Document B8b903vgVDDjEwKxjevdK5pMX

Monsanto Annual Report 1982 0674596 TOWOLDMONOOI5150 Contents To Our Shareowners Strategies for the Future Renew Our Core Ikisinesses Increase Options for Growth Emphasize Growth Around the World Kxtend Leadership of Growth Businesses Create Windows on Technologv Anticipate Sodeivs Concerns Performance In Major Markets Financial Report Financial Review Financial Statements Financial Suminaiv Directors and Officers ) si Jl 12 1\ Jl JS >1 Vi r ^ nil Cover Our Annual Report cover illustrates three highlights of I0ti2 deft to right): Monsanto's new maleic anhydride pkmt in ftwsacola, Florida; uoridwide expansion ofRoundup herbicide uses fas on thisfarm in Kenya/; and {potting research Involvement with research universi ties Hike Washington L'nh'ersity in St. I.onis, pictured here) 0674599 Italics througfjout the Annual Report identify Monsanto's trademarks TOWOLDMONOOI5151 Operational Highlights (Dollars in millions, except per share) 1 1982 1981 Net Sales $6,325 *6,948 Net Income $ 352 f 445 Per common Share: Net Income Dividends Shareowners' Equity $ 8.79 3.95 85.97 *11.50 3.75 84.37 Property, Plant and Equipment Additions $ 673 t 668 Depreciation and Obsolescence $ 439 * 263 Research and Development $ 256 * 225 Ycarend: Shareowners-- Common Shares Employees 75,943 52,199 79,029 57.391 Nine; Net income for lLJH^ includes on cxlraordjnary gain of common shares. million, of SI).*5# per share, from an exchange of debt for 1980 $6,5"^ * H9 * 4,10 3.43 ".63 * "81 i 5-r $ 208 2,+il 61.836 Monsanto at a Glance Monsanto Company's purpose in io serve customers worldwide through quiilin1 products, processes and ser The Company sells more than 1,000 vices in harmony with societyIs goals. products in 100 countries. Among I leadquarteretl in Si. Louis, Monsanto is a multinational indus trial company of more than 52,000 people engaged primarily in the manufacture of chemicals. Founded these products are chemicals, agri cultural products, man-made fibers, electronics materials, industrial process controls and other capital equipment. in 1901, it now has investments in Monsanto's organization includes 166 manufacturing plants, labor* four operating companies -- atones and technical centers in Agricultural Products, Fibers and 20 nations. Intermediates, Industrial Chemicals, and Polymer Products -- as well as five operating divisions -- Animal anti Plant Products', Electronics, Engineered Products, Health Care, and Nutrition Chemicals. Monsanto Oil Company, a wholly owned subsidiary, engages in explo ration for and production of oil and natural gas. Fisher Controls Interna tional, Inc., a majority-owned subsid iary, is a leading worldwide supplier of industrial process control systems, instrumentation, control valves and regulators. 0674600 I lUfD IHtiH llil'H W ttlfl/fi`1 fhftlWtt 1111 i'fVSit&'iir ti/i tuirri f Mid'outv 'hfa ttnii Vhv<2'uanwm Is>tus R?rututlcz To Our Shareowners: Faced with a grinding recession throughout 1982, Monsanto per formed Ixater than many of its major competitors while fin n ing out a farreaching reorganization to meet the challenges of the decade ahead. 1982 was the first year tJiat the i s. farm economy negatively alTecied our agricultural product's business which is by far the largest coiurihutor to corporate earnings. Kven so, our/^sw and ttounduf) herbi cides outperformed 1981. hut the growth curve tor Komtdtift fell below expectations for iht.s extraor dinary crop chemical. Our steadfast commitment to assn management and cost-reduction pp > grams helped offset somewhat the effects of lower demand lor our industrial products. Hy sJiedding non-productive assets, we sigoiticantly improved our break-even point to about 60 percent of plant utilization. We retired additional long- and short-term debt, winding up the year in a strong financial posi tion that provides a solid foundation for future growth. Reported net income for 1982 was $3S2 million or per share, '[`his reflects the board of Directors' approval in February 1983 of the planned sale of our Kuropean acnlic fibers business and the establish ment of a 1982 loss provision of $18 million ($0.-ks per share). Net income for 1981 was JuS million or $11.SO per share, including again of $68 million or S17S per share from the sale to Gunoeoof Monsanto* assets in a joint venture, A more meaningful comparison of net income from operations in the 0674601 TOWOLDMONOOI5153 p:ist tsvoyears would exclude the I9H2 extraordinary gain on our debtoqiiUy exchange as well as the 1981 gain on ihe sale oi' ihe Conoco joint venture assets. These modifications woukl put net income in 1981 ai SjT" million and J9H2 at S329 million -- a year-to-year decrease of 15 percent. As 19H3 begins, we see .several encouraging economic signals, Inilation and interest rates are lower. Consumer confidence is on the rise. There is a measurable upturn in single-family housing sums, and T.S. auto production is predicted to be up substantially. We anticipate modest economic growth in 19H.3, although less than normally follows a recession. If our expectations are realized, the economy's recent down ward pressure on earnings will be behind us. because 1982 was a year in which Monsanto reached a milestone in both product portfolio analysis and reorganization, we feel it is appropri ate in this Annual kepon to give our shareowners a perspective of two decades -- the past one and the (me ahead -- so this will he the theme of our letter. The Past Decade Monsanto has been evolving at a rate that sees it quite a different organization today from the one which installed John W. Hanley as [Resident and CEO in late 1972. At that time, the new CEO told Board members his objective was to build a company with strong finances, sound management, and solid businesses buttressed by first-class technology: If Monsanto could aim at a doubling of its earnings every 10 years, he said -- in contrast to the preceding decades annual growth rate of only 3,2 percent -- it would have a goal which would be at once challenging, realistic, and readily affordable within the resource limitations that prevailed. After three or four years, when significant progress had been made toward this aspiration, it became evident that inflation was invali dating the original goal, and some rethinking was in order. A logical conclusion emerged: the idea of increasing earnings at a rate which would double in 10 years after infla tion -- in other words, a doubling in real terms, That has been our adjusted long-range goal. If Monsanto hud moved toward that goal in regular annual steps, earn ings would have advanced in real dollar terms at a rate of approxi mately 7.2 percent a year But our profitability over the past decade has been importantly influenced by an inflation-plagued environment; two oil shocks of pervasive impact; and a Company policy of enlarging its expenditures on research and devel opment while at the same time with drawing from businesses where prospects were no longer attractive. Because Monsanto's earnings during the 1973-82 period were far From a steady progression, a point-to-point comparison tends to blur the pic ture. A better comparison would be to measure cumulative real earnings over the decade against our goal. When we do so, we find that we earned a total of 52.1 billion alto gether, against a goal of 51.8 billion -- exceeding our growth target by about 16 percent. Over the decade. .Monsanto hu> made notable progress in other areas as well. Sate* and Gaming per share hat e groivn at annual compound rates of 11.0percent and 9P percent, respectively, in nominal dollars from 1972 to 19X2. ' Sbareoiener equity and return on it hare improved markedly --from $1.2 billion and 9.7percent in P)^2 to S3 5 billion and 10..> fyercvnt last year. Dividends over the decade totaled Si. 1 biilton, as the Hoard increased the dividend rate W times during tlx* iO-year period. Our balance sheet has torn/ gmtf/r strengthened -- debt to total capital bating been loweredfrom ji per cent to 22 percent, Of course, ihe past decade was not without its setbacks, Our calculated but high-risk expansion in poly ester filament failed to live up to our hopes, and we eventually withdrew from that heJeaguered segment of tite textile business. Our buildup of acrylonitrile facilities in Europe, in anticipation of expansion in plastics and fibers, proved to be umvarranted in light of subsequent mar ket conditions. However, these disappointments were more than offset by our gains in total -- success in agricultural products and in such traditional businesses as rubber chemicals. 0674602 Sttfhw interlayer* Fisher's controls, and detergents and phosphates. Success, too, in putting in place a vigorous new management team, instilling modern planning proce dures. anil raising managers' awareness of the changing dimen sions of socially responsible corporate conduct. Keeping Ahead of Change The progress made over the past decade amply validities our strategy of moving our product portfolio toward specialties and high-technol ogy. but the chemical industry is changing rapidly, and we are deter mined to keep ahead of the changes, St) sve have been adjusting our .strat egy over the past three years to become even more competitive in the bracing environment we antici pate in the decade ahead. In explaining our new strategic directions, it is helpful to start with the basic raw materials of the chemi cal business-- oil and natural gas. Tlie.se are upgraded first into what are called primary petrochemical intermediates -- the large-x'olume* commodity raw materials like ethyl ene, propylene, benzene and others. Then they are further upgraded into first-stage products, the traditional monomers such as benzene into styrene and on to polystyrene. Finally, come the specialty chemi cals -- rubber chemicals, resins for paints, adhesives, paper coatings, MHA Teed additives, and ail the way to herbicides like lasso and Kouttdup. We made a judgment to withdraw from the production of the primary petrochemical intermediates, and to emphasize the upgraded steps, This decision was formalized with the sale of our interest in the Conoco joint venture in 1981. Our strategic direction is to buy these materials, and use benzene and other purchased petrochemicals in far more complicated products with a higher component of value added by Monsanto and value received by our customers, At the same time, we are investing to expand our non-petrochemical base -- silicon wafers, phosphates, and the engineered products portions of Monsanto including Fisher's total process-control systems and Radia tion Dynamics' emerging electronbeam product line. We are simultaneously moving into health care, the third leg of the in terrelated agricultural chemicals/ nutrition chemicals/health care busi nesses, all tied together through the new biotechnology; This next major wave of chemistry has implications at least as far-reaching for our industry as the advent of petrochemicals in the 1930s, Recent advances in biotechnology -- molecule manipulation like recom binant DNA -- give promise of opening up dramatic new opportu nities for the chemical, medical drug and agricultural industries. Indeed, it is not too farfetched to Imagine whole new industries selling prod ucts that today cannot even be conceived, let alone made. Strong RAD Commitment 10 position Monsanto to share in both old and new growth areas, we have substantially strengthened our commitment io research and devel opment all across ihe Corporal inn. We have increased four-fold our agri cultural programs in just the past five years; launched a five-year 323.5 million research venture in protein chemistry for new1 drug uses with Washington Cniversiiy w hich was recently singled uui b\ lYesuleui Reagan as a model of privaie->ecior initiative; formed partnerships with some of Americas and Rumpel loremost research institutions giv ing us access to the finest scientific minds of our time; started a new \uiriiii>n Chemicals unit which Jus in the development stage Monsanto's first recombinant DNA product, animal growth hormone; and begun a multimillinn-dollar project for building and staffing a world-class life-sci ences laboratory complex in suburban St, Louis County. Even as we proho new- frontiers, we have maintained a lively interest m the basic chemical businesses on which Monsanto was founded and from which it has drawn sustenance over die years. We base formed a Corporate group to examine renewal of our higher value-added chemicals through technology and business acquisitions. We intend to invest prudently in basic chemicals and manage them for balanced income growth around the world. The use of innovative technology, like the butane route to maleic anhydride, will become an increasingly impor tant part of Monsanto's strategy for the decade ahead. 0674603 'lb help achieve our new strategic directions, we carried out in 1982 a wide-ranging reorganization to streamline both staff and line. Goal of Reorganization The reorganization was intended to position selected high value-added businesses for growth, strengthen our chemicals, fibers and plastics businesses, reinforce our interna tional posture, meet customer needs more effectively, and enhance the contribution of technology to our overall performance. As a result, we now have a structure which will per mit us to serve our customers better, link raw materials and products more closely, and focus our resources more efficiently, in the reorganization, we grouped our businesses under three broad headings: our major chemicals and fibers units; our biological sciences uniis including agriculture and nutri tion; and our non-chemical growth units such as electronics, oil and gas. Usher Controls and engineered products. Each of these units has worldwide responsibility for the manufacture and sale of its products -- a recognition of the fact that important segments of our future growth will occur outside the United Stales where we plan to pursue an active investment program, When we found that we had more people than would be required in the restructured organization, we offered an incentive program for those voluntarily choosing early retirement. About 1,300 salaried workers -- more than 61 percent of ihu.se eligible - elected to avail them selves of this option, bringing about a more appropriate balance berween people and jobs, and eliminating the need for massive layoffs. Throughout the dislocations of reor ganization, our 52,000 employees proved themselves once again a bul wark of strength, as they have during the entire evolution of the past dec ade. They are as able and dedicated a group of men and women as can be found in any enterprise, fully com mitted to building a company whose products enhance the quality of life around the world. Their dedication is matched by that of the board of Directors which never lost sight of our longer-term goals as it guided Monsanto through a difficult economic period. During the year, the Board lost the services of two valued members. Edmond S. Bauer, Chairman of Fisher Controls International and a 40-year veteran of Monsanto, died unexpectedly. J, William Fisher, a former Chairman of the company bearing his name, retired from the Board upon reach ing the age of 68. Both men had contributed substantively and effec tively over the years to the Board's deliberations, and we are deeply appreciative of their extraordinarily productive service. We are confident that the heartening progress of the past decade can be extended into the next. When eco nomic health returns to the world, we believe that Monsanto is posi tioned to take full advantage of it, Looking to the future, we are deter mined to build a Monsanto of the 1990s that is sufficiently productive and profitable to be highly attractive to investors, that enjoys and deserves a reputation for excellence among its customers, that is a source of pride to its employees, and that is known in its plant and office communities as a socially responsible corpo rate citizen. Our optimism is strongly related u> the fact that we have a management team and a strategy in place that befit the trust that shareowners have mani fested by their investments. We are confident these factors can sustain the Company's success pattern into the next decade -- and the next century. John W, Hanley Chairman of the Board ami Chief Executive Officer President and Chief Operating Officer r Dr. Louis Fernandez Vice Chairman of ihe Board March 7,1983 0674604 TOWOLDMONOOI5157 rttfmrfKjjJiM.v Jxm tw .w^ur btvts on Motwotro'i (tffnctitrwai numrct)fimn iu Httyuon. Strategies for the Future Monsanto's strategy is to expand inward production of higher-value proprietary and specialty products. We intend to become a company less vulnerable* to the cyclical fluctuations i >f the economy, one less capitaliniensis'c* but more research-inten sive -- and a company with the technological and business strengths to flourish in the markets of the nest decade and beyond. Fur several years now, we have closeh' examined all our businesses and candidly debated the proper course for our future. Certain things became clear. First, raw materials, particularly petroleum-based ones, hail become too large a component of loo many of our products. Second, we laced stmciuraj -- and threatening -- changes in the petro chemical intermediates husiness as the major oil companies and outpro ducing nations moved into that market by upgrading their petro leum into primary intermediates. Third, some of our most promising growth businesses were already pointing the was1 to our new corpo rate strategy The leadership of Fisher Controls International and of our premier herbicides businesses depends on high-technology pro prietary products. Silicon, hollowfilter separations, nutrition chemicals and other businesses are at the fore front of high technology and on the verge of commercial success. Finally, we have the research and development skills and resources to cany us into a future based on firstnice science and technology, With those realities before us, we have set our course toward proprie tary and specialty products with a greater Monsanto-added value and technological component. To reach that destination, we are simultane ously traveling several roads, We will continue, as elements of our strategy, to do the following; Renew our core dxmtcal businesses. Increase our option*for growth. Emphasize growth around the world. Extend tfx market ftxtdersfnp ofour grott'th businesses. Create windows on new technology. Anticipate and respond to society's expectations, Renew Core Businesses Monsanto's traditional noivagriailtural chemical businesses amount to more than half of both total invest ment and sales. These businesses will remain at the core of Monsanto for years to come, providing the strength for success in the near future and the basis for developing new businesses for the longer term. Strengthening our traditional core businesses means reinvestment in selected areas where we possess a substantial technological or market advantage. For instance, the Com pany installed an improved cataU-si system at our acrylonitrile plant in the United Kingdom, The resulting cost reductions have contributed to this plants improved performance. In another case, Monsanto has been a market leader for most of the past 50 years in the building-block chemi cal. maleic anhydride. Today, we have strengthened that position through a more efficient and economical new technology to manufacture maleic. Because of the combination of our market position and technology advantage, Monsanto began construc tion in 1981 of the world's largest maleic anhydride plant, boosting our capacity in this chemical by about 75 percent. Another long-standing Monsanto business, oil and gas. has been positioned as a significant profit contributor through a change in strategy The basic strategy for the oil and gas business during the past decade was to run it primarily for feedstock security rather than for profit. Today, with a long-term turna round in the feedstocks situation, we have encouraged our managers to participate full)- in promising oil and gas x'entures without regard to feed stocks requirements. We reorganized that business, effective July i, 19H2, to create Monsanto Oil Company, a wholly owned subsidiary which is expected to become a stronger earner for Monsanto. Our other core businesses have also been reorganized, bringing together the entire manufacturing process from raw material to finished prod uct, so they can be managed as strategic units, On January 1,1985, a new operating company organization went into effect reflecting this .stra tegic shift. We dissolved Monsanto 0674606 H 'We like to regard asset management as a way of life. But we cannot save our way to pros perity To provide the cash muscle to pursue our new directions, we must renew today's core businesses." Francis J. Fitzgerald Executive Vice President ihitsatfio's iuHfi tirrtv Ifitthiyi'if) at tnuin< tiY&ytiriiiv rrrt< u ttb tf.wMari nfi <,f tin )\ca-t\stisncuia, Htiyitiu plant. ttw a nrkl\ ttirfJi'xl. Chemical Intermediates Company, which produced Intermediate JuiJk chemicals for other Monsanto manu facturing units and supplied the merchant market, Ve then integrated each intermediates operation into the same manufacturing stream with the finished product, allowing us to supply and serve all our customers better. Strengthening core businesses -- indeed, all businesses -- for an improved return on imvsinieni means rigorous asset management, and that will he a continuing locus for the decade ahead. For the past three years, tighter management of the Company's 56 billion in assets has saved us well over $100 million annually. Asset management has abu contributed to reducing the break even point of many of our core busi nesses to less than their I9H2 operating average of about 62 per cent of capacity, Cost reductions have also come through stringent energy conserva tion measures, Compared to 19~2, the year heFore the OI>KC oil embargo and skyrocketing costs. Monsanto achieved more than a T7 percent reduction in its energyuse rate through the end of 19H2. That achievement translates into a reduction of J175 million in pur chased energy costs in 19*42- Increase Options lor Growth A second strategic course Monsanto follows is to increase its options for growth -- not only through new businesses, but also through addi tions to traditional businesses, 067460? TOWOLDMONOOI5159 TOWOLDMONOQ15160 TOWOLDMONOQ15161 Sqflex trikrftqnrfcis fxvrt usedfor ivivrs Ht make MdunuMv ^htss `JHilti.r-prottf. fl ** rnr ifUtifUiHfily itiettiH hunineUed titvhiw- iirr'rd fthts, ctv in the jtew Outkl* LI TIil* recently formed Corporate Development and Growth Commit' tee will explore options For growth ihrough acquisitions. Us immediate task is to strengthen selected tradi tional businesses for near-term growth ami in augment development of growth businesses* Candidates for acquisition must be developed busi nesses with a market niche, a highluchnology component ami the abil ity to contribute in the near term to u strong return on capital, Growth opportunities through new product development often result from process innovation, as in the case of Ajr/w prepotymer and cata lyst. This propriety system permits molding of nylon parts in what are called reaction-injection-molding i kim i machines. With these machines, a fabricator can eliminate intermediate steps in the production of such parts as automotive compo nents. In the past, polyurethane was the principal material used in RIM machines. Now, Nyrfw permits the use of nylon resins, opening up a range of new possibilities for fabrica tors of plastic parts, We also search for new uses for existing products, based upon their unique qualities. For example, FameCar polystyrene foam hoard laminate has long been used as insulating material in home renovation, manu factured housing and automobiles. Recognized as the standard of quality in the graphic arts industry, Fame-Car board has recently gained popularity us un ideal backing for pictures and photographs, it is also used for displays and exhibits. Emphasise Growth Around the World Monsanto continues to place greater emphasis on planning for interna Monsanto is also promoting expanded tional growth, loday, roughly a third higher-value uses for Sajlex polyvinyl of Monsanto's sales are in markets huryral film. For decades we have outside the United States. Of those been a leader in supplying the inter sales, more than half are supplied by layer for laminated automobile safety non-US. manufacturing operat it >ns. glass. In recent years, however, During the next decade, we expect Seijlex has become a leader in lami three-quarters of the absolute growth nated architectural glass. Besides of world chemical markets to occur shatter resistance and aesthetic quali outside the United States, ties, SajTex offers value in noise reduction and energy savings. Monsanto's participation in the growth of international markets can One of Monsanto's most unusual -- not be done through exports alone. as well as environmentally beneficial 1-oeal and regional differences often -- new product development efforts dictate local technical support. The is called the "Co-product Utilization need to gain freer access to markets Program." Begun in I9H1, this pro frequently makes local manufactur gram seeks to find beneficial uses ing desirable. Consequently, we have and markets for manufacturing stepped up efforts to identify invest wastes -- that is, for co-products ment opportunities in all world areas, generated in the manufacture of intended products, Today more than 20 co-products are in commercial ization or in various stages of commercial development, Some early results of ihis emphasis have come in the areas of research and technical support. We opened a research center in ftiulinia, Brazil, in 1981, In 1982 we expanded our agri The most successful of these co cultural research facilities in Belgium products has been dibasic acid and broke ground for a major agri (DBA), a co-product of the manufac cultural research facility in Japan. We ture of adipic acid. DBA has been also opened a technical center in found to be more effective and more Japan to support the marketing of energy-efficient than conventional the Company's electronics materials technologies in "scrubbing" indus in the large Japanese market. trial flue gases. Its use greatly increases the removal of sulfur dioxide, one In some instances, international of the major causes of "add rain." expansion comes from locating a By finding a profitable market for facility in a country where local this once-costlv waste product, manufacture is legally or customarily Monsanto is also helping coal-burn required to protect patent rights. ing electric utilities solve a serious Monsanto depends heavily on pat pollution problem. ents. For instance, 80 percent of the 0674610 TOWOLDMONOQ15162 12 tiutantotirefitiekffxtnel * mtikk'tinen Syrtmprepolyrnw runl ttiutl)sr nt our filoirnt field 'tixbniail Center sales of our agricultural products in 19H2 were of patented products. Our reliance on patents will increase as we implement our strategy of mov ing toward specialty markets with proprietary products. I lowever, rising economic national ism in lesser developed countries (J.DCs) lias spawned a movement to revise the century-old international patent protection system to reduce the benefits of patents to patent holders. Although their desire is to speed the transfer of advanced tech nology to their countries, the LDC approach would, in fact, do just the opposite. Without adequate patent systems, innovators within a country have little incentive to invent, and outsiders have little incentive to transfer technology into a nation where it is not protected. At the same time, a number of coun tries have come to a greater understanding of the need for patent protection to encourage domestic technology development as well as technology transfer and investment hy international companies. The Peo ples Republic of China, Malaysia and Indonesia are currently reviewing draft legislation that would establish patent systems in their countries. Extend Leadership of Growth Businesses Monsanto follows a strategy of extending the market leadership of our growth businesses through such measures as innovative marketing, emphasis on quality and value, and technological superiority. Monsanto's premier products today are its crop chemicals, particularly Lasso and Roundup herbicides. Through innovative marketing and full support in people and resources, we continue to extend their Jead in herbicide markets. Lasso herbicide, a pre-emergent weed killer for corn and soybeans, has been one of our best-selling her bicides for years and a leader in its market. About five years ago, how ever, Lasso began to lose market share in the United States for the first time. A combined marketing and technical initiative resulted in a highly successful application method, known as Swface Blend, that reduces application costs. As a result of this effort, Lasso regained market share during 1981 and 1982 in one of the worst farm economies in memory. Non-selective Roundup herbicide has also benefited from energetic marketing. It made particularly impressive gains in minimum-tillage agriculture which requires little plowing and disking, leaving crop stubble and residue on the field. This reduces topsoil erosion, con serves soil moisture, reduces the amount of energy required, and pre vents soil compaction which results from the frequent passage of heavy machinery over fields, Monsanto sales efforts have built on this longrecognized need of farmers in order to penetrate new markets and lead the Company to international sales growth. Roundup is now registered in 73 countries for 500 uses. Not only has Roundup, along with the newly introduced Bronco herbi cide, found increasing favor in the highly developed farmlands of North America and Europe, but it has also gained favor in developing agricul tural areas. Monsanto promotes Roundup to supplement scarce rural labor in manv developing countries and to permit farmers to increase the amount of land they cultivate. We also achieve and strengthen lead ership by adding special qualities and value to our products. The change in our approach to silicon illustrates this strategy. In an earlier market of simpler and lower-scale integrated circuits, one company's silicon wafer was much like that of another. loday, however, the market has changed. Electronics manufacturers have begun to make very large scale integrated devices that are much faster and contain as much as 256 times the capacity they once did We have seized this oppor tunity to destHop markets for highperformance wafers with characteris tics tailored to each customer s device-performance needs. Conse quently, we are moving away from commodity production of wafers toward application-specific manufac ture for a dozen or more semi conductor device markets, The emphasis now is on the value received by Monsanto's customers, an emphasis we hope will maintain and strengthen our market position. Monsanto also extends market lead ership through technology. Such is the case with Fisher Controls Inter national, Inc., our majority-owned subsidiary which is a world market leader in industrial process control. 0674611 TOWOLDMONOQ15163 TOWOLDMONOQ15164 14 "The thrust of our growth for the '80s will be to drive our highvalue-added product lines into expanding markets and to back them with innovative technology. Well also augment selected strong traditional busi nesses through acquisitions." Earl* H. Harblson Jr. Executive Vice President tilAtoand controls made to Fis/nv Control* frtt(/rtvitk>nal are used in ibis oit temwtni in tin1 Shetland Islands. Central to Fisher's leadership strategy is building superior technology into Fisher products. New Prorvx instru mentation system for process control is a prime example. Proi tiv i.s a microprocessor-based system tlexible enough to be applied to the entire range of industrial processes, from the simplest 10 the mi >st complex, Of course, strengthening market position usually involves a combina tion of strategic approaches, For instance, we add higher value to our nylon carpet fibers by backing up produces made from ihem with a five-year warranty. We then advertise and promote these products as Wear-Doted carpets. As a result, carpel makers in January 1983 intro duced the largest number of new grades and styles ever using our fibers. We count on this multifaceted program to strengthen our position in carpet fibers. Create Window* on Technology Since today's emerging technologies shape tomorrow's businesses, Monsanto uses several means to gain windows on new technology, We do this largely through in-house research and development as well as through partnerships with universi ties and through venture-capital investments in promising new hightechnology businesses. Morjsanto's commitment to develop ing new proprietary products has strengthened the role of technology as the driving force in Monsanto's strategy for growth. Research spend ing has nearly doubled during the 0674613 TOWOLDMONOQ15165 TOWOLDMONOQ15167 A farlum SfWU/xMrfarttur tip/MuS Roundup twrbictiie in tcafiehk past five years -- from $136 million in I9"H io $2^6 million in 19H2 and S301 million budgeted for 19H3. This expansion of research activity at Monsanto has required additional facilities. Jn 19K2 Monsanto began construction of a major research complex on a ilOucre site near Si. J.ouis. When the first phase is completed in 19K5. a three-building I'acilitv will provide space for about son professional and technical people. Mew facilities enable Monsanto to open wider its main window on technology -- internal research. The Company engages in a broad range of research, from applied research for process improvements and exist* ing product refinements to longrange exploratory and basic research. Traditional research strengths such as chemical engineering systems, caialysis. polymer science, agricultural chemistry, organic and inorganic industrial chemistry, and applications research remain basic to Monsanto's growth and future profitability. The recent reorganization has bolstered these areas by combining related research efforts, such as in polymer research, .so that we can better serve our customers. At the same time, we are pursuing two promising research growth areas -- new materials and .systems, such as electronics materials and separa tions, and the life sciences, including plant biology, animal nutrition, human health care, molecular biol ogy and biotechnology 1" "Tomorrows success for the farmer -- indeed, for us all -- lies in today's research. Monsanto is committed to develop ing the agricultural technology of the future and to carrying it to every corner of the earth." Nicholas L. Reding Executive Vice President 0674616 TOWOLDMONOQ15168 IK A Mtmvmtti s< U'ntt.st fmrtfws vxjKTiwtDal ln>/ .-h,1 g>vntihik>rM<fttc. uiuth otn othutiv tuid- ta/il rrrctttprottuatofti iir ctttrh` It i> fr< -V ,,m- (if tin1 wvfkvtptw/rtih of nx outhittttm hW tixhtmfuxy Biotechnology research is advancing vigorously,, and Monsanto scientists already have made fundamental disemeries in plant genetic engineer ing. We expea these discoveries to contribute to the creation of more productive crop plants by about 1990. Meanwhile, the Company is building a powerful technical base for potentially substantial markets in the next decade and beyond. Monsanto's first commercial product based on genetic engineering will likely be bovine growth hormone (bGH). which increases meat and milk yields in cattle, Working with Genentech, Inc,, we first succeeded in producing this hormone with genetically altered microorganisms in 1981. Recently, Monsanto and Cornell University scientists announced positive results From ini tial testing of the biosynthetic bGH. A .second window through which Monsanto observes and assesses emerging technology is research colLal>oratinn with universities, an area in which Monsanto is widely regarded as a pioneer. Among our partnerships with uni versities is an innovative relationship we established with Washington Uni versity in St. Louis during 1982. With Monsanto providing il%*> million over the next five years, the two institutions will conduct collabora tive biomedical research in areas of proteins and peptides which regulate cellular functions. Our agreement with Washington University is unique in several respects, Research projects are selected by an advisory committee appointed by Monsanto and by Wash ington University, The projects are collaborative, with dose working relationships among the institutions' scientists, Patents arising from the projects will be held by the univer sity, though Monsanto will have exclusive licensing rights. The agreement is also considered a model in protecting the academic freedom of university scientists, Faculty members participating in the collaborative research projects are free to publish the results of their research. A third Monsanto window on new technology is venture-capital invest ment in innovative young businesses. In 1972 Monsanto and another indus trial company created a venturecapital firm, InnoVen, to make invest ments with three goals in mind; first, to keep abreast of emerging technol ogies; second, to acquire new technologies for the parent compa nies; and third, to make a return on investment. InnoVen has succeeded in all three objectives, and its success stimulated the creation in 1982 of Monsanto's most recent venture-capital enter prise -- Advent Eurofund. This 117 million fund invests in innova tive high-technology businesses in Europe, Monsanto's partners in Advent Eurofund are major research universities -- Cambridge University, Oxford University, Imperial College of Science and Technology, St. Andrews I'niversiiy and the Nuliiclil Founda tion in the United Kingdom, and Boston University and Harvard University in the United States. I11 addition to providing an opportunity to assess and acquire new technolo gies in early stages of commercial development, Advent Hun (fund enhances Monsanto* ability in apply technologies emerging from hade academic research. As a result of these windows < n\ tech nology, many new opportunities in the field of health care have become evident, Our research efforts in this area Focus on proteins and peptides associated with blood factors, the body's immune system and the growth of tissues and organs From this research we foresee several potential new therapies for impor tant and intractable human diseases. We anticipate that biotechnology will contribute significantly to these efforts and therapies. With these new opportunities hefore us, we recently created a Health Care Division, which is accelerating Monsanto's entry into major lieakJicare businesses. While managing investments like that In Collagen Corporation, it will also develop commercial strategies for regulatory proteins and peptides and related products of potential significance in human medicine. These products will emerge from our genetic engi neering research, from collaborative research with Washington University and from other external research. 0674617 TOWOLDMONOQ15169 TOWOLDMONOOI5170 TOWOLDMONOOI5171 WrfJmtfffrtu f `HNvnity in Sr. kmis i.visjoined u trb Monvniht in dir iumnutitv coUabiyratire iVMvmb ii'/rtuft' Anticipate and Respond to Society* Concerns Monsanto continues to anticipale ami respond to society's expectations about our performance in ihe areas of worker safety and health, environ mental protection, prexlua quality ami safely ami all oilier aspects of good corporate citizenship. There is no greater tesi of Monsanto's behavior us a corporate citizen than prolection of health and ihe environ mem. lire Company continues to can's1 out an environmental strategy of running our operations wills the least possible adver.se effect on people anil the environment and to allay public fears about the effects of our operations ansi products- Thai environmental strategy involves seeking public trust and confidence, which will develop only when a scientific consensus exists on Midi unresolved questions as extrapolat ing, or applying, die results of animal lests to humans. To assist in reaching litis consensus, Monsanto's scientists conduct research in accordance with the highest canons of science. The Company w ill accelerate toxicologi cal research not onh to learn of chemical effects i >n humans hut also lo discover the basic mechanisms of interactions between chemicals and humans. And we will communicate the results of our findings to the sciemific community, our employees, government officials and lawmakers, and the public. Public confidence depends on the proven safety of our operations Eind materials. In 19H2 Monsanto spent more than $2-i0 million for capital projects and ongoing programs to ensure that our operations and the materials we use Eind produce cause no harm. Much of this went toward gathering, managing and communicating infor mation about our processes and products*. Through our own Environ mental J lealth laboratory, the Chemical Industry Institute of Toxi cology and many other sources, we seek comprehensive knowledge of the health effects of all chemicals we use and make. Our computerized Medical anti Environmental Health Information (MEl tt) system, epide miology department, mobile Monsanto Employee Testing Unit and other systems constantly monitor our own workplaces and the health of our employees. To ensure that our operations com ply with legal requirements and our own standards of environmental pro tection, we completed in 1982 the first series of environmental audits of a(l our If.S. plants. These audits have been extended to our European operations, all of which will be audited by the end of 1983. Monsanto seeks not only to handle and dispose of its wastes in the most responsible manner but also to reduce the volume of wastes through several means, One, finding benefi cial uses for wastes or "co-products," is discussed above. We have also accelerated the development of improved processes that generate less waste, of waste recovery and recycling systems, and of methods of detoxifying those wastes which cannot be eliminated. Monsanto's workplace safety efforts made 1982 the best year for .safety in our history, For the second year in a row, there were no fatalities in any of our manufacturing operations around the world. Our "total record able race" -- that is. the total number of fatalities, illnesses and injuries requiring more than simple first aid -- w;is 1.09 for even- 200.0110 employee-hours in 19H2. an improve ment of nearly l" percent over 19M. This achievement keeps Monsanto among the top three companies in the chemical industry, which itself has the best safety record of all industries surveyed by the National Safety Council, Not only must Monsanto be con cerned about the health and environment of our communities, but we must also be an active partici pant in those communities. That participation includes philanthropy, which the Company conducts pri marily through the Monsanto Fund in 1982, with total Corporate and Monsanto Fund contributions com ing to |7 million, we moved closer to our mid-1980s goal of contribut ing at least 2 percent of our pretax income to civic, educational and charitable causes. Good citizenship includes providing our employees with satisfying work and equality of opportunity for advancement. At the end of 1982. 0674620 /Ik- Uwis CLwmvy,' ti)ubi'/. ri)tirn^i u, \}<,>t Mato Oil Oanpam: Unik thrutt ta \<vr njjttxnv.'Jh.fckvn. SaiihiaU in percent of Monsanto's man agement employees were minorities anil women. They held more than 23 percent of S.990 professional positions, including 22 percent of 920 sales positions, Their number in middle and upper management has grown from 2610 126 in the past Use years. rtb manage Us response to legitimate public expectations, Monsanto created u Social Responsibility Committee in 1976 and developed a series of social responsibility policy statements. At the same time, we formed an Environmental Policy Committee and Staff along with an Office of Social Responsibil ity. in 1981 the Hoard of Directors created its osvn Corporate Social Responsihility Coniiniuec. Company's efforts in the areas of energy conservation and product safety and quality Committee chairwoman Margaret Bush Wilson said the Committee is satisfied that the managing directors are keenly aware of the importance and place of corporate social respon sibility. and are themselves attuned to the social policy climate of today,'1 She said that during 1983 the Com mittee plans to visit plant communi ties and talk with employees at all levels of the organization to see that social responsibility concepts are being carried out in day-to-day practice. Prom the beginning, the goal was to make social responsibility an integral part of our regular line and staff operations. lie the end of 1982, suffi cient progress had been made that the Company transferred primary responsibility to the major operating ami staff units. The management Social Responsibility Committee received a new charter as an Emerg ing issues Committee both to monitor long-range social and politi cal developments and to examine the appropriate future role of the corporation in modern society. As a result, the Board Committee has assumed greater responsibility for overseeing the performance of staff and operating unit managers. They conducted a social performance review of Monsanto during 1982 and. were particularly impressed with the 0674621 TOWOLDMONOOI5174 TOWOLDMONOOI5175 A Monsanto scientist conducts experiments with turfforces, ospart ofbasic research into the mechanisms ofplant prou'tb 25 Performance in Major Markets Bwl yum Income lailUomoMSK Dollar Difficult eoqnomic conditions both at home and abroad during 1932 affected nearly all of the major markets in which the Company did business, Even agricul ture, Monsanto^ largest market and one traditionally thought to be immune to cyclical pressure, was buffeted by high interest rates and declining growth, Housing and automobile production, two important markets for Monsanto prod ucts, tell to their lowest levels in decades. In the face of this, Monsanto fared rela tively well. The Company made good progress in implementing its long-term strategies for growth and relining its product portfolio toward meeting special customer needs. Combining that with continued careful managemenl of assets and cost reductions during 1982, Monsanto was able to mitigate some what the eflects of lowered demand lor industrial products. Monsanto's performance in each of its major markets is described in this sec tion. Economic conditions for each market are summarized and depicted graphically on the right. Construction, Furniture and Horn Furnishing (ponding (Billions of 1S72 Dollsrt) Producsrs' PusoMo dqulpmont spondtna (Billions of 1972 Dorisrs) FhotmoootiWonlQi gonpoond TMIotHoc Production (1907 - 10D| 1982______________________________________ ______________ 1981 _______"" 220.1 222.8 Ratio Chamleata Production <1967 = 100) Conmroor tpandlngon Rppurol (Bflllona OH972 Dollar*) 067462A TOWOLDMONOOI5176 26 Agriculture Real farm income in 1982 lell to its lowest level since the 1930s, and farmers oould not maintain their normal purchasing patterns. Nevertheless, agricultural product sales rose, although growth was slowed. Lasso herbicide far com and soybean crops continued to increase Its U.S. market share, pally due to the new Surface Blend technique which has gained wide accept ance. New Bronco herbicide had an excellent reception in the no-till soybean market as farmers increasingly sought ways to conserve time, fuel costs and soil. Sales of Roundup herbicide continued to climb in mar kets around the world, although not as rapidly as in recent years. In the United States, Roundup showed impressive gains in the reduced tillage and industrial markets. In Europe, prehaivest applications of Roundup were successfully introduced. Far-Go herbicide for wheat had strong U.S. growth, but outside the U S. Avadex BW and Machete herbicides had reduced sales in 1982. This was largely due to poor planting weather and deteriorating farm economies, rather lhan a strong US. ddlar. The new Rodeo herbicide is the first approved by the U. S- Environmental Protection Agency far non-reslricted use in controlling weeds which often choke ponds and navigable waterways. Rodeo will be marketed beginning in 1983. Monsanto is an important supplier of amino acid teed supplements and preservatives to the poultry and swine teed markets. MHA and Alimet feed supplements, methionine sources for animal feed, demonstrated strong sales gains during the year despite competitive pressures. Research is continuing on a growth hormone which shows promise of improving mifk production efficiency in cattle. Construction and Homs Furnishings A depressed housing industry during 1982 affected sales in construction and related markets which account lor 17 percent of Monsarrtois total sales. New residential construction had its worst year since World War II -- caused by inflation and high interest rates. The sale of existing homes, which often creates demand for home lumishings, was half its recent high. Monsanto products are also found in non-residentiat construction which picked up only modestly in 1982. - Laminated architectural glass made with Saffex plastic interlayer gained increasing acceptance in building windows, doors and skylights. II provides the properties of sound reduction and safety, as well as solar control which saves on air conditioning. Sales of Lusfran ABS plastic used in pipe declined due to continuing stilt competilion from pdyvinyl chloride and depressed industry conditions. However, Lusfran Ultra ABS plastfa far appliances and consumer electronic items did well. Resins and plasticizers found in plywood, paints, insulation and wallpaper, continued fa be well accepted in the marketplace. Sanffcizer plasticizers give flexibility to vinyl materials used in Hooting and wall coverings. This product increased its market pene tration during the year. Monsanto is a leading supplier of nylon fiber to makers of commercial and residential carpets. During 1982, new product introductions shifted the'nylon liber sales mix toward more branded, higher-value items. The warranty program for Wear-Dated carpet was well received by mill customers who introduced a record number of new Utlion nylon carpet styles and constructions. 'Numbers shown Kntficafe percentoges of Monsanto sates In home lumishings, Monsanto continued to see good growth for its Acritan acrylic fibers in upholstery, draperies and wall coverings. While the penetration by acrylics in these markets suffered from the economic downturn, programs are in place with major mills to increase their acceptance in such applications. 0674625 TOWOLDMONOOI5177 Capital Equipment Pharmaceuticals and Related Products Capital spending dropped significantly during 1982 Major markets for Monsanto's subsidiary, Fisher Controls International, Inc., were particularly hard hit. The semiconductor industry, which purchases Monsanto^ silicon, also suffered. Even in this environment, Fisher made strides in its sales ol control valves and regulators. In 1982 Fisher introduced an innovative control valve with accessories designed for corrosive service applications. Meanwhile, develop ment work accelerated on next-generation products. Building on its strength in field measurement instrumen tation, Fisher introduced a temperature controller and vortex flowmeter product line using proprietary technology Provox computerized control room instrumentation, first sold in 1980, continued strong wwldwide growth. Sales increased by more lhan 100 percent with over 200 control systems and 15,000 control loops sold to date. New enhancements help customers coordinate batch control for multi-stream, multi-product applications and provide special energy management capabilities. Monsanto continued to improve both the quality and customer's device yield of its electronic-grade silicon. Materials for specialized customer applications contributed to the Company's leadership as a supplier to the semiconductor industry. The silicon business has faced lower lhan anticipated demand during the past two years as the result of a poor economy. Nevertheless, substantial long-term growth is foreseen with advances in mainframe and personal computers and telecommunications, Two Monsanto thrusts stressed energy efficiency. Monsanto Enviro-Chem Systems. Inc., a leader in design and construction of sulfuric acid plants, developed programs to generate electricity from excess steam. Prism separators have been sold in 10 countries. Their use in oil refineries is gaining increased acceptance. U.S. demand for products in the pharmaceuticals and related products area, two of our oldest markets, remained largely flat during 1982 Existing inventories, rather lhan new production, met increased demand for health care products. Monsanto is the world's largest supplier of analgesics, producing both aspirin and acetaminophen. With production facilities in three countries, Monsanto main tained its strong position in serving the worldwide aspirin market. Acetaminophen usage in the U.S. showed strong annual growth, and Monsanto's in creased capacity at our Luling, Louisiana, plant reached record production of this product during 1982. As the only U.S. manufacturer of L-Dopa, a prescription drug used in the treatment of Parkinson's disease, Monsanto continues to be a major factor in this worldwide market. Although mature, detergent and toiletries markets continue to be important to Monsanto as new opportunities develop for future products. Volume of our traditional builders and surfactants decreased during 19B2, reflecting changing consumer spending pat terns. However, Monsanto was able to hold its overall share of phosphorus and derivatives, such as STR our largest volume detergent raw material. Other sales in these markets remained strong. Monsanto is also a major supplier of packaging material to pharmaceutical and deter gent markets which consume about 70 percent of our blownware plastic bottles. Although Monsanto is recognized as a leader in quality and service, blownware sales suffered due to overcapacity and price competition. A cross-licensing agreement with Tbshino Kogyosho Co,, Lid., in Japan permits Monsanto to exchange rights on tech nology and patents for production of plastic containers. As a result, Monsanto expects significant advances in this area. 067<t626 2H Motor Vehicle* in North America fewer automobiles were produced in 1982 than in any year since 1961, Widespread reces sion and anxiety about unemployment caused American consumers to curtail motor vehicle purchases dramatically. Domestic spending on U.S.-built automo biles as a percent of gross national product was at its lowest level ever. As a result, sales were down tor most Monsanto products serving this important industry, including rubber chemicals and plasticizers. Several Monsanto products turned in a relatively good performance in spite of lowered motor vehicle voJumes Shipments of Lustran ABS resin for automotive components held their own. including two new impact-resistant and color-fast grades of Lusfran ABS. Saftex interlayer for laminated automotive windshields also maintained its share in a declining market During the year, Monsanto commercialized Afyrim catalyst and prepolymer tor nylon block copolymer reaction injection molding systems. Nyrim's long-term market potential is replacement of conventional materials like steel and fiberglass in automotive body panels Two entirely new materials introduced in 1981 performed well in test applications. Santaprene elastomer, the first multi-purpose thermoplastic rubber, is already being specified in high-performance applications. Monsanto's unique thermoplastic resin, Cadon, has bean rapidly adopted for interior applications. The use in automobiles of electronic devices, many of which contain Monsanto silicon, has grown dramatically. Microprocessor oontrol units that monitor and govern engine functions, such as fuel-air mixture for increased mileage, became almost universally accepted in 1962. Chemlcels and Petroleum Refining Numbers srtown indicate percentages of Monsanto sates. The production of basic and industrial chemicals rn the United States declined more than 15 percent during 1982 due to weak demand around the world, particu larly in the United States and Europe. Petroleum refining did not fare as badly with only a 6 percent drop in production. Monsanto strengthened its oil and gas exploration activities by forming Monsanto Oil Company, a wholly owned subsidiary, to direct its worldwide hyrdocarbon operations. This enhanced its identity in the oil and gas industry and improved its flexibility in joint veniure activity. Monsanto's yearend oil reserves totalled 38 million barrels and natural gas reserves totalled 607 billion cubic feet, up from 1981 levels by 12 percent and 1 per cent respectively. With a drilling success ratio of 83 percent, Monsanto Oil Company increased oil production to nearly 4 million barrels during the year. However, natural gas production declined due to reduced demand. Monsanto Oil Company now holds leases on more than one million net acres and has begun an exploratory drilling pro gram on one of its several United Kingdom leases in the North Sea Monsanto's process chemicals are used by manufacturers to make many industrial and consumer products. Monsanto has the world's leading technology for acetic acid Licensed in seven major industrialized countries, our methanol-based technology pro vides approximately 35 percent of the world's capacity for this chemical. Monsanto continued to expand its worldwide maleic anhydride capacity as a new plant at Pensacola, Florida, neared completion. Thomvnol heat transfer fluids are used for indirect heating and cooling in chemical processing, on offshore drilling platforms, and in solar heating. Monsanto's maior posi tion in these markets continued to improve during the year. 0674627 TOWOLDMONOOI5179 Apparel Other Markets In 1982, the demand created by increased consumer A spending on apparel was largely filled from imports and existing inventories, putting downward pressure on all apparel fibers. However, acrylics showed growing competitive strength over other fibers, with particularly strong performance in hall hose and all activewear categories. Acrylic fitter products introduced over the past few years, including Pa-Qel, So-Lara and Fi-Lana, enhanced Monsanto's position by offering strong branded programs in market segments which moved against the downward trend of the industry in 1982. Monsanto reached two important milestones during the year when the Company com memorated the 20th anniversary of its warranty program for Wear-Dated products and the 10th anniversary of the introduction of SEF modacrylic fiber. Since 1962, when Monsanto tost offered a warranty for qualified apparel products made with the Company's liber, the Wear-Dated trademark has become a recognized symbol lor quality and value. The warranty is the strongest of its kind in the textile industry. SEF modacrylic fiber was developed to help MonsantoS customers meet the federal flammability standards for various apparel products. Its primary application in apparel is in children's sleepwear. In other apparel areas, Monsanto started to convert a major portion of its textile-denier nylon yam facilities to manufacture a product more suitable for use with the high speed texturing equipment being installed by customers. When completed, this should provide Monsanto with an attractive low-cost nylon product for women's hosiery men's half hose and activewear. Monsanto sells a variety of other products to diverse markets ranging from food to graphic arts to water treatment chemicals. These were affected by the 8-percent drop in industrial production which reflected TM the longest post-war recession in the United Stales. Monsanto^ food ingredienfs include flavorings, acidulants and presenrafives used in carbonated soft drinks, juices and wines. In the dairy industry, Monsanto's food ingredients preserve freshness and improve flavor. Monitor potassium sorbate food preservative, widely used by bakeries, increased penetration of this market while production costs were reduced, in (he export market, the strong US. dollar had some negative effect on prices, but the outlook had improved by year's end. Aome-Cor board has gained wide acceptance in the graphic arts industry in addition to its traditional use as energy-saving sheathing in manufactured housing and head liners for automobiles. Monsize, Mersize and Scripset paper sizing agents maintained their share in a weak market, while Santo-Ses walstrength resins increased sales during 1982. Monsanto is a leading supplier to this important industry. Monsanto is also a major supplier of nylon fiber for various industrial applications and tires. Sales here were depressed due to conditions in end-use markets. Cerex spunbounded nylon fabric, used in such applications as filtration and disposable garments, demonstrated strong potential for medical and non-industrial maifcets, even though sales were down somewhat in 1982. 0674623 TOWOLDMONOOI5181 dC"1 BuMng tf one iffMonsanto^ most modem office buildings at the St, Louis headquarters 31 FiflflnClfll RCOOft ^ Contents Responsibilities lor Financial Data Financial Review Financial Statement* Financial Summary _______________________________________________________________________ Eeae Meneoement Report 32 Independent Auditor*' Opinion on Syetem of Internal Aocountlna Control 32 Review of the Reeult* of Operations Consolidated Sales 33 Sales by Product Group 33 Consolidated Met Income 34 Analysis ol Chancre in Eaminos cer Share 34 Quarterly Results 35 Operating Unit Segment Data 36 International Area Basis Data 36 flaw Materials and Enemy 39 Research and Development 39 Foreign Currency 39 Inflation-Adjusted Data 40 Selected Financial Data 41 Review ol Llauldlty and Capital Resource* Short-Term Liaukfitv and Capital Resources 42 Long-Term liquidity and Capital Resources 43 Common Slock Data 44 Oil and Gai Activities Proved Reserves 45 Standardized Measure of Discounted Future Net Cash Flows 46 Summery of Significant Accounting Policies Independent Auditors' Oolnlon on Financial Statamanta 47 48 Statement of Consolidated Incoma 46 Statement of Consolidated Financial Position 50 Statemant of Chanoa* in Consolidated Financial Position 52 Statamsnt of Consolidated Shareowner*' Eaulty Note* to Financial Statamanta Principal Divestitures 53 54 Supplemental Income and Expense Dala 54 Pension Plans 54 Income Taxed 55 Earnings per Share 55 Inventories 55 Short-Term Debt and Bank Credit Airannements Long-Term Debt 55 56 Commitments end Continosncies 56 Capital Stock 56 Stock Option Plans 56 Segment Information 56 58 Except where otherwise indicated by the context, the term "Monsanto" means Monsanto Company and its consolidated subsidiaries and the term "Company" means Monsanto Company alone. M dollar amounts are in millions, except those amounts shown on a per share basis. 0674630 TOWOLDMONOOI5182 RMporalWIItlM for Flnanolal Data Management Report The management of Monsanto Company is responsible for the fair presentation and consistency of all financial data included in this Annual Report. Where necessary, cue data reflect management estimates. Management is also responsible for maintaining a system of infernal accounting control to provide reasonable assurance that assets are safeguarded against malarial 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 consideration in this regard. Inherent limitaiions in any system include the possibility of undetected errors or irregularities. Also, significant changes in circumslanoes could result in inadequate current procedures, or deterioration in compliance with (hose procedures. Management believes that the effectiveness of Monsanto's system is maintained by: (1) personnel selection and training: (2) division of responsibilities: (3) establishment and communtoation of policies: and (4) on-going internal review programs and audits. As ratified by shareowner vote at the 1982 Annual Meeting. Debitte Haskins & Sells was appointed to examine, and express an opinion as to the fair presentation of, the consolidated financial statements. This opinion appears on page 48. At managements request, Debitte Haskins & Sells also expressed an opinion, whbh appears below on the internal accounting control system in the United States. Monsanto's Audit Committee, consisting of lour non-employee directors, periodically meets wilh representatives of the Controllership Staff, the Internal Audit Staff and Debits Haskins & Sails to review btemal controls, financtel reporting and accounting practices. Both the independent and internal auditors have complete access to meet with the Committee, with or without the presence of management, to discuss their examinations, the adequacy of internal controls and the quality of financial reporting. Independent Auditors' Opinion on System ol Internal Accounting Control John W. Hanley / Chairman of the Board and Chief Executive Officer February 25,1963 Francis A. Stroble Senior Vice President and Chief Financial Officer We have made a study and evaluation of the system of infernal accounting control of Monsanto Company and its United States subsidiaries in effect during the year ended December 31,1962. These oompanies constitute approximately 6f percent ol con solidated total assets at December 3f, 1962 and approximately 71 percent ol 1982 consolidated revenues. Our study and evaluation were conducted in accordance with standards established by the Ametican Institute of Certified Publb Accountants. The above report explains managements responsibility for maintaining a system of internal accounting control and the objectives and limitations of such a system. In cur opinion, this system of internal accounting oontrol in effect during the year ended December 31,1982, taken as a whole, waa sufficient to meet the objectives referred to above that pertain to the prevention or detection ol errors or irregularities in s material in relation to the consolidated financial statements. Saint Louis, Missouri February 25,1963 0674631 Review o< the Resutta el OpanUons 33 Worldwide recession impacts sales ConeolMeM Salat $6,325 6.948 1 6.574 Salas lor 1982 decreased 9 percent as compared to 19B1. In 1981. tales ware 6 percent higher than the prior year. Sales volume for 19S2 was down 11 percent versus 1981, with 1981 sales volume down 2 percent Iron the previous year. Higher selling prices contributed approximately 2 percent to 1982 sales in contrast with 1981 selling prfoe increases of approximately 8 percent over the prior year. Seles volume the last two years was adversely impacted by worldwide recessionary conditions, especially In those businesses dependent on the automotive and housing industries. Polymer products, industrial chemicals and marmrada fibers were particu larly affected. Although agricultural sales in 1982 were negatively Impacted by the (arm economy^ depressed financial condition, sales did increase albeit at a more modest rate lhan in the past. Divestitures of various businessss {see "Principal Divestitures" note to the financial statements) adversely impacted both 1982 and 1981 sales. The continuing strength ol the United Stales dollar against many foreign currencies also negatively impacted domestic export sales. 8l by Produot Group Agricultural and Nutritional Produeta Agricultural products Nutrition chemicals Tbtal Fiber* and Intermediate* Man-made libers Textile intermediates Total Industrial Chemicals Detergent and lee chemicals Specialty chemicals Tbtal Polymer Produeta Plastics Resin products Rubberchemicals and Instruments Tbtal Enginesrad Produeta and Other Businesses Engineered products and materials Oil &gas met Fleher Controls valves, regulators 6 electron*; process consols Tbtal oonaolldatad See "flstfatMTwrt" dbcumon on pap?97. mi SI,15$ 14$ 1,311 MO 377 1,257 552 28$ 810 775 742 289 1.7B8 387 218 573 1981 SI .099 135 1,234 1,014 416 1.432 609 289 898 1,062 613 262 2,147 414 186 600 1980 8 905 125 1,030 1,041 330 1,371 606 282 B9D 1.094 B07 298 2.199 365 128 491 SM *8,325 637 6,946 593 S6.574 0674632 TOWOLDMONOOI5184 34 Profitability sustained in difficult economic climate by cost reduction and asset management programs Consolidated NO Incoma $352 445 149 Reported net income lor 1982 was off 21 percent from 1981$ results. Part of this decrease is attributable to unusual and extraordinary items year-to-year. However, the decline also reflects recessionary conditions, excess manufacturing capacity and depressed prices in the chemical industry worldwide, in 1981, net income was up significantly versus I960, but unusual items in 1981 and 1980 also impact this comparison. Net income in 1982 benelited from a $23 million extraordinary gain on the exchange of outstanding debt for common shares. Lower equity income from affiliated companies, which also includes substantially all of the Mexican peso devaluation impact, adversely impacted 1982 results. Net income lor 1981 included a $68 million gain from the sale of net assets related to a joint venture. In 1980, net income was significantly depressed by charges Staling $108 million related to various divestitures. See the "Principal Divestitures" note to the financial statements. During tha past few years. Monsanto has initiated ccmpiehansive programs of asset management and cost reduction. These programs ware significant contributors to minimizing Ihe 1982 net income decline by lowering the overall breakeven point of manufacturing facilities. Inventory levels were curtailed as part of these programs and resulted in aftertax Income of $43 million and $21 million in 1982 and 1981, respectively, from nonreplacement of low cost inventories under Ihe LIFO (last-in, first-cut) inventory method. Aftertax foreign currency losses in 1982 of $6 million were reported under a new accounting method. In 1981, reported foreign currency gains were $29 million, up substantially versus 1980. See the "Foreign Currency" discussion on page 39. Tha effective tax rale for 1982 was lower than in 1981 due principally lo Ihe larger impact of invesBnent tax credits. In 1981, the effective tax rate was higher than in I960 as a result of loner investment tax credits and Domestic International Sales Corpora tion (DISC) tax benefits. Earnings per Share were $8.79 In 1982, versus $11.50 and $4.10 in 1981 and 1980. respectively. In 1982 and 1981, earnings per share were impacted by additional shares issued in those years. Pro forma earnings per share for 1982 are disclosed in the "Earnings per Share" note to the financial statements. Analysis si Change In Eemlnge per Share -- Increase (Decreaae) 19*2 va. 1991 19B1 vs. i960 Selling prices Salsa volume and mix Raw materia) prices Otter manufacturing costs Divestitures Start-up costs NonmaniXacturino expenses Operating Income *2.30 (3.M) 2.77 (1.22) (2.01) (0.0) (1.13) (3.34) $10.31 2 B7 (347) (4.10) 472 062 (1 14) 901 Interest expense Other inooms credits--net Effective tax rate Extraordinary item Shares outstanding Change In taming* pat share 0.31 <0T) 0.40 O.U (0.30) $(2.71) 022 (0.31) (IS) (0 77) $ 7 40 0674633 Quirtrty Reeulte Year 1962: Ibtal Quarter First Saoond Third Fourth Nut SoIm $1,731 1,629 trW6 1,466 66,326 Coat et Goode Sold $1,334 1,240 1,166 1,142 64,612 Attain) Foreign Currency Qefoe (Loeaee) $ 14 (1) ($) (11) $ <#) Nut Ineomu $147 37 71 47 6362 Earnings per Shura 6 3.71 2.17 1.70 1.12 6 6.76 Agricultural seasonality; cost reduction programs; nonrecurring items; and recession impact results 1981: First Second Third Fourth Total 81,900 1.858 1,634 1,559 88,948 $1,390 1,473 1,190 1.248 $5,301 $ ID 23 in (3) $ 29 $176 94 123 52 $445 $ 4.81 2.36 309 1.25 $11.50 Income before the extraordinary gain on the exchange of outstanding debt for common shares was $24 million {$0.54 per share) for the fourth quarter of 1902. Quarterly consolidated sales and income typically exhibit the seasonality of the agri cultural business. Agricultural products' sales are heavily concentrated in the first half of Ihe year, panicularly In the first quarter, and have greater profitability than other lines of businesses. On a year-to-year basis, quarterly consolidated sees in 1982 trailed those of 1981. However it is important to note that the period-to-perfod sales compari son reflects a combination of business divestiture impacts, year-to-year recessionary factors, and Ihe influence of a strengthening United States dollar on export sales. All quarterly results in 1982, as compared to the corresponding prior year's quarter, reflect the Impact cl the adoption of a new accounting method for foreign cunency translation (see "Foreign Currency" on page 39). Other nonrecurring andfor unusual Items Impacting 19823 results are as follows: First Impact on Earnings psr 8hsrs Quarter Second Quarter Third Quarter 1662 Fourth Quarter Gain from neroeplacement ol lew cost inventorytiers under LIFO-method Mexican peso devaluation $0.06 0.25 10.13 0.02 0-13 (0.18) $076 (0.27) Gain or loss (ram facilities Shutdown or sold (022) 0.03 (0.07) Early retirement program cost (0.05) (021) Extraordinary gain on exchange ot debt for common shares TWal 0.58 $0.31 $(0.1)7) $(0.07) $0.74 Third quailer 1981 includes a $175 per share gain from the sale of the Company's net assets related td a joint venture. In 1981. aftertax gains from nonreplacement of low cost inventories under the LIFO method were $0.09, $0.12. $0.18 and $0.16 per share in the first through fourth quarters, respectively 0674634 36 Opanting Unit Sagmant Data 1982 Agricultural and Nutritional Products Fibers and Intermediates Industrial Chemicals Wymer Products Engineered Products and Other Businesses Fisher Controls Eliminations Corporate expenses Total operating incccrsdwaat --net Nonoperating assets Ibtal consolidated Net Sales *1,311 1,297 810 1,701 873 880 6,326 Operating Income (Lose) (42* (25) 100 23 (27) 82 (S) (43) 601 a- 86,326 6601 Ibtal Assets *1,1(0 1,162 779 1,138 968 418 6,862 425 **,077 Depreciation and Otoeofeteenee * 71 138 58 76 89 13 Capital Expenditures $125 91 183 73 188 27 2 439 887 8 $439 $873 1981 Agricultural and Nutritional Products Fibers and Intermediates industrial Chemicals Rolyniw Produce Engineered Products and Other Businesses Fisher Controls Eliminations Corporate expenses Ibtal operating Income charges--net Nonoperating assets Ibtal oonaolldatad *1.234 1,432 696 2,147 600 637 6.948 $6,948 $414 36 140 77 5 68 (2) (36) 702 9 $693 $1,011 1,300 670 1.390 8S3 436 5.659 410 $6,069 $ 65 96 68 (25) 54 13 2 263 $283 $106 118 105 97 210 24 662 6 $668 I960 Agricultural end Nutritional Products Fibers and Intermediates Industrial Chemicals Polymer Products Engineered Products and Other Businesses Fisher Controls Eliminations Corporate expenses Ibtal optradng income chargee--net Nonoperating assets Ibtal consolidated - $1,030 1.371 690 2.199 491 593 6.574 $6,574 $355 (270) 171 (82) 5 72 (2) (39) 210 4 $206 $ 611 1,449 610 1.601 634 413 5.526 270 $5,796 $ 43 231 63 157 41 10 2 547 $547 $ 75 152 127 21B 160 23 775 6 $781 The ebove dele itouH be md In conjunction wHi he "RmUMiwk" dltouation which follow* and the "Segment information'' nottto tinandal *tuemeet* on pig* 56. 0674695 TOWOLDMONOOI5187 Internal operating structure reorganized Agricultural business strong but impacted by weak farm economy Man-made fibers hard hit by recession Industrial chemical markets depressed Weak automotive and housing markets impact polymer products RMtMwnanl Etfecthre January 1.1983, Monsanto^ internal operating structure was reorganized to integrate raw materials with downstream products and to batter serve related markets and technologies. Consistent with this new direction, certain product management responsibilities were realigned. The Company is using a market-based transfer price policy for materials moving between operating units. All operating unit financial data shown in this Annual Fteport have been restated to reflect the reorganization. Prior to the reorganization, certain chemicals such as acrylonitrile, ammonia, styrene monomer, nylon salt, phosphorus and phand were used by several operating units as inteimediate "building block" materials. One operating unit was responsible for the management of the manufacturing operations related lo most of these materials. However, each operating unit that used Ihe "building block" chemicals in the manu facture of end products was considered to be the joint owner of the manufacturing facilities and shared Ihs product manufacturing costs and investments based on its annual production commitment. Agricultural and Nutritional Product! Sales for 1982 were up 6 percent over 1981 tevets due to the full year impact of prior period selling price increases and 1982 volume improvements, with 1982 operating income growing 3 percent. Despite the poor U.S. farm income situation, sales o< Lasso and Aoundup herbicides improved over 1981 leveiB. but floundup sales growth in 1982 was less than experienced in prior years for this leading crop chemical. Nutrition chemicals' sales continued to grow in 19B2. In 1961. agricultural and nutritional products' sales increased 20 percent from the prior year, with a 17 percent increase in operating income. Fiber* end Intermediates In 1982. sales declined 12 percent from 1981 levels due to recession driven volume decreases and discontinuation of the polyester staple business The 1982 operating loss, as compared to a 1981 profit, reflects significant reduction in man-made fibers industry demand, a $15 million obsolescence charge tor the polyester staple discontinuation and a $20 million loss on the planned sale of the acrylic fibers business in Europe. These factors were mitigated somewhat in 1982 by an $18 million reduction in the estimated costs related to prior years' shutdowns and a $20 million favorable impact from nonreplacement of lower cost LIFO Inventories. Although impacted by the 1980 withdrawal Irom the polyester filament business, sales in 1981 were up 4 percent versus 1980. Operating results improved in 1981. favor ably impacted by a $25 million gain due to nonieplacemenl of low cost LIFO inventories. In 1980, operating reautts included a $121 million write-off tor the polyester filament discontinuation. Industrial Chemical* Sales tor 1982 decreased 10 percent Irom the prioryear and related operating income was down 29 percent. Depressed activity in several markets served by these products accounts tor the year-to-year decrease Operating tocome in 1982 includes a $27 million favorable impact from the nonreplacement of low cost LIFO inventories and an $11 million net gain as a result of the sale or shutdown of various production facilities. In 1981, sales were flat compared to 1980, and operating income was down 18 percent due to the recessionary conditions that were also evident in 1981. Polymer Product* Sales decreased 17 percent in 1982 versus 1981 due to declin ing volumes as a result of recessionary conditions, particularty in the automotive and housing markets, and a 1981 divestiture. Operating income also declined in 1982. The yeaM&year decline was due to inclusion in 1981 of a $124 million gain from the divest iture. Excluding this item, operating income improved in 1982 reflecting benefits from asset management and cost reduction programs and a $35 million favorable impact from nonreptecement of tow cost LIFO inventories. Offsetting these favorable (actors in 1982 were poor economic conditions and a $15 million charge tor shutdowns of various production facilities. Sales in 1981 were down slightly versus 1980, although operating results improved substantially. This improvement was principally due to a $124 million gain from a 19B1 sale of net assets related to a joint venture, whereas 1980 was negatively impacted by a $66 million charge from a divestiture. Englneend Products and Other BualnetM* This operating unit segment includes fabricated products, electronic materials, chemical and environmental systems and oil and gas activities. Sales decreased over 4 percent in 1962 versus 1961 due principally to the Monsanto EnviroChem Systems, Inc. (ErrviroCheml -- a 0674636 38 Other businesses also hurt by the recession Depressed capital spending impacts Fisher subsidiary-- reduced level ot construction projects and lower fabricated products sales. These reductions were offset partially by increased OH and Gas sales. Operat ing results were down significantly in 1983 from 1981 levels mainly because of higher idle plant costs in the electronics' business, fewer Enviro-Chem construction projects, and lower fabricated products business. In 1961, sales increased 22 percent over 1980, although operating income was flat due to stait-up and idle plant costs in the electronics business, partially offset by better Oil and Gas and Enviib-Chem profitability. Fisher Control! Sales were down 6 percent in 1982 compared lo 1981, and oper ating income decreased 24 percent. Lower sales in 1982 were due to the depressed level of worldwide capital spending, pariiculariy in the oil and gas industry, and increased competition and economic instability in Mexico These factors ware offset somewhat by higher selling prices. In 1981, sales increased 7 percent over the prior year, although operating income was down slightly. A combination of selling price and volume increases accounts for the 1981 sales improvement, but a strong U.S. dollar and a faltering European economy adversely affected that year's results. International Area Basle Data The world area segment data in the notes to the financial statements on pages 86-57 were prepared on an "entity basis" -- i.e,, sales and income as recorded in the finan cial statements ol the legal entity are assigned lo the world area where the entity is located (e g., a sale Item a United States' subsidiary to a customer in Brazil is reported as a United States transaction). This presentation is required by generally accepted accounting principles. However, Monsanto views internal financial results on an "area basis" wherein sales and income are assigned to the world area where the customer is located (e.g.. a sale Irom a United Stales' subsidiary to a customer in Brazil is reported as a Latin American transaction). The table and discussion which follow summarize Monsanto's "area basis" results ol operations. Ex-U.S. sales and income depressed by global recession and strong U.S. dollar European economies generally weak Canadian economy weak; Mexican peso impacts profits International Sates and Operating Incoma 1982 1981 1980 Sales by ex-U.S, subsidiaries (entity basis} U.S. expoit sales inter-area eliminations International aalea (area basis) $1,976 984 (Ml) $2,239 32.219 1.042 (698) $l582 32,199 1.027 (625) 33,601 Operating income (loss) of ex-US. subsidiaries (entity basis) U S- export operating profit, net ol allocated administrative expenses Equity in ex-U.S. affiliates' net income (loss) International operating income (area Mala) $M 35 HD S 104 3 104 76 34 3 214 $ (7) 142 16 3 151 Europe-Afrlca Area sales lor 1982 were $1,092 million, down 14 percent from 1981 levels because local manulacluring operations were depressed by general recession ary factors. Area operating income lor 1982 was $48 million, a decrease of 25 percent from 1981. Included in 1982 results was a $20 million loss on the planned sale of the acrylic fibers business in Europe and a $4 million net charge due to the discontinua tion or sale ot other oreduction facilities in the United Kingdom. The change in accounting principles for foreign currency translation (see "Foreign Currency" on page 39) favorably impacted the 1982 to 1981 income comparison. In 1981, area sales were down bom the prior year reflecting the I960 divestiture ol the Company's Spanish subsidiary. Area operating results in 1981 were much improved over 1980. as the i960 results reflected a $66 millfon charge due lo the divestiture. Caneda-Latin America Area sales in 1982 were $597 million, down 14 percent from 1981 levels. Some Latin American economies were relatively strong but could not offset the impacts of the Mexican peso devaluation and cl the significant recession in Canada. Area operating inoome was $36 million in 1982. a 61 percent decrease from the prior year, reflecting lower results from Mexican operations including a $9 million loss from devaluation of the Mexican peso, decreased U.S. exports lo the weak 067*637 U.S. exports suffer in Asia-Pacific Raw material and energy costs decline Research and development funding increased in 1982 39 Canadian and Brazilian economies, and an $8 million writeoff from [he shutdown of a Canadian production facility. In 1981. area sales and operating income increased as compared to the prior year. Asia-Pacific Area sate in 1982 were $550 million, an 8 percent decrease compared to 1981. Area operating income in 1982 was 121 million, a 67 percent decline from 1981 The decreased 1982 results were due principally to a lower levs) of U.S. exports. A stronger United States dollar versus other currencies adversely impacted the competitiveness ol U.S. exports. In 1981. area sales and operating income improved over the prior period. Raw Materials and Energy $2,435 3.042 2.990 Raw materials and energy include petrochemical feedstocks and energy used in production processes. Overall, these costs decreased significantly in 1982. after a relatively small increase in raw material and energy costs in 1981 over 1980. Raw material prices decreased approximately 5 percent in 1982, following increases of approximately 13 percent and 25 percent in 1981 and I960, respectively Raw material contracts for key materials have been secured with terms and con ditions which support the economic and security of supply requirements of Monsanto's business units. In addition, the Company continues to have available hydrocarbon resources from its Monsanto Oil Company subsidiary, which resources can be used in hydrocarbon sourcing programs, it required. Research and Development $256 225 208 Research and development costs continued at a high level in 1982, increasing to 4 percent of sales as compared to 3 percent in 1981 and 1980. In addition to these period costs, substantial new capital expenditure commitments were made in 1982 tor expanded research facilities at a new St. Louis County, Missouri, location. This level of funding, in light of the worldwide recessionary conditions and necessary cost reduc tion measures in 1982, testifies to Monsanto's continuing commitment to generate new products and processes. Research in traditional areas of strength such as catalysis, polymer science, agricul tural chemistry chemical engineering systems, and application research is ongoing. The Company also has intensive and growing R&D programs to plant biology, animal nutrilicn. electronic materials, biotechnology, molecular biology, and human health cate. In 1982, Monsanto entered into a five-year, $24 million ootlaboralive agreement with Washington University aimed at discovering new therapies tor major human diseases In January 1963, Monsanto announced the formation of the Health Care Division which will coordinate the Companyls biomedical research and development programs. Foreign Currency ClBHltiBalton ol Qelne (Losses) Income Statement: Pretax gams (losses) Income taxes Altsrtsx gslns (losses) Per shaie Balance Sheet: Accumulated currency adjustment net change 1W2 {SFA$ He 42) 1991 (SFAS NO S) 1980 (SFASNp S| % (IS) () s (S| ) (109) S (28) (57) S 29 $0.75 $ 12 11 $1 $003 0674636 40 New accounting method adopted for foreign currency impacts Mexican peso devaluation adversely impacts profitability Cumulative effects of inflation continue to distort historical results As manttened in the Summary ol Significant Accounting Policies, Monsanto adopted Statement of Financial Accounting Standards No. 52 (SFAS No, 52), "Foreign Currency Translation," beginning in 1982. Accordingly, n 1962 most ex-<J.S. aesets and liabilities were translated at current exchange rates and most translation impacts were reflected in a new accumulated currency adjustment account in shareowners' equity. In addition to the reported impacts as reflected in the above table, income was adversely impacted in 1981 under SFAS No. 8 (the previously required translation procedures) by (he use of historical currency rates to translate inventory and deprecia tion expense. The Company significantly reduced its hedging actions (i.e., the use of forward exchange contracts) in 1982. Because of hedging actions by the Company under SFAS No. 6. it is not practical to restate prior years' foreign currency impacts on a basis comparable to 1982. Also, for the same reasons, 1982 foreign currency impacts were not accumulated on a "pro forma" SFAS No. S basis. The 1982 reported foreign currency loss was principally due to the Mexican peso devaluations. The 1981 aftertax gain reflects the general strengthening of the United States dollar against several currencies. The Companyis ex-U.S. subsidiaries and affiliates generally use the local currency as the lunctional currency under SFAS No. 52 because ol their relatively "sell-contained1' operations. Working and fixed capital needs lor these entities are generally met through internal operations and Ideal country borrowings, supplemented by additional equity capital or intercompany borrowings from the Company when appropriate or necessaiy. Monsanto has subsidiaries or affiliates in Argentina. Brazil and Mexico, for which the U.S. dollar was designated the functional currency because of the hyperinfiaticnary conditions in those countries. There are no currency restrictions that are expected to have a significant impact on the Company's total cash flow liquidity or capital resources as a result of ex-U.S. operations. Monsanto^ major lunctional currencies, in terms of currency exposure, are the United Kingdom pound sterling and Belgian franc, Other important currencies include the West German mark, French franc. Canadten dollar and Australian dollar. Significant currencies of Monsantois equity affiliates are the Japanese yen and Mexican peso. Inflalton-Adjuatad Of Year ended December 31.1982 Current Cost Historical (In Average Cost 1982 Dollars) Net sates Cost ol goods sold, excluding depreciation Depredation expense Marketing, administrative end technological expense Other expense and income -- net Income taxes Income baton extraordinary Item $6325 4,416 396 1,012 -- 172 S 329 $6,325 4,499 567 J.012 -- 172 * 7S The "current cost" disclosures, which reflect adjustments based on estimates of the current oosl to replace existing assets in kind, attempt te measure the impact of infla tion on specific Monsanto assets. The fpltewteg items are adjusted ter inflation: inventories; property, plant and equipment; cost of goods sold; and depreciation expense. Income tax provisions are not adjusted ter the inflation effects. All current cost data is stated in average 1982 dollars using the U.S. Consumer Price Index A1 Urban Consumers calculation method. This method is otherwise known as the "translale-restate" method. in a period of inflation, historical cost earnings can overstate the ability of most manu facturing companies to generate cash Dow from operations sufficient to provide lor business and dividend growth in a "real" sense. Inflations effects must first be "financed' from historical cost earnings by increased expenditures to replace worn out and obsolete facilities. While many ot these facilities wilt not be replaced in their current form as the computational methods of the current cost data suggest -- tech- 067A639 Profit improvement programs, asset redeployment and technology advances lessen inflation impact 41 nological advances will be incorporated as replacement occurs and soma (acuities will never be replaced -- nevertheless, the data are useful in approximating certain infla tion effects. to maintain profitability in an inflationary environment, Monsanto increases Balling prices as cost and competitive conditions warrant and continually searches for ways to reduce costs Improved technology, increased productivity and successful energy conservation and asset management programs allow Monsanto to remain competitive from a selling price standpoint, while mitigating some of the impact of rising costs. In addition, management is constantly reviewing Monsantots businesses to determine those with long-term economics that will not justify continued investment. Monsanto has disposed of several such businesses in recent years. The 1982 increase in current cost of inventories and property, plant and equipment, stated in average 19B2 dollars, was $144 million. At December 31,1982, the current cost d inventory and property, plant and equipment (net of accumulated depreciation) was $1,272 million and $4,230 million, respectively, stated in ysarend 1982 dollars. Inventories determined on a FIFO (first-in. first-out) basis were used to approximate inventories on a current cost basis. Cost of goods sold as determined on a UFO basis (after adjustment for the impact of nonreplacement of low oost inventories) or similar techniques were used to approximate cost of goods sold on a current cost basis. The current cost ol property, plant and equipment was generally estimated using appropri ate construction and equipment indices. Accumulated depreciation lor the current cost of existing facilities and related expenses were estimated using the same overall methods and rates as used in the historical cost financial statements. Selected Financial Data 1982 1981 1980 1979 1978 Historloel cost, as reported (see notes): Net salBs Income belore extraordinary item Income belore extraordinary item per share total assets Long-term debt Dividends per common share $5,325 929 B.21 <,077 1,003 3.95 96,948 445 11.50 6.069 1,110 3.75 8.574 149 4.10 5.796 1,371 3.55 56.193 331 9.11 5.539 1.203 335 5.019 303 829 5,036 1,224 3.175 Currant coat data* In average 1M2 dellara: Income (loss} belore extra ordinary item 7B Income (loss} belore extra ordinary item per share 1.87 Purchasing power gain on net mmeiary items 33 Increase in specific prices of inventory and property over (under} increase caused solely by general inlkalion (73) Aggregate foreign currency translation adjustment, net of income taxes (17B) Nat assets 4,799 Other data, In average 1992 dollara: Net sales 6,325 Dividends par common share 3.96 Market price of common stock at yearend 375.39 225 (36) 250 5.81 (TOO) 667 1D4 158 163 (32) (327) 128 5,179 7,374 4.01 72.02 4,762 7.702 4.20 76-60 4,952 8,235 4.51 574,97 7,426 473 6700 Average conaumar prlc* Index 299.1 272.4 246.6 217.4 195.4 Noth: In 1963, the requlrementa of Statement or Financial Accounting Standards No. S2, `'Foreign Cumncy harslatlon,'' war* adopted. Beginning In 1SS0, interest coats tetatad In cdnstructlon-tnprogress sxpendllurae were capitalized in eccwdence wltn Statement nr Financial Accounting Stan dards No. 34, "Capltafeadon of Jntereat Cost." In yaars prior to 19BQ, an Intamat costa wile expensed as Incurred. The sheet erf the new accounting principle wee to increaie IBBDnet Income bv 328 million, or SOTS per share. 0674640 TOWOLDMONOOI5192 42 Review of Liquidity and Capital Reeoweee Monsanto maintains strong cash position while funding future growth opportunities Working capital position improves Short-term debt decreases Short-Twin Liquidity ond Capital Reaoureee Fund* Provided from Operations 1880________________________ 806________________________ 668________________________ Monsanto^ 1982-1980 sources and uses of funds, defined as cash, lime deposes, certificales of deposit and short-term securities, are shown in the Statement of Changes in Consolidated Financial Position on page 52. Monsanto has substantially maintained its strong cash position at yearend 1982. with cash and cash equivalents decreasing slightly to $414 million as compared to the 19B1 level d $426 million. Funds provided Irom operations, before working capital changes, increased $74 million in 1982 versus 1981. A continued emphasis on man aging the Company's assets has resulted in good control over working caprtel requirements, while capital expenditures in the last two years have been essentially level, tn addition, funds were provteed by new common shares issued during 1981 and used to liquidate outstanding debt. In 1981, significant proceeds were also received from the sate of the Company's net assets related to a joint venture. While cash is generated by operations throughout the year, significant receipts Irom agricultural products sates are concentrated in the first half. Tax and dividend payments are generally made quarterly, but most other significant sources and uses cl funds occur throughout the year with the general level of operations. The current ratio, an indication of liquidity, continued to improve in 1982 to 2 6:1. The 1961 current ratio was 2.4:1 compared to 2.1:1 in 1980. Management believes a work ing capital ratio of at least 2.0:1 is desirable. Working capital (current assets less current liabilities) increased in 1982 to $1,503 million as compared to $1.486 million in 1981, as curiam liabilities declined more than current assets, invsntory reductions in 1982 reflect continued stringent control ol inventory levels and the discontinuation ol certain product lines. Yearend 1982 receivables were comparable with 1981. The Company has avsilable various short-term bank facilities, which are further discussed in the "Short-Term Debt and Bank Credit Arrangements" note to the finan cial statements. When necessary, short-term lines ot credit and commercial paper are used to finance working capital and provide "bridge" financing for capital require ments until more attractive ratea prevail in long-term debt markets. Shaft-term debt decreased to $131 million in 1982 as compared to $175 million in 1981. 0674641 TOWOLDMONOOI5193 Ample capita! resources provide future flexibility Monsanto has available various long-term financing alternatives Long-Term Liquidity and Capital Ruaoweat Capital ExpandWuwa $667636____________________________ 781_________________ ,, 43 Capital expenditures shown in the graph include $46 million, $44 million and $52 million of capitalized interest for 1982-1960, respectively. At December 31,1982, Monsanto had purchase orders and contracts outstanding amounting to approximately $126 million in connection with uncompleted additions to property Expenditures lor capital equipment are typically linanced by a combination of cash provided from operations and long-term debt. In 1981, the Company issued 3,000,000 new common shares and used the proceeds to reducs debt that had been incuned to fund the capital expenditure program. Long-term debt was further reduced in 1982 through an exchange tor 988,078 common shares. As a result of the common share issuances and the reduction ol long-term debt, the long-term debt to capitaliza tion ratio decreased to 22 percent in 1982 as compared to 25 and 33 percent in 1981 and 1980, respectively. Over the long farm, Monsanto believes that its appropriate long-term debt to capitalization ratio is approximately 33 percent. The interest cover age ratio (times), excluding the 1982 extraordinary item and the effect of capitalized interest, was 4.6 in 1982, as compared to 5.5 in 1961. The Company has madB extensive use of pollution control end industrial development bonds, including an additional $38 million in 1982, to finance qualified projects. Because ol the tax status of these obligations, the associated interest rates are vary favorable. The Company will continue to pursue this torm ol financing when available in (he future. White industrial development bond obligations now comprise 2S percent of all Monsanto's outstanding long-term debt, the Individual issues have not been substantial. In addition to the use of long-term debt, Monsanto has occasionally used other lorms of financing, principally lease arrangements and joint venture arrangements involving take-or-pay contracts. These alternative forms of financing are used when the effective interest cost is attractive or the nature of the capital project requires their use. The Company will consider using lease, joint venture and other innovative financing arrangements in the future, as appropriate, but the extent of their use in Monsanto's overall financial structure has not been significant in the past. Virtually all of the assets reflected in Monsanto^ financial statements are bee from lien and are not used to oollateratlze debt. Accordingly, these assets represent a source o< additional debt capacity although the Company has no present plans to pursue this source of financing. Through the Monsanto Oil Company subsidiary Monsanto Is involved in oil and gas exploration activities and owns reserves with a significant current value that is not reflected in the accompanying financial statements. The Company^ proved reserves represent a valuable asset that could be used to increase its total debt capacity, in addition. Monsanto Oil Company's undeveloped acreage, or some portion of it, could be used in future joint arrangements with outside parties to provide funding for explo ration and development of the acreage. 0674642 Common Slock Data Dividends per Common Stun Quarter First Second Third Fourth Total year 1982 $0.95 1,00 1.00 1.00 $3.95 901 $090 095 095 095 53 75 Dividends increase for 10th consecutive year Quarter first Second Third Fourth High $70* 68* 79* 89 1982 Low 860 50% 67% 72 High $77* 07* 81* 72% 1981 Low 667 69% 59v, 60* Shareowners' equity par common aharo 1002 $85.97 1981 $84 37 Monsanto!; common stock is traded principally on the New tbrk Stock Exchange. The number of common shareowners of record as of February 22.1983. was 74,979 and the high and low common stock price on that date was $84ttr-S83'A. During the past two years, the Company issued nearly 4,000,(XX) additional new common shares In two major transactions. In addition, Monsanto has convertible preferred slock, convertible debentures and convertible loan stock outstanding which result in periodic issuances of common stock upon conversion. Common shares are also regularly issued under employee stock option plans. There were 2,146.379 common shares reserved for convertible securities and stock option plans at Decem ber 31,1982. A treasury stock acquisition program is in place to mitigate, when appropriate, the dilutive effect ol the issuance of common shares undsr stock option and employee stock ownership plans and outstanding ccnveitible securities. Also, the Company has an employee stock purchase program whose requirements are imme diately funded with the purchase of treasury shares. Ths Company has paid dividends on its common shares -- without interruption or reduction -- since 1926. The dividend is paid quarterly and has been increased in each of the past ten years. The dividend payout of 45 percent for 1962 is slightly higher than the average dividend payout over the last ten years because of the increased dividend rate and the somewhat lower level of earnings in 1982. The Company): dividend policies are not necessarily tied to a set payout percentage. 06 7*643 ON and Oai Autlulllu 45 Quantities of proved reserves increase Proved RaMrvos (Oil EquivalenhMIllloni of Barrols) 139___________________________________________________ 134___________________________________________________ 133_______________ _____________________________ In recent years. Monsanto has expanded its expiration efforts tor hydrocartxxi reserves. The Company^ former Oil and Gas Division was established in 1963 as a separate wholly-owned subsidiary. Monsanto Oil Company, with activities principally located in the United States. Certain data regarding Monsanto Oil Company follow Nat Quantities of Proved Reserves developed end Undeveloped Reeervee December31.1979 Revisions of previous estimates Purchases of rninerals-in-place Extensions and discoveries Production December 31,1980 Revisions of previous estimates Purchases of minerale-in-place Extensions and discoveries Production December 31.1981 Revision* of previous estimate* Purebaee* ol mlnerelt-ln-plic* Extvntlons and discovert** Production Oeoembor 31,1992 011(1) 29 4 Of 30 in 2 6 (3) 34 2 1 $ (4) 38 Natural G**i2) 614 (24) 1 64 (36) 619 (26) 1 45 (40) 599 46 |3S) 607 (1) Slated in mtiorocf barrets. <2) Slated in tfHlon* of ditto loot In determining the estimated future cash inflow data which fellow actual 1962 yearend selling prices (Or oil snd gas were used as prescribed by Statement ol Financial Accounting Standards No. 69, "Disetosures about Oil and Gas Producing Activities.'' Similarly future production and development costs were determined by using the actual 1962 yearend cost levels. A discount rale ol 10 percent was used. The Company cautions that changes in the discount rate, luture sailing prices, or cost, production or reserve estimates made in developing the data could significantly affect the results. The capitalized costs of proved reserves, net of related accumulated depreciation, depletion and amortization, were $346 million as of December 31,1962. 0674644 46 Discounted future net cash flows from proved reserves remain significant Standardized Measure ot Discounted Future Net Cash Flows Future cash inflows Future prediction and development costs Future income tax expenses Future net cash nows Annual discount tor estimated liming of cashflows Standardized meaeure of discounted future netessh flows Change In Standardized Meaaura ot Discounted Future Net Cash Flow Beginning el year Sales, ret ol production costs Net change in prices and production costs Extensions, discoveries end improved recovery, less related costs Purchases ol minerals-in-place Development costs incurred Revisions in previous quantities Accretion of discount Net change in income taxes Other, principally change in estimate of production rale End of year TW2 $3,491 73t 1,190 i,a 1,113 t 452 1961 $3,003 530 1,064 1.409 350 $ 459 I960 $2,945 471 1.102 1,372 1.063 319 1992 9489 (149) 92 111 10 4 19 49 37 (141) 452 1901 $319 ('25) 5 123 39 23 (30) 32 (65) 139 459 i960 $202 188) 211 56 3 B (T6| 20 (60) $3i9 0674645 TOWOLDMONOOI5197 Summary of Significant Accounting mielaa Baaia of Consolidation The consolidated financial statements include the Company and Its majority-owned subsidiaries. Intercompany transactions have been eliminated in consolidation. Investments in affiliates in which Monsanto has an owner ship interest between 20 and SO percent are accounted for by the equity method. Foreign Currency translation Effective January 1,1982. foreign currency trans actions and financial statements are translaled in accordance with Statement of Financial Accounting Standards No. 52 (SFAS No. 52), The functional currency ol substantially all ex-Lf-S- subsidiaries is the local currency Intercompany advances to ex-U.S. subsidiaries are generally presumed to be of a long-term investment nature. The hypeiinllationary countries in which Monsanto had significant operations in 1982 were Brazil, Mexico and Argentina. For 1980 and 1981, foreign currency transactions and financial statements were trans lated in accordance with Statement of Financial Accounting Standards No. 8 It was not practical to restate these years under SFAS No. 52. Depreciation The straight-line method of computing depreciation is generally used, with approximate weighted average assigned lives of 23 years for buildings and 12 years for machinery and equipment. Incoma fixes Investment tax credits are recorded as a reduction of income tax expense In the year they offset the Federal Income lax liability Income taxes have not been provided on undistributed earnings of ex-U.S. subsidi aries since any taxes on dividends would be substantially offset by foreign lax credits. Income faxes have not been provided on a substantial portion ol tha undistributed samingB of domestic subsidiaries, including domestic international sales corporations (DISC'S), because Monsanto intends to indeRnilety reinvest those earnings. Inventory Valuation Inventories are stated at the lower of cost or market. Actual cost is used lor raw materials and supplies, and standard cost, which approximates actual cost, is used for finished goods and goods in process. Standard cost includes elements lor direct labor, raw material and manufacturing overhead based on practi cal capacity. The cost of substantially all domestic inventories is determined by the last-in. first-out (LIFO) method. The cost of other inventories is generally determined by the first-in, first-out (FIFO) method. Oil and Ga* Activities Oil and gas exploration end production activities are accounted for using the successful efforts method. 067*6*6 4a independent Auditor*' Opinion on Hmnolal Statomonto 1b tha Shareowner* of Monsanto Company: We have examined tha statement ol consolidated financial position of Monsanto Company and Subsidiaries as of December 31,1982 and 1981 and the related state ments of consolidated inoome, shareowners' equity and changes in financial position far each of the three years in the period ended December 31,1982. Our examinations were made in accordance with generally accepted auditing standards and, accord ingly, included such tests ot the accounting records and such other auditing procedures as wa considered necessary in the circumstances. In our opinion, such consolidated financial statements present fairly the financial posi tion of Monsanto Company and Subsidiaries at Decamber 3f, 1982 and 1981, and the results of their operations and changes in their financial posilion for each of the three years in the period ended December 31.1982, in conformity with generally accepted accounting principles consistently applied during the period except for the change, with which we concur, in 1982 in the method of translating foreign currency trans actions and financial statements as described in the Summary of Significant Accounting Policies. Saint Louis, Missouri February 25.1983 0674647 TOWOLDMONOOI5199 I I f Statement of Consolidated Income (Mlais m millions, except per share) Net Salsa Cost ol goods sold Marketing and administrative expenses Technological expenses I i Operating Income Other expense and Income: Interest expanse Interest Income Other income --net J Income Before Income Taxes and Extraordinary Gain Income (axes Income Before Extraordinary Gain I Extraordinary gain from exchange of debt for common shares Net Income Earnlnga par Share: Belore extraordinary gain Alter extraordinary flair I 49 Mcnsareo Company 1982 S6.325 4,812 681 321 5,824 501 82 63 19 -- SOI 172 329 23 8 352 6 8.21 6.79 1981 $6,948 5,301 656 289 6.246 702 101 6B 24 9 693 248 445 $ 445 $11.50 11.50 1960 $6,574 6,476 615 273 6,364 310 112 36 72 4 206 57 149 $ 149 $ 4.10 4.10 iNa Bbovo statement should be read in conjunction w*h page 47 end pages 54 Virough 57ol Vila report. i i ' L 0674646 TOWOLDMONOOI5200 50 Statement of Consolidated Financial Position (DtMnh mikm wapt per thane) Aeeete1962 Currant Aeeete; Cash Time deposits and cartlllcates ol deposit Short-term securities, at cost which approximates market ltade receivables, net ol allowances ol $38 in 1982 and 139 in 1981 Miscellaneous receivables and prepaid expenses Inventories624873 Investments and Other Assets: Investments In affiliates Other assets173160 Property, Plant and Equipment, at Coet: Land Buildings Machinery and equipment Mineral rights and oil and gas properties Constojctton-ln-progrees246419 Less accumulated depredation3,2173,034 Ibtal Aaaeta T1 abon suwment rrwJd be rwd in wnjunoign w#i paps 47 are) pagn 5* through 57 m this isport. At December 31 1981 $ SI 92 271 1,076 140 2,454 S 82 127 ai 7 1,073 178 2,550 137 175 310 335 61 675 4,920 625 6,530 3,313 $8,077 58 . 666 4,600 475 6,218 $6,069 0674649 TOWOLDMONOOI5201 UaMIIUee mmI Hamwiwn' Equity Cumnt Liabilities: Account* payable Wages end commissions Income and other taxes Miscellaneous accruals Short-term debt Long-term Debt Deferred Credits and Other Liabilities: Deferred Income taxes Other liabilities Minority Interests In Subsldlsrtee Shareowner*' Equity: Preferred stock -- authorized, 10.000.000 shares, no par value; issued and outstanding, 91.902 shares in 1982 and 99,151 shares in 1961 Common stock -- authorized, 100,000.000 shares, par value $2: issued, 40,966.159 shares n 1982 . and 39.978.084 shares in 1981 Additional contributed capital Accumulated currency adjustment Reinvested earnings Less Iressury stock, at cost (corranon shares of 366,548 In 1982 and 509,800 in 1981) tbtal Liabilities and Shareowners' Equity 51 Monsanto Company and SuWctoriss At December 31 1982 1981 379 102 123 216 131 S1 1,003 $ 492 107 99 191 175 1,064 1,110 4*3 421 31 30 824 451 in 114 82 821 (122) 2,621 3,512 22 3,480 88,077 90 853 2,423 3,356 26 3,330 $6,069 0674630 TOWOLDMONOOI5202 52 Statement of Changes In Consolidated Financial Position (Doilgrt in miSors) MonsTM andSuMaaTM Sources (Uses) of Fund* Operation*: Income before extraordinary gain Charges not using (credlls not providing) funds: Depreciation and obsolescence Deterred income taxes Other --net Fundi provided from operations, botors changes In working capital Investment end Other Transactions: Working capital changes: Trade receivables InventoriBS Other current assetB Accounts payable and accrued liabilities Short-tenn debt Property, plant and equipment addition! Net proceeds trom sals of assets related to Joint venture Properly disposals Foreign currency adjustments Other -- net Financial Transaction*: Issuance of common stock . Long-term financing Long-term debt reduction Extraordinary gain from exchange o! debt for common shares Dividends Increase (Decrease) In Funds 1982 $ 329 439 65 27 BBO 1961 $ 445 263 83 15 806 1980 5 149 547 60 (88) 668 0) 49 38 (SB) (44) (era) 31 (60) 10 (721) 7S 39 (149) 23 (181) (171) * (12) 33 (41) 51 (23) (64) (660) 219 33 51 (409) 205 32 (273) (145) (181) S 216 (21) 7B (36) 9 6 (781) 8 (70) (607) 266 (60) (128) 78 $ (61) Incresse (Oserstss) In Elemsnts of Funds: Cash Tima deposits and certificates of deposit Short-term securities Increase (Decrease) In Funds (31) (35) 54 _________________ SJI2L- $ 37 23 156 $ 216 $1 10 (72) $ 161) The above statement should be reap in conjunction with page 47 and pages 54 though 57 d fife report. 0674661 TOWOLDMONOOI5203 Statement of Consolidated Shareowners' Equity (Dollars in millions, except par share) Preferred Stock: Balance, January 1 Conversion to common slock (7,249,23.968 and 35,042 shares In 1982-1980. respectively) Balance, December 31 Common Stock: Balance, January 1 New shares issued (988,075 and 3.000.000 shares In 1962-1981. respectively) Balance, Deoember 31 Additional Contributed Capital: Balance, January 1 New shares issued Ofher Balance, December 31 Accumulated Currency Adjustment: Initial adjustment lor SFAS No. 52 Translator! adjustments Income tenes Transferred to net Income Balance, December 31 . Relnveated Earnings: Balance, January 1 Delerred taxes adjustment lor SFAS No. 52 Nal Income Preferred dividends ($2.75 per share) Common dividends ($3.95. $3.75 and $3.55 per share for 1982-1980, respectivelv) Balance, December 31 Common Stock In Tteaeury: Balance, January 1 Shares purchased (171,940.21,641 and 83,243 shares In 1982-1980, respectively) Conversion of convertible securities and Issuances under employee stock plana (313.192,320.276 and 221.724 shams In 1962-1980, respectivelv) Balance, December 31 53 Monurto Company 1663 *- -- S-- t 60 3 I 83 $ 653 73 5 t 931 < () (111) B (4) * (122) $2,423 4 353 -- (153) $3,621 $ () (13) 17 $ (22) 1961 $- -- $- $ 74 6 $ 80 $ 652 199 2 $ 853 $2,123 445 -- (145) $2,423 $ (41) (1) 16 $ (26) 1980 $- -- $$ 74 $ 74 $ 653 (D $ 652 $2,102 149 -- (12B) $2,123 $ (46) (4) 11 $ (41) ^ too* statement should be read n conjunction wihpage 47 end pampas S4 fhrcuQh &7 of this report. 0674652 TOWOLDMONOOI5204 54 Mot** to Financial >tat*n*ts Principal Divestitures In February 1963, (he Company's Board of Directors approved the planned sale of the acrylic fibers business in Europe and the establishment of a 1962 loss provision of SIB million ($046 per share) net of related taxes. The pretax loss ol $20 million is reflected in obsolescence expense in cost of goods sold. An agreement in principle (or the sale has been reached with the buyer, a company that is a joint venture partner with Monsanto in a nylon intermediates facility In the United Kingdom. The agreement also provides for Monsanto to purchase the buyers interest in the nylon interme diates facility. The acrylic fibers business in Europe is a pari of the Fibers and Intermediates operating unit and had 1962 sales of approximately $139 million. In August 1981, the Company sold its assets related to the MonsantryConoeo joint venture. The Company's gain on the sale was recorded as a reduction of obsolescence expense in cost of goods sold in 1981 of $124 million, or $66 million ($175 per share) net of refeled tax effects. The facilities were a part of the Polymer Products operating unit in the United States and generated sales in 1961 of approximately $167 million. Cost of goods sold Ion980 induded a provision for losses ol $121 million, or $69 million ($1.90 per share) nel ol related tax effects, from the Company's withdrawal from the polyester fila ment business in the United States. Certain manufacturing facilities and other assets were sold and fee remaining manu facturing facilities have been shut down and will be dispesed of as soon as practical. This business was part ol the Fibers and Intermediates operating unit and had sales of approximately $134 million in I960. In i960. Monsanto decided to terminate its interest in Arscondel. S.A., a majority-owned Spanish subsidiary, and in 1981 sold its interest to (ha minority shareholders. Cost of goods sold lor 1980 included a proviston for losses on termination ot $66 million, or $39 million ($1.07 per share) net of related tax effects. This business was reported as part ol the Polymer Products operating unit and had sales of approximately $126 million in 1980. As ol December 31.1962, fee remaining accruals lor fee divesti tures discussed above and the 1979 wilhdrawal from nylon operations in Europe have been reduced to $49 million through actual expenditures for shutdown or withdrawal costs, disposal of certain facilities, and operating losses subsequent lo the recording of the provisions. The remaining accruals are expected to be sufficient to absorb future costs related to these actions. Supplemental Income end Expense Dele 1992 Depreciation And obaotoacenci: Depreciation Obsolescence (includes gains and losses Irom divestitures) Tbtal depreciation and oOeotescanc* Rent expense IbchnDtogteal expenses: Research and development 43 $439 9 79 $256 Engineering, commercial develop ment and patent Tbtal tachnotogtcM expanses Interest expense: 65 9321 Total interest costs incurred Less capitalized interest Nat Internal axpanae $138 46 $ 63 Equity Incomes Equity in affiliates' income and losses Equity in affiliates' foreign currency gains and losses Total equity Income (lea*) 11) (S) 9(11) Foreign currency gain* and toaaa* (Including equity In affiliate*' gains and loaaaa) 1(19) 1981 $361 (981 $263 $ 74 $225 64 $269 $145 44 101 $ 22 16 $ 36 9(28) 1980 $327 220 $547 9 71 $206 65 $273 $164 52 Stt2 $ 34 (17) $ 17 $ 12 Pension Plans Most Monsanto employees are covered by nonoontributary pension plans. The related pension expense was $136 million, $127 million and $98 million in 1982-1960. respectively, and includes charges applicable to current service and amortization of unfunded prior service costs over periods generally tanging (torn 10 to 30 years. It is Monsanto's policy lo fund pension costs accrued. Actuarial assumptions reflect an investment return of 7.5 percent and, when applicable, an over all average salary increase of 6.5 percent. Effective for 1961, Monsanto increased retirement benefits and reduced fee eligibility requirements lor early retirement and surviving spouses' automatic retirement benefits for its major domestic plans. The net effect of these changes was to increase 1981 expense by appioximafely $52 million. Estimated benefit and asset information at yearend for Monsanto^ significant pension plans is presented below Net assets were measured at market value and accumulated bene fits were estimated Irom actuarial valuations made earlier in the Actuarial Dreamt valued accumulated plan benefit*! Vested ibtai Nonvasted Nat easts availabletor baneMs 1962 91,369 177 *1,543 61,897 190t 91,221 157 $1,378 $1,358 0674653 55 Ineom* Ttixea TMal 1M2 1901 1980 u.s. $425 $549 $212 Ex-US. 79 144 (6) 9501 $693 $206 The components of income tax expense weie: IMS Currant: Deferred: Tsui Federal Stele Ex-US. Federal Stale Ex-U,S. $ 83 9 as 100 72 4 (4) 72 $172 1901 % 91 8 38 137 103 9 at 111 $248 1980 * (5) 5 24 24 19 3 11 33 $ 57 Investment tax credits for 1962-1960 were $53 million, $22 million and $49 million, respectively. The sources of timing differences in the recognition of revenue end expense for lax and financial statement purposes and the tex ellect of each were:_____ __________________ 1982 1981 I960 Earnings per Share Earnings per share were computed using the weighted average number of common and common equivalent shares outstanding each year (39,975,496.38,703.604 and 36,287,214 in 1982-1980, respectively). Common share equivalents included in the computation consist of common stock issuable upon exercise of outstanding stock options (159,858.200.801 and 24,811 in 1982-1980, respectively), end conversion of loan stock of Monsanto p.I.c. (109,904,144,952 and 202,204 in 1982-1960, respectively). Earnings per share assuming full dilution were not significantly different from the primary amounts Had lha common shares issued in October 1982 (see "Long Term Debt" note) been issued as of January 1,1982, pro forma earnings per share for 1982 would have been $8.71. The pro forma amount reflects the effect of decreased aftertax interest expense through the reduction ol long-term debt and the increased number of shares outstanding. Inventories Inventories at December 31,1962 and 19B1 wculd have been $447 million and $548 million, respectively, higher than reported if the FIFO basis of inventory valuation (which approximates current cost) had been used for all inven tories. Under the LIFO inventory method used, it is not practical to identify inventories by classiflcetion (i.e., finished goods, goods in process, raw materials and supplies). As a result of liquidation of lower cost inventory Tiers" under Ihe UFO method, 1982 earnings were favorably impacted by approxi mately $83 million before taxes. Additional depreciation end obso Isscence for (book) lax purposes Intangible drilling and development CCS1S Interest capitalization Olhe* 3 49 19 18 () $ 66 23 14 e S (6) 15 23 Notes payable to banks Curran portion of tono-lerm debt 3 Tbtel 1992 1961 9105 $139 29 36 9191 $175 Total $ 72 $in $ 33 The Company has available a $100 million domestic Revolving Credil/Term Loan Agreement and $100 million ol short-term lines Factors causing lha effective tax rate lo differ from the statutory rale were: df credit with twenly-one banks. The Agreement provides for revokrfog credit through 1986 with any borrowings outstanding 1982 1981 1980 at the end of lhat period convertible into a three-year term loan. The interest rates on any borrowings under these domestic facil- Federal statutory rata 48% 46% 46% itiss will generally be at or near prevailing prime rates. Investment tax credit tiBnelits attributable to DISC earrings hotwax enacted ex-U.S, subsidiaries1 results (10) (3) 1 (3) (24) The Company also has available $100 million under Eurocur (3) (12) rency Revolving Credit Agreements subject lo mandatory (3) 19 reductions beginning n 1985 and terminating in 1987. interest Other Eltactiva Income tax rata 34% P) 38% Jl> 28% rates under these agreements are at a margin above the London or Luxembourg Interbank offer rales. No borrowings were made under the above credit facilities Undistributed earnings of subsidiaries, for which additional faxes that may be required in the event d distribution have not through February 25,1983. In addition, certain ex-U.S. subsidiary have short-term loan (acuities aggregating approximately $403 million, under which tx-U.S. subsidiaries US. subsidiaries, xscludma DISCS 'Mil 1992 8218 390 608 1981 $186 349 $535 I960 $ 70 290 $368 loans totaling $76 million were outstanding at December 31. 1982. Interest on Ihese loans is related to various ex-U.S. bank rates. Ex-U.S. net operating toss carryforwards at December 31,1982, for which no tax benefits have been recorded were appraxiitetely $115 million, a substantial portion of which has an unlimited carryforward period. 067*65* TOWOLDMONOOI5206 56 Long-lbrm Debt Long-term debt (exclusive of current maturities) repayable In U.S. dollars, except where Indl- calod, was: 1982 1901 Monsanto Company; 8% notes due 1985 1 100 4H% promssory notes due 1993 49 sinking fund debentures due 1997 67 6V2%sinKin9lv)r<JdeberiUJfesdue2C00 127 3V.% income debentures due 2002 4V<% income debentures due 2006 96 so sinking fund debentures due 2008 192 industrial development bond obligations due 1994/2021 247 Capitalized lease obligations to Monsanto (6uleee) 3.A. (Swiss subsidiary) (Swiss pane): sinking fund debentures due 1966 24 Monsanto Europt, Sjl (Belgian subsidiary) (Belgian franc): $ 100 53 90 174 69 50 199 211 13 27 9h%-MVi% bank bans due 19841988 (a) Other. Drincibaltv ex-U.S, subsidiaries fb) Tbtal 2$ SO (14HB 56 40 (1,110 Notes: (a) Trie Merest rites on cartsln el Stela bank loam an reduced by a government subsidy of a psreani, whim Is scheduled to expire In 1S03. (b) Induces SS minion ai December 31,1892 of Monsanto Inlsmatlonal Finance Company *v,M, slnhlno fund debentures convertible min the Company's common stock at taS per share, and (* million it December 31,1992, of Monsanto p.l.c. (UK. subsidiary) 9 ban stock comranlblo Intotha Company's common stock at a rata aqulvalam is 866 par shirs Maturities and sinking fund requirements on long-term debt are $26 million, $30 million, $153 million, $84 million end $27 million for the five years ending Deoamber 31,1983 through 1987, respectively Covenants of certain loan agreements restrict maximum borrow ings and dividend payments. It is not anticipated that additional future borrowings will be affected by these restrictions, and none of the Company^ reinvested earnings were restricted as to dividend payments at December 31,1982. Monsanto has various parallel loan agreements, scheduled to expire from 1983 through 1988, with u.K. companies. Monsantob borrowings of $66 million and $S5 million in British pounds ster ling end U.S. dollar loans of $69 million and $62 million as of December 31,1982 and 198T, respectively; are reflected net in the accompanying Statement o! Consolidated Financial Position since both parties have the legal right of offset in case of default, interest rales on ihe sterling ban are 21$ percent to 2 percent higher lhan the interest rales on the corresponding dollar loans. Substantially all long-term debt of subsidiaries is guaranteed by (he Company On October 22,1982, the Company exchanged 968,075 shares of its common stock for $100 miioti principal amount cf various long-term debentures resulting in an extraordinaiy gain of $23 million ($0.68 per sham). Commitments and Contingencies Commitments in connection with uncompleted additions to property aggregated approximately $126 million el December 31,1982. Monsanto was contingently liable as guarantor of bank bans and for discounted customers' recakrsbles totaling approximately $72 million at December 31,1982, including $13 million related to guarantees of bans of affiliates, Monsanto is a party to a number of lawsuits, which il is vigor ously defending, arising in the normal couise ol business. Certain ol these actons seek damages in very large amounts. While the results of litigation cannot be predicted with certainly, management believes, based upon the advice of Company counsel, that Ihe final outcome of such litigation will not have a material adverse effect on Monsanto^ consolidated financial position. Capital Stock The outstanding preferred stock is stated at $2.24 per share, has a cumulative dividend ol $2.75 per share and is convertible kilo 1.12 shares ol ihe CompanyS common stcck. Preferred slock may be redeemed solely at the Companyfc option at $73 per share (the voluntary liquidation prefer ence) and has an involuntary liquidation preference of $35 per share, or an aggregate of $3 million at December 31,1982. At December 31,1982, there were 296,738 oommon shares reserved for conversion of convertible securities and 1,649,641 common shares for employee stock options. Stock Option Plane At December 31,1962, there were 1,279,634 shares under cprfons outstanding for Ihe Company's 1989 and 1974 Plans at prices ranging from $48.50 to $92.86. Options tor 829.969 shares were exercisable at December 31, 1982. During 1982, 239,650 options were granted and 237,337 options, granted at prices ranging from $47.25 to $73.19 per share, were exercised. Slock appreciation rights (SAR's) are authorized to be granted under the 1974 Ran, and may be granted retroactively lor unex ercised options under the 1959 and 1974 Plans. At December 31,1982, SAR's related to options for 303,028 shares were outstanding; of these. 187,321 were exercisable. During 1982, SARS related to optkxis for 57.900 shares were granted and 124,261 were exercised. Segment Information Certain operating unit segment data for 1982-1980 appear on page 36 end are integral parts of ihe accompanying financial statementa. The principal product lines included in each operating unit are shown in the "Sales by Product Group" data on page 33. The operating unit segment intormatbn has been restated as described on page 37. Unueual or nonrecurring charges or credits were Included in the operating units and world areas as discussed in ihe "Principal Divestitures" note. The liquidation ol lower cost inventory 'Tiers" under the LIFO method increased 1982 operating inooma by $20 million, $27 million and $36 million for Fibers and Intermedi ates, Industrial Chemicals and Polymer Products, respectively. 0674653 Intercompany or imer-area receivables and profit derived from Inlercompany or Inler-area sales are the principal items refected in eliminations in arriving at the consolidated totals. Inter-area sales, which ere sales from one Monsanto location to another Monsanto location in a different world area, were made on a market basis. Certain corporate expenses, primarily those related to the overall management of the Company were not allocated to the operating units or world areas. Nonoperating 57 assets principally include cash, time deposits and certificates cl deposit, short-term securities end investments, total sales between operating units {made on a marital basis) were $311 million. $393 million and $331 million in 1932-1980, respectively. These sales were nor significant tor any operating units except Industrial Chemicals ($151 million, $162 million and $147 million in 1982-1930, respectively). Net sales by world area entities were: United States Europe-Africa Canada-Latin America Asia-Pacific Eliminations Total consolidated 1932 $4,433 1,079 446 315 6,325 $6,325 Oulelde Customer 1981 1980 $4,874 1,247 436 341 $4,465 1,378 459 272 6,946 6,674 $6,948 $6,574 ____________________ Inter-Awe 1982 1981 1980 $ 467 108 5 21 $ 554 115 4 25 $ 535 59 4 27 601 (601) 698 (696) 625 (626) $- $- $- United States entities' export sales to outside customers were: 1932 1981 Europe-Africa Canade-Latin America Asia-Pacific $ 32 144 221 $ 41 198 249 Total t 397 $ 466 I960 $ 69 1B2 241 S 492 Operating income (loss) and total assets by world area entities were: Ooeratlna Income (Loss! 1932 1981 1980 United States Europe-Alrica Canada-Latin America Asia-Pacific $ 461 33 30 11 $ 650 38 41 25 $ 255 (44) 24 13 Eliminations Coroorate expenses 641 754 248 8 (16) 1 (48) (36) (39) Total operating Income charges-net Nonoperating assets SOI 702 210 -- 94 Total consolidated $ 501 $ 693 $ 206 1902 $4,711 790 247 172 5,920 (266) 5,652 425 36,077 Total Assets 1981 1980 $4,437 1,049 280 227 $4,256 1,026 291 176 5.993 (334) 5,749 (223) 5.659 410 $6,069 5,526 270 $5,796 Following is a reconciliation dl ex-U,S, operating income and total assets to the Company^ equity in the net income (loss) and net assets of consolidated ex-Ll.S. subsidiaries: 1962 1981 I960 Operating income (loss) Income charges (credits)-net income taxes $ 90 14 35 $ 104 (38) 30 * (7) 48 11 Net Income (loss) ol consolidated k-U.S. eubeldierlee 3 31 $ 112 S (66) Total operating assets Total liabilities, net of nonooeratina assets 81,200 440 $1,556 891 $1,493 699 Net asset* ol consolidated tk-U.S. subsidiaries $ 739 $ 865 $ 794 0674656 TOWOLDMONOOI5208 ss Financial Summary (Ddim in minor*. except par sJwa) Operating Results Net Salas Operating Income Interest Expense Income Taxes Net income Percent of Net Sales Percent ol Average Shareowners' Equity 1982(1X2) $6,325 SOI 82 172 352 6% 1014 1981 $6,948 702 101 248 445 6% 15% Earning* Par Shar* Primary ______________________________ Fully Diluted $ 6.79 8.74 $11.50 1143 Yearsnd Financial Position Total Assets Working Capital Property, Plant & Equipment: Long-Term Debt Shareowners' Equity Current Redo Percent of Debt to Total Capitalization Gross Net 88,077 1,503 $6,530 3,313 $1,003 3.490 2.58 22% S6.069 1,486 $6,218 3,164 $1,110 3,330 240 25% Per Common Share: Dividends Shareowners' Eauitv Property, Plant 8 Equipment Additions Depreciation and Obsolescence Shareowners: Common Preferred Common Shares Outstandlnq (In millions) $ 3.95 85.97 8 673 439 75,943 709 41 $ 3.75 84.37 $ 668 263 79.029 775 40 (1) NaHncomator 1M2 fridudu an wctraordnary giln of 923 mIHtoo, or SO. 56 par primary ahart, from anaxdianga of dH for common ahum*. (2) in 1992. the requirements of Statement of Financial Accounting dienOaiOs No. 92. "Foreign Currency Ihantfation,1'2warn adopted. 0674657 TOWOLDMONOOI5209 I 59 Monsanto Company and Subsidiaries 1980(3) *6,57-1 210 112 57 1-19 2% 5% 1979 $6,193 487 123 150 331 5% 12% 1978 *5,019 632 103 274 303 6% 12% 1977 $4,595 610 88 248 276 6% 12% 1976 $4,270 666 60 251 366 9% 17% 1975 $3,625 547 56 230 306 8% 16% 1974(4) *3,498 550 43 2S1 323 9% 20% 1973 $2,648 406 39 173 238 9% 17% 1972 $2,225 216 37 B1 122 61 IQ S 4.10 4.06 $ 9.11 9.03 $ 8.29 8.21 $ 7.46 7.37 $10.05 9,77 $ 8.63 8.22 $ 9.25 8,73 $ 6.90 6.54 $ 3.49 3.40 *5,796 1.226 *6,074 3,109 *1,371 2,608 2.07 33% *5,539 1,323 *5,529 2,81 a $1,203 2,782 2.16 30% $5,036 1,296 $5,167 2,605 *1,224 2579 246 32% $4,350 1,080 $4,745 2.409 $1,031 2.401 2.64 30% $3,959 1.106 $1,208 2.090 * 915 2,253 2.92 29% $3,451 1.150 $3,620 1.860 $ 845 1,977 3.39 30% $2,936 968 $3,157 1,312 $ 587 1,755 2.88 25% $2,545 855 $2,852 1.152 $ 579 1.484 3.06 28% $2,237 677 52,765 1,133 $ 576 1,294 3.17 31 $ 3.55 77.63 S 781 547 82,441 871 36 61.836 $ 3.35 77.20 $ 566 413 65.608 952 36 63,926 $ 3-175 71.26 $ 480 28S 86,775 1.156 36 62.851 $ 3.025 66.16 $ 607 296 85,021 1,404 36 61,519 $ 2.75 61.79 $ 647 226 84,647 1,956 36 61.903 $ 2.55 56.62 $ 528 173 91.725 2,836 35 59.242 $ 2.30 51.39 $ 313 172 98.542 3.709 34 60.926 $ 1.90 44.26 $ 205 170 98,964 3.855 33 58.277 $ 180 39-05 $ 168 194 104,369 3.939 33 57.891 0] In iftSD, interest costs related to construetionHri'pieflress expenditures weie capitalized in accordance with Statement of Financial Accounting Stan dards hip. 34. Prior to iflBO, all interest costs were expensed as Incurred. The eflect of the new (mounting principle was to increase 1990 net income by S26 million or 9076 per primary share. (4) in i974t the Company and certain of a$ domestic wMdlerles changed their method of inventory valuation lor subetantiaiiy an United States Invents nee irom the FIFO basis to the LIFO basis. The effect cf this change wee to decrease 1974 income by I7S million or $2. per primary share. 0674658 i TOWOLDMONOOI5210 60 Directors and Officers Bomrd ofDirector* Committed of the Board John W. Hanley Si. Louis Chairman of ihe Board and Chief Executive Officer Dr. Donald C. Carroll Philadelphia Dean of The Wharton School University of Pennsylvania Edward L. Palmer C. Raymond Dahl New York San Francisco Retired Chairman of the Retired Chairman of the Board Executive Committee Crown Zellerbach Corporation Citicorp and Citibank, NA Dr. Louis Fernandez Francis E. Reese St. Louis St. Louis vice Chairman of the Board Senior Vice President Richard I. Fricfce Monte C. Throdahl Montpelier, Vermont St. Louis President and Chief Executive Officer Senior Vice President National Life Insurance Company Admiral Stansfleld TUmer Howard M. Love U.S. Navy, Retired Pittsburgh Chairman of the Board and Arlington, Virginia Consultant and Lecturer Chief Executive Officer National Steel Corporation RichardJ. Mahoney Margaret Bush Wilson St. Louis Attorney St. Louis Wilson, Smith and McCullin President and Chief Operating Officer Dr.Jean Mayer Medford, Massachusetts President Advisory Directors__________ Rifts University Buck Michel Greenville, South Carolina Chairman of the Board and President Daniel International Corporation (a subsidiary of Fluor Corporation) Robert L. Berra Fraud*J. Fitzgerald Earle H. HarbisonJr. Nicholas L. Reding Dr. Howard A Schnelderman Frauds A Stroble Audit Dr. Jean Mayer Buck Mickel Edward L. Palmer Margaret Bush Wilson Corporate Social Responsibility Dr. Louis Fernandez Dr Jean Mayer Admiral Stansfleld Turner Margaret Bush Wilson Executive Dr Louis Fernandez John W. Hanley Richard J. Mahoney Margaret Bush Wilson Executive Compensation and Development Richard I. Fricke Howard M. Love Buck Mickel Finance Dr. Donald C. Carroll C. Raymond Dahl John W. Hanley Richard J. Mahoney Edward L Palmer Nominating C. Raymond Dahl Howard M, Love Buck Mickel Pension and Savings Funds Dr. Donald C. Carroll Dr. Louis Fernandez Richard 1. Fricke Admiral Stansfield Turner 067<t659 TOWOLDMONOOI5211 Officer* Officer* Chairman of the Board and Chief Executive Officer Johnw, Hunley President and ChiefOperating Officer Richard J. Mahoney Vice Chairman of the Board Dr. Louis Fernandez Executive Vice Presidents Francis j. Fitzgerald Earle H. Harhi.sonjr. Nicholas l Reding Senior Vice Presidents Robert L. Berra Francis F, Reese Dr, Howard A, Schneiderman Motue C. Throdahl Senior Vice President and Chief Financial Officer Francis A. Stroble Senior Vice President, Secretary and General Counsel Richard W. Duesenherg Group Vice Presidents Robert E. Burke Harold J. Corbett Thomas l.. Gossiige Robert G. Potter Vice Presidents Or. Constantine E. Anagnostopoulos Allred N'T Andrews lj.lonard A. Cohn Charles A. Faden Dr, S. Allen Heininger MartinJ. Kallen Dr. Joseph T Nolan Sam Pickard Ernest S. Hobson Jr. Donald H. Swan Vice President and Treasurer Uwrence B, Skatoff vice President and Controller Michael F. Mee Shareowner Information Annual Meeting The next Annual Meeting of the shareowners of Monsanto Company will be held at l;-n pm. Friday, April 21, 1983, at the Company's General Offices. 800 N. Lindbergh Blvd.. St. Louis, Missouri. A formal nonce of the meeting, together with a prosy statement and form of proxy, is being mailed to each shareowner. 10-K Report, Corporate Data Book and Investor News A copy uF Monsanto Company's Form 10-K Report filed with the Securities and Exchange Commission for 1982. a 1982 Corporate Data Book, which contains additional information relating to Monsanto; and Investor News can be obtained by writing to; Investor Relations Department Monsanto Company 800 N. Lindbergh Blvd. St. Louis, Missouri 63167 Ihiufer Agent and Registrar The First National Bank of Boston 0674660 TOWOLDMONOQ15212 Monsanto Company KOO North Lindbergh Houlevurd St. Louis. Missouri 6^16"' 0674661 TOWOLDMONOOI5213