction of a new patented product. Traffic Control Fiber System, which is specifically engineered to prevent matting. Plastics suffered from lower sales demand by the North American automotive and construction markets. However, plastics net sales remained strong in Europe. In addition, plastics profitability* was hurt by higher-priced raw materials. Sales volume of Saflex plastic interlayer followed the downward North .American economic trend in both the automotive and commercial construction industries, but this effect was substantially recouped by performance in other markets. Market and technology programs that focused on the architectural and automotive businesses have helped sustain market share. Rubber chemicals sales volume followed the same down ward trend as manv of Chemicals other businesses. Maleic anhydride sales growth continued. In addition to the effect of high raw' material costs experienced by rubber and pro cess chemicals during the latter part of 1990. temporary manufacturing difficulties also increased costs. Specialties net sales declined in 1990 as a result of the 1989 divestiture of the analgesics business, which had 1989 net sales of S70 million. Competitive pricing pres sures. along with temporary manufacturing problems, suppressed operating income. In 1989. net sales in the Chemicals business increased 2 percent over 1988. Sales volume and selling prices were strong for most businesses, although demand in the North American automotive markets slowed somew'hat late in the year. Most raw material costs peaked in the first quarter, then generally decreased throughout the remainder of 1989. On average, raw material costs for the full year 1989 were slightly lower than those of 1988. Operating income grew by 2 percent over 1988. but with slightly lower capac ity* utilization. The operating profit margin was unchanged at 12 percent of net sales. OUTLOOK - CHEMICALS The Chemicals operating outlook for 1991 is difficult to predict. Maintaining market share in a soft U.S. economy will be a difficult challenge. However, the verv high raw material costs experienced in the latter part of 1990 have declined in early 1991. Improvement of manufacturing performance and prudent management of environmental activities are also major challenges that will affect operat ing income for 1991. In December 1990. the thermoplastic elastomer busi ness (with 1990 net sales of $96 million) was merged with Exxon Chemical Company's elastomer concentrates business in a joint venture named Advanced Elastomer Systems. L.P. Monsanto s share of this joint venture s future income will be reported in "Other income -- net" in the Statement of Consolidated Income and excluded from Chemicals operating income. mar 002046 > 30 \fon.cnntr> Cnrrwnnv nnH Subsidiaries LA!\n0l8l64 0FBKAT1MO UNIT CIOMINT DATA continued plSHIR CONTROLS 1990 1989 1988 Net Sales: Final control svstems Instrumentation Other Total Operating Income S490 222 215 S927 95 S436 208 208 S852 64 $404 190 240 S840 29 Fisher Controls is a leading worldwide producer of process control equipment, which includes industrial valves and regulators. PROf'OX electronic process instru mentation. Permea gas separation systems, and sendee and repair operations. USHER CONTROLS NIT SAHS (dollars in millions IDL'.S. 51.000 I Europe Rest of orid --- 1988 1989 1990 Fisher Controls recorded a strong performance in 1990. Operating income rose 48 percent on net sales growth of 9 percent. Selling price improvements, strong customer demand in the process industries and improved production turnaround of booked orders contributed to this growth. Final control systems net sales were up 12 percent, and instrumentation net sales were up 7 percent compared with those of 1989. New products launched in 1990 included Titan, a major enhancement to PROl'OX distributed control system, and the R/SiOO regulator. In addition. Fisher Controls service and repair business continued to expand during 1990. In 1989. operating income more than doubled from the previous year. Principal factors were strong selling prices and higher demand, especially for final control systems and PROfOX electronic process instrumentation. The effect of these gains was reduced somewhat bv higher raw material costs. Comparisons with 1988 are affected by net sales of S9b million and an operating loss of Sb million in 1988 for businesses subsequently divested. Excluding divesti tures. net sales grew 14 percent in 1989 on continuing operations, with significant strength in the chemicalpulp and paper markets. OUTLOOK - fISHIR CONTROLS Fisher Controls business is dependent primarily upon w'orldwide capital expenditures in the chemical, oil and gas. pow'er and the pulp and paper industries. The crisis in the Middle East is expected eventually to stimulate demand in the oil and gas industry, while depressing demand in the chemical industry. The outlook for overall demand is affected bv the events in the Middle East and the fact that, historical!}. Fisher Controls performance has lagged the capital spending in its customers' markets by six to nine months. In addition, sophisticated control systems require significant lead time for manufacture and installation. As a result, booked orders in backlog is a key indicator for the next vear's business performance. These orders remained strong in final control systems, regulators and process instrumentation at the end of 1990. NUTRASWirr 1990 1989 1988 Net Sales Operating Income $933 183 S809 180 $736 154 The NutraSweet Company manufactures and markets AutraSweet brand sweetener, which is sold worldwide, and Equal low-calorie table-top sweetener, which is sold in the United States. Simplesse all natural fat substitute was introduced in the United States in 1990. Sales of A utraSweet brand sweetener in the rapidly growing European market are made by a 50 percent-owned Euro pean joint venture and therefore are not included in NutraSweet net sales and operating income. NutraSweet's share of the European joint venture's financial results are reflected in "Other income -- net" in the Statement of Consolidated Income. NutraSweet continued its strong performance in 1990. Net sales were up 7 percent and operating income grew mar 002047 CCKTllitN lLa.L LAM018165 Monsanto Company and Subsidiaries 31 OMRATINO UNIT SIOMINT DATA `continued 1 2 percent. Over 90 percent of net sales were in the l .S. market. The higher operating income from a sales volume increase of 11 percent for A utraSweet brand sweetener was mostlv negated by 6 percent lower worldwide average sell ing prices and launch costs associated with Simplesse all natural fat substitute and Simple Pleasures frozen dairy dessert. The volume increase for AutraSweet brand sweet ener was led bv strong demand from diet carbonated soft drink markets. Sales of Simplesse, consisting primarily of Simple Pleasures, were affected by the delayed introduction and heavy competition in the fat-free market. In 1989. NutraSweet net sales were up 18 percent over 1988 and operating income was up 17 percent. The vearto-vear increase in operating income resulted from a 20 percent increase in volume led by strong demand from diet carbonated soft drink markets for NutraSweet brand sweetener and continued decreases in production costs. These factors were somewhat negated by lower worldwide average selling prices for NutraSweet brand sweetener and higher marketing expenses, which were partially attributable to prelaunch costs for Simplesse all natural fat substitute. OUTLOOK - NUTRAfWIRT Demand for lower-calorie products worldwide is pro jected to increase. This projection presents growth oppor tunities for NutraSweet brand sweetener. While the United States will remain the principal market for NutraSweet brand sweetener in 1991. efforts to develop international markets will continue. Projects to expand production capacity are under way. NutraSweet s aspartame use patents have already expired in most countries and will expire in the United States in December 1992. Competition from generic aspar tame and other sweeteners likely will lower selling prices in the United States over time. However, consumer trends and brand-name recognition bode well for the future growth of low-calorie products containing NutraSweet brand sweetener. Uaunches of additional products containing Simplesse all natural fat substitute are expected in the United States and Europe in 1991. The ' generally recognized as safe" GRAS status of Simplesse in frozen dairy desserts was affirmed b\ the FDA in earlv 1990. An additional petition requesting the FDA to affirm the GRAS status of Simplesse in additional categories was filed in 1990. and affirmation is expected in 1991. The use of Simplesse all natural fat substitute is already permitted by regulatory authorities in many countries, including the United Kingdom. Germany. France and Japan. PHAKMACIimCAU Net Sales Operating Income , Loss 1990 SI.424 93 1989 SI.178 0 1988 S973 ,02 Searle is a research-based, worldwide pharmaceutical business concentrating on drugs for the treatment of cardi ovascular. gastrointestinal immuno-inflammatory. central nervous system and infectious diseases. DHADMACWmCALt NiT AL1 [dollars in millions I U.S. $1,500 Europe Rest of World 1988 1989 1990 Pharmaceuticals continued to make dramatic gains in operating results in 1990. bolstered by continued sales growth, especially for the family of Calan calcium channel blockers for hypertension and Cytotec ulcer preventive drug. Pharmaceuticals net sales were up 21 percent in 1990. Sales volume improved about 15 percent. Net sales for Calan calcium channel blockers for hypertension, sold in the North American market, reached new records in 1990. Net sales for Calan increased 28 percent, to $467 million, reflecting strong demand for the newly intro duced 180-milligram dose. Worldwide sales for Cytotec ulcer preventive drug were $91 million, up 52 percent from 1989. Kerlone. a new beta blocker for the treatment of high blood pressure, was launched in the United States. In addition, net sales in 1990 included full-year results for a German pharmaceuticals company acquired in October Monsanto Cnmpnnv and Subsidiaries c mar 002048 LAM018166 OPERATING UNIT SIGMINT DATA continued 198*5. This acquisition increased vear-to-year Pharmaceuti cals net sales S58 million in 1990. Searle sells a low-calorie table-top sweetener outside the United States, primarily under the name CandereL Sales in 1990 outside the United States of this product which is marketed by NutraSweet in the United States under the brand name Equal were S132 million, up 18 percent from 1989. Pharmaceudcals operating income reached S93 million in 1990. compared with S6 million in 1989. driven prin cipally bv the increased sales level. The 1990 sale of nonstrategic product lines in Italy and France contributed to the gain in operating income. Costs were incurred for the launch of Kerlone and other product development activities. Pharmaceuticals continues to invest significantly in research and development (RScDi. Pharmaceuticals R&D expenditures were 16 percent of the unit s net sales in 1990. This spending level demonstrates the commitment to prod uct discovert- and development that is aimed at securing sound long-term financial performance for Pharmaceuticals. In 1989. Pharmaceuticals exceeded $1 billion in net sales and recorded its first year of operating profitability since the acquisition of Searle in 1985. Net sales grew 21 percent, driven bv an approximate 50 percent increase in net sales for the family of Calan calcium channel blockers for hyper tension. significant growth for Cytotec ulcer preventive drug and a 32 percent growth in net sales of Canderel lowcalorie table-top sweetener outside the United States. As with most new pharmaceutical product launches, the cost of initial medical education and technological programs associated with the Cytotec launch were more than the profit contribution from early sales growth of Cytotec. Sales volume increases were achieved in all major geo graphic markets. Net sales in 1989 included full-year results for the Italian pharmaceuticals company formed in September 1988 and the results from October 1989 of an acquired pharmaceuticals company in Germany. OUTLOOK - PHARMACEUTICALS Calan participates in an increasingly competitive market for antihypertensive drugs characterized by frequent new product introductions and the potential for generic compe tition. Total prescriptions for Kerlone beta blocker for the treatment of hypertension are expected to grow in the United States. In 1991. Searle expects to launch Maxaquin. the first once-a-day anti-infective drug in the quinolone class, in several countries outside the United Mate.'. Other new products are expected to emerge in ll,91 from Searle s developmental pipeline, including a new product for the treatment of arthritis called Arthrotec. a combi nation of Searle"s Cytotec ulcer preventive drug and diclofenac, the world s best-selling arthritis medication. Zolpidem, the first of a new class of sleeping aids, is nowpending approval at the FDA and may be launched in the United States as early as 1991. Products currently in various stages of scientific develop ment include products to treat abnormal heart rhythms, pain, anxiety disorders. .Alzheimer's disease, hypertension, inflammatory diseases such as arthritis, asthma and ulcer ative colitis, thrombosis, acquired immune deficiency syndrome (AIDS ) and other viral diseases. A collaborative discovert' program with Washington University in St. Louis continues, encompassing almost 40 research projects. The collaboration with Oxford University in the United Kingdom is pursuing a newly emerging technolog)' related to the role of body sugars in biological processes. This technology could help to unlock the mechanisms of many diseases. Improved participation in the Japanese pharmaceuticals market continues to be an important focus for Searle. Toward that end. Searle increased its ownership interest in its Japanese subsidiary in 1990. BIOTECHNOLOGY PRODUCT DISCOVERY The mission of Biotechnolog)' Product Discover)' 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 biotechnolog)- to protide target proteins for the development of novel pharmaceutical chemicals. The strat egy for plant-related agriculture is to generate proteins, the products of which are expressed in geneticallv trans formed plants proriding unique agronomic characteristics. The chemical research programs proride novel highperformance chemicals and unique approaches to manu facturing processes and waste minimization. When product leads and new technologies are refined and clarified, thev are transferred to the operating units for further develop ment and commercialization. MAR 002049 LAM018167 C.CrMf Monsanto Company and Subsidiaries 33 UOOUPHU United States Europe-Africa Asia-Pacific Canada Latin America Inter-area Eliminations Corporate Total Net Sales to Unaffiliated Customers 1990 1989 1988 S5.683 1.995 561 413 341 S3.590 1.800 546 430 315 S5.219 1.801 592 3~7 304 $8,995 S8.681 S8.293 Operating Income (Loss) 1990 1989 1988 $639 S 721 235 282 42 60 32 50 17 23 (22) '4 (34) 54) So38 245 74 37 27 126 40 $909 SI.078 S955 Total Assets 1990 1989 1988 $6,348 S6.16Q 2.061 1.65" 495 388 169 150 271 254 (426) ,290 318 2-76 $6,240 1.44" 478 HO 242 (358 263 $9,236 S8.604 S8.461 The data above are prepared on an "entity basis." which means that net sales, operating income and assets of a legal entity are assigned to the geographic area where the legal entity is located (for example, a sale from the United States to Latin America is reported as a U.S. sale,. Inter-area sales between Monsanto entities have been excluded from the above table: they are shown in the Segment Information note to the financial statements on page 47. 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, prin cipally from the United States. Sales and operating income for the geographic segments does not include the financial results from those joint ven ture companies in which Monsanto does not have manage ment control, the largest of which are in Latin America and Asia-Pacific. Monsanto s share of the income or loss of these companies is reflected in "Other income -- net" in the Statement of Consolidated Income (a loss of SI million for Latin America and income of S3 million for Asia-Pacific in 1990.. Monsanto s share of these unconsolidated net sales in 1990 was S219 million for Latin America and S187 million for Asia-Pacific. UNITED STATES RESULTS WERE MIXED Net sales by entities in the United States were 2 percent higher in 1990 versus those of the prior year. Sales volumes grew for Pharmaceuticals. NutraSweet and Fisher Controls, and selling prices were higher in certain product lines. Sales volumes declined for Chemicals. Agricultural Products net sales were essentially level with the prior year's. Direct export sales from the United States to nonU.S. third party customers were S491 million. S467 million and S502 million for 1990-1988. respectively. Monsanto's U.S. operating income declined 11 percent, primarily due to higher Chemicals raw material costs, lower Chemicals sales volumes and lower manufacturing capacity utilization: Net sales by entities in the United States increased 7 percent in 1989 on the strength of sales volume growth of herbicides. NutraSweet brand sweetener. Calan antihyper tensive drugs and Cytotec ulcer preventive drug. Chemicals and Fisher Controls products also had a solid year in net sales and operating income in 1989. EUROPE-APRICA PROPIT APPECTED BY DROUOHT Operating income for 1990 was 17 percent below' the record level of 1989. primarily due to lower sales volume for glyphosate and Avadex herbicides and low'er selling prices for glyphosate herbicides. Operating income was helped by higher sales of Pharmaceuticals and Fisher Controls products. Chemicals performance wras in line with the record of 1989. Net sales in 1990 were 11 percent ahead of 1989's due to the S202 million effect of translating non-U.S. dollar denominated sales into a weaker U.S. dollar and the fullvear sales results of the German pharmaceuticals company acquired in October 1989. This acquisition increased MAR 002050 34 Monsanto Company and Subsidiaries LAM018168 OEOORARHIC DATA *continued vear-to-vear net sales $58 million in 1990. Net sales also increased for Fisher Controls. Pharmaceuticals and Saflex plastic interlayer. Drought in western Europe had a severe impact on glyphosate herbicide applications. In addition, poor economic conditions in the Soviet Union resulted in reduced herbicide shipments to that country. Glyphosate herbicide net sales were also affected by reductions in average selling prices. Net sales in 1989 were level with those of 1988. princi pally because of divestitures, which had 1988 net sales of $138 million. Higher sales volumes were recorded for gly phosate herbicides, rubber chemicals. Saflex plastic inter layer. and Canderel low-calorie table-top sweetener, while Fisher Controls sales increased for continuing businesses. In addition. 1989 net sales included the full-vear sales of the Italian company formed in late 1988. Operating income for 1989 was a record despite higher BST costs. ASIA-PACIFIC BUSINESS EXPANDED In 1990. Asia-Pacific net sales increased 3 percent, but operating income declined 30 percent. The decline in Asian entities 1990 operating income was principally due to unfavorable sales product mix. Net sales in 1990 increased $31 million as a result of the acquisition of certain chemi cal businesses of a Monsanto joint venture in Japan. Net sales from this acquisition more than compensated for the loss of net sales in this area from the analgesics business, which was divested in 1989. Despite poor weather and a deteriorating farm economy in Australia, sales volume for glyphosate herbicides in Asia-Pacific was about the same as that of the prior year. However, herbicides suffered from lower selling prices and a customer shift toward purchases of lower-margin glyphosate herbicides. Net sales of Phar maceuticals and Fisher Controls products were about the same as in the prior year. In 1989. net sales and operating income in Asia-Pacific declined 8 percent and 19 percent, respectively, due to the earnings lost when certain nonstrategic businesses were divested. Glyphosate herbicide sales increased 22 percent due to rapid volume growth in several countries, particu larly in Australia. Fisher Controls net sales grew 19 percent. On a continuing product basis. Chemicals net sales were up 15 percent across a diverse group of products. CANADA RESULTS SUFFER DUE TO WEATHER AND ECONOMIC CONDITIONS___________________________ Net sales in Canada were down 4 percent in 1990. while operating income declined 36 percent. Weaker markets for housing and automobiles lowered Chemicals results, while unfavorable weather conditions and lower net farm income levels hurt Agricultural Products results. Customers' new capital investment in Canada declined, slowing the growth of Fisher Controls products, but strength in export markets negated this decline. Pharmaceuticals achieved significant sales increases for Isoptin SR calcium channel blocker (sold as Calan SR in the United Statesi and Cytotec ulcer preventive drug. Net sales and operating income increased 14 percent and 35 percent, respectively. in 1989. Strong overall demand, broader applications for glyphosate herbicides and increases in planted acreage for cereal grain produced higher net sales and operating income for Agricultural Products. Strong capital investment and exports from Canada contributed to growth in sales volume for Fisher Controls. Chemicals net sales and operating income were stable. Pharmaceuticals also experienced sales growth for Cytotec and Isoptin. LATIN AMERICA HURT BY RECESSIONARY ENVIRONMENT Net sales by Uatin American entities increased 8 percent, while operating income declined $6 million. The decline in operating income was principally due to lower profit on export sales. Net sales of agricultural products increased 10 percent in 1990. Chemicals net sales and operating income improved, despite lower sales volume due to the recessionary business environments in Brazil and Argentina, as the new governments moved to open their economies and drastically reduce inflation. In 1989. net sales increased $11 million compared with those of 1988. while operating income declined $4 million. Net sales and operating income for herbicides grew in 1989. but profitability for Chemicals and Pharmaceuticals declined. Government-controlled selling price increases were not adequate to compensate for the effect of high inflation rates on costs throughout Latin America. MAR 002051 C.OK';'tJiiKViAL LAM018169 Monsanto Company and Subsidiaries 35 fTATIMINT OP CONSOUDATID FINANCIAL POSITION lDollars in millions, except per share; Assets Current Assets: Cash, time deposits and certificates of deposit Short-term securities, at cost which approximates market Trade receivables, net of allowances of $35 in 1990 and $23 in 1989 Miscellaneous receivables and prepaid expenses Deferred income tax benefit Inventories Total Current Assets Intangible Assets, net of accumulated amortization of $1,259 in 1990 and $1,029 in 1989 Investments in Affiliates Other Assets Property, Plant and Equipment: Land Buildings Machinerv and equipment Construction- in -progress Total property, plant and equipment Less accumulated depreciation Net Property, Plant and Equipment Total Assets ______________ Al December 31. 1990 198 $ 183 21 1.498 370 171 1.270 3.513 S 198 55 1.30 295 19-t 1.197 3.248 1,425 248 558 1.682 204 29" 112 1.254 5.779 475 7.620 4.128 3,492 $9,236 105 1.100 5.370 362 6.937 3.764 3.173 $8,604 Liabilities and Shareowners' Equity Current Liabilities: Accounts pavable Wages Income and other taxes Miscellaneous accruals Short-term debt Total Current Liabilities Long-Term Debt Deferred Income Taxes Other Liabilities Shareowners' Equity: Common stock -- authorized. 200.000.000 shares, par value $2: issued. 164.394.194 shares in 1990 and 82.197.097 shares in 1989 Additional contributed capital Accumulated currency adjustment Reinvested earnings Treasurv stock, at cost (38.616.140 shares in 1990 and 16.050.656 shares in 1989) Total Shareowners' Equity Total Liabilities and Shareowners' Equity The above statement should be read in conjunction with pages 42 through 47 ofthis report. 36 | Monsanto Company and Subsidiaries v 'v $ 584 237 95 692 582 2,190 1.652 640 665 329 714 188 4.421 (1,563) 4,089 $9,236 $ 514 223 126 554 505 1,922 1.471 621 649 164 877 24 4,120 (1.244) 3.941 $8,604 MAR 002052 LAM018170 IVIIW or CHANOU IN FINANCIAL POSITION MONSANTO MAINTAINS STRONG FINANCIAL POSITION Monsanto's financial position remained strong in 1990. 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 at year-end 1990 was at the same level as that of the prior year-end. Receivables increased primarilv as a result of higher fourth quarter 1990 sales versus the prior year's fourth quarter sales. The increase in current liabilities principally related to the Agricultural Products restructuring and increased short-term debt. Intangible assets continued to decline in 1990. due principallv to amortization of the NutraSweet aspartame patent, which had a recorded value of $346 million at yearend 1990. Net propern , plant and equipment increased in 1990. as $750 million of capital additions exceeded depre ciation. In addition, net property, plant and equipment increased $90 million from the effect of non-U.S. dollar currency translation. The increase in other assets in 1990 resulted primarily from the deferred costs of the Agricul tural Products restructuring and higher miscellaneous long-term investments. As mentioned in the notes to financial statements on pages 44 and 45. Monsanto has not yet adopted Statement of Financial Accounting Standards (SFASl No. 96. the new income tax accounting standard, which must be adopted in or before 1992. or SFAS No. 106. the accounting standard for postretirement benefits other than pensions, which must be adopted in or before 1993. Total short- and long-term debt at year-end 1990 was S258 million higher than that of the prior vear-end. The additional long-term debt was used principally for capacity expansions. To maintain adequate financial flexibility and access to debt markets worldwide. Monsanto management intends to maintain an "A " debt rating. Important factors in establishing that rating are the ratio of total debt to total capitalization, which was 35 percent, and the interest cov erage ratio, which was 4.8 in 1990. Monsanto uses financial markets around the world 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 44,. These credit facilities proride the financing flexibility to take advantage of investment opportunities that may arise and to satisfy future funding requirements. Monsanto's commitments and contingencies are described in the notes to financial statements on page 47. Monsanto continually evaluates risk retention and insur ance 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 companies and the appropriate amount of risk to retain. Since 1985. Monsanto's liability insurance has been on the "claims made " policy form. Management believes that the current levels of risk retention are appropriate and are consistent with those of other companies in the various industries in which Monsanto operates. Monsanto's liquidity, financial position and profitability are not expected to be affected materially by the current levels of risk retention. Monsanto's principal financial target is a sustained return on shareowners' equity (ROE) of 20 percent or greater. The ROE and other key Financial statistics are presented in the table below. COMMON STOCK SPLIT TWO-FOR-ONE During 1990. Monsanto split its common stock twofor-one through a stock dividend. This stock split resulted in $165 million of additional contributed capital being reclassified in 1990 to common stock in the Statement of Consolidated Financial Position. KEY FINANCIAL STATISTICS 1990 1989 1988 Return on Equity (ROE) Net income divided by average shareowners' equity Working Capital Current assets less current liabilities Current Ratio Current assets divided by current liabilities Trade Receivables-Days Sales Outstanding Fourth quarter trade receivables divided by fourth quarter net sales times 30 days Inventory Turnover Ratio Cost of goods sold divided by inventory Interest Coverage Income before interest expense and income taxes divided by total interest cost Cash Provided by Operations/Total Debt Total Debt/Total Capitalization* 13.6% $1,323 1.6 63 4.2 4.8 49% 35% 17.6% S1.326 1.7 61 4.2 5.9 52% 33% 15.4% SI.117 1.6 61 4.2 5.5 66% 34% *TotaI capitalization is the sum of short-term debt, long-term debt and shareowners' equity. mar 002053 Monsanto Company and Subsidiaries | 37 LAM018171 STATIM1NT OF CONSOUDATID CASH FLOW lDollars in millions Increase (Decrease) in Cash and Cash Equivalents 1990 Operating Activities: Net income Add income tax expense Income before income taxes Adjustments to reconcile to Cash Provided by Operations: Income tax payments Items that did not use cash: Depreciation and amortization Other Working capital changes that provided (used) cash: Accounts receivable Inventories Accounts payable and accrued liabilities Other Nonoperating pre-tax gains from asset disposals and other items Cash Provided by Operations S 546 263 809 (244) 739 2 (189) (75) 142 54 (134) 1.104 Investing Activities: Property, plant and equipment purchases Acquisition and investment payments Investment and property disposal proceeds Cash Used in Investing Activities (750) (201) 100 (851) Financing Activities: Net change in short-term financing Long-term debt proceeds Long-term debt reductions Treasury stock purchases Dividend payments Other financing activities Cash Used in Financing Activities 77 523 (351) (326) (242) 17 (302) Increase (Decrease) in Cash and Cash Equivalents Cash and Cash Equivalents*: Beginning of year End of year (49) 253 $ 204 The abore statement should be read in conjunction with pages -t2 through -t~ of this report. The effect ofexchange rate changes on cash and cash equivalents was not material Cash pawnents for interest (net ofamounts capitalized) were SI66 million. SITI million and S16T million. for the wars 1990-19iS. respectively. *lncludes cash, time deposits, certificates ofdeposit and short-term securities. 1989 S 679 336 1.015 (294) 690 26 (131) (90) (48) (H) (114) 1.037 (607) (211) 307 (511) (50) 261 (196) (335) (221) 47 (494) 32 221 $ 253 1988 S 591 302 893 (235 703 21 (46 (136 8b 6-7 (49' 1.304 (590': (100) 121 (569) 53 21 (1671 (45-) (211) 24 (737) (2) 223 $ 221 Monsanto Company and Subsidiaries MAR 002054 LAM018172 MVIIWOF CASH FLOW CASH PLOW BIMAIHID STRONG Monsanto's cash flow for the three-vear period of 1990- 1988 is shown in the Statement of Consolidated Cash Flow on the preceding page. CASH PROVIDID BY OPKHATIONS /dollars in millions, SI.500 1988 1989 1990 Cash provided by operations was strong, totaling SI.104 million. Cash from operations in 1990 was gener ated principally by Chemicals, with Agricultural Products and NutraSweet also contributing significantly. Monsanto s operations have generated sufficient cash to fund existing businesses, growth-related research and investments. Management expects cash provided by operations, supple mented by periodic borrowings, to be adequate to fund future requirements. Investment and property disposals in 1990 generated S100 million of cash. The principal proceeds in 1990 were related to the sale of certain assets of a joint venture in Japan: in 1989. to the divestiture of the Electronic Materials and the analgesics businesses: and in 1988. to the sale of the Australian commodity chemicals and plastics businesses. Major uses of cash for the three-year period included capital expenditures, treasury stock purchases and divi dends. The acquisition of a German pharmaceuticals company in 1989 and the formation of an Italian pharma ceuticals company in 1988 were also major uses of cash. Monsanto s 1990 capital expenditures focused on improved technology. ; pacin' expansions, and environmental projects an aled S750 million. The largest project was the ex| slon of production capacity for the NutraSweet business. Long-term debt proceeds in 1990 included $193 million of commercial paper to be refinanced on a long-term basis: S132 million in 30-year variable-rate industrial develop ment bonds: and $156 million from the issuance of mediumterm notes. In 1989. long-term debt proceeds included $99 million in 20-year 87s percent debentures and $50 million from the issuance of medium-term notes. COMMITMINT TO INVIROHMINT CONTINUES Monsanto is subject to various law s and governmental regulations concerning environmental matters, product safety and employee health. Monsanto anticipates that increasingly stringent requirements will be imposed upon Monsanto and industry in general. Monsanto is dedi cated to a long-term environmental protection program that reduces emissions of hazardous materials into the envi ronment. as w-ell as to the remediation of identified existing environmental concerns. In 1988. management committed to a 90 percent reduction in toxic air emissions by the end of 1992, a goal that will require the development and installation of new technology and additional capital expenditures. Reduction of 39 percent was accomplished through 1989. Compilation of data for 1990 is not com plete; however, further reduction has been achieved. The cost to accomplish this target is not expected to materially affect operating results in any given year. Some of these projects will lower operating costs and improve operat ing efficiency. Expenditures in 1990 were approximately $85 million for environmental capital projects and approximately $265 million for operation and maintenance of environ mental protection facilities. Monsanto estimates that during 1991 and 1992 approximately $85-100 million per year will be spent on additional capital projects for environ mental protection. Monsanto has received notices from the Environmental Protection Agency that it is a potentially responsible party (PRP) at 74 Superfund sites. Monsanto s future remedia tion expenses are not expected to have a material effect on future operating results because of (1) the low percentage of material attributable to Monsanto at most sites relative to that attributable to other parties. (2) the strong financial capabilities of the other PRPs at most sites, and (3) the accrued liability discussed below. Monsanto spent $27 million in 1990 for remediation of waste disposal sites. Most of these expenditures relate to the Chemicals unit, and similar or greater amounts can be expected in future years. Monsanto's policy is to accrue these costs in the accounting period in which the responsibility is established and the cost is estimable. At December 31. 1990, Monsanto's balance sheet included an accrued liability of approximately $120 million for the remediation of waste disposal sites. Monsanto's liquidity, financial position and profitability are not expected to be affected materially by the cleanup costs for Superfund and other waste disposal sites. MAR 002055 LAM018173 Monsanto Company and Subsidiaries [39 MVIIW OP CASH FLOW lcontinued. COMMON STOCK PURCHASE PROGRAM COMTIHUSS In December 1989. the Board of Directors authorized the purchase of 10 million shares of Monsanto common stock. Bv vear-end 1990. Monsanto had purchased 6.7 million shares at a cost of S326 million. Since June 1987. Monsanto has purchased 32.7 million shares at a cost of SI.457 mil lion. Management believes the stock purchase program represents a sound economic investment for Monsanto's shareowners. Stock purchases favorably affect earnings per share and aid in the achievement of management's 20 per cent return on equity' target. DIVIDKNDS INCREASE FOR THE I8TH CONSECUTIVE YEAR Monsanto has paid dividends on its common shares with out interruption or reduction since 1928. and has increased the dividend per share in each of the past 18 years. Divi dend pavout for 1990 was 22 percent of cash provided by operations and 44 percent of net income. Monsanto s divi dend policy reflects a desired long-term payout percentage based on Monsanto's expectations of future growth and profitability levels. In anv individual vear. additional con sideration is given to expected financial position and results, working and fixed capital needs, scheduled debt repayments and economic conditions, including inflation. Monsanto's common stock is traded principally on the New York Stock Exchange and is listed on the exchanges in Tokyo and seven European cities. The number of shareowners of record as of February 22. 1991. was 61.999. and the high and low common stock prices on that date were $57% and S56%. QUARTERLY DATA Net Sales Gross Profit Operating Income Net Income Earnings per Share Dividends per Share Common Stock Price 1990 1989 1990 1989 1990 1989 1990 1989 1990 1989 1990 1989 1990 1989 High Low High Low First Quarter $2,286 2.265 987 979 327 364 194 222 1.47 1.62 0.425 0.375 60V8 51% 477a 40 % Second Quarter $2,367 2.348 1,060 1.051 371 397 247 241 1.90 1.77 0.485 0.425 5574 46% 55% 47 Third Quarter $2,140 2.061 801 845 142 216 74 126 0.59 0.94 0.485 0.425 52 38% 62% 52% Fourth Quarter $2,202 2.007 781 771 69 101 31 90 0.27 0.68 0.485 0.425 49% 39% 61 54% Total Year $8,995 8.681 3,629 3.646 909 1.078 546 679 4.23 5.01 1.88 1.65 60% 38% 62% 40% Monsanto s net income is historically higher during the first half of the year attributable primarily to a concentra tion of the generally more profitable Agricultural Products sales in the first half of the year. Second quarter 1990 net income includes a gain of $31 million resulting from the divestiture of certain assets of a joint venture in Japan. Fourth quarter net income includes gains from divestitures totaling $20 million in 1990 and a gain of $36 million in 1989 from the sale of the analgesics business. 40 I Monsanto Company and Subsidiaries CGKin LAN1018174 mar 002056 STATEMENT OF CONIOUDATID SHAREOWNERS' EQUITY 1.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 Par value of stock issued in two-for-one stock split Balance, December 31 Accumulated Currency Adjustment: Balance. January 1 Translation adjustments Income taxes Balance. December 31 Reinvested Earnings: Balance. January 1 Net income Dividends Common stock purchase rights redemption Balance. December 31 Treasury Stock: Balance. January 1 Shares purchased 1 (6.707.900: 6.548,800 and 11.210,600 shares in 1990-1988. respectively) Shares issued under employee stock plans 1 (193.072: 1.177.322 and 679.926 shares in 1990-1988. respectively ) Balance. December 31 The abore statement should be read in conjunction with pages -i2 through 47 of this report. 1990 S 164 165 S 329 $ 877 2 (165) $ 714 $ 24 171 (7) $ 188 $ 4,120 546 (242) (3) $ 4,421 $(1,244) (326) 7 $(1,563) 1989 S 164 S 164 S 874 3 S 877 $ 52 (17) (11) $ 24 $ 3.662 679 (221) $ 4.120 $ (952) (335) 43 $(1,244) 1988 S 164 S 164 S 872 2 $ 874 S 100 (53) 5 $ 52 $ 3.282 591 (211) $ 3.662 $ (517) (457) 22 $ (952) KEY FINANCIAL STATISTICS" > Stock Price2 High Low Year-end Per Share Dividends Shareowners' Equity Average Daily Share Trading Volume (thousands of shares) ' Adjustedfor the 1990 two-for-one common stock split. Based on daily reported high and low stock prices. 1990 $ 60Vb 38% 48% 1.88 32.51 425 1989 $ 62'/8 40% 57% 1.65 29.79 426 1988 $ 46% 36% 40% 1.475 27.60 646 MAR 002057 ^T&2SJlt. LAM018175 Monsanto Company and Subsidiaries 41 NOTU TO FINANCIAL STATEMENTS Where applicable, per share amounts and the number of shares have been restated to reflect the May 1990 twofor-one common stock split effected in the form of a stock dividend. SIGNIFICANT ACCOUNTING POLICIES________________________ Monsanto's significant accounting policies are italicized in the following Notes to Financial Statements. BASIS OP CONSOLIDATION The consolidatedfinancial statements include the Company and its majority-owned subsidiaries. Intercom pany transactions have been eliminated in consolidation. Other companies in which Monsanto has a significant ownership interest (generally greater than 20percent) are included in "Investments in Affiliates'' in the Statement of Consolidated Financial Position, and Monsanto's share of these companies' income or loss is included in "Other income -- net" in the Statement of Consolidated Income. CURRENCY TRANSLATION Most ofMonsanto's ex-US. entities'financial statements are translated into U.S. dollars using current exchange rates. Unrealized currency adjustments in the Statement of Consolidated Financial Position are accumulated in shareowners' equity. The financial statements of ex-U.S. entities that operate in hyperinflationary economies, including Brazil Mexico and Argentina, 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 and Belgian franc. Other important currencies include the Brazilian cruzeiro. Canadian dollar. French franc. German mark. Italian lira. Japanese yen and Mexican peso. Currency restrictions are not expected to have a significant effect on Monsanto's cash flow, liquidity or capital resources. Currency forward and option contracts are utilized to manage currency exposure. At December 31. 1990. Monsanto had currency forward contracts to purchase S136 million and sell S372 million of other currencies, prin cipally the British pound sterling and German mark. These contracts are recorded at market value. Gains and losses on contracts that are designated and effective as hedges are recognized in the period of the exposure 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. PRINCIPAL ACOUISmOHS AMP DIVESTITURES In June 1990. certain assets of a Monsanto joint venture in Japan were sold. Monsanto recognized a pre-tax gain of $45 million ($31 million after-tax gain and $0.24 per share; on the sale of these assets. In October 1989. Searle acquired Heumann Pharma GmbH & Co., a German pharmaceuticals firm. The acqui sition was accounted for using the purchase method. Intan gible assets in 1989 increased by $93 million as a result of this acquisition. Monsanto's Statement of Consolidated Income for 1989 included Heumann's results of operations for the period October through December. During November 1989. Monsanto sold its analgesics business (with net sales of S70 million for the first 10 months of 1989 and $75 million for the full-vear 1988' . A pre-tax gain of $56 million ($36 million after-tax gain and $0.27 per share) was recognized on the sale of this business. In March 1989. Monsanto sold its Electronic Materials business. Searle's Italian pharmaceuticals subsidiary was merged with another Italian pharmaceuticals company in Septem ber 1988. The acquisition was accounted for using the purchase method. This transaction increased intangible assets $50 million. Monsanto's Australian commodity' chemicals and plastics businesses (with net sales of $60 million for the first quar ter of 1988) were sold in March 1988. The pro forma operating results of the acquired busi nesses and the operating income effect of the divested businesses were not material. The net income impact from the sales of the Electronic Materials and Australian busi nesses was not material. RESTRUCTURING In October 1990. the Board of Directors approved a restructuring of the Agricultural Products operating unit. The restructuring actions included a reorganization of the operating unit along product lines and a decision to sell the animal feed ingredients business. In line with these actions, reductions in employment occurred through an early retirement incentive and other programs. The cost of the restructuring is estimated to be $108 mil lion. the largest of which relates to the reductions in employ ment. The sale of the animal feed ingredients business is expected to result in a gain in excess of the restructuring costs. Accordingly, the restructuring costs have been deferred until the animal feed ingredients business is sold. Management expects the restructuring to be completed in 1991. 42 Monsanto Company and Subsidiaries cowri&s-'"lUl MAR 002058 LAM018176 NOTIS TO FINANCIAL STATIMINTS (continued, DEPRECIATION AND AMORTIZATION 1990 Depreciation Amortization of intangible assets Obsolescence $465 235 39 Total $739 1989 S438 226 26 S690 1988 S-t35 231 3n S703 Property', plant and equipment is recorded at cost. The cost ofplant and equipment is depreciated over weighted average periods of23 yearsfor buildings and 12 years for machinery and equipment, using the straight-line method. Intangible assets are recorded at cost less accumulated amortization. The components of intangible assets and their estimated remaining useful lives were: Goodwill Patents Other intangible assets Total Estimated Remaining Life* 32 4 19 1990 $ 679 482 264 $1,425 1989 S 737 679 266 $1,682 *deighted average, in years, at December 31. 1990. Goodwill is the cost ofacquired businesses in excess of the fair value of their identifiable net assets and is amor tized over the estimated periods of benefit (5 to 40 years). Patents obtained in a business acquisition are recorded at the present value of estimatedfuture cash flows resulting from patent ownership. The cost ofpatents is amortized over their legal lives. The cost of other intangible assets (principally product rights and trademarks) is amortized over their estimated useful lives. INVENTORY VALUATION Inventories are stated at cost or market, whichever is less. Actual cost is used to value raw materials and sup plies: standard cost, which approximates actual cost, is used to value finished goods and goods in process. Stan dard cost includes direct labor, raw material and manu facturing overhead based on practical capacity. The cost of5 5 percent of all inventories is determined using the last-in. first-out (LIFO) method, generally reflecting the effects of inflation or deflation on cost ofgoods sold sooner than other inventory cost methods. The cost of other inven tories generally is determined using the first-in, first-out FIFO method. The components of inventories were: 1990 Finished goods Goods in process Raw materials and supplies S 781 349 555 Inventories, at FIFO cost Excess of FIFO over LIFO cost 1.685 (415) Total $1,270 1989 5 "23 314 50t> 1.543 346 SI.19- Inventories at FIFO cost approximate current cost. INCOME TAXIS The components of income before income taxes were: 1990 1989 1988 U.S. Ex-U.S. $513 296 S 570 445 S481 412 Total $809 Si.015 S893 The components of income tax expense were: 1990 1989 1988 Current: Federal State Ex-U.S. $123 18 96 237 S138 18 142 298 Sill 18 139 268 Deferred: Federal State Ex-U.S. 24 26 31 1 31 1 92 26 38 34 Total $263 S336 S302 Deferred taxes result from 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: 1990 1989 1988 Depreciation and obsolescence Restructuring program Pensions Other $10 19 7 (10) S25 S28 16 31 10 (12) (13) (13) Total $26 S38 $34 mar 002059 COKTLS^TLAL LAW1018177 Monsanto Company and Subsidiaries 43 NOTTS TO FINANCIAL STATIMINTS (continued. Factors causing Monsanto's effective tax rate to differ from the United States federal statutory rate were: 1990 1989 1988 Federal statuton rate Benefits attributable to: United States export earnings Puerto Rico operations Other 34% (2) (2) 3 34% 34% 12 ;2' ;2 :v 33 Effective income tax rate 33% 33% 34% Income and remittance taxes have not been recorded on S659 million of undistributed earnings ofsubsidiaries, either because any taxes on dividends would be offset substantially byforeign tax credits or because Monsanto intends to indefinitely reinvest those earnings. The Financial Accounting Standards Board has issued Statement of Financial Accounting Standards No. 96 "Accounting for Income Taxes. ' This statement changes the method of calculating deferred income taxes and must be adopted in or before 1992. Monsanto has not yet adopted this statement which will have no effect on cash flow and. under existing tax laws, is not expected to have a material effect on Monsanto's financial position, liquidity or future results of operations. SHORT-TERM DEBT AND CREDIT ARRANGEMENTS Short-term debt was: 1990 1989 Notes payable: Banks Commercial paper Bank overdrafts Current portion of long-term debt $ 58 272 134 118 S145 182 134 44 Total $582 S505 Maximum amount of notes payable and bank overdrafts outstanding at anv month-end Average notes pavable and bank overdrafts outstanding Weighted average interest rate during the vear Weighted average interest rate at December 31 $715 514 9.7% 7.1% S85-7 623 9.9% 9.7% Monsanto has aggregate short-term loan facilities of S-H3 million, under which loans totaling S58 million were outstanding at December 31. 1990. Interest on these loans is related to various bank rates. Monsanto's worldwide unused short-term loan facilities were S385 million at December 31. 1990. LONG-TERM DEBT Long-term debt exclusive of current maturities was: 1990 1989 Industrial development bond obligations, rates ranging from 5.3% to 11.9%. due 1992 to 2021 Medium-term notes, rates ranging from 7.6% to 9.5%. due 1992 to 1999 Commercial paper to be refinanced on a long-term basis, weighted average rate of 8.2% 10'/s% notes due 1992 93/s% notes due 1996 8Vb% sinking fund debentures due 2000 83/+% sinking fund debentures due 2008 87/8% debentures due 2009 ll3/s% sinking fund debentures due 2015 Other $ 363 196 193 150 106 145 99 200 200 S 266 50 150 150 127 170 99 214 245 Total $1,652 SI.471 Maturities and sinking fund requirements on long-term debt are $118 million. $54 million. $84 million. $4? mil lion and $75 million for 1991-1995. respectively. Interest rate swap options (interest options) are utilized to manage interest expense. At December 31. 1990. Monsanto had sold interest options with an aggregate notional principal amount of $207 million related to exist ing long-term debt. One interest option would effectively convert $99 million of 87/e% debentures to commercial paper rates in the period 1994 through 2000. Additional interest options would effectively convert $108 million of variable rate debt to fixed rates ranging from 87/8% to 9*/b% in the period 1991 to 2000. Premiums from the sale of interest options are amortized over the related debt period. Interest differentials to be paid or received are accrued as interest rates change over the related debt period. A $750 million intermediate-term credit facility expires ratably from 1991 to 1994. There were no borrowings under this facility at December 31. 1990. The credit facil ity is used to support the issuance of commercial paper ($465 million outstanding at December 31, 1990). Interest on amounts borrowed under this agreement would likelv be at money market rates. Covenants under this credit facility restrict maximum borrowings. It is not anticipated that future borrowings will be limited bv these restrictions. *4| Monsanto Company and Subsidiaries ' -N. V ** jfAR 002060 NOTIS TO FINANCIAL STATIMINTt -continued PINSION BINIFITS Most Monsanto employees are covered by noncontributorv pension plans. The components of pension cost (income i were: 1990 1989 1988 Service cost for benefits earned during the year Interest cost on projected benefit obligation Assumed return on plan assets* Amortization of unrecognized net gain $ 67 242 (273) (47) S 63 227 (251) 40: S 65 223 1246; (38; Total $ (11) S ;i) S 4 *Actual return (lossj on plan assets was S(85j million in 1990. S658 million in 1989 and S340 million in 1988. Pension benefits are determined based on the employee s years of sendee and compensation level. Pension plans are funded in accordance with Monsanto's long-range projec tions of the plans' financial conditions, considering benefits earned and expected to be earned in the future, anticipated future returns on pension plan assets and income tax and other regulations. Assumptions used for the principal plans in 1990-88 were: --% Discount rate Assumed long-term rate of return on plan assets 8'/2% Annual rates of salary increase I for plans that base benefits on final compensation level i 61 The funded status of Monsanto's pension plans at yearend was: 1990 1989 Plan assets at fair value $3,460 S3.64? Actuarial present value of plan benefits: Vested Nonvested $2,628 135 S2.299 122 Accumulated benefit obligation Effect of projected future salary increases 2.763 407 2.421 34~ Projected benefit obligation $3,170 S2.768 Excess of plan assets over projected benefit obligation Less: Unrecognized initial net gain Unrecognized prior service costs Unrecognized subsequent net gain $ 290 320 (190) 286 S 879 341 .'22 683 Accrued net pension liability $ 126 S 123 The accrued net pension liability was included in: Other assets Other liabilities $ 74 200 S 53 376 Accrued net pension liability $ 126 S 123 Projected benefit obligations and plan assets included in the above table for the principal L ,S. plans were approxi mately $2,814 million and S3.08" million, respectively, at December 31. 1990. Plan assets consist principally of common stocks and L.S. government and corporate obli gations. Because the Company's pension plans are wellfunded. contributions to the Company's principal plans were neither required nor made in 1990-1988. For some employee savings plans, employee contributions are matched in pan by Monsanto. The 1990-1988 expense recorded for such plans was $34 million. $32 million and $34 million, respectively. OTHIR POSTRKTIRKMINT BINIFITS Monsanto provides certain health care and life insur ance benefits for retired employees. Substantially all of Monsanto's regular, full-time U.S. employees and certain employees in other countries may become eligible for these benefits if they reach retirement age while employed by Monsanto. At December 31. 1990. approximately 26.000 active employees were eligible upon retirement to participate in these programs. In addition, approximately 18.000 individ uals retired from active service were eligible to participate in these programs. These other postretirement benefits are not funded and are expensed as benefits are paid. The 1990-1988 expense recorded for other post retirement benefits was $45 million. $39 million and $38 million, respectively. The Financial Accounting Standards Board has issued Statement of Financial Accounting Standards No. 106 "Employers" Accounting for Postretirement Benefits Other Than Pensions." This statement, which must be adopted in or before 1993. changes the method of accounting for other postretirement benefits by requiring that the cost be accrued by the date employees become eligible for the ben efits. In accordance with the statement, the estimated obli gation for other postretirement benefits may be recognized as expense in the year of adoption or may be accrued on a straight-line basis over a 20-year period. Monsanto has not decided the year in which it will adopt the new statement, or whether the estimated obligation will be recognized as expense in the year of adoption or over a 20-vear period. In addition, the Company is considering modifications to its medical benefits programs for future retirees, so it cannot currently determine the financial impact of the new statement. MAR 002061 Monsanto Company and Subsidiaries M LAM018179 NOIU TO FINANCIAL STATSMINTS <continued STOCK OPTION SLANS Kev officers and employees have been granted Monsanto stock options under the Company's 1974.1984 and 1988 Management Incentive Plans and the Searle Monsanto Stock Option Plan (Searle Plan). Information about the status of such stock options, adjusted for the 1990 twofor-one stock split, is presented below. Shares Exercisable Outstanding Price per Share December 31.1988 2.639.590 6.626.710 S13.08 - S47.10 1989: Granted Exercised Expired December 31. 1989 2.631.468 1.238.042 40.60 - 61.44 (1.361.168) 13.08 - 47.10 (98.786) 15.69 - 47.10 6.404.798 13.08 - 61.44 1990: Granted Exercised Expired December 31,1990 3.360.357 1.087,417 41.13- 54.94 (335,076) 13.08 - 47.09 (105,610) 13.08 - 54.94 7.051.529 15.69 - 61.44 Under the 1988 Management Incentive Plans and the Searle Plan. 5.448.639 shares remain available for grant. Stock appreciation rights (SARs) have been authorized to be granted to certain Monsanto officers in tandem with stock options under the plans, including retroactive grants for unexercised options. SARs may be exercised in lieu of stock options included in the table above. At December 31. 1990. SARs related to stock options for 2.359.097 shares were outstanding, of which 863,015 options were exer cisable. During 1990. SARs related to stock options for 137.289 shares were granted and for 44.936 shares were exercised. EARNINGS PER SHARE Earnings per share were computed using the weighted average number of common shares and common share equivalents outstanding each year, adjusted for the 1990 two-for-one stock split (129.107.666: 135.496.104 and 143.002.644 in 1990-1988. respectively). Common share equivalents 676.393: 1.073.554 and 689.972 in 19901988. respectively) consist primarily of common stock issu able upon exercise of outstanding stock options. Earnings per share assuming full dilution were not significantly different from the primary amounts. CAPITA! STOCK At December 31.1990. there were 12.500.168 common shares reserved for employee stock options. In January 1990. the Company's Board of Directors declared a dividend of one Preferred Stock Purchase Right on each outstanding share of the Company's common stock. If a person or group acquires beneficial ownership of 20 percent or more, or announces a tender offer that would result in beneficial ownership of 20 percent or more, of the Company's outstanding common stock, the rights become exercisable and each right will entide 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 entide 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 entide its holder (other than such person or members of such group) to pur chase. for $450. a number of shares of the Company's com mon stock having a market value of $900. Furthermore, at any time after a person or group acquires beneficial owner ship of 20 percent or more (but less than 50 percent) of the Company's outstanding common stock, the Board of Direc tors 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-forone 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. MAR 002062 a- .v.- 41. .\fnnsnntn ( nninnnv and Subsidiaries LAM018180 NOTIS TO FINANCIAL STATEMENTS continued COMMITMENTS ANP CONTINGENCIES Commitments. principally in connection with uncom pleted additions to property , were approximately $173 mil lion at December 31. 1990. Monsanto was contingently liable as guarantor of bank loans and for discounted cus tomers' receivables totaling approximately S209 million at December 31. 1990. Future minimum payments under noncancellable operating leases and unconditional inven tory purchases are $176 million: $143 million: $98 million: $69 million and $54 million for 1991-1995. respectively, and $218 million thereafter. At December 31. 1990. the more significant concentra tions in Monsanto s trade receivables were from U.S. and European agricultural product distributors. $150 million and $90 million, respectively, and pharmaceutical dis tributors. $283 million. Management does not anticipate incurring losses on its trade receivables in excess of established allowances. Monsanto is a party to a number of lawsuits, which it is vigorously defending, arising in the normal course of busi ness. Certain of these actions seek damages in very large amounts. While the results of litigation cannot be predicted with certainty, management believes, based upon the advice of Company counsel, that the final outcome of such litigation will not have a material adverse effect on Monsanto s consolidated financial position. SUPPLEMENTAL DATA Supplemental income statement data were: 1990 1989 Raw material and energy costs $2,741 Employee compensation and benefits 2.184 Current income and other taxes 533 Rent expense 145 S2.659 2.045 562 119 1988 S2.587 2.022 527 115 Technological expenses: Research and development 612 598 575 Engineering, commercial development and patent 80 74 73 Total technological expenses 692 672 648 Interest expense: Total interest cost 208 204 193 Less capitalized interest (29) '22' ,19 Net interest expense Currency gains , losses including equity in affiliates' currency gains and losses 179 (45) 182 31 174 .'20' SEOMENT INFORMATION Certain operating unit segment data and geographic data for 1990-1988 appear on pages 27 and 34 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. Sales between operating units were not significant. Inter area sales, which are sales between Monsanto locations in different world areas, were made on a market price basis. Certain corporate expenses, primarily those related to the overall management of Monsanto, were not allocated to the operating units or geographic areas. Corporate assets principally include certain miscellaneous receiv ables and investments. Inter-area sales by entities in each geographic area were: Inter-area Sales (Between Monsanto Entities1 1990 1989 1988 World area shipped from: United States Europe-Africa Canada Latin America Asia-Pacific Inter-area Eliminations Total $ 813 140 13 19 1 (986) $- S 817 180 11 35 11 (1.054) S- S 855 16-7 13 22 39 (1.096) S- 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. 1990 1989 1988 Operating income $ 326 Interest expense (45) Interest income 36 Other income (expense) -- net (21) Income taxes (97) Net income of consolidated ex-U.S. subsidiaries $ 199 Total operating assets Total liabilities $2,996 1.125 Net assets of consolidated ex-U.S. subsidiaries $1,871 S 415 (50 57 23 (151) S 294 S 2.449 983 $ 1.466 S 383 (54) 45 38 (141) S 271 $ 2.316 1.040 S 1.276 MAR 002063 - vj-na--f-t*'E*--K 'T* t**- LAM018181 Monsanto Company and Subsidiaries | 47 financial summaky Dollars in millions, except per share 1990- 19893 1988 198T * 198t> Operating Results Net Sales Operating Income As a Percent of Net Sales Net Income As a Percent of Net Sales Return on Shareowners' Equity Earnings per Share 1 $8,995 909 10% 546 6% 13.6% $ 4.23 S8.681 1.078 12% 679 8% 17.6% S 5.01 S8.293 955 12% 591 7% 15.4% $ 4.14 S7.639 734 10% 436 6% 11.4% S 2.82 bb.8:9 635 9% 433 6% 12.0% $ 2.78 Year-end Financial Position Total Assets Working Capital $9,236 1.323 $8,604 1.326 $8,461 1.117 $8,455 1.203 $8,269 1.092 Property . Plant and Equipment: Gross Net Long-Term Debt Shareowners' Equity Current Ratio Percent of Total Debt to Total Capitalization $7,620 3.492 $1,652 4.089 1.6 35% $6,937 3.173 $1,471 3.941 1.7 33% $6,926 3.146 $1,408 3.800 1.6 34% $6,730 3.076 $1,564 3.901 1.7 35% $6,326 2.913 $1,630 3.781 1.6 35% Other Data Property. Plant and Equipment Purchases Depreciation and Amortization Interest Expense Research and Development Expenses Income Taxes Cash Provided by Operations Stock Price: 1 High Low Year-end Price/Eamings Ratio on Year-end Stock Price Per Share: 1 Dividends Shareowners Equity Shareowners (vear-end; Shares Outstanding (year-end. in millions^1 Employees > vear-end; $ 750 739 179 612 263 1.104 $ 60'/8 383/4 48% 11 $ 1.88 32.51 62.230 126 41,081 $ 607 690 182 598 336 1.037 S 62 Vs 40% 57% 12 $ 1.65 29.79 61.942 132 42.179 $ 590 703 174 575 302 1.304 $ 46% 36% 40% 10 $1,475 27.60 66.066 138 45.635 $ 505 679 172 557 237 902 $ 50% 28% 41% 15 $1,375 26.32 68,032 148 49.734 $ 520 780 201 523 203 960 $ 40% 223% 38% 14 $1,288 24.34 70.367 155 51.703 ' Per share amounts and shares outstanding hare been restated to reflect the May 1990 two-for-one stock split. Set income for 1990 includes S56 million (S0.43 per sharei in gains resultingfrom dicestitures. including the dicestiture of certain assets of a joint venture in Japan. J Set income for I9S9 includes a 536 million (SO.27 per share/ gain on the sale of the analgesics business. ' Set income for I9S7 includes net restructuring income ofSIS million (SO. 12 per sharej. 5 Set income for 19 S6 includes 555 million (50.55 per share/ of net gains, principallyfrom the sale of the Texas City. Texas, petrochemicals plant and related assets, partially offset by the Electronic Materials asset impairment write-down. MAR 002064 Monsanto Company and Subsidiaries LAM018182 omens Chairman and Chief Executive Officer Richard J. Mahoney President and Chief Operating Officer Earle H. Harbison. Jr. Executive Vice Presidents Robert G. Porter Nicholas L. Reding Robert B. Shapiro Senior Vice President and Chief Financial Officer Francis A. Stroble Senior Vice President, Secretary and General Counsel Richard V. Duesenberg Vice Presidents Bam- Blitstein Earl N. Brasfield Leonard A. Cohn Grant W. Denison. Jr. A. Nicholas Filippello. Ph.D. Martin J. Kallen Thomas H. Lafferre Michael E. Miller Philip Needleman, Ph.D. Richard A. Overton James H. Senger David L. Sliney Virginia V. Weldon, M.D. Vice President. Finance Lawrence B. Skatoff Vice President and Treasurer Juanita H. Hinshaw MONSANTO ADVISORY DIRICTORS Michael E. Miller St. Louis Vice President. Administration. Monsanto Company Age: 49 Advisory Director: less than Ivear Philip Needleman, Ph.D. St. Louis Vice President. Research and Development. Monsanto Company Age: 52 Advisory Director: less than 1 year Robert G. Potter St. Louis Executive Vice President. Monsanto Company: President. Monsanto Chemical Company Age: 51 Advisory- Director: 5 wars Nicholas L. Reding St. Louis Executive Vice President, Environment. Safety, Health and Manufacturing. Monsanto Company Age: 56 Advisory Director: 9 years Robert B. Shapiro St. Louis Executive Vice President. Monsanto Company: President. Monsanto Agricultural Company Age: 52 Advisory-Director: less than 1 rear Francis A. Stroble St. Louis Senior Vice President and Chief Financial Officer. Monsanto Company Age: 60 Advisory Director: 9 years Virginia V. Weldon, M.D. St. Louis Vice President. Public Policy. Monsanto Company Age: 55 Advisory Director: less than 1 year MAR 002065 i tj LAM018183 Monsanto Company and Subsidiaries 49 board op dimctou Richard J. Mahoney St. Louis Chairman and Chief Executive Officer. Monsanto Company Age: 57 Monsanto Director: 12 years Marguerite Ross Barnett, Ph.D. Houston President. University of Houston Age: 48 Monsanto Director: 3years Joan T. Bok Westborough. Massachusetts Chairman. New England Electric System Age: 61 Monsanto Director: 4 wars Donald C. Carroll, Ph.D. West Conshohocken. Pennsylvania Chairman. Schulco. Inc.: Retired Dean. The Wharton SchooL University of Pennsylvania Age: 60 Monsanto Director: 16 years Earle H. Harbison. Jr. St. Louis President and Chief Operating Officer. Monsanto Company Age: 62 Monsanto Director: 5 wars Robert M. Heyssel. M.D. Baltimore President and Chief Executive Officer. The Johns Hopkins Health System and The Johns Hopkins Hospital Age: 62 Monsanto Director: 2 years Philip Leder. M.D. Boston Chairman. Department of Genetics. Harvard Medical School: Senior Investigator. Howard Hughes Medical Institute Age: 56 Monsanto Director: 1 war Howard M. Love Pittsburgh Chief Executive Officer. National Intergroup. Inc. Age: 60 Monsanto Director: 13 years Frank A. Metz, Jr. Armonk. New York Senior Vice President, Finance and Planning, and Chief Financial Officer. International Business Machines Corporation Age: 57 Monsanto Director: 1 war Buck Mickel Greenville. South Carolina Chairman and Chief Executive Officer. R.S.I. Holdings. Inc.: Retired Vice Chairman. Fluor Corporation: Retired Chairman. Daniel International Corporation, a Fluor subsidiary Age: 65 Monsanto Director: 16 years John S. Reed New York Chairman. Citicorp and Citibank. N.A. Age: 52 Monsanto Director: 6 years William D. Ruckelshaus Houston Chairman and Chief Executive Officer. Browning-Ferris Industries. Inc.: Former Administrator. U.S. Environmental Protection Agency Age: 58 Monsanto Director: 6 years John B. Slaughter. Ph.D. Los Angeles President. Occidental College: Former Director. National Science Foundation Age: 56 Monsanto Director: 5 years Admiral Stansfield Turner (U.S. Navy. Retired) McLean. Virginia Lecturer and Writer: Former Olin Professor of National Security, U.S. Military Academy at West Point: Former Director. U.S. Central Intelligence and Central Intelligence Agencv Age: 67 Monsanto Director: 10 years MAR 002066 LAN1018184 Monsanto Company and Subsidiaries % T COMMITTI1S OP TM BOARD Audit Committee Buck MickeL Chairman Joan T. Bok Robert M. HeysseL M.D. William D. Ruckelshaus John B. Slaughter. Ph.D. Corporate Social Responsibility Committee Admiral Stansfield Turner. Chairman Joan T. Bok William D. Ruckelshaus John B. Slaughter. Ph.D. Executive Committee Richard J. Mahoney. Chairman Marguerite Ross Barnett. Ph.D. Earle H. Harbison. Jr. John B. Slaughter. Ph.D. Executive Compensation and Development Committee Howard M. Love. Chairman Frank A. Metz. Jr. Buck Mickel Finance Committee John S. Reed. Chairman Marguerite Ross Barnett. Ph.D. Donald C. CarrolL Ph.D. Richard J. Mahoney Frank A. Metz, Jr. Nominating Committee Buck MickeL Chairman Howard M. Love Frank A. Metz. Jr. Pension and Savings Funds Committee Donald C. CarrolL Ph.D.. Chairman Earle H. Harbison. Jr. Robert M. HeysseL M.D. Philip Leder. M.D. Admiral Stansfield Turner SHARIOWNIR INFORMATION Annual Meeting The next annual meeting of the shareowners of Monsanto Company will be held at 1:45 p.m.. Friday. April 26. 1991. in K Building at the company's world headquarters. 800 N. Lindbergh Blvd.. St. Louis. Missouri. A formal notice of the meeting, together with a proxy statement, is being mailed to each shareowner. 10-K Report, Corporate Data Book and Investor News Stock Symbol -- MTC Stock Exchanges/Bourses Monsanto Company's 1990 Form 10-K Report filed with the Securities and Exchange Commission: the 1990 Corporate Data Book, which contains additional information relating to Monsanto: and copies of Investor News, a periodic newsletter for investors, can be obtained by contacting: Investor Relations Department Monsanto Company 800 N. Lindbergh Blvd. St. Louis. Missouri 63167 (314) 694-1000 Amsterdam Brussels Chicago (options) Frankfurt Geneva London New York Paris Tokyo Zurich Transfer Agent and Registrar The First National Bank of Boston Box 644 Boston. Massachusetts 02102-0644 MAR 002067 i /: r LAM018185 Monsanto Company and Subsidiaries | 51 Monsanto Company 800 North lindbargh Boulavard St. Louis, Missouri 63167 mar 002068 LAM018186 i