Document J3Vq7w8ZzE7oBYkYEgQYbZJMB

1991 Annual Report Monsanto DSW 021932 STLCOPCB4007241 CONTENTS Letter to Shareowners 2 Executive Summary 5 Monsanto Agricultural Company 8 Monsanto Chemical Company 9 Searle 12 The NutraSweet Company 15 Fisher Controls International 18 Financial Section 21 Officers 51 Board of Directors 52 Shareowner Information 53 ABOUT THE COVER Channeled through the prism of Monsanto's strategy, the company's operations are directed toward a strong future. GLOBAL SALES (Dollars in millions) __________________ Sales outside of the United States account for almost half of Monsanto's revenues. This mix Indicates the importance of global expansion to ail five operating units. 1991 1990 1989 1888 1887 a i.ooo: I Sales in the United Sates 3.000! 4,000 5.000 8.000: S Sales outside the United Sates 7,000: 8,000: 9.COO VALUE ADDED (Dollars in millions) Monsanto's high-performance products add value that is reflected In improved earnings. This premium portion of the company's sales is increasing year by year. 1890 1889 1888 1987 a 1,000! 2.000: 3.000! 4.000: 5.000: 6.000 I Value Added (Sales less energy and raw materials) MARKETING, ADMINISTRATIVE AND TECHNOLOGICAL EXPENSES (Pollan in millions) Monsanto's level of marketing, administrative and technological expenses reflects the strong commitment to research and development and the Introduction and promotion of new value-added products. 1991 1990 1988 1888 1987 1,000: 1.500 ! 2.000 MARKET MIX (Percent oftotal sates) Monsanto's products are sold Into a range of end-use markets, which reduces dependence on sales in any single category in any given year. am1981 W 1387 ML-- m lAfricaJbn am am m db : Construction; A Bans ! Pvakbfatga : am as BOB CHI |2% pm EBJ :Pcrstm*l Product* |a% |a% |a% iOther 01992 Monsanto Company. Trademarks and service marks of Monsanto and its subsidiaries are indicated by italics throughout this publication. Eli's Elighta cheesecake is a registered trademark of Eli's Chicago's Finest Cheesecake. MONSANTO COMPANY DSW 021933 STLCOPCB4007242 OPERATIONAL HIGHLIGHTS (Dollars in millions, except per share) Net Sales Net Income Per Share; Net Income Dividends Shareowners' Equity Depredation and Amortization Cash Provided by Operations Research and Development Expenses Return on Shareowners' Equity Percent of Total Debt to Total Capitalization Shareowners (year-end) Shares Outstanding (year-end, in millions) Employees (year-end) 1991 $8,864 $ 296 1990 $8,995 $ 546 1989 $8,681 $ 679 $ 2.33 $ 423 2.045 1.88 29.72 32.51 $ 751 $ 739 $1,180 $1,104 $ 827 $ 612 7.6% 13.6% 38% 35% 60,152 62230 123 126 39,281 41,081 $ 5.01 1.65 29.79 $ 690 $1,037 $ 598 17.6% 33% 61,942 132 42,179 MONSANTO 1991 OVERVIEW et income in 1991 was $296 million, or $2.33 per share, including one-time, aftertax restructuring charges of $325 million, or $2.54 per Nshare. The restructuring was part of the company's decade-long move into value-added products. Excluding the restructuring charges, net income in 1991 would have been the second-best in Monsanto history, at $621 million, or $4.87 per share. Return on shareowners' equity for 1991, also affected by fee restructuring charge, was 7.6 percent, down from Excluding ror.t.ruct.unn!j 13.6 percent in 1990. chorcje?;. 1991 not mconw rvojilrl have: huon the sucuiul best in Monsanto history Monsanto Company makes and markets high-value agricultural products; chemical prod ucts, including plastics and manufactured fibers; pharmaceuticals; food products, including a low- calorie sweetener and an all natural fat substitute; process control equipment; and other performance materials. In doing so, we're committed to serving fee interests of all those worldwide who hold a stake in our company by: Aiming for a consistent and superior return on equity for our shareowners; Meeting fee needs of our customers wife fee highest standards of value, quality and service; Providing our employees wife safe and rewarding wort in an environment where each has an equal opportunity to succeed; and Striving for a lasting and rewarding partnership wife our neighbors. 19 9 1 ANNUAL SIFO'tT OVERVIEW DSM 021934 i STLCOPCB4007243 LETTER TO ff; SHAREOWNERS ti... . A SOUND STRATEGY. A STRONG FUTURE. Monsanto Company's strategy proved durable in a year of economic difficulty in many world areas. But then, sound corporate strategy should work in both'good and not-so-good times. et income for 1991 was $296 million, or $2.33 per share. However, we continued to exit businesses with inadequate prospects for reaching our principal financial Ntarget of a 20 percent return on shareowners' equity. This resulted in a one-time, aftertax restructuring charge of $325 million, or $2.54 per share. Excluding the restructuring charge, net income in 1991 would have been the second-best in Monsanto history -- $621 million, or $4.87 per share. Competitive strength was demonstrated across the current product line. The following milestones are of particular note: Roundup and Lasso herbicides combined for a strong year for the Agricultural Company. Volumes for Roundup were up 17 percent Operating income for the unit was up 22 percent Saflex plastic interlayer performed well on a global basis, although North American auto motive and construction markets were down. Excluding restructuring charges, the Chemical Company's operating income from continuing businesses would have been ahead of 1990 operating income despite the weak economy. Operating income stayed within the range we had Maintaining! strong strategy that focuses on future growth and value for shareowners requires continual evaluation, according to Richard J. Mahoney, chairman and chief executive officer (left), and Earie H. Harbison, !r., president and chief operating officer. MONSANTO COMPANY OSH 021935 STLCOPCB4007244 projected for a recession year off 28 percent from its high for equivalent products in 1989, the last full non-recession year. The unit also benefited from significantly lower raw material costs. Fisher Controls started well through the first half of 1991 and seemed to be defying the slowdown in capital goods spending. But capital markets dropped further in the second half, and operating income slipped below record 1990 results. Volumes for NutraSweet brand sweetener increased in 1991, with more than 280 new product uses introduced worldwide. Searle's operating income was up 83 percent over that in 1990 on a sales increase of $107 million. Cytotec ulcer preventive drug continued its steady volume increases, reaching sales of $123 million. While sales of Calan brand calcium channel blocker have probably Competitive strength was begun to peak in the current product forms, Cytotec is expected to have several years of solid growth ahead. shown across the current product line. At the same time, we've invested in the next wave of growth with acquisitions, volume expansions, cost-reduction programs, quality improvements and research and development (R&D) expenditures. These investments, totaling $1.4 billion in 1991, are detailed on pages 6 to 20. Cash not used for these and other investments was reinvested in share repurchases in 1991. Share repurchases are a measure of our strong cash-generating capabilities and of our confidence in our corporate strategy. In the last five years, we've repurchased almost 24 percent of our shares. It's a practice we expect to continue. Dividends were increased in 1991 for the 19th consecutive year. Progress on research and development for new products was excellent Important new herbicides were approved for sale for weed control in turf in the United States and in rice and turf in Japan. We saw commercial-level performance in field trials of our first biotechnology-based crops -- cotton and potatoes with built-in defenses against insects, and soybeans and canola tolerant of Roundup herbicide. In the Chemical Company, we see good prospects for new prod Share repurchases are ucts, such as Fledron metallized materials, the result of a patented process for combining metals with a host of materials for unique applications. Fisher Controls introduced several additions to its line of PROVOX instrumentation. New V-line rotary control valves are expanding a measure of our strong cash generating capabilities and of our confidence in our strategy. Fisher's presence in a rapidly growing market Searle launched new pharmaceuticals in a number of countries. Maxaquin, an anti- infective agent was launched in Mexico, Portugal and Venezuela in 1991. It was also approved in six other countries in 1991 and in the United States in the first quarter of 1992. U.S. approval is still pending for Ambien, a treatment for insomnia; and oxaprozin, a treatment for the symptoms of arthritis. 1991 ANNUAL REPORT DSW 021936 STLCOPCB4007245 LETTER TO SHAREOWNERS | On Feb. 26, 1992, we lost the wisdom and counsel of board member j Dr. Marguerite Ross Barnett, who died after a brief illness. She was a dynamic and active director who had a keen sensitivity for people. We'll miss her as a colleague and friend. We'll also miss the sub stantial contributions of Dr. Donald C. Carroll, who retired from the board in 1991 after 16 years of distinguished service. Searle moved 10 drugs into clinical trial testing, including four in broader clinical trials. Two drug candidates that resulted from collaboration between the corporate R&D group and Searle moved to Searle for full development In 1991, the U.S. Food and Drug Administration agreed that a new formulation of Simplesse all natural fat substitute could be used in a full range of food products. Products using Simplesse from a number of food companies are now on the market, and many more are being readied for introduction worldwide. IVI onsnnto is emerging ns n company of powerful product positions, a strong financial position, and leadership in virtually all of its market segments. Bovine somatotropin (BSD, a biotech nology-based protein that supplements the cow's own BST and improves milk productivity, is now being sold. People in Mexico and Brazil are already benefiting from BST, but it remains in a political stall in Europe despite affirmation of its human safety and efficacy by the European Community's Committee for Veterinary Medicinal Products. U.S. approval for sale is still pending. Investors understandably continue to register concerns about future competition for three of our major products -- Roundup herbicide, NutraSweet brand sweetener and Calan brand calcium channel blocker -- all of which may face new market entrants. We've had several years to plan for this competition, and our people have prepared well. Holding customer loyalty, providing the highest-quality products, and achieving superior cost positions are just a few of our strategies. Many of the critical and highly detailed tactical measures can't be disclosed in advance for obvious competitive reasons. We'll continue to report not so much what will happen as what has happened as we unfold the tactics for these important products. We expect to be measured, as always, by results. Products from competitors are likely to emerge eventually, but so far none have made significant inroads into our markets. We're continuing to strengthen the positions of our leading products and to cull out those with less potential. We're also successfully introducing new products from our extensive R&D program. The products long predicted are starting to flow. The momentum our people have demonstrated will continue in 1992, with Monsanto emerging as a company of powerful product positions, leadership in virtually all of our market segments, and a strong financial position that will allow us to capitalize fully on our chosen strategies. Richard J. Mahoney Chairman and Chief Executive Officer March 5,1992 MONSANTO COMPANY DSW 021937 STLCOPCB4007246 EXECUTIVE SUMMARY DELIVERING VALUE TO SHAREOWNERS Monsanto delivers value to shareowners by building on strong products, new investments and a focused portfolio. By Earle H. Harblson, Jr. President and ChiefOperating Officer 0 ur essential promise to shareowners is to achieve a superior level of earnings that will ensure the future value of their investment To fulfill that promise, we must deliver consistent year-to-year financial performance, while investing in new products for the medium term and in new technologies for the long term. We must plan for all three time periods -- near term, medium term and long term -- without sacrificing one for the others. At any given time, a snapshot of our program should show a company that is strengthening current products, investing in new products, and focus ing its business portfolio. The theory of this program is not complex, but executing it is. Our execution starts with relentless attention to our existing products. In each of our five operating units, we emphasize value-added products. A value-added product does what its name implies; It adds value for our customers. The result is improved earnings for both Monsanto and our customers. The rewards from the successful management of these businesses contribute to attractive earnings not only in the near term, but in the medium term and long term as weiL In our agricultural products business, Roundup and lo fulfill our promise to shareowners, we must deliver consistent earnings performance while investing in new products and future technologies. Lasso herbicides are successful products now and will continue to be in the future. A stream of new herbicides and products from biotechnology research will add to our long-term earnings. In our chemicals business, well-established products, such as Sofia plastic interlayer and Wear-Dated carpet, undergo constant improvements to maintain their profitability. At the same time, we're developing additional high-performance materials that will provide us with entirely new businesses for the future. The near- and medium-term performance of our pharmaceutical and food ingredient businesses is built on major branded products such as NutraStoeet brand sweetener and Calan brand calcium channel blocker. Long term, we're counting on promising new products to fuel future growth. Our process control business maintains near- and medium-term profitability with con trol valves and PROVOXinstrumentation that improve the manufacturing, environmental and quality performance oftarget industries. Longterm profitability is addressed by designing new technologies for even greater managementcontrol and productivity in sophisticated process plants. The following pages present our operating units and their strategies in greater detail. These sections add up to a larger story that demonstrates a sound strategy that is building a strong future. 1991 ANNUAL REPORT DSW 021938 STLCOPCB4007247 STRATEGIC REVIEW MONSANTO AGRICULTURAL COMPANY Monsanto Agricultural Company concentrates on the continued growth of Roundup herbicide, the introduction of new agricultural chemicals, and the development of new products from biotechnology research. onsanto Agricultural Company is one of the leading herbicide M:companies in the world. Its Roundup herbicide is a top-selling agricultural product worldwide, and its Lasso herbicide is a major com and soybean weed-control agent in the United States. In 1991, European patents and the U.S. method-of-use patent expired for Strengthening current Roundup. However, another U.S. patent protects glyphosate compounds, including the active products: The Agricultural Company positions Roundup herbicide For sternly growth despite a potentially more competitive environment. ingredient in Roundup, into the year 2000. Since the mid-1980s,' the Agricultural Company has marketed Roundup herbicide with an eye toward potential post-patent competition for glyphosate-based products. The key strategies have been price elasticity and low-cost manufac turing. By selectively lowering prices in specific markets or countries, the company has steadily increased volumes and built economies of scale. "In 1991, we continued to lower prices selectively worldwide," says Hendrik A. Verfaillie, vice president and general manager for Roundup. "For example, extensive market research suggested that we could lower the price in the United States and gain enough volume to more than offset the price decrease. That's exactly what happened." Volumes for Roundup in 1991 increased 17 percent worldwide. With Roundup already meeting mar ket requirements for a broad range of applica Investing for new growth:. Dimension herbicide is J approved in 1991, while . ; genetically improved plants proceed through field trials; tions, the Agricultural Company's strategy is to develop new herbicides to fit specific market needs. In 1991, the company gained U.S. approval to market Dimension turf herbicide to professional lawn-care applicators. Dimension can provide season-long control of crabgrass and other annual Canola is valued for the oil produced from its seeda. Genetically improving canola to tolerate Roundup herbicide would open a new market for Roundup while saving millions of dollars for canola farmers. weeds with one application. It works before or after crabgrass emerges, and it isn't destructive to turf and other plants. The active ingredientin Dimension turf herbicide, dithiopyr, comes from the Agricultural Company's new pyridine class of chemistry. The company is pursuing registration of dithiopyr in a number of markets worldwide. Japan approved it in 1991 MONSANTO COMPANY DSW 021939 STLCOPCB4007248 as the active ingredient in five new rice and turf herbicides. Dithiopyr is ultimately expected to reach $100 million in annual sales. Other important agricultural markets will be tapped by the products of bio technology. Commercial-level performance was achieved for insect-resistant cotton in a second year of field tests. Applications are being filed with two U.S. government agencies to start the approval process for this product Focusing the business Several varieties of canola tolerant to portfolio: The animal feed ingredients business no longer fit the Agricultural Company's strategy and was sold in 1991. Roundup herbicide were tested at Canadian research forms in 1991. Canola is valued for the oil from its seeds. Roundup is a non-selective herbicide, which means that it eliminates both desirable and undesirable plants. Canola formers currently treat their fields to kill weeds before they plant, then follow up with a selective herbicide to treat those weeds that grow with the crop. By planting canola tolerant to Roundup, farmers could control all emerged weeds with a single application of Roundup. That could save canola growers $100 million a year and open a new market for Roundup. Other crops field tested in 1991 were virus-resistant tomatoes, insect-resistant potatoes and corn, and soybeans tolerant to Roundup. To proceed toward commercialization, all new products must demonstrate the potential to make a positive financial difference to the company. The same test applies to existing businesses. In 1991, the company completed the sale of its animal feed ingredients business, which no longer fit strategically. 1991 ANNUAL REPORT Monsanto \gricul)urul Cumpam cuniimics it) meet tin- specific needs of modern agriculture. Solutions range from entering new markets for lluiimlu/) herbicide in developing new families ol herbicide chemistry, to imeming new businesses based on. biotechnology." DSN 021940 STLCOPCB4007249 MONSANTO AGRICULTURAL COMPANY Monsanto Agricultural Company will move from products applied in pounds per acre to those used in grams per acre, to products as simple as a new Beed developed through biotechnology. ver the next five years, the markets for Roundup herbicide are expected to grow. "We have to generate continued growth for Roundup and Oother glyphosate-based products that not only expands our business, but also helps bring down our costs in the face of potential generic competition," says Robert B. Shapiro, executive vice president of Monsanto Company and president of Monsanto Agricultural Company. "Every time we project our strategy into the future," he adds, "the data Robert B. Shapiro, executive vie* president of Monsanto Company and president of Monsanto Agricultural Company, with insect-resistant cotton, a high-potential product candidate from biotechnology research. "Many of the things we've been working on for a long time should be turning hum Investments to returns on investment" confirm that we're on the right track. No competitor can offer the quality, experience, customer trust and value symbolized by our trademark for Roundup." As the Agricultural Company brings new crop protection chemicals to market each must be more cost-effective than current products or address an unmet need in crop protection, and each must exceed existing environmental and health standards. To speed approval for new crop chemistries, emphasis within the company is shifting toward expanded development programs. "The pipeline is strong," Shapiro says. "The task now is to get those products to market quickly and effectively." In crop chemicals, the Agricultural Uutlouk: l\iuw ideas for products are backed by development plans both for the technology and for the business concepts being taken to market. Company is moving from products applied in pounds per acre to herbicides used in grams per acre. In plant sciences, the company is developing products as simple as a new seed through biotechnology research. "Biotechnology is a young field, and there's no shortage of new ideas to pursue," Shapiro says. "We have to make sure we have effective development plans both for the technology and for the business concepts well be taking to market. "These technologies have the potential to transform business structures as well as agricultural practices," adds Shapiro. "Well be exploring the whole range of commercialization approaches from licensing to partnerships to down stream integration." a MONSANTO COMPANY DSW 021941 STLCOPCB4007250 MONSANTO CHEMICAL COMPANY Monsanto Chemical Company restructures as part of its evolution toward a portfolio of high-performance, value-added products. onsanto Chemical Company makes performance materials that add M ivalue to products in such industries as construction, home furnish ings, automotive and personal products. The Chemical Company makes the nylon and acrylic fibers for Wear-Dated carpet and the performance plastics for a variety of automotive and home appliance parts, it is the world's largest supplier to detergent manufacturers, the largest producer of rubber chemicals used by tire manufacturers worldwide, and the global leader in putting the "safety" in laminated safety glass with Saflex plastic interlayer. Since its creation in 1986, the Chemical Company has strived for a portfolio of performance materials, rather than commodity petrochemicals. Commodity petro chemicals are priced at a narrow margin above locusing the business portfolio: Restructuring helps the Chemical Company reduce costs and better support profitable businesses. cost Performance materials are priced according to the contribution they make to the customer's product or process. They're often based on proprietary technology and frequently devel oped with the customer's active participation. As these types of customer relation ships increase, tile Chemical Company becomes more knowledge-intensive and less capital- and labor-intensive. This evolution requires adjustments in the organization. Such an adjustment was announced in 1991, following an in-depth analysis In 1991, the Chemical Company Introduced HP APPAREL, a new highperformance acrylic yarn for fashion apparel This new product enhances the company's position as the No. 1 manufacturer and marketer of acrylic fiber for yams in U.S. markets. of existing businesses in the Chemical Company. It took the form of a restructuring that includes consolidating some manufacturing operations: closing some older, less efficient Strengthening current plants; reducing the number of employees; and selling several businesses not compatible with the Chemical Company's strategy. The restructuring is part of a larger effort to reduce our cost of doing business," products Key products grow through investment in manufacturing, product innovations and line extensions. says Robert G. Potter, executive vice president of Monsanto Company and president of Monsanto Chemical Company. "We can no longer incrementally change our basic cost structure. "For example," he adds, "the restructuring enabled us to shed about 15 percent of our total capital. We can redeploy the resources previously used for 1991 ANNUAL REPORT 9 OSH 021942 STLCOPCB4007251 businesses now being divested into more strategic businesses that are, or could be, No. 1 or No. 2 in their markets." Acrylic fibers is an example of the kind of business the Chemical Company supports with continuing investment in new product developments and acquisitions. In 1991, the company introduced a high-performance acrylic yam for fashion apparel. The yam is pill-resistant and machine washable and dryable. The apparel looks new longer, keeps its shape, and resists shrinkage. In addition, the Chemical Company acquired Wtntuk and Sayeile acrylic craft yams from Du Pont following that company's announcement of its withdrawal from the acrylic business. These acquisitions add the top acrylic yams for hand-knitted sweaters and afghans to the company's market leading portfolio of specialty acrylic products. Investing for new growth: The Chemical Company's commitment to new performance technologies paid off in 1991 with the introduction of Flectnm metallized mate rials. These products are uniform layers of metals bonded to a supporting material" says Hilliard L The Chemical Company introduces the first of new performance technologies designed to supplement existing businesses. Williams, vice president of technology for the Chemical Company. "Our patented process enables us to put a greater number of metals on a wider variety of fabrics, fibers, plastics and films than any other process." The first commercial application is a line of metallized fabrics marketed by International Paper. Target customers include designers of offices, hospitals and homes who need to shield electronic equipment from electromagnetic interference. MONSANTO COMPANY DSW 021943 STLCOPCB4007252 OUTLOOK MONSANTO CHEMICAL COMPANY A leaner, more focused Monsanto Chemical Company is expected to repeat its top-level financial performance of the late 1980s. n 1988, Monsanto Chemical Company had only two products in the commercial phase of its new product pipeline. In 1991, there were 13, and they represented more than $300 million in potential sales by 1995. "We'll roll out a continual stream of product innovations,'' says Robert G. Potter, executive vice president of Monsanto Company and president of Monsanto Chemical Company. "Most of them will be technical advantages, new forms of prod ucts and other customer-driven improvements to our performance materials. "We don't have blockbuster introductions," he adds. "Our growth pattern is gradual but continuous, a constant refinement of existing products with an occasional breakthrough." The restructuring announced in 1991 resulted in a lower cost of doing busi ness, less capital-intensive operations, and a greater ability to continue to outperform the industry. However, roughly half the company's Outlook: Investment in the portfolio is involved in cyclical markets such as future and a tightly focused organization will position the Chemical Company for superior performance in an expanding world economy. automotive and housing. The performance of those products will be impeded until the global economy returns to reasonable health. Even in a difficult economy, the Chemical Company will continue to invest in its manufacturing sites. More than one-third of its capital expenditures will be deployed in support of opportunities outside the United States. In 1991, plants for Safiex plastic interlayer were completed in Sao Josd dos Campos, Brazil, and in Antwerp, Belgium, while a new resins manufacturing unit for Safiex in Ghent, Belgium, completed its second year on-line. Some of the company's best growth potential is in Europe, where revenues exceeded $780 million in 1991. "The vast majority of everything we sell in Europe is produced there," Potter says. "That positions us well for the coming changes in the European Community." Strategic investments also will be made in Asia and Latin America, and in the company's various joint ventures. "The Chemical Company is categorically dedicated to meeting the corpo rate target for return on equity,' Potter says. "We hit that level in 1986,1987,1988 and 1989, before the double blow of a recession and an oil price shock in 1990. We believe that, with the restructuring of our portfolio and our major effort to reduce our cost of doing business, we'll be back to that exceptional level of performance as soon as the world economy regains strength' A Robert G. Potter, executive vice president of Monsanto Company and president of Monsanto Chemical Company, with samples of his company's newest highperformance product, fUctron metallized materials. "We're In fighting trim. I'm optimistic about our people, our portfolio and our ability to outperform our Industry peers." 1991 ANNUAL REPORT 11 DSW 021944 STLCOPCB4007253 STRATEGIC REVIEW SEARLE Searle succeeds with an emphasis on research, new product development and a strong presence in the major pharmaceutical markets worldwide. earle discovers, develops, manufactures and markets prescription pharma ceuticals in major markets worldwide. Since Monsanto acquired it, Searle Shas grown from sales of $665 million and an operating loss of $119 million in 1986 to sales of $1.5 billion and operating income of $170 million in 1991. Searle management has achieved these results by concentrating on discovering and developing new products and by building a Strengthening current strong presence in the leading world markets products: Searle builds on the strength of two of its top-selling drugs with research into new formulations and uses. for pharmaceuticals. Searle's Calan brand calcium channel blocker is one of the top-selling pharmaceuticals in the United States. Worldwide sales of Calan were $508 million in 1991, up 9 percent from 1990. Calan has led the company's resurgence, but it no longer holds a proprietary position. To build on the product1s strengths, Searle announced a project to develop an enhanced formulation of Calan that uses a unique, delayed-release technology. "This product offers the opportunity to extend the success of Calan in a way that is medically beneficial," says Joseph T. Curti, M.D., corporate executive Investing for new growth: vice president of Searle. Cytotec ulcer preventive drug accounted for $123 million in sales in 1991, up 35 percent from 1990 sales, and it has the potential for addi Maxaquin anti-infective : agent is the first of four new drugs to receive ; regulatory approvals. tional significant growth. To support that growth, the company invested in a massive clinical study designed to assess the ability of Cytotec to prevent ulcer complications. In addition, Searle awarded $10 million in grants to 61 scientists in the United States and Canada for research into prostaglandins and arthritis and related immune disorders. Positive findings could lead to potential new uses for Cytotec. Maxaquin qudnolone anti-infective agent offers die advantage ofonce-a-day dosing. Maxaquinwas launched or approved in nine countries In 1991 and in the United States In the first quarter of 1992. At the end of 1991, a number of regulatory agencies worldwide were actively reviewing four important new medications from Searle: Maxaquin, an anti-infective agent; Arnbien, a treatment for insomnia; snAArthmtec and oxaprozin, both treatments for the symptoms of arthritis. In 1991, Maxaquin was launched in Mexico, Portugal and Venezuela, and approved for sale in six other countries. U. S. approval for Maxaquin was received 12 MONSANTO COMPANY DSW 021945 STLCOPCB4007254 in the first quarter of 1992. The chief advantage of Maxaquin over other quinolone anti-infective agents is its once-a-day dosing for ail approved indica tions. A study in the antibiotic field shows that more patients are likely to take their medication as directed with once-a-day dosing. Searle continued to build its presence in the major pharmaceutical markets in 1991. These include the United States, the United Kingdom, Japan, Canada, France, Germany and Italy. "The one important market in the world where we do not yet have a significant presence is Japan," says Sheldon G. Gflgore, M.D., chairman and chief executive officer of Searle, "but we're doing what's necessary to get there." Searle strengthened its presence in Japan by purchasing 12.25 percent of the shares of the pharmaceutical company Hokuriku Seiyaku Co. Ltd. That purchase makes Searle the largest single shareowner in Hokuriku. "The strategic significance of this relationship is potentially enormous," says Richard U. De Schutter, president of Searle. "Possibilities exist for fester pene tration of the Japanese market with a strong co-marketing partner and for potential worldwide licensing of Hokuriku products outside Japan." Searle also sold some non-strategic product rights in 1991 as part of its ongoing effort to upgrade its product portfolio. [991 ANNUAL RETORT A 13 DSN 021946 STLCOPCB4007255 SEARLE A full, new product pipeline will help Searle achieve its goal of becoming a major player in the worldwide pharmaceutical industry by mid-decade. ver the next five years, Searle intends to become a major player in the world wide pharmaceutical industry and to achieve sales in the $3 billion range. OIt intends to reach that goal largejy on the strength of new product introductions. The company's objective is to introduce at least one new product in one major pharmaceutical market annually. Searle expects to get a quick start on its product introduction objective over the next five years with four important new medications that are currently in various approval stages: Sheldon G. Gtlgore, M.D., chairman and chiefexecutive officer of Searle, with the mortar and pestle jymboi of pharmacy and Colon brand calcium channel blocker, Searle't top-aching drug. "The products we have in the late stages of development wfll help ns meet our objective of introducing at leaat one newproduct in a major market annually over the neat five yean.' Maxaquin is a quinolone anti-infective agent with once-a-day dosing awaiting approval in Canada and major European countries. U. S. approval was received in the first quarter of 1992. Ambien is a treatment for insomnia that appears to preserve deep sleep with minimal unwanted aftereffects. Approval is pending in the United States, Canada and the United Kingdom. Artkrotec combines a leading anti-arthritis medication with the protection pro vided by Cytotec ulcer preventive drug against gastroduodenal damage. Approval is pending in Canada and major European countries. Oxaprozin is a once-a-day treatment for the symptoms of arthritis. Approval is pending in the United States. As these and other new products enter the market, Searle expects to have at least eight product lines that each generate annual sales of $100 million or more by 1995. Outlook: Searle expects to In 1991, the company had four; in 1986, it had one Searle will also concentrate on building . have at least eight product lines with annual soles of $100 million or more by 1995, compared with four in 1991 and one in 193G. a stronger over-the-counter pharmaceutical business during the next five years. "We have a credible over-the-counter presence in Europe right now,' says Sheldon G. Gilgore, M.D., chairman and chief executive officer of Searle. "One of our strategic objectives is to establish a significant over-the-counter presence in the United States and Japan. Our goal is to have it happen sooner rafter than later, but it's not easy. Over-the-counter competition is strong." In the past five years, Searle has become a product-rich company. As new products exit the pipeline over the next five years, others will enter. "We're working now to make sure the pipeline is continually replenished," Gilgore says. MONSANTO COMPANY DSW 021947 STLCOPCB4007256 STRATEGIC REVIEW THE NUTRASWEET COMPANY The NutraSweet Company focuses on offering the best value to its customers for NutraSweet brand sweetener and on being the low-cost manufacturer of aspartame. he NutraSweet Company manufactures NutraSweet brand sweetener, Equal tabletop sweetener and Simplesse all natural fat substitute. Today, Tmarket research indicates that the logo and trademark for NutraSweet are recognized by 98 percent of U.S. consumers. In 1991, the company celebrated the 10th anniversary of NutraSweet. With a decade of success under its belt, the company has been fine-tuning its strategy to prepare for U.S. patent expiration of NutraSweet in December 1992. This competitive strategy centers on offering the best value to the customer and on being the low-cost manufacturer of Strengthening current aspartame, the generic name for NutraSweet. products: The celebration of the 10th anniversary of NutraSweet brand sweetener marked both a successful past and a challenging future. As the maker of a branded ingredient whose logo appears on its customers' packag ing, the company also creates growth opportu nities for customers by stimulating expansion of the healthy food and beverage categories. "Our soft drink customers are most profitable when they increase volume and subsequently reduce the costs of their product offering," says J. Richard Damaby, group vice president and general manager at The NutraSweet Company. "We have to be part of their growth in the marketplace and help make them more efficient from a manufacturing standpoint" A new fotmulalion of Simplesst all natural fat subtUmte received U.S. clearance for use in all food categories in 1991. Slmplesteisi key Ingredient used worldwide to reduce fat In foods, Induding low-fat spreads, yogurt, cheese, cheese spreads and frozen desserts. On the production side, The NutraSweet Company has both the economies of scale and the process technologies to be the low-cost manufacturer. NutraSweet's manufacturing people also take a partnership approach to working with customers to continually add value to their products. "We went to several of our customers Investing for new growth: and asked them what we could do to add value to their operations when they use our product," says Donald J. Minarich, rice president ofoperations and technology. "They said our product was too dusty and didn't flow well, and they found it was Simp/essc oil natural fat substitute is launched in new food categories, including low fat spreads, yogurt, cheese and cheese spreads. costly to open our 25-kilogram drums." In response, the company developed a granular form of NutraSweet brand sweetener. It's not as dusty and flows more smoothly. It's now shipped in a package 1991 ANNUAL REPORT 15 DSN 021948 STLCOPCB4007257 Tin- \ulraSmrl < unipany sells its prodiKls in mere 1 linn 511 connlries. Willi m u uffiiTS in litmipi1 mill a l.tiriipi-.in plan! under ronstriu'linn, die enmpany is takinp steps in inn ease sales unrliluiile, Num&mt 16 times larger than the drums, which makes it more efficient for major customers. Seeking to add growth opportunities in the fat substitution category, the company launched the second phase of Simpksse all natural fat substitute in 1991. The first phase was a limited-use petition granted by the U.S. Food and Drug Administration (FDA) in 1990 that focused on the frozen dessert category. Two customers launched products in feat category in 1991. Baskin-Robbins Inc., die largest icecream Focusing the business chain in die United States and Canada, introduced three fat-free flavors that contain Simpksse. Eli's Chicago's Finest Cheesecake also introduced Eli's ETights cheesecake, die firstbaked frozen dessert portfolio: Reorganization improves The NutraSweet Company's customer focus and reduces costs. with Simpksse all natural fat substitute. The second phase was clearance for use in additional food categories. In 1991, the FDA agreed that a new formulation of Simpksse could be used in any food category. Several new products with Simpksse were subsequently introduced, includ ing low-fat spreads, yogurt, cheese, cheese spreads and additional frozen desserts. In a major structural adjustment in 1991, The NutraSweet Company reorganized to align with its markets. The line organization is now divided into the carbonated soft drink/tabletop group and the food ingredients group. This change enables the company to serve its customers better and to reduce costs. 16 MONSANTO COMPANY DSW 021949 STLCOPCB4007258 OUTLOOK THE NUTRASWEET COMPANY Future success for The NutraSweet Company will stem from global expansion, diversified product lines and a potential new sweetener. he next five years will be the proving ground for The NutraSweet Company's ability to prosper without U.S. patent protection for TNutraSweet brand sweetener. It already competes with generic products in Europe and other world areas. The U.S. patent expires in December 1992. The NutraSweet Company has prepared for a more competitive market by low ering its manufacturing costs and improving service to its customers. A diversified line of products based on NutraSweet will be offered to meet the needs of different customers' production processes. These products will add new value for the customer. The company also anticipates lower prices for NutraSweet brand sweetener post-patent Lower prices, though, could result in expanded opportunities for NutraSweet, as it becomes economically viable for a new range of markets. Europe is the world's fastest-growing market for NutraSweet. Ground was broken in 1991 for a plant to manufacture NutraSweet brand sweetener in Gravelines, France. The plant is a joint venture with Ajinomoto Co. Inc, a Japanese food ingredient company and long-time partner of The NutraSweet Company. A Robert B. Flynn, chairman and chief executive officer ofThe NutraSweet Company, with gumballa symbolic of the 10th anniveraary of NutraSweet brand sweetener, celebrated in 1991. "We Intend to prove to the world that we can be nicceaaful without patent protection." "The Gravelines plant will allow us to be more responsive to our customers in Europe," says Nick E. Rosa, group vice presi dent of NutraSweet Europe, "and it will increase Outlook. A nuvv European our profitability in the European Community." The company also is developing its next generation sweetener, called Sweetener 2000. Sweetener 2000 tastes almost identical to sugar, but is about 10,000 times sweeter. Its value plant for NutraSweet brand sweetener will help The NutraSweet Company serve customers in its fastestgrowing market. lies in large-scale operations, such as carbonated soft drinks. A tiny amount of Sweetener 2000 can replace large volumes of sugar. "Sweetener 2000 will entirely change the way we look at sweetening," says Michael L Losee, PhJ)., senior vice president of research and development "If we get approval to commercialize this product we're talking about a cost structure thats down to fractions of a penny per pound." to addition to being a low-calorie alternative to sugar, Sweetener 2000 has a tremendous price advantage that will make it a seri ous mainstream competitor against sugar among the food and beverage companies. "If all goes well," says Robert E. Flynn, chairman and chief executive officer of The NutraSweet Company, "we view it as a probable commercial product by the end of the decade." 1991 ANNUAL REPORT 17 DSW 021950 STLCOPCB4007259 STRATEGIC REVIEW FISHER CONTROLS INTERNATIONAL Fisher Controls continues product developments that offer its customers timely information and improved productivity. he business of Fisher Controls is to manage the processing of mate rial. The material can be anything from broth moving through a soup Tfactory to natural gas moving through a pipeline to a furnace's pilot light Fisher makes the control equipment that adjusts the amount of material passing through a system, as well as the electronic instrumentation that tells the equipment what to do when. PROVOX instrumentation is the hub of the automation highways that have evolved in manufacturing plants over the past decade. As plants automated, they built different data bases for production, inventory and process variables. Customers now want all of these data bases to interact They also want Strengthening current quick, ready access to information so that they can products: Modifications in PROVOX instrumentation are aimed at a new ora of open communications among a customer's many data bases. make decisions faster and better. Recognizing this trend, Fisher Controls made a number of improvements in PROVOX in 1991, establishing Fisher as the instrumentation leader in open communications. The company is working closely with computer and software vendors to ensure that their products communicate by design, instead of by cumbersome special arrangements. "In the past, we designed our system, and the computer and software people designed theirs. We all went our separate ways," says Sandy L Bailey, marketing director for system introduction. "When we tried to make our systems talk to each ler, we found that we had overlaps in some and gaps in others. Now we're designing Investing for new growth: a system that brings our world and die computer world together.' A compact version of PROVOX, mmPROVOX instrumentation, was introduced New products enable Fisher Controls to open new markets and to maintain established market shares. in 1991. "We had two objectives,' says W. Bruce Johnson, product manager. "One was to increase our business forPROVOXby handling small applications for existing customers better. The other was to expand the customer PiSher Controls' ROC 364 monitors and Controls remole or isolated sites In the oil and gas Industry. ROC364b an example of Fisher's ability to provide electronic control devices wherever they ate needed. base to add those customers whose needs don't justify a large-scale system." Fisher also introduced ROC 364 remote operations controller to perform monitoring and control functions away from the plant site. 18 MONSANTO COMPANY OSW 021951 STLCOPCB4007260 "We designed ROC 364 primarily for applications in the ofl and gas industry,' says Carter B. Cartwright, market manager. "But the equipment has applications in many industries. ROC364 has been used on an air force base forjet fuel management, Focusing the business at mines for water control, and in the food industry. The opportunities for ROC 364 are portfolio: Restructuring end the sale of Permea Inc. tighten Fisher Controls' focus on its core businesses. numerous because customers can readily tailor this product to their specific needs.' In control valves, the V-line rotary valve family was introduced in 1991. This expands the business potential for Fisher Controls, because most of its valve business has traditionally come from sliding stem valves. The product was first designed for the pulp and paper industry. "In recent years, we started to see strong competitive pressures on our traditional control valve business from non-traditional suppliers of rotary valve products," says Julie A. Leach, business director for power and pulp and paper. Fisher developed the V-line rotary valve family to meet this competition and to open new markets.'We've always supplied a full line of valves for mill opera tions in the pulp and paper industry,' Leach says. The new V-line rotary family allows us to expand our coverage into pulping operations." With an eye toward streamlining the product portfolio and focusing on its process management strengths, Fisher Controls restructured part of its process instrumentation business in 1991 and sold its Permea Inc. gas separation subsidiary. Iisht*r( ntuitiisjsuurkin"in Iiir.ik tlimn Sum iris among ,i!l ilu* s\sii-m\ irunlml in running .i inuilrm prna ss plant. Ilu* goal a htv Mow nl limt'lv inloim.tiit>u lliai will in.uk i in- beginning ul a now era nl prmlm (i\ii\ in in.mu!.inuring. 1991 ANNUAL REPORT 19 DSW 021952 STLCOPCB4007261 OUTLOOK FISHER CONTROLS INTERNATIONAL Fisher Controls is changing the way modem process plants operate, which in turn is leading to new growth for Fisher. isher Controls irapplying new technologies that within five years will change the way process plants operate. Process plants are found in the Fchemical, power, oil and gas, pulp and paper, food and beverage, and pharmaceutical industries -- all part of Fisher's customer base. Currently, these plants are managed with instrumentation systems that monitor, communicate and control electronic signals in all parts of the plant The final control link must always convert the electronic signal to a pneumatic signal because the hundreds of control valves in a process plant are activated by air. Fisher Controls, with its PROVOX instrumentation, is one of several companies that compete for a share of the automated control room business. Lany W. Solley, durinnin nd chirf executive officer of FUher Controli taterntdomJ, with i control vita repre senting hit company1! gkibel letdenhlp inthlsmiricet "The enterprise ofthel990twffl tee* drive toward integrating iD eyitems to allow customers to uae and acceta data AiOyr for new levels ofproductivity.' However, Fisher is the only one of those companies that has a significant control valve business, and Fisher is the worldwide leader in automatic control valves. "We're developing the technology to replace the pneumatic control on our valves with digital electronics,' says Larry W. Solley, chairman and chief executive officer of Fisher Controls. "The result will be smart valves. "Smart valves are the final link in the drive to put all our devices on one electronic highway communicating directly with the control room," he adds. "That will open new opportunities for managing modem process plants." By combining smart valves with PROVOX instrumentation, Fisher will gain unique opportunities for growth. Changes in these U ut.look: Fi;hr;r Controls t.;ir<)nt.<; its now growth in select industries where it hns on ostohlir.hod position. product lines are a response to customers' needs for faster, better decision making. "We see customers worldwide seeking new ways to achieve quality, environmental and productivity improvements," Solley says. "We've targeted the industries where we have an established position and an acknowledged expertise. When we get our valves digitally communicating with PROVOX, and PROVOX is integrated with other systems in the plant, it will be possible to access data as never before. This will open new horizons for our customers." Fisher looks to these new horizons as the catalyst for achieving its financial goals. "We're currently feeling the effects of the recession," Solley says, "but we've taken actions that allow us to manage our assets better. When the economy grows stronger, well be back on trade to meet the corporate objective for return on equity." 20 MONSANTO COMPANY OSW 021953 STLCOPCB4007262 FINANCIAL SECTION __________________________________________ CONTENTS Management Report 22 Audit Committee Report 22 Independent Auditors' Opinion 23 Statement of Consolidated Income 24 Review of Consolidated Results of Operations 25 Operating Unit Segment Data 28 Geographic Data 36 Quarterly Data 37 Statement of Consolidated Financial Position 38 Review of Changes in Financial Position 39 Statement of Consolidated Cash Flow 40 Review of Cash Flow 41 Statement of Consolidated Shareowners' Equity 43 Notes to Financial Statements 44 Significant Accounting Policies 44 Basis of Consolidation 44 Currency Translation 44 Principal Acquisitions and Divestitures 44 Restructuring 44 Depreciation and Amortization 45 Inventory Valuation 45 Income Taxes 45 Short-Term Debt and Credit Arrangements 46 Long-Term Debt 46 Pension Benefits 47 Employee Savings Plans 47 Other Postretirement Benefits 48 Stock Option Plans 48 Earnings per Share 48 Capital Stock 49 Commitments and Contingencies 49 Supplemental Data - 49 Segment Information 49 Financial Summary 50 Unless otherwise indicated by the context, "Monsanto' means Monsanto Company and consolidated subsidiaries, and "the Company' means Monsanto Company only. All dollars are in millions, except per share data. 1991 ANNUAL REPORT DSW 021954 31 STLCOPCB4007263 MANAGEMENT REPORT j Monsanto Company management is responsible for j the fair presentation and consistency of all financial data i included in this Annual Report in accordance with generally ' accepted accounting principles. Where necessary, the data reflect management's best estimates and judgments. Management also is responsible for maintaining a sys tem of internal accounting controls with the objectives of providing reasonable assurance that Monsanto's assets are safeguarded against material loss from unauthorized use or disposition and that authorized transactions are properly recorded to permit the preparation of accurate financial data. Cost-benefit judgments are an important consideration in this regard. The effectiveness of internal controls is main tained by: personnel selection and training; division of responsibilities; establishment and communication of poli cies; and ongoing internal review programs and audits. Management believes that Monsanto's system of internal accounting controls as of December 31,1991, is effective and adequate to accomplish the above described objectives. Richard J. Mahoney Chairman and Chief Executive Officer February 28,1992 Francis A. Stroble Senior Vice President and Chief Financial Officer AUDIT COMMITTEE REPORT The Audit Committee is composed of five non employee members of the Board of Directors and met four times in 1991. It reviews and monitors Monsanto's internal accounting controls, financial reports, accounting practices and the scope and effectiveness of the audits performed by the independent auditors and internal auditors. The Committee also recommends to the full Board of Directors the appointment of Monsanto's principal independent audi tors and approves in advance all significant audit and non audit services provided by such auditors. As ratified by shareowner vote at the 1991 annual meeting, Deloitte & Touche were appointed as independent auditors to examine, and express an opinion as to the fair presentation of, the consolidated financial statements. This opinion follows. The Audit Committee discusses audit and financial reporting matters with representatives of the Company's financial management its internal auditors and Deloitte & Touche. The internal auditors and Deloitte & Touche meet with the Committee, with and without management represent atives present to discuss the results of their examinations, the adequacy of Monsanto's internal accounting controls and the quality of financial reporting. The Committee encourages the internal auditors and Deloitte & Touche to communicate directly with the Committee. The Audit Committee has reviewed the financial section of this Annual Report Pursuant to the recommendation of the Committee, the Board of Directors has approved the financial section. Buck Mickel Chairman, Audit Committee February 28,1992 22 MONSANTO COMPANY AND SUBSIDIARIES DSW 021955 STLCOPCB4007264 INDEPENDENT AUDITORS' OPINION To the Shareowners of Monsanto Company: We have audited the accompanying statement of consolidated financial position of Monsanto Company and Subsidiaries as of December 31,1991 and 1990, and the related statements of consolidated income, shareowners' equity and cash flow for each of the three years in the period ended December 31,1991. These financial state ments are the responsibility of the Company's management Our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, such consolidated financial statements present fairly in all material respects the financial position of Monsanto Company and Subsidiaries at December 31,1991 and 1990, and the results of their operations and their cash flows for each of the three years in the period ended December 31,1991, in conformity with generally accepted accounting principles. Deloitte & Touche St Louis, Missouri February 28,1992 1991 ANNUAL REPORT DSN 021956 S3 STLCOPCB4007265 STATEMENT OF CONSOLIDATED INCOME I (Dollars in millions, except per share) ! Net Sales Cost of goods sold ; Gross Profit Marketing expenses Administrative expenses Technological expenses Amortization of intangible assets Restructuring expense -- net Operating Income Interest expense Interest income Other income (expense) -- net Income Before Income Taxes Income taxes Net Income Earnings per Share The above statement should be read in conjunction with pope 44 through 49 ofthis report. 1991 $8,864 5,125 3,739 1,195 578 711 239 446 570 (169) 65 (24) 442 146 $ 296 $ 2.33 1990 38,995 5,366 3,629 1,270 523 692 235 909 (179) 52 27 809 263 $ 546 $ 4.23 1989 38,681 5,035 3,646 1,154 516 672 226 1,078 (182) 57 62 1,015 336 3 679 3 5.01 KEY FINANCIAL STATISTICS Percent Change From Prior Yean Net Sales Gross Profit Operating Income Net Income Earnings per Share As a Percent of Net Sales: Gross Profit Marketing, Administrative and Technological Expenses Research and Development Expenses Operating Income Net Income Effective Income Tax Rate Return on Shareowners' Equity 1991 (1)% 3 (37) (46) (45) 42 28 7 6 3 33 7.6 1990 4% -- (16) (20) (16) 40 28 7 10 6 33 13.6 1989 5% 10 13 15 21 42 27 7 12 8 33 17.6 24 MONSANTO COMPANY AND SUBSIDIARIES DSW 021957 STLCOPCB4007266 REVIEW OF CONSOLIDATED RESULTS OF OPERATIONS MONSANTO OPERATING RESULTS WERE REASONABLY STRONG In 1991, Monsanto's operating performance was rea sonably strong considering the depressed economic climate brand sweetener, up 11 percent Net sales for Agricultural Products grew as weather conditions improved in most key markets. In addition, 1991 strategic price reductions in certain countries for Roundup giyphosate-based herbicide generated in several of Monsanto's major markets. Strong performance higher sales volume. Glyphosate sales volume increased by most of Monsanto's key products and a continued focus on 17 percent worldwide. NutraSweefs sales volume increased strategic strengths were the hallmarks in 1991. Monsanto's 5 percent, while selling prices decreased. Fisher Controls performance is now far less dependent on economic conditions experienced lower 1991 sales volume; however, this decline than in the early 1980s due to the change in the business was compensated for by higher average selling prices. portfolio mix. Chemicals net sales for 1991 were lower as a result of dis RESTRUCTURING AFFECTS 1991 FINANCIAL RESULTS continued product lines and lower demand caused by the depressed North American automotive industry, the delayed U.S. economic recovery and a slowdown in the European In October 1990 and June 1991, the Board of Directors economy. approved restructuring steps to strengthen the Agricultural Products, Chemicals and Fisher Controls units and the OPERATING RESULTS MIXED corporate staff for the future. Net income for 1991 declined Operating income declined 37 percent in 1991. How 46 percent because of the $325 million, $2.54 per share, after ever, excluding the $446 million pretax restructuring charge, tax restructuring charge. This charge, principally affecting operating income would have increased about 12 percent. the Chemicals unit was recorded for the shutdown and con Operating results in 1991 were helped by lower raw material solidation of various facilities, reductions in employment and costs and improved sales volume and mix from continuing the sale of certain businesses that are not consistent with products. The effect of Chemicals lower manufacturing capac Monsanto's long-term strategic goals. Earnings per share ity utilization reduced earnings when compared with 1990. were 45 percent lower in 1991. Agricultural Products and Pharmaceuticals operating income increased in 1991, while operating results declined NET SALES WERE SECOND-BEST IN HISTORY for Chemicals, Fisher Controls and NutraSweet Agricultural Despite the decision to dispose of various non-strategic Products operating income benefited from higher sales businesses, the lack of economic recovery in the United volume, lower manufacturing costs and cost savings from States and a slowdown in the European economy, net sales restructuring actions implemented in late 1990. Operating for 1991 were down only slightly from that of the prior year income for Pharmaceuticals increased in 1991, primarily and still were the second-best in Monsanto's history. Modest because of strong volume growth in key products, higher sales volume growth in continuing businesses was more average selling prices and gains from the divestiture of non- than offset by the lack of sales for businesses divested or strategic product rights. The profit improvement was planned for divestment Average selling prices were mar partially offset by the December 1990 divestiture of several ginally lower than those in 1990. Net sales in markets out consumer products to a third party under a prior agreement side the United States represented 42 percent of Monsanto's Chemicals incurred an operating loss compared with operat total net sales in 1991. ing income in 1990, because of its restructuring expense. Net sales for Pharmaceuticals, Agricultural Products Operating results for Chemicals were helped by lower petro- and NutraSweet increased, while net sales for Fisher Controls chemicai-based raw material costs and hurt by the effect of were about the same as in the prior year. Net sales for lower sales volume, lower selling prices, and lower manufac Chemicals declined. Pharmaceuticals net sales growth turing capacity utilization. NutraSweet operating income was led by the Colon family of calcium channel blockers, up benefited from higher sales volume, but was adversely affected 9 percent; Cytotec ulcer preventive drug, up 35 percent; and by lower selling prices. Conderel tabletop sweetener, which is made with NutraSweet 1991 ANNUAL REPORT DSW 02L958 25 STLCOPCB4007267 REVIEW OF CONSOLIDATED RESULTS OF OPERATIONS (continued) \ Fisher Controls reported its second-best year; however, America. However, Pharmaceuticals, Fisher Controls and ! operating income was down because of recessionary pressures NutraSweet had record performances in 1990. Although : on volume and a shift in product mix. benefiting from Monsanto's treasury stock purchase program, | Marketing expenses decreased 6 percent in 1991, ROE was lower than that of 1989. because of lower advertising and promotional expenses. Net sales in 1990 of $9 billion, up 4 percent from 1989, Administrative expenses increased in 1991, in part because were the highest in Monsanto's history. Sales volume in of higher 1991 incentive compensation. creased 2 percent The selling price increase was entirely "Other income (expense) -- net" in 1991 decreased, due to the effect of translating non-U.S. dollar denominated principally because the prior year included higher gains sales into a generally weaker U.S. dollar. Net sales in markets from divestitures. outside the United States continued to be significant 42 per cent of Monsanto's 1990 total net sales. PRINCIPAL FINANCIAL TARGET Monsanto's worldwide sales growth was led by REMAINS SO PERCENT RETURN ON Pharmaceuticals. Net sales of the Calan family of calcium SHAREOWNERS' EQUITY channel blockers grew/28 percent and net sales of Cytotec Management's principal financial target is to reach ulcer preventive drug grew 52 percent Fisher Controls net and sustain a 20 percent return on shareowners' equity sales increased with higher selling prices and sales volume. (ROE). Although the 1991 restructuring charge resulted Sales volume of NutraSweet increased, while average selling in ROE declining to 7.6 percent in 1991 from 13.6 percent prices decreased. Sales volumes of Agricultural Products were in 1990, management believes the target is appropriate. hurt by adverse weather conditions. In addition, selling price reductions for Roundup glyphosate-based herbicide were PRODUCT DEVELOPMENT AND implemented, principally in Europe. Despite the effect of COMMERCIALIZATION ARE TOP PRIORITY adverse weather conditions, worldwide sales volume of New product development and commercialization con Roundup was slightly above that of 1989. Chemicals net sales tinue to be the most important strategic priority for Monsanto. were about level with the prior year. Chemicals benefited Research and development expenditures were $627 million from continued strong European business, but was hurt by in 1991,7 percent of net sales, a level that reflects manage lower demand caused by the depressed North American ment's strong, long-term commitment to research and automotive and construction industries. development A major investment continues to be the dis Operating income declined 16 percent in 1990. covery and development of pharmaceutical and agricultural Operating results were helped by improvements in sales products. Research in existing product technology and new volume and mix. However, higher raw material and other applications also continues across all business units. manufacturing costs, the effect of lower manufacturing University collaborations and product licensing are an inte capacity utilization and a 10 percent increase in marketing gral part of Monsanto's research program. The result is that expenses reduced earnings compared with those of 1989. Monsanto has many potential products in the research and The higher marketing expenses were concentrated on development pipeline, several of which should be commer NutraSweefs Simplesse all natural fat substitute and Simple cialized over the next few years. Pleasures frozen dairy dessert and on Pharmaceuticals product launches. PRIOR YEAR REVIEW Agricultural Products operating income declined, as Net income in 1990 declined 20 percent and earnings the modest sales volume growth in glyphosate herbicides per share decreased 16 percent compared with that of 1989. did not compensate for the reduction in selling prices for The decline in net income was caused by dramatically those products. In addition, Agricultural Products operating higher costs for petrochemical-based raw materials during income was hurt by the effect of low use of new manufactur the latter part of the year, extreme weather conditions in ing capacity and higher raw material costs. Chemicals key world agricultural markets and, to a lesser extent, de operating income was hurt by increased costs of petroleum- pressed automotive and construction industries in North 26 MONSANTO COMPANY AND SUBSIDIARIES OStef 021959 STLCOPCB4007268 based raw materials, lower sales volume and the effect of lower manufacturing capacity utilization. Pharmaceuticals operating income improved primarily as a result of con tinued sales volume growth. Fisher Controls operating income surged 48 percent as a result of selling price improvements, strong customer demand and improved production turnaround of booked orders. NutraSweet operating income increased slightly, as the benefit of higher sales volume was reduced by costs associated with new product introductions and lower average selling prices. "Other income (expense) -- net" decreased in 1990, due primarily to higher 1990 currency losses and higher losses from affiliated companies in which Monsanto does not have management control. Gains from divestitures in 1990 were comparable to those of the prior year. A $45 million pretax gain -- $31 million aftertax, or $0.24 per share -- was realized on the sale of certain assets of a Monsanto joint venture in Japan, the principal divestiture in 1990. ANALYSIS OF CHANGE IN EARNINGS PER SHARE -- BETTER (WORSE) 1991 vs. 1990 1990 vs. 1989 Sales-Related Factors: Selling prices Sales volume and mix $(0.19) 0.43 $ 0.72(1) 0.77 Total Sales-Related Factors 0.24 1.49 Cost-Related Factors: Raw material costs Manufacturing capacity utilization Other manufacturing costs Marketing, administrative and technological expenses 0.98 (0.26) (0.02) (0214) (0.57) (0.38) (0.74) (0.70) Total Cost-Related Factors 0.46 (2.39) Other Factors: Restructuring -- net Divestitures (2.54) (0.18) 0.11 Total Other Factors (2.72) 0.11 Operating Income (2.02) (0.79) Interest expense Interest income Other income (expense) -- net Change in income taxes Change in shares outstanding 0.05 0.06 (OJ25) 0.22 0.04 0.02 (0.02) (0.17) (0.03) 0.21 Change in Earnings per Share $(1.90) $ (0.78) (1> Increase was entirely due to Hu effect oftranslating non-U.S. dollar denominated sales into a generally weaker U.S. dollar. SALES VOLUME INDEX 11986 - 1.0) 1991 1990 1989 i.o i i.i : i.2 : : j i i.3 ; i ; ; 14 | SELLING PRICE INDEX (1986 - 1.0) 1991 1990 1.00 i 1.02 i.04 ; i.06 : i.08 : RAW MATERIAL COST INDEX (1986 - 1.0) 1991 ;j 1990 IHBiBWi i 1989 iMHIB I 1.0 i 1.1 I 1.2 i 1.3 I j : : 1.4 15 1.10 1.5 1991 ANNUAL REPORT DSW 021960 27 STLCOPCB4007269 OPERATING UNIT SEGMENT DATA Agricultural Products Chemicals Fisher Controls NutraSweet Pharmaceuticals Biotechnology Product Discovery Corporate Total Net Sales 1991 1990 1989 $1,711 3,740 928 954 1,531 $1,676 4,035 927 933 1,424 $1,717 4,065 852 869 1,178 $8,864 $8,995 $8,681 Operating Income (Loss)'1* 1991 1990 1989 $400 (154) 84 173 170 (57) (46) $327 $ 432 297 497 95 64 183 180 93 6 (52) (47) (34) (54) $570 $909 $1,078 Research and Development 1991 1990 1989 $140 105 17 41 259 57 8 $151 115 17 41 228 52 8 S162 104 17 39 218 47 11 $627 $612 $598 Agricultural Products Chemicals Fisher Controls NutraSweet Pharmaceuticals Biotechnology Product Discovery Corporate Total Total Assets 1991 1990 1989 $1,592 3,162 631 1,155 2,342 51 294 $1,668 3,163 647 1,296 2,085 59 318 $1,489 2,993 634 1,344 1,814 54 276 $9,227 $9,236 $8,604 Capital Expenditures 1991 1990 1989 $ 93 300 37 58 96 5 2 $134 $ 148 340 300 39 29 113 49 112 71 86 44 $591 $750 $ 607 Depreciation and Amortization 1991 1990 1989 $104 272 37 233 94 9 2 $124 260 35 218 87 13 2 $106 247 31 215 79 10 2 $751 $739 $690 al Operating income in 1991 was affected by the restruc turing program as follows: Income (Expense) Operating Unit Agricultural Products Chemicals Fisher Controls Corporate $ 30 (478) 7 (5) Total $ (446) Although inflation is relatively low in most of Monsanto's major markets, it continues to affect operating results. To mitigate the effect of inflation, Monsanto has implemented measures to manage working capital, control costs, improve productivity and raise selling prices where government regulations and competitive conditions permit In addition, it is estimated that the current cost of replacing certain assets is greater than their historical cost presented in the financial statements. Accordingly, the depreciation expense reported in the Statement of Consolidated Income would be greater if the expense were stated on a current cost basis. Sales between operating units were not significant Cer tain corporate expenses, primarily those related to the overall management of Monsanto, were not allocated to the operating units or geographic areas. Corporate assets principally include certain miscellaneous receivables and investments. 1991 NET SALES IPrnnt by opmting unit) 42% Chamcali ---------- 19% Aghcuftural Product* 17% Pharmaceutical* -- 11% Fisher Control* -- 11% NutraSweet -------- The principal factors that accounted for the operating units' performance in 1991 and 1990, along with the factors that are expected to affect operating results in the near term, are described on the following pages. 28 MONSANTO COMPANY AND SUBSIDIARIES DSW 021961 STLCOPCB4007270 AGRICULTURAL PRODUCTS 1991 1990 1989 1991 vs. 1990 Better (Worse) Net Sales: Crop chemicals Animal feed ingredients Total Operating Income $1,551 $1,508 $1,558 160 168 159 $ 1,711 $1,676 $1,717 400 327 432 Selling prices Sales volume and mix Raw material and other manufacturing costs Restructuring Divestitures Other $ (31) 48 53 30 (38) 11 The Agricultural Products operating unit is a leading worldwide producer and marketer of herbicides, including Roundup, Lasso, Far-Go, Avadex and Machete herbicides. More than half of the unit's herbicide net sales are made to markets outside the United States. Weather conditions in the agricultural markets throughout the world affect sales volume. AGRICULTURAL PRODUCTS NET SALE3 (Man in miliums) 1991 1990 1989 o: u.S. 400 i 000 i 1.200: 1,600 ! Europe Re* 0* World i I : 2,000 i During 1990 and 1991, the Agricultural Products unit was restructured. The restructuring included the reorgani zation of the operating unit along product lines and the deci sion to sell the animal feed ingredients business. Reductions in employment also occurred through an early retirement incentive and other programs. Restructuring costs of $108 million were deferred in 1990 and expensed in 1991 when the animal feed ingredients business was sold at a gain, which exceeded the deferred restructuring costs. An overall pretax gain of $30 million resulted from the Agricultural Products restructuring and is included in 1991 operating income. Operating income for the subsequently divested animal feed ingredients business was $30 million, $30 million and $26 million for 1991-1989, respectively. Agricultural Products operating income grew sub stantially in 1991, as weather conditions improved in certain key country markets. Lower raw material and other manu facturing costs, along with cost savings resulting from the restructuring, also helped to improve operating income. Net sales in 1991 increased 2 percent, while operating income improved 22 percent Excluding the restructuring gain, operating income would have increased about 13 percent from 1990. The principal factors for the change in operating income were: Change in operating income $ 73 Despite a poor farm economy in Australia, Southeast Asia and Canada and poor weather in Australia and, in the second half of 1991, Western Europe, worldwide sales volume of glyphosate herbicide increased 17 percent bene fiting from improved weather conditions in the United States and certain other key country markets. Reductions in selling prices, principally in the United States, on most glyphosate products and new formulations continued to benefit glyphosate sales volume by making the herbicide cost-effective for weed control for a broader range of crop, industrial and residential uses. Profitability on Lasso herbicide increased significantly because of the combination of improved cost management and a selling price increase, partially offset by a decrease in sales volume. Market share for Lasso herbicide declined slightly during 1991. Net sales and profitability of Avadex herbicide decreased in 1991 due primarily to the poor farm economy in Canada. Total manufacturing capacity utilization for Agricultural Products was 61 percent and 60 percent in 1991 and 1990, respectively. Biotechnology-produced bovine somatotropin (BSD, a naturally occurring protein that has been shown in research studies to enhance the efficiency of milk produc tion in dairy cows, is awaiting approval by the U.S. Food and Drug Administration (FDA). Expenditures for BST, while slightly less than those in the prior year, continued to affect financial results adversely. In 1990, Agricultural Products net sales and operating income decreased 2 percent and 24 percent, respectively, as compared with that of 1989. Droughts in Europe and California, extremely wet weather in the southern United States, and a freeze in Florida that damaged the citrus crop combined to limit the growth in 1990 sales volume of glyphosate herbicides to a modest increase. Operating income in 1990 declined, because the sales volume growth 1991 ANNUAL REPORT DSW 021962 29 STLCOPCB4007271 OPERATING UNIT SEGMENT DATA (continued) in glyphosate herbicide did not compensate for the ongoing selling price reductions for this product In addition, operat ing income was hurt by the effect of low use of expanded plant capacity and higher raw material costs. Net sales for Lasso herbicide decreased 5 percent in 1990. Selling prices increased for Lasso herbicide, but sales volume declined 13 percent Sales volume of Lasso declined because of a shift in the timing of customer purchases and' a slight drop in market share. Net sales ofAvadex herbicide decreased 17 percent in 1990 because of adverse weather in North America, a poor farm economy in Canada and poor economic conditions in the former Soviet Union. OUTLOOK AGRICULTURAL PRODUCTS l\iUnl \ lini; lit i Im it It in \,n i mis muni rim t \piitd iluriiu: I riril, uhiii ntut|mum! jut m {Mit nl prntirti'in l-r ihr .it ii\< inuti ilit m in lloumfup In ilm itK t nniinut ** in lilt l uiu il N.m ^ ini* lln- \t .it Juno. \|,tu.ii;t nu nl t \pt t k ilui t niimn tl slr.iinj* m liin<4 prit t i t n-- will mntimii in in i n,iM dt imiml l<>r <J\piM^ih In iliifidt , .nnl m.mu f.iflurinu pun i p.iit nl^ ih.it .in iinprl;int l> Mns.mn>*" mM p**--iii>11 will m.iinuin ur t"inpt li ti\r position .iln r lln t \pit.iii*n n! iln "llui p.in nl". \iirit nlun.il I*i 1111; N li.i^ .1 .ml nmiilii i of nr\\ pi-uhn in (In o "t ,ut li .nnl tit \t l->pnn u( pipt lim .ni(K'*im ih.it ,iu t ui11 mi\ in 1 lit inili.tl Hl.p^t ^ of i I'liuiii o i.ili/.iinm. Mn im i "inium " l<> In- on .i nuinlu i ot tin in if. 11 .nnl hioit t lino|*>^\ jvl.iltri prodtit l>. In lupj. Dirtu n^inri In lint idt. tor tin- t lit i li\t t tniro| ,.f fi.i!i"i.i^. u 11 i\t d o ud.i ion .ipprov.il )"t ''.dt in dn I mit tl N.iu In .idd; lion, "t M-r.il mu prodin l" I'm \\t t d mult til in ini I and rit i prodm timi n 11 i\t d o uul.tlmv .ij>pi<n.1! lor salt- in .lap.m. I In "t in uK appi \* d pi<'diu h art hast (I on dilhiopu 1 t <*ir.;>'iiml I loin Mons.nil**s in u p\ ridiin- t In'." 1 p: pi it 1 at \ 1 in ini-liv. 4 |s`| will ha\' 'lu.ni'n mil \aim (o dn il.iin indusin ihron^h dn 1. dm ii<*n ol milk proilin timi ftsi>. hut it foitdnm s to nn 11 opposition timu o f tain ojmips. j'.sj h.js In 1 n .ippro\t d in t ii;lii omn- n it s. Pm pot u t in dn- I nilt d si.ilt s. Mana^t un nt Im In - l'.sl will In- appiou tl in tin I nilt d Naif-. Ih>\\. m 1. il l ,N approxal is not n (1 i\t tl. a matt 1ial t harm to t .uninus tould it suit. MMisanto is mulimi iH to maintain dn- In hnicnl and minim i t ial t apahil ilit s ni t dt d to si t no- iv^ulaton approvals and t l.uimh tin prodm t. CHEMICALS 1991 1990 1989 Net Sales: Fibers $ 974 $ 971 S 986 Performance products Plastics 648 668 644 710 850 855 Resins 683 660 646 Rubber and process chemicals 482 530 525 Engineered products 145 137 134 Discontinued products 98 219 275 Total Operating Income (Loss) $3,740 $4,035 $4,065 (154) 297 497 The Chemicals operating unit produces a wide range of chemicals, plastics, fibers and other products listed in the table above. The unit's principal strengths are nylon carpet fiber, high-performance plastics, Saflex plastic interlayer, detergent ingredients, phosphates and rubber chemicals. CHEMICALS NET SALES (Dollar, in millions) 1891 oi us. 1.000 i 2.000 i 3.000 i 4.000 i fl Europe B Re*t World 5,000 A significant part of the restructuring approved by Monsanto's Board of Directors in June 1991 affected the Chemicals unit The restructuring steps include the shut down and consolidation of various facilities, the reorganiza tion of some businesses and the decision to dispose of certain non-strategic businesses. Reductions in employment also occurred through an early retirement incentive and other programs. A pretax restructuring charge of $478 million resulted in the 1991 operating loss for Chemicals. Net sales in the table above have been restated to conform to the new organizational structure. Chemicals net sales for 1991 were 7 percent below 1990, principally as a result of discontinued product lines and lower sales volumes of continuing businesses. An analysis of the change in operating income is provided on the following page: 30 MONSANTO COMPANY AND SUBSIDIARIES OSH 021963 STLCOPCB4007272 Selling prices Sales volume and mix Manufacturing capacity utilization Raw material costs Restructuring Other Change in operating income 1991 vs. 1990 Better (Worse) $ (33) (30) (52) 181 (478) (39) 8(451) Sales volumes of continuing businesses in 1991 were down, a reflection of the lack of U.S. economic recovery, the lowest North American automotive production level since 1983, and the slowdown in the European economy. Raw material costs were lower in 1991 following the resolution of the Middle East crisis. The cost of petrochemical-based raw materials had temporarily escalated because of the Middle East crisis during the latter part of 1990. Cost con tainment programs also benefited operating income in 1991. Capacity utilization, an important factor for Chemicals prof itability, was 75 percent in 1991, versus 78 percent in 1990. Fibers net sales in 1991 were about the same as those of 1990 despite a slowdown in the North American housing market and lower selling prices. This strong performance is primarily due to increased sales of Acrilan acrylic fiber. Fibers profitability benefited from reductions in the cost of raw materials. Performance products net sales were below those of the prior year, principally due to the weak U.S. economy. However, detergent ingredient sales benefited from the introduction of new concentrated laundry detergents by customers. Plastics net sales in 1991 were below those of 1990. However, worldwide profitability of plastics improved year-to-year as a result of lower raw material prices. Sales volumes and prices were lower in 1991, principally in North America and Europe. In December 1990, the thermo plastic elastomer business, which had net sales in 1990 of $96 million, was merged with Exxon Chemical Company's elastomer concentrates business. Monsanto's share of the operating results of this joint venture (called Advanced Elastomer Systems, LP.) is reported in "Other income (expense) -- net" in the Statement of Consolidated Income, and it is excluded from Chemicals operating income. Sales volume of Saflex plastic interlayer, the largest | resin product, increased in 1991 reflecting the global nature I of the business. Sales volume in North America declined because of the low automotive production level and weakness in the construction industry. ; Rubber chemicals net sales were affected by the depressed North American and European economies and the turmoil in the former Soviet Union. Rubber chemicals benefited from lower raw material costs in 1991. In 1990, Chemicals net sales were essentially level with those of the prior year, but operating income was down 40 percent from 1989's record performance. Net sales were adversely affected by the soft automotive and commercial construction sectors of the North American economy. Chemicals net sales in Europe and Asia-Pacific remained strong. The effect of translating non-U.S. dollar denominated sales into a generally weaker U.S. dollar increased net sales $100 million. Operating income in 1990 was hurt by significant in creases in the cost of petrochemical-based raw materials during the latter part of 1990, which occurred because the crisis in the Middle East caused the rapid escalation of world oil prices. To a lesser extent, operating income was hurt by lower sales demand for plastics and resins used in the North American automotive industry, and for plastics, resins and fibers used in the construction industry. Average raw material costs increased about 6 percent during 1990. The lower customer demand resulted in reduced manufac turing capacity utilization. Operating profit margin declined to 7 percent, compared with 12 percent in 1989. OUTLOOK CHEMICALS l ln-mif'iN nuil'iuk l"i I-*-*-! is ililfnull i piv <lii 1 pimunh bti.ui'-r nl iln s|m\ ! rimmmir it i nu t\. tlu i< Lthw l\ low North \mrriv .in niulivt pirnlm limi K \< I .mil llu slowdown in tlir I mop, .m * i oiiMiin. ( oulimn d Lit K <>i l oitMinu r i mil it It n * t on lil hi ut h i .i snlid n t *>w r\ in l lu init ,iU. M.uni.nimiu m.n Ut I shun lr sir.ilt oit 11| 1 Hlilt K*\ll!l -_;o<h| , ns| Jlnslliulls .|)HI Hi W plodlUt ilt vt lopm< ul .mil t iiImiu t int nl will t ontimu' .is a im us n! ( lit mil ,ils. \t ii\t tu.iiM"i mi ill olVmiron un nf.il t tmpli.im t .u ihilii s is ,\ m.ijm im us. 1991 ANNUAL REPORT OSW 021964 31 STLCOPCB4007273 OPERATING UNIT SEGMENT DATA (continued) FISHER CONTROLS 1991 1990 1989 Net Sales: Final control systems Instrumentation Other Total Operating Income $510 197 221 $928 84 $490 222 215 $927 95 $436 208 208 $852 64 Fisher Controls is a leading worldwide producer of process control equipment which includes industrial valves and regulators, PROVOX electronic process control instru mentation, and service and repair operations. FISHER CONTROLS NET SALES (Man in miUicia) 19S1 1990 1989 0i u.s. 203: 4oo i sooi 1 Europe 1 Rest erf Worid aooi 1.000 i Fisher Controls net sales in 1991 were essentially the same as the prior year. However, the impact of the recession became pronounced in the second half of the year and re sulted in operating income declining 12 percent Excluding the restructuring gain, operating income declined 19 percent from that of 1990. A modest decline in sales volume, a shift in sales mix and higher manufacturing costs combined to more than offset the benefit of higher 1991 selling prices. Final control systems net sales were up 4 percent, while instrumentation net sales fell 11 percent The effects of the North American recession on capital goods spending, com bined with a weakening European economy, adversely affected 1991 results. In 1990, Fisher Controls recorded a strong perfor mance. Operating income rose 48 percent on net sales growth of 9 percent Selling price improvements, strong customer demand in the process industries and improved production turnaround of booked orders contributed to this growth. Final control systems net sales were up 12 percent and instrumentation net sales were up 7 percent compared with those of 1989. During 1991, Fisher Controls divested its Permea gas separations systems business as a part of a restructuring of the unit A pretax gain of $7 million resulted from the over all Fisher Controls restructuring and is included in 1991 operating income. An analysis of the change in operating income is provided below; 1991 vs. 1990 Better (Worse) Selling prices Sales volume and mix Restructuring Other $ 32 (37) 7 (13) Change in operating income $ (ID OUTLOOK - FISHER CONTROLS Eislicr tonti uU I hi--im ---' is primarili tlt-|u-n- 111 nl mi wmldwide capital expenditures in major pmo-.- imlii--trii --. 'in h as chemical. oil mul pas, po. r, and pulp and paprr. Tin spi inline in these mat In !' n pii alii l.iu- llii gt m ral i column In six lo nnn inoiidi'. \s a result. l isln r (. niurnls t xperii on d a d. laii d -lowdown in incoming orders in HUM dir. i di alliilnilalilc i.. die continued North \mcrican ri 11 "ion and lln slowdown in Europe. Mtlinugh lin- li.n liloo of orders cult ring 1992 is higher than a icar earlier. 1992 performance will depend upon lln speed al which die etononn recoiers. 32 MONSANTO COMPANY AND SUBSIDIARIES DSW 021965 STLCOPCB4007274 NUTRASWEET 1991 1990 1989 Net Sales Operating Income 8 954 173 $933 183 $869 180 The NutraSweet Company manufactures and markets NutraSweet brand sweetener, which is sold worldwide; Equal tabletop sweetener, which is sold in the United States; Simplesse all natural fat substitute; and Simple Pleasures frozen dairy dessert Sales of NutraSweet brand sweetener in the European market are made by a 50 percentowned European joint venture and therefore are not included in NutraSweet net sales and operating income. NutraSweet's share of the European joint venture's earnings are reflected in "Other income (expense) -- net" in the Statement of Consolidated Income. More than 90 percent of NutraSweet net sales were in the U.S. market NutraSweet net sales in 1991 increased 2 percent from 1990, while operating income fell 5 percent The effect of 5 percent higher sales volume was partially offset by the lower selling prices. Operating income was reduced by the one-time costs of $10 million associated with various reorganizing actions taken during 1991. An analysis of the change in operating income is provided below; 1991 vs. 1990 Better (Worse) Sales volume and mix Other $ 29 (39) Change in operating income 8(10) In 1990, net sales were up 7 percent and operating income grew 2 percent compared with 1989. The higher operating income from a 14 percent sales volume increase for NutraSweet was mostly negated by lower selling prices and launch costs associated with Simplesse all natural fat substitute and Simple Pleasures frozen dairy dessert OUTLOOK NUTRASWEET WliiK t nniinuiii'4 m \paud. uotlduidc maikt is lot jnu t.il.iih . low l.il mi;n (lit ills .m ht romiii" imn .isimjv omipt liliu. \llhoui;ii IU ivmln t 1WJ marks tin-1 xpitalion ol` \ulravut t l's major l nil* d Nali s .isjmii.mup.tu-nl. ilu jinisju tis li-i \utniSnrrt brand sun U m r it main `.mod. t ompi tilimi is juohabh hoih Imm m m i it .isjiat lanit prodin t i s ami trom m u s\\t 11 i m is i suhjt t i to ! I) \ approval). \om ilu It ss, Nunavut 11 has fmitt inijimlatil t oinpt lilin- ad\an la^t-s o\t i du Iasi n it nais tha! should m-iac liuroinpanx ut il. Must im huh proprit-larv low cost ni. mo tarI in ttiu jam i ssi s. s|,iu of tin. ail manul.u (ur im; I. ini it it s, '.ti.iiu; brand idt nltlv. and (hr possibility i I a bn akllnomji m u s\n t It m t. which was aiimmm ; d in ! :>`U . litis piohahh inttipi tition fumi i;t m i n aspur taim jMothn 11 s and oiln t s will hun i s< Him; jiiin s tin t linn . tin n b\ atln 1st |\ alh t tim; opt rnliui; in t Him ami ash flow. Ilout \t r. operating innum- in l(nr; .nit I In n>ml will ht m lit In mi lout r annual ainoi!i/ati'>n \ju n>t "I s I 7i million btr.uiM- til du \ 1111 a 11> n > t 111 i asji.uiatm list p.ihn!. Ilu 1 tul> d Nah s will n main tin piim ip.il mat k t l>i \tiliit S//1/ biatid ^u 11 it m i in I ddj. but t ll.ii k {.. <k w l< j> iim i nalit>na! mat kt Is will tmlimit*. \iili,i\\i t t. tlnou^h a I nn-pt an joint \t ntun . has ui\ sti <| in .i m u manulat lin ing lat ilit\ in l iano , whit h is si ht dub d t* In un jmxlm imn in IWk'b In I*1'*!!, it ist\j>ttltd Ihil ^inipfrssi'. ilurompam's all natiual (at subsiilult . will hr mint bio.ulb maikt t d in tin I nilt d sla!t > tor ttsr in imdtijih loml (ali ;niu s. In \ nisiuiiit t product Ianm In s bt ^an in du m i t>nd hall ol 1 *.HU , and molt an anlu tpali'd in Pd'dli. Ilout ur. l.n t ^ a t haih u-m'.; maikt I in uliit h t oiupt lilion t onimm s to iiih iisib. 1991 ANNUAL REPORT 33 DSW 021966 STLCOPCB4007275 OPERATING UNIT SEGMENT DATA (continued) PHARMACEUTICALS Pharmaceuticals operating income increased 83 percent I Net Sales Operating Income 1991 1990 1989 $1,531 $1,424 $ 1,178 170 93 6 Searle is a research-based, worldwide pharmaceutical business concentrating on drugs for the treatment of cardio vascular, gastrointestinal, immuno-inflammatory, central nervous system and infectious diseases. PHARMACEUTICALS NET SALES (Man i* millions) in 1991. The principal factors for the change in operating income were: 1991 vs. 1990 Better (Worse) Selling prices Sales volume and mix(1) Marketing, administrative and technological expenses Other Change in operating income $ 25 79 (20) (7) S 77 1SS1 1990 1989 0 us. 500 i 1,000 i 1.500 i 2.000 S Europe flfeftofWorid Pharmaceuticals net sales increased 8 percent in 1991 when compared to 1990. The improvement reflected con tinued growth for Cytotec ulcer preventive drug, the Calan family of calcium channel blockers for hypertension and angina, and Canderel tabletop sweetener (which is marketed by Searle outside the United States and by NutraSweet in the United States under the brand name Equal), as well as higher selling prices. Net sales for Calan, sold primarily in the North American market, were $508 million, 9 percent higher than 1990 sales. Worldwide sales for Cytotec were $123 million, up 35 percent from 1990. Net sales of Canderel outside the United States were $147 million in 1991, up 11 percent from 1990. Comparisons to 1990 also were affected by the December 1990 divestiture of most of Searle's consumer products business outside the United States to a third party, under the terms of a 1985 agreement related to the Company's acquisition of Searle. Sales of these consumer products were $52 million in 1990. Pharmaceuticals continued to make dramatic gains in operating results in 1991, bolstered principally by continued sales growth. Operating income in 1991 also benefited from the sale of certain non-strategic product rights. ' " Includes $36 million income for higher 1991 product rights sales and an approximate $30 million reduction in earnings associated with consumer products tran&rred to a third party at the end of 1990. In 1991, Pharmaceuticals net sales and operating income increased in the United States, principally because of sales growth of Cytotec ulcer preventive drug and the Calan family of calcium channel blockers for hypertension and angina. Net sales for Calan, Cytotec and other products in the United States were reduced by $30 million for rebates to state Medicaid programs mandated under the 1990 Omnibus Budget Reconciliation Act In Europe, Pharmaceuticals net sales and operating income were level with the prior year, as the transfer of certain con sumer products to a third party noted earlier offset sales volume increases. Improved participation in the Japanese pharmaceuti cals market has been and continues to be an important focus for Searle. Toward that end, Searle increased its own ership interest in its Japanese subsidiary in 1990 and, in September 1991, purchased 12.25 percent of the shares of Hokuriku Seiyaku Co. Ltd., a Japanese pharmaceuticals firm. Searie also acquired, in 1991, its partner's interest in a French joint venture. Pharmaceuticals continues to invest significantly in research and development (R&D). Pharmaceuticals R&D expenditures were 17 percent and 16 percent of the unit's net sales in 1991 and 1990, respectively. This spending level demonstrates the commitment to product discovery and development that is aimed at securing sound long-term financial performance for Pharmaceuticals. 34 MONSANTO COMPANY AND SUBSIDIARIES DSW 021967 STLCOPCB4007276 Pharmaceuticals net sales were up 21 percent in 1990 as compared with that of the prior year. Sales volume improved about 15 percent Net sales for Calan increased 28 percent to $467 million, reflecting the strong demand for the 180-milligram dose introduced in 1990. Worldwide sales for Cytotec ulcer preventive drug were $91 million, up 52 percent from 1989. Kerione, a new beta blocker for the treatment of high blood pressure, was launched in the United States. In addition, net sales in 1990 included full-year results for a German pharmaceuticals company acquired in October 1989. This acquisition increased year-to-year Pharmaceuticals net sales $58 million in 1990. Sales in 1990 of Canderel tabletop sweetener outside the United States were $132 million, up 18 percent from 1989. Pharmaceuticals operating income reached $93 million in 1990, compared with $6 million in 1989, driven principally by the increased sales level. The 1990 sale of non-strategic product lines in Italy and France contributed to the gain in operating income. Costs were incurred for the launch of Kerione and other product development activities. OUTLOOK - PHARMACEUTICALS Calnn participates in an imrc.iNingly cninpi-t- ilivc market for atitihvpt ru nsiu drugs character ized In frequent new product introductions and the potential for generic competition. This increased competition could adversi ly affect the future sales and profits of ( tilait. Seurlc is dexeloping a formula lion of (atari with proprietary dtl.tyi-d release tech nology that could further enhance the product's competitive position. In 1991. Stark- launched \Iuxnquin. the first oncc-a-day anti-infective drug in the t|uinolone class, in Mexico, Portugal and Venezuela. In addition, M(L\uquin was approved by regulatory aulhoritiis in six other countries in 1991 and in the I nited States in the first quarter of 1992. It is awaiting approval in Canada and some European maria Is. Other new products are expected to emerge in the m ar term from Searle's developtm ntal pipeline, including a new product for the in alrnent of arthritis called Artliroh'c. Arllinih-r is a comhination of Searle's < jilolrr ulcer preventive drug and diclofenac, the OUTLOOK PHARMACEUTICALS , ,i> world's lit st-selling arthritis on dic.uion. Irllimtir is pending regulatory approval in Canada and major European markets, imhirii. the first of a new class of sleeping aids, and oxapro/in. a non-steroidal anti inflammatory drug, itre pending approval hv the I ,S. Eood and Drug Administration, \mbirn is also awaiting regulatory approval in Canada and the I nited Kingdom. Products currently in various stages of scien tific development include products to treat abnormal heart rhythms; pain: anxiety disorders; Alzheimer's disease and agi associated memory impairment; psoriasis and tdciralive colitis; thrombosis; acquired immune deficiency syndrome (AIDS) and other viral diseases. A collaborative discovery program with Washington I niversity in St. Louis continues, encompassing almost It) research pro jects. Another collaboration with Oxford I niversity in the l nited Kingdom is pursuing a newly emerg ing technology related to the role of body sugars in biological processes, litis technology could help to unlock the mechanisms of many diseases. BIOTECHNOLOGY PRODUCT DISCOVERY The mission of Biotechnology Product Discovery is to generate a continuous pipeline of proprietary product oppor tunities and new technologies essential to success in the areas of human health, plant-related agriculture and chemical products. For human health care, Monsanto applies bio technology to provide target proteins for the development of novel pharmaceutical chemicals. The strategy for plantrelated agriculture is to isolate novel genes, the products of which are expressed in genetically transformed plants providing unique agronomic characteristics. The chemical research programs provide novel high-performance chemi cals and unique approaches to manufacturing processes and waste minimization. When product leads and new technologies are refined and clarified, they are transferred to the operating units for further development and commercialization. 1991 ANNUAL REPORT QSW 021968 35 STLCOPCB4007277 GEOGRAPHIC DATA 1 United States Europe-Africa Asia-Pacific Canada Latin America Interarea Eliminations Corporate Total Net Sales to Unaffiliated Customers 1991 1990 1989 $5,636 1,937 621 366 304 $5,685 1,995 561 413 341 $5,590 1,800 546 430 315 $8,864 $8,995 $8,681 Operating Income (Loss) 1991 1990 1989 $459 120 27 24 (38) 24 (46) $639 $ 235 42 32 17 (22) (34) 721 282 60 50 23 (4) (54) $570 $909 $1,078 Total Assets 1991 1990 1989 $ 6,084 $6,348 $6,169 2,189 2,061 1,657 586 495 388 163 169 150 215 271 254 (304) (426) (290) 294 318 276 $ 9,227 $9,236 $8,604 The data above are prepared on an "entity basis," which means that net sales, operating income and assets of a legal entity are assigned to the geographic area where the legal entity is located (for example, a sale from the United States to Latin America is reported as a U.S. sale). Interarea sales, which are sales between Monsanto locations in different world areas, were made on a market price basis. Interarea sales have been excluded from the above table and were: 1991 1990 1989 World area shipped from: United States Europe-Africa Canada Latin America Asia-Pacific Interarea Eliminations $ 786 103 17 5 5 (916) $ 813 140 13 19 1 (986) $ 817 180 11 35 11 (1,054) Total $ -$ -- $- Following is a reconrilation of ex-U.S. operating income and total assets to the net income and net assets of consoli dated ex-U.S. subsidiaries. 1991 1990 1989 Operating income Interest and other income (expense) -- net Income taxes $ 133 $ 326 $ 415 (3) (30) 30 (52) (97) (151) Net Income of Consolidated Ex-U.S. Subsidiaries $ 78 $ 199 $ 294 The reported operating income for the individual geographic areas does not include the full profitability generated by sales of Monsanto products imported from other locations, principally from the United States. Direct export sales from the United States to non-U.S. third party customers were $543 million, $491 million and $467 million for 1991-1989, respectively. Sales and operating income for the geographic seg ments do not include the financial results from those joint venture companies in which Monsanto does not have management control, the largest of which are in Latin America and Asia-Pacific. Monsanto's share of the income or loss of these companies is reflected in "Other income (expense) -- net" in the Statement of Consolidated Income (income of $2 million for Latin America and income of $2 million for Asia-Pacific in 1991). Monsanto's share of these unconsolidated net sales in 1991 was $136 million for Latin America and $132 million for Asia-Pacific. Geographic area operating income in 1991 was affected by the restructuring program as follows: Income (Expense) United States Europe-Africa Asia-Pacific Canada Latin America Corporate $ (298) (86) (4) (6) (47) (5) Total $(446) Total operating assets Total liabilities $3,153 $2,996 $2,449 1,258 1,125 983 Net Assets of Consolidated Ex-U.S. Subsidiaries $ 1,895 $1,871 $1,466 36 MONSANTO COMPANY AND SUBSIDIARIES DSW 021969 STLCOPCB4007278 QUARTERLY DATA Net Sales Gross Profit Operating Income (Loss) Net Income (Loss) Earnings (Loss) per Share Dividends per Share Common Stock Price 1991 1990 1991 1990 1991 1990 1991 1990 1991 1990 1991 1990 1991 1990 First Quarter $ 2,223 2,286 949 987 289 327 166 194 Ul 1.47 0.485 0.425 Second Quarter Third Fourth Quarter Quarter $ 2,473 2,367 $ 2,042 $ 2,126 2,140 2,202 1,104 1,060 836 850 801 781 (41) 184 138 371 142 69 (52) 247 116 74 66 31 (0.42) 1.90 0.91 0.59 0.53 0.27 0.52 0.485 0.52 0.485 0.52 0.485 Total Year $ 8,864 8,995 3,739 3,629 570 909 296 546 2.33 4.23 2.045 1.88 j : ; High Low High Low 62 Vj 46 60 Vs 51V, 69 3/< 56 Vj 55 V< 46 Vj 76 64 Vj 52 383A 717/a 57 V* 49l/j 395/s 76 46 60 Vs 383A Monsanto's net income is historically higher during the first half of the year primarily because of the concentration of generally more profitable Agricultural Products sales in the first half of the year. The net loss for the second quarter of 1991 included net restructuring expense of $325 million. Second quarter 1990 net income included a gain of $31 million resulting from the divestiture of certain assets of a joint venture in Japan. Fourth quarter 1990 net income included gains from divestitures totaling $20 million. 1991 ANNUAL REPORT DSW 021970 37 STLCOPCB4007279 STATEMENT OF CONSOLIDATED FINANCIAL POSITION (Dollars in millions, except per share) Assets Current Assets: Cash and cash equivalents Trade receivables, net of allowances of $37 in 1991 and $35 in 1990 Miscellaneous receivables and prepaid expenses Deferred income tax benefit Inventories Total Current Assets Property, Plant and Equipment: Land Buildings Machinery and equipment Construction-in-progress Total property, plant and equipment Less accumulated depredation Net Property, Plant and Equipment Investments in Affiliates Intangible Assets, net of accumulated amortization of $1,430 in 1991 and $1,259 in 1990 Other Assets Total Assets At December 31, 1991 1990 S 189 1,594 330 249 1,349 3,711 $ 204 1,498 370 171 1,270 3,513 113 1,301 6,054 434 7,902 4,540 3,362 248 1,290 616 $ 92227 112 1,254 5,779 475 7,620 4,128 3,492 248 1,425 558 $ 9,236 Liabilities and Shareowners' Equity Current Liabilities: Accounts payable Wages and benefits Income and other taxes Miscellaneous accruals Short-term debt Total Current Liabilities Long-Term Debt Deferred Income Taxes Other Liabilities Shareowners' Equity: Common stock (authorized, 200,000,000 shares, par value $2) Issued 164,394,194 shares in 1991 and 1990 Additional contributed capital Treasury stock, at cost (41,466,707 shares in 1991 and 38,616,140 shares in 1990) Reserve for ESOP debt retirement Accumulated currency adjustment Reinvested earnings . Total Shareowners' Equity Total Liabilities and Shareowners' Equity Tki above statement should be nod in conjunction with pages 44 through 49 ofthis report $ 579 256 166 837 337 2,175 1,877 512 1,009 $ 584 237 95 692 582 2,190 1,652 640 665 329 726 (1,797) (250) 187 4,459 3,654 $ 9,227 329 714 (1,563) 188 4,421 4,089 $ 9,236 38 MONSANTO COMPANY AND SUBSIDIARIES DSW 021971 STLCOPCB4007280 REVIEW OF CHANGES IN FINANCIAL POSITION FINANCIAL POSITION REMAINED STRONG Monsanto's financial position remained strong in 1991, as evidenced by Monsanto's current "A" or better debt rating. Financial resources were adequate to support existing busi nesses and to fund new business opportunities. Working capital was higher at year-end 1991 due prin cipally to the recession resulting in higher trade receivables and inventories. In addition, the strong cash flow resulted in reduced short-term debt Accrued liabilities increased in 1991 due to the restructuring program. Intangible assets continued to decline in 1991, due principally to amortization of the NutraSweet aspartame patent, which had a recorded value of $173 million at yearend 1991. Net property, plant and equipment decreased in 1991, as $591 million of capital additions were less than depreciation and the write-down of property divested or to be divested under the restructuring program. As mentioned in the Notes to Financial Statements on pages 46 and 46, Monsanto has not yet adopted Statement of Financial Accounting Standards (SFAS) No. 109, die new income tax accounting standard, or SFAS No. 106, the accounting standard for postretirement benefits other than pensions. Long-term debt at year-end 1991 was $225 million higher than that of the prior year-end, mainly because of the guarantee of the employee stock ownership plan (ESOP) debt discussed below. Monsanto uses financial markets worldwide for its financing needs and has available various short- and medium-term bank credit facilities, which are discussed in the Notes to Financial Statements (pages 46 and 47). These credit facilities provide the financing flexibility to take advantage of investment opportunities that may arise and to satisfy future funding requirements. To maintain adequate financial flexibility and access to debt markets worldwide, Monsanto management intends to maintain an "A" debt rating. Important factors in establishing that rating are the ratio of total debt to total capitalization, which was 38 percent and the interest coverage ratio, which was 3.2 in 1991. In October 1991, Monsanto's Board of Directors ap proved the establishment of an ESOP. In January 1992, the ESOP purchased from Monsanto $250 million of common stock that will be used to match employee contributions under the Company's existing savings and investment plan. A more detailed description of the ESOP is provided in the Notes to Financial Statements on pages 47 and 48. Monsanto's commitments and contingencies are described in the Notes to Financial Statements on page 49. Monsanto continually evaluates risk retention and insurance levels for product liability, property damage and other potential areas of risk Monsanto devotes significant effort to maintaining and improving safety and internal con trol programs, which reduce its exposure to certain risks. Based on the cost and availability of insurance and the like lihood of a loss, management decides the amount of insur ance coverage to purchase from unaffiliated companies and the appropriate amount of risk to retain. Since 1985, Monsanto's liability insurance has been on the "claims made" policy form. Management believes that the current levels of risk retention are appropriate and are consistent with those of other companies in the various industries in which Monsanto operates. Monsanto's liquidity, financial position and profitability are not expected to be affected materially by the current levels of risk retention. Monsanto's return on shareowners' equity (ROE) was 7.6 percent in 1991. Excluding the $325 million aftertax re structuring expense, ROE would have been over 15 percent Monsanto's principal financial target is a sustained ROE of 20 percent or greater. The ROE and other key financial statistics are presented in the table below. KEY FINANCIAL STATISTICS Return on Shareowner*' Equity (ROE) (Net income divided fay average shareowners' equity) Working Capital (Current met* lea current liabilities) Current Ratio (Current assets divided by current Kibffitiea) Trade Receivable* -- Day* Sales Outstanding (Fourth quarter tnde receivable* divided by fourth quarter net sales tinea 30 days) Inventory Turnover Ratio (Cost of good* old divided by inventory) Interest Coverage (Income before interest expense and income taxes divided by total interest cost) Cash Provided by Operafiona/Total Debt Total Debt/Total Capitalization01 01 Total capitalisation is As sum ofsdort-Urm debt, long-Urm dtbt and skanonmm' squity. 1991 7.6% $ 1,536 1.7 1990 1989 13.6% $1,323 1.6 17.6% $1,326 1.7 67 3.8 3.2 53% 38% 63 4.2 4.8 49% 35% 61 4.2 5.9 52% 33% 19 9 1 ANNUAL REPOST DSW 021972 39 STLCOPCB4007281 STATEMENT OF CONSOLIDATED CASH FLOW (Dollars in millions) Increase (Decrease) in Cash and Cash Equivalents Operating Activities: Net income Add income tax expense Income before income taxes Adjustments to reconcile to Cash Provided by Operations: Income tax payments Items that did not use cash: Depreciation and amortization Restructuring expense -- net Other Working capital changes that provided (used) cash: Accounts receivable Inventories Accounts payable and accrued liabilities Other Non-operating pretax gains from asset disposals Other items Cash Provided by Operations 1991 1990 1989 $ 296 146 442 (240) 751 446 41 (113) (144) (40) 5 (U) 43 1,180 $ 546 263 809 (244) 739 2 (189) (75) 142 54 (86) (48) 1,104 S 679 336 1,015 (294) 690 26 (131) (90) (48) (17) (61) (53) 1,037 Investing Activities: Property, plant and equipment purchases Acquisition and investment payments Investment and property disposal proceeds (591) (239) 385 (750) (201) 100 (607) (211) 307 Cash Used in Investing Activities Financing Activities: Net change in short-term financing Long-term debt proceeds Long-term debt reductions Treasury stock purchases Dividend payments Other financing activities Cash Used in Financing Activities (445) (245) 317 (291) (296) (258) 23 (750) (851) 77 523 (351) (326) (242) 17 (302) (511) (50) 261 (196) (335) (221) 47 (494) Increase (Decrease) in Cash and Cash Equivalents Cash and Cash Equivalents: Beginning of year (15) (49) 32 204 253 221 End of year $ 189 S 204 $ 253 The about statement should be read m con/unction with pages 44 through 49 ofthis report The effeci ofesckange rate changes on cask and cask equnatents was not material Cask paymentsfor intend (net ofamounts capitalised) were tl71 million, $166 million and S171 million, for the yean 1991-1989, respectively. During 1991, Monsanto established an employes stock ownership plan (ESOP). In compunction with the ESOP, Monsanto guaranteed $200 million ofESOP notes and debentures. 40 MONSANTO COMPANY AND SUBSIDIARIES DSW 021973 STLCOPCB4007282 REVIEW OF CASH FLOW Monsanto's cash flow for the three-year period of 1991-1989 is shown in the Statement of Consolidated Cash Flow on the preceding page. CASH FLOW REMAINED STRONG Cash flow remained strong in 1991, with cash provided by operations at $1,180 million. Cash from operations was generated principally by Chemicals, Agricultural Products and NutraSweet Monsanto's operations have historically generated sufficient cash to fund existing businesses, growth-related research and investments. Management expects cash provided by operations, supplemented by peri odic borrowings, to be adequate to fund future requirements. CASH PROVIDED BY OPERATIONS fltaton in millions) 1991 1990 1989 0 250 500 i 750 : 1.0001.250 Investment and property disposals in 1991 generated $385 million of cash. The principal proceeds in 1991 were related to the sale of various businesses associated with the restructuring, including the animal feed ingredients and Permea gas separations businesses; in 1990, to the sale of certain assets of a joint venture in Japan; and in 1989, to the divestiture of the Electronic Materials and the analgesics businesses. Major uses of cash for the period 1991-1989 included capital expenditures, treasury stock purchases and dividends. The investment in a Japanese pharmaceuticals firm in 1991 and the acquisition of a German pharmaceuticals company in 1989 were also major uses of cash. Monsanto's 1991 capi tal expenditures focused on improved technology, capacity expansions and environmental projects, and totaled $591 million. Long-term debt proceeds in 1991 included $100 million in 30-year fixed-rate debentures and $194 million from the issuance of medium-term notes. These proceeds were used principally to refinance other borrowings. In 1990, long-term debt proceeds included $193 million of commercial paper to be refinanced on a long-term basis; $132 million of 30-year variable-rate industrial development bonds; and $156 million of medium-term notes. MONSANTO MAINTAINS STRONG ENVIRONMENTAL COMMITMENT Monsanto is subject to various laws and governmental regulations concerning environmental matters, product safety and employee health. It is anticipated that increasingly stringent requirements will be imposed upon Monsanto and industry in general. Monsanto is dedicated to a long-term environmental protection program that reduces emissions of hazardous materials into the environment, as well as to the remediation of identified existing environmental concerns. In 1988, management committed to a 90 percent reduction in toxic air emissions by the end of 1992, a goal that will require the development and installation of new technology and additional capital expenditures. Reduction of 58 percent was accomplished through 1990. Compilation of data for 1991 is not complete; however, further reduction has been achieved. The cost to accomplish this target is not expected to mate rially affect operating results. Some of these projects will lower operating costs and improve operating efficiency. Expenditures in 1991 were approximately $70 million for environmental capital projects and approximately $260 million for operation and maintenance of environmental protection facilities. Monsanto estimates that during 1992 and 1993 approximately $85-150 million per year will be spent on additional capital projects for environmental protection. Monsanto periodically receives notices from the Environmental Protection Agency (EPA) that it is a poten tially responsible party (PRP) under Superfund. Currently, Monsanto has been designated by the EPA as a PRP at 80 Superfund sites. Monsanto's future remediation expenses at these and other sites will be affected by a number of uncertainties, including the method and extent of remedia tion, the percentage of material attributable to Monsanto at the sites relative to that attributable to other parties, and the financial capabilities of the other PRPs at most sites. Monsanto spent $35 million in 1991 for remediation of waste disposal sites. Most of these expenditures relate to the Chemicals unit, and similar or greater amounts can be expected in future years. Monsanto's policy is to accrue these costs in the accounting period in which the responsibil ity is established and the cost is estimable. At December 31, 1991, Monsanto's Statement of Consolidated Financial Position included an accrued liability of $245 million for the 1991 ANNUAL REPORT DSW 021974 41 STLCOPCB4007283 REVIEW OF CASH FLOW (continued) remediation of identified waste disposal sites. Because of the uncertainties associated with remediation activities, Monsanto's future expenses to remediate these sites could be as much as an additional $300 million. These potential future expenses would be expected to be incurred over the balance of the decade. While the costs and results of reme diation of waste disposal sites cannot be predicted with certainty, management believes that, with future develop ments in remediation technology and evolving government policies toward evaluation of risks and benefits, Monsanto's liquidity and profitability in any one year will not be materi ally affected. COMMON STOCK PURCHASE PROGRAM CONTINUES In 1991, Monsanto purchased 4.4 million shares at a cost of $2% million. Since June 1987, Monsanto has pur chased 37.1 million shares at a cost of $1,753 million. Man agement believes the stock purchase program represents a sound economic investment for Monsanto's shareowners. Stock purchases favorably affect earnings per share and aid in the achievement of management's 20 percent return on equity target DIVIDENDS INCREASE FOR THE 19TH CONSECUTIVE YEAR Monsanto has paid dividends on its common shares without interruption or reduction since 1928, and has in creased the dividend per share in each of the past 19 years. Dividend payout for 1991 was 22 percent of cash provided by operations and 87 percent of net income. Monsanto's div idend policy reflects a desired long-term payout percentage based on Monsanto's expectations of future growth and profitability levels. In any individual year, additional consid eration is given to expected financial position and results, working and fixed capital needs, scheduled debt repay ments and economic conditions, including inflation. Monsanto's common stock is traded principally on the New York Stock Exchange and is listed on the exchanges in Tokyo and seven European cities. The number of share owners of record as of February 28,1992, was 59,687, and the high and low common stock prices on that date were $67 3A and $66`/a. 42 MONSANTO COMPANY AND SUBSIDIARIES DSN 021975 STLCOPCB4007284 STATEMENT OF CONSOLIDATED SHAREOWNERS' EQUITY (Dollars in millions, except per share) Common Stock: Balance, January 1 Par value of stock issued in two-for-one stock split Balance, December 31 Additional Contributed Capital: Balance, January 1 Employee stock plans Par value of stock issued in two-for-one stock split Balance, December 31 Treasury Stock: Balance, January 1 Shares purchased (4,395,900; 6,707,900 and 6,548,800 shares in 1991-1989, respectively) Shares issued under employee stock plans (1,545,333; 193,072 and 1,177,322 shares in 1991-1989, respectively) Balance, December 31 Reserve for ESOP Debt Retirement: ESOP formation Balance, December 31 Accumulated Currency Adjustment: Balance, January 1 Translation adjustments Income taxes Balance, December 31 Reinvested Earnings: Balance, January 1 Net income Dividends Common stock purchase rights redemption Balance, December 31 The above statement should be read in conjunction with fates 44 through 49 ofthis report 1991 $ 329 S 329 $ 714 12 8 726 8(1,563) (296) 62 8(1,797) 8 (250) 8 (250) 8 188 (3) 2 $ 187 8 4,421 296 (258) 8 4,459 1990 $ 164 165 $ 329 $ 877 2 (165) S 714 $(1,244) (326) 7 $(1,563) $ 24 171 (7) $ 188 $ 4,120 546 (242) (3) $ 4,421 1989 $ 164 | i | $ 164 $ 874 3 $ 877 $ (952) (335) 43 $(1,244) $ 52 (17) (11) $ 24 $3,662 679 (221) $ 4,120 KEY FINANCIAL STATISTICS Stock Price111 High Low Year-end Per Share Dividends Shareowners' Equity Average Daily Share Trading Volume (thousands of shares) w Based on daily reported high and low stock prices. 1991 ANNUAL REPORT 1991 $ 76 46 67% 2.045 29.72 359 1990 $ 60 `/a 38% 48% 1.88 32.51 425 1989 $ 62 Vs 40% 57% 1.65 29.79 426 DSW 021976 STLCOPCB4007285 NOTES TO FINANCIAL STATEMENTS | SIGNIFICANT ACCOUNTING POLICIES PRINCIPAL ACQUISITIONS AND i Monsanto's significant accounting policies are itali- DIVESTITURES | cized in the following Notes to Financial Statements. In September 1991, Monsanto purchased 12.25 percent of the shares of Hokuriku Seiyaku Co., a Japanese pharma ! BASIS OF CONSOLIDATION ceuticals firm. The investment is included in "Other Assets" The consolidated financial statements include the and is recorded at cost Company and its majority-owned subsidiaries. Intercompany In June 1990, certain assets of a Monsanto joint venture transactions have been eliminated in consolidation. Other in Japan were sold. Monsanto recognized a pretax gain of companies in which Monsanto has a significant ownership $45 million, $31 million aftertax gain and $0.24 per share, on interest (generally greater than 20 percent) are included in the sale of these assets. `Investments in Affiliates" in the Statement of Consolidated Dining 1989, Searie acquired Heumann Pharma GmbH Financial Position, and Monsanto's share ofthese companies' & Co., a German pharmaceuticals firm. The acquisition income or loss is included in `Other income (expense) -- net" was accounted for using the purchase method. In addition, in the Statement of Consolidated Income. Monsanto sold its analgesics business for a pretax gain of $56 million, $36 million aftertax gain and $0.27 per share. CURRENCY TRANSLATION Also in 1989, Monsanto sold its Electronic Materials business. Most ofMonsanto's ex-U.S. entities'financial statements are translated into U.S. dollars using current exchange rates. RESTRUCTURING Unrealized currency adjustments in the Statement of In 1990, the Board of Directors approved a restructur Consolidated Financial Position are accumulated in share- ing of the Agricultural Products operating unit The restruc owners'equity. The financial statements ofex-U.S. entities turing actions included the reorganization of the operating that operate in hyperinflationary economies, principally unit along product lines and the decision to sell the animal Brazil, are translated at either current or historical exchange feed ingredients business. In line with these actions, reduc rates, as appropriate. These currency adjustments are included tions in employment occurred through an early retirement in net income. incentive and other programs. Restructuring costs of Major currencies are the U.S. dollar, British pound $108 million were deferred in 1990 and expensed in 1991 sterling and Belgian franc. Other important currencies when the animal feed ingredients business was sold at a include the Brazilian cruzeiro, Canadian dollar, French gain, which exceeded the deferred restructuring costs. franc, German mark, Italian lira and Japanese yen. Currency In June 1991, the Board of Directors approved addi restrictions are not expected to have a significant effect tional restructuring steps to strengthen the Chemicals unit on Monsanto's cash flow, liquidity or capital resources. for the future, as well as the Agricultural Products and Fisher Currency option contracts are utilized to manage Controls units and Corporate staff. The additional steps, prin currency exposure for anticipated transactions (e.g., export cipally in the Chemicals unit, included the shutdown and sales for the following year). Currency option and forward consolidation ofvarious facilities and the sale of certain busi contracts are utilized to manage other currency exposures. nesses that did not meet Monsanto's long-term strategic At December 31,1991 and 1990, Monsanto had currency direction. In September 1991, Fisher Controls completed the forward and option contracts to purchase $240 million sale of its Permea gas separation systems business. and $136 million, respectively, and sell $714 million and The components of "Restructuring expense -- net" $372 million, respectively, of other currencies, principally (including the write-off of 1990 deferred restructuring costs the British pound sterling, Japanese yen and German marie for the Agricultural Products unit) in the Statement of Gains and losses on contracts that are designated and effective Consolidated Income were: as hedges are deferred and recognized in the period ofthe exposure being hedged. Gains and losses on other currency forward and option contracts are included in net income immediately. Monsanto is subject to loss in the event of non-performance by the counterparties to these contracts. Shutdown and consolidation of various facilities Cost of employee reductions Other costs Gains on sale of various businesses Total $ 425 219 64 (262) S 446 44 MONSANTO COMPANY AND SUBSIDIARIES DSW 021977 STLCOPCB4007286 Net income in 1991 was reduced by $325 million, or $2.54 per share, from the effect of this restructuring. Product sales of businesses targeted for divestiture in this restruc turing were excluded from Monsanto's net sales after June 30, 1991. Product sales of these businesses in 1991-1989 included in Monsanto's net sales were $277 million, $415 million and $400 million, respectively. DEPRECIATION AND AMORTIZATION 1991 1990 Depreciation Amortization of intangible assets Obsolescence $484 239 28 $465 235 39 Total $751 $739 1989 $438 226 26 $690 INVENTORY VALUATION Inventories are stated at cost or market, whichever is less. Actual cost is used to value raw materials and supplies; standard cost, which approximates actual cost, is used to value | j ! finished goods and goods in process. Standard cost includes direct labor, raw material and manufacturing overhead based on practical capacity. The cost ofcertain inventories (56 percent at December 31,1991) is determined using the last-in, firstout (UFO) method, generally reflecting the effects ofinflation or deflation on cost ofgoods sold sooner than other inventory cost methods. The cost ofother inventories generally is deter mined using the first-in, first-out (FIFO) method. The components of inventories were: 1991 1990 Property, plant and equipment is recorded at cost. The cost ofplant and equipment is depreciated over weighted average periods of22 years for buildings and 11 years for machinery and equipment, using the straight-line method. Intangible assets are recorded at cost less accumulated amortization. The components of intangible assets and their estimated remaining useful lives were: Finished goods . Goods in process Raw materials and supplies Inventories, at FIFO cost Excess of FIFO over LIFO cost Total $ 868 383 445 $ 781 349 555 1,696 (347) 1,685 (415) $ 1,349 $1,270 Estimated Remaining Life* 1991 1990 Goodwill Patents Other intangible assets 31 $ 733 $ 679 3 279 482 17 278 264 Total $ 12290 $1,425 ' Weighted average, in years, at December 31,1991. Goodwill is the cost ofacquired businesses in excess of the fair value oftheir identifiable net assets and is amortized over the estimated periods ofbenefit (5 to 40 years). Patents obtained in a business acquisition are recorded at the present value of estimated future cash flows resultingfrom patent ownership. The cost ofpatents is amortized over their legal lives. The cost ofother intangible assets (principally product rights and trademarks) is amortized over their estimated useful lives. Inventories at FIFO cost approximate current cost INCOME TAXES The components of income before income taxes were: 1991 1990 1989 United States Outside United States $ 312 130 $ 513 $ 570 296 445 Total $ 442 $ 809 $ 1,015 The components of income tax expense (benefit) were: 1991 1990 1989 Current U. S. federal U. S. state Outside United States $ 243 26 70 339 $ 123 18 96 237 $ 138 18 142 298 Deferred: U. S. federal U. S. state Outside United States (154) (21) (18) (193) 24 1 1 26 26 3 9 38 Total $ 146 $ 263 $ 336 1991 ANNUAL REPORT DSW 021978 45 STLCOPCB4007287 NOTES TO FINANCIAL STATEMENTS (continued) Deferred taxes result from timing differences in the recognition of revenue and expense for tax and financial statement purposes. The source of these timing differences and the tax effect of each were: 1991 1990 1989 Depreciation and obsolescence Restructuring Pensions State income taxes Other $ (12) (146) 4 (21) (18) $10 19 7 1 (11) $25 16 10 3 (16) Total $(193) $26 $38 Factors causing Monsanto's effective tax rate to differ from the U.S. federal statutory rate were: 1991 1990 1989 U. S. federal statutory rate Benefits attributable to: U. S. export earnings Puerto Rico operations Sale of investments Higher tax rates outside the United States Nondeductible goodwill Other 34% 34% 34% (6) (2) (2) (2) (2) (2) (2) -- -- 4---- 21 1 322 Effective Income Tax Kate 33% 33% 33% Income and remittance taxes have not been recorded on $684 million ofundistributed earnings ofsubsidiaries, either because any taxes on dividends would be offset substantially by foreign tax credits or because Monsanto intends to indefinitely reinvest those earnings. Monsanto has not yet adopted Statement of Financial Accounting Standards No. 109, "Accounting for Income Taxes." This statement, which will have no effect on cash flow, changes the method of calculating deferred income taxes and must be adopted in or before 1993. Monsanto expects that adoption of this new income tax accounting standard will result in a reduction in its deferred income taxes. SHORT-TERM DEBT AND CREDIT ARRANGEMENTS Short-term debt was: 1991 Weighted average interest rates of notes payable at December 31: Banks'" 14.2% 14.9% Commercial paper 4.9% 8.5% (1> Includes the effect ofnotes i* attain countries where local inflation results in high interest rates. Monsanto has aggregate short-term loan facilities of $472 million, under which loans totaling $75 million were outstanding at December 31,1991. Interest on these loans is related to various bank rates. Monsanto's world wide unused short-term loan facilities were $397 million at December 31,1991. . LONG-TERM DEBT Long-term debt (exclusive of current maturities) was: 1991 1990 Industrial development bond obliga tions, rates in 1991 ranging from 4.85% to 11.9%, due 1993 to 2021 $ Medium-term notes, rates in 1991 ranging from 7.9% to 9.45%, due 1993 to 2005 Commercial paper to be refinanced on a long-tom basis, rate in 1991 of 4.9% 9 %% notes due 1996 8 X% sinking fund debentures due 2000 7.09% and 8.13% amortizing ESOP notes and debentures due 2000 to 2006, guaranteed by the Company 8 \% sinking fund debentures due 2008 8 51% debentures due 2009 11 %% sinking fund debentures due 2015 8.7% debentures due 2021 Other 371 364 43 150 104 200 141 99 145 100 160 $ 363 196 193 150 106 145 99 200 200 Total $ 1,877 $ 1,652 Maturities and sinking fund requirements on long term debt are $71 million, $99 million, $72 million, $109 million and $251 million for 1992-1996, respectively. 1991 1990 Notes payable: Banks Commercial paper Bank overdrafts Current portion of long-term debt $ 75 66 125 71 $ 58 272 134 118 Total $ 337 $582 48 MONSANTO COMPANY AND SUBSIDIARIES OSW 021979 STLCOPCB4007288 Interest rate swap options (interest options) are uti lized to manage interest expense. At December 31,1991 and 1990, Monsanto had sold interest options with an aggregate notional principal amount of $351 million and $207 million, respectively, related to existing debt Three interest options, sold in 1991, would effectively refinance, at 81/2 percent, $150 million of 93/s percent notes in the period 1993 through 1996. Another interest option would effectively convert $99 million of 87/s percent debentures to commercial paper rates in the period 1994 through 2000. Additional interest options would effectively convert $102 mil lion of variable rate debt to fixed rates ranging from 87/s percent to 9 Vs percent in the period 1992 to 2000. Premiums from the sale ofinterest options are amortized over the related debt period. Interest differentials to be paid or received are accrued as interest rates change over the related debt period. A $750 million intermediate-term credit facility expires in 1996. There were no borrowings under this facility at December 31,1991. The credit facility is used to support the issuance of commercial paper ($109 million outstanding at December 31,1991). Interest on amounts borrowed under this agreement would likely be at money market rates. Covenants under this credit facility restrict maximum bor rowings. It is not anticipated that future borrowings will be limited by these restrictions. Assumptions used for the principal plans in 1991-1989 were: Discount rate Assumed long-term rate of return on plan assets Annual rates of salary increase (for plans that base benefits on final compensation level) 8 V2% 8l/2% 6 Vz% The funded status of Monsanto's pension plans at year-end was: 1991 1990 Plan Assets at Fair Value $3,967 $3,460 Actuarial present value of plan benefits: Vested $2,857 Non-vested 123 $ 2,628 135 Accumulated benefit obligation Effect of projected future salary increases 2,980 2,763 415 407 Projected Benefit Obligation $3,395 $ 3,170 Excess of plan assets over projected benefit obligation Less: Unrecognized initial net gain Unrecognized prior service costs Unrecognized subsequent net gain $ 572 $ 290 287 (204) 654 320 (190) 286 PENSION BENEFITS Most Monsanto employees are covered by noncon tributory pension plans. The components of pension cost (income) were: 1991 1990 1989 Accrued Net Pension Liability $ 165 $ 126 The accrued net pension liability was included in: Other assets Other liabilities $ 75 $ 74 240 200 Accrued Net Pension Liability $ 165 $ 126 Service cost for benefits earned during the year 8 70 Interest cost on projected benefit obligation 274 Assumed return on plan assets* (284) Amortization of unrecognized net gain (34) $ 67 242 (273) (47) $ 63 227 (251) (40) Total $ 26 $ (ID $ (1) Actual return (lm) on plan assets was $730 million, $(85) million and $658 million in 1991-1989, respectively. Pension benefits are determined based on the employee's years of service and/or compensation level. Pension plans are funded in accordance with Monsanto's long-range projections of the plans' financial conditions, considering benefits earned and expected to be earned in the future, anticipated future returns on pension plan assets and income tax and other regulations. Projected benefit obligations and plan assets included in the above table for the principal U.S. plans were approxi mately $3,010 million and $3,565 million, respectively, at December 31,1991. Plan assets consist principally of com mon stocks and U.S. government and corporate obligations. Because the Company's pension plans are well-funded, contributions to the Company's principal plans were neither required nor made in 1991-1989. EMPLOYEE SAVINGS PLANS For some employee savings plans, employee contribu tions are matched in part by Monsanto. Matching contribu tions charged to expense for such plans were $34 million, $34 million and $32 million in 1991-1989, respectively. In October 1991, Monsanto established an employee stock ownership plan (ESOP). The ESOP issued $200 million of 7.09 percent amortizing notes and 8.13 percent amortizing 1991 ANNUAL REPORT DSW 021980 STLCOPCB4007289 NOTES TO FINANCIAL STATEMENTS (continued) debentures guaranteed by Monsanto, and the ESOP bor the obligation will be recognized as expense in the year of rowed $50 million from Monsanto. The unpaid balance of ESOP borrowings are included in "Reserve for ESOP debt retirement" in Shareowners' Equity and the unpaid balance adoption. Once adopted, Monsanto's annual expense for these other postretirement benefits is estimated to be two to three times the expense currently being recognized. of notes and debentures guaranteed by Monsanto are in cluded in "Long-term Debt" in the Statement of Consolidated Financial Position. In January 1992, the ESOP used the pro ceeds of the loans to purchase 3.7 million shares of common stock from Monsanto, a portion of which will be allocated each year to employee savings accounts as matching contri butions. The proceeds from the issuance of common stock to the ESOP are being used primarily for the purchase of an equivalent number of common shares under a treasury stock purchase program. Dividends on the common stock owned by the ESOP will be used to repay the ESOP borrowings. STOCK OPTION PLANS Key officers and employees have been granted Monsanto stock options under the Company's 1974.1984 and 1988 Management Incentive Plans, the Searie Monsanto Stock Option Plan (Searie Plan) and the NutraSweet/ Monsanto Stock Plan (NutraSweet Plan). Information about the status of such stock options is presented below. Shares Exercisable Outstanding Price per Share December 31,1989 2,631,468 6,404.798 $13.08- S61.44 OTHER POSTRETIREMENT BENEFITS Monsanto provides certain health care and life insur ance benefits for retired employees. Substantially all of Monsanto's regular, full-time U.S. employees and certain employees in other countries may become eligible for these benefits if they reach retirement age while employed by Monsanto. At December 31,1991, approximately 26,000 active employees were eligible upon retirement to participate in these programs. In addition, approximately 18,000 individuals 1990: Granted Exercised Expired 1,087,417 (335,076) (105,610) 41.13- 54.94 13.08- 47.09 13.08- 54.94 December 31,1990 3360357 7,051,529 15.69- 61.44 1991: Granted Exercised Expired 3,628,172 (1,612380) (189379) 50.56- 74.25 15.69- 58,00 43.53- 62,13 retired from active service were eligible to participate in these programs. This* otktr postretirtment benefits art not funded and art expensed as benefits art paid. The 1991-1989 December 31,1991 4,129,193 8377,442 19.33- 74.25 Under the 1988 Management Incentive Plans, the expense recorded for other postretirement benefits was $54 million, $45 million and $39 million, respectively. The Financial Accounting Standards Board has issued Searie Plan and the NutraSweet Plan, 8,231,678 shares remain available for grant Prior to 1991, stock appreciation rights (SARs) were Statement of Financial Accounting Standards No. 106, granted to certain Monsanto officers in tandem with stock "Employers' Accounting for Postretirement Benefits Other Than Pensions." This statement, which will have no effect on cash flow and must be adopted in or before 1993, options under the plans, including retroactive grants for unexerrised options. In 1991, the SAR grants were canceled and unexerrised SARs held by current officers were forfeited. changes the method of accounting for other postretirement benefits by requiring that the cost be accrued by the date employees become eligible for the benefits. In accordance with the statement, die estimated obligation for other post EARNINGS PER SHARE Earnings per share were computed using the weighted average number of common shares and common share retirement benefits may be recognized as expense in the year of adoption or may be accrued on a straight-line basis over a 20-year period. Monsanto is considering modifica tions to some of its medical benefits programs for future retirees. Monsanto currently expects to implement the new statement in 1993 and expects the obligation to approximate equivalents outstanding each year (127,126,216; 129,107,666 and 135,496,104 in 1991-1989, respectively). Common share equivalents (1,437,179; 676,393 and 1,073,554 in 1991-1989, respectively) consist primarily of common stock issuable upon exercise of outstanding stock options. Earnings per share assuming full dilution were not significantly different S1.0 -1.2 billion at the time of adoption. It is anticipated that from the primary amounts. 48 DSM 021981 STLCOPCB4007290 CAPITAL STOCK At December 31,1991, there were 17,109,120 common shares reserved for employee stock options. In January 1990, the Company's Board of Directors declared a dividend of one Preferred Stock Purchase Right on each outstanding share of the Company's common stock. If a person or group acquires beneficial ownership of The more significant concentrations in Monsanto's trade receivables at year-end were: 1991 1990 U. S. agricultural product distributors 8 141 European agricultural product distributors 176 Pharmaceutical distributors worldwide 332 $ 150 90 283 20 percent or more, or announces a tender offer that would result in beneficial ownership of 20 percent or more, of the Company's outstanding common stock, the rights become exercisable and each right will entitle its holder to purchase one one-hundredth of a share of a new series of preferred stock for $450. If Monsanto is acquired in a business combination transaction while the rights are outstanding, each right will entitle its holder to purchase, for $450, common shares of the acquiring company having a market value of $900. In addition, if a person or group acquires beneficial ownership of 20 percent or more of the Company's outstanding common stock, each right will entitle its holder (other than such person or members of such group) to purchase, for $450, a number of shares of the Company's Management does not anticipate incurring losses on its trade receivables in excess of established allowances. Monsanto is a party to a number of lawsuits and claims, which it is vigorously defending. Such matters arise out of the normal course of business and relate to product liability, government regulation, including environmental issues, and other issues. Certain of these actions seek damages in very large amounts. While the results of liti gation cannot be predicted with certainty, management believes, based upon the advice of Company counsel, that the final outcome of such litigation will not have a material adverse effect on Monsanto's consolidated financial position. SUPPLEMENTAL DATA common stock having a market value of $900. Furthermore, Supplemental income statement data were: at any time after a person or group acquires beneficial own ership of 20 percent or more (but less than 50 percent) of the Company's outstanding common stock, the Board of Directors may, at its option, exchange part or all of the rights (other than rights held by the acquiring person or group) for shares of the Company's common stock on a onefor-one basis. At any time prior to the acquisition of such a 1991 1990 1989 Raw material and energy costs $2,571 $ 2,741 $2,659 Employee compensation and benefits 2,316 2,184 2,045 Current income and other taxes 640 533 562 Rent expense ' 143 145 119 20 percent position, the Company can redeem each right for 1 cent The Board of Directors is also authorized to reduce the 20 percent thresholds referred to above to not less than 10 percent The rights expire in the year 2000. In connection with this dividend declaration, the Board of Directors also authorized the redemption in February 1990 of the then existing Common Stock Purchase Rights at their redemption price of 5 cents per right Technological expenses: Research and development Engineering, commercial development and patent Total Technological Expenses Interest expense: Total interest cost Less capitalized interest 627 612 598 84 80 74 711 692 672 193 (24) 208 (29) 204 (22) COMMITMENTS AND CONTINGENCIES Commitments, principally in connection with uncom pleted additions to property, were approximately $151 million at December 31,1991. Excluding the ESOP notes and debentures, Monsanto was contingently liable as guarantor Net Interest Expense Currency gains (losses) including equity in affiliates' currency gains and losses 169 179 182 (10) (45) (31) of bank loans and for discounted customers' receivables totaling approximately $229 million and $209 million at December 31,1991 and 1990, respectively. Future mini mum payments under non-cancellable operating leases and unconditional inventory purchases are $170 million; $148 million; $70 million; $46 million and $37 million for SEGMENT INFORMATION Certain operating unit segment data and geographic data for 1991-1989 appear on pages 28 and 36 and are inte gral parts of the accompanying financial statements. The principal product lines included in each operating unit are 1992-1996, respectively, and $197 million thereafter. shown in the operating unit segment data. 1991 ANNUAL REPORT DSW 021982 STLCOPCB4007291 FINANCIAL SUMMARY (Dollars in miliums, except per share) Operating Results Net Sales Operating Income As a Percent of Net Sales Net Income As a Percent of Net Sales Return on Shareowners' Equity Earnings per Share Year-End Financial Position Total Assets Working Capital 1991(1) 1990 1989 1988 1987 $ 8,864 570 6% 296 3% 7.6% $ 2.33 $ 8,995 909 10% 546 6% 13.6% S 4.23 $ 8,681 1,078 12% 679 8% 17.6% $ 5.01 $ 8,293 955 12% 591 7% 15.4% S 4.14 $ 7,639 734 10% 436 6% 11.4% S 2.82 $ 9,227 1,536 $ 9,236 1,323 $ 8,604 1,326 $ 8,461 1,117 $ 8,455 1.203 Property, Plant and Equipment Gross Net Long-term Debt Shareowners' Equity Current Ratio Percent of Total Debt to Total Capitalization $ 7,902 3,362 $ 1,877 3,654 1.7 38% $ 7,620 3,492 $ 1,652 4,089 1.6 35% $ 6,937 3,173 $ 1,471 3,941 1.7 33% S 6,926 3,146 $ 1,408 3,800 1.6 34% S 6,730 3,076 $ 1,564 3,901 1.7 35% Other Data Property, Plant and Equipment Purchases Depreciation and Amortization Interest Expense Research and Development Expenses Income Taxes Cash Provided by Operations $ 591 751 169 627 146 1,180 $ 750 739 179 612 263 1,104 $ 607 690 182 598 336 1,037 $ 590 703 174 575 302 1,304 S 505 679 172 557 237 902 Stock Price: High Low Year-end Price/Eamings Ratio on Year-end Stock Price 8 76 $ 60 Vs $ 62 Vs S 461/< $ 50 Vs 46 38 74 40 V 367* 28 7z 67 7b 48`/ 57 3A 40 7/t 41 Va 29 11 12 10 15 Per Share: Dividends Shareowners' Equity Shareowners (year-end) Shares Outstanding (year-end, in millions) Employees (year-end) 8 2.045 29.72 60,152 123 39,281 $ 1.88 32.51 62,230 126 41,081 $ 1.65 29.79 61,942 132 42,179 $ 1.475 27.60 66,066 138 45,635 S 1.375 26.32 68,032 148 49,734 (1) Net incomefor 1991 indudes net restructuring expense ofS32S million, S2.S4 per share. Net incomefar 1990 includes SS6 million, t0.43 par than, in gains resultingfrom divestitures, including the divestiture ofcertain assets ofa joint venture in Japan. Net incomefor 1989 includes a t36 million, S0.27 per share, gain on the salt ofthe analgesics business. w Net income for 1987 includes net restructuring income oftl8 million, SO. 12 per share. 50 MONSANTO COMPANY AND SUBSIDIARIES DSW 021983 STLCOPCB4007292 EXECUTIVE AND OTHER OFFICERS MONSANTO ADVISORY DIRECTORS Chairman and Chief Executive Officer Richard J. Mahoney* President and Chief Operating Officer Earle H. Harbison, Jr.* Executive Vice Presidents Robert G. Potter* Nicholas L Reding* Robert B. Shapiro* Senior Vice President and Chief Financial Officer Francis A. Stroble* Senior Vice President, Secretary and General Counsel Richard W. Duesenberg* Vice Presidents Barry Blitstein Earl N. Brasfield Robert A. Clausen Leonard A. Cohn Grant W. Denison, Jr. A. Nicholas Filippello, Ph.D. Martin J. Kallen Thomas H. Lafferre Michael E. Miller* Philip Needleman, Ph.D.* Richard A. Overton Michael A Pierie David L Sliney Virginia V. Weldon, M.D.* Vice President and Controller Bruce R. Sents Vice President and Treasurer Juanita H. Hinshaw Chairman and Chief Executive Officer, The NutraSweet Company Robert E. Flynn* Chairman and Chief Executive Officer, G.D. Searie & Co. Sheldon G. Gilgore, M.D.* Chairman and Chief Executive Officer, Fisher Controls International, Inc. Larry W.SoQey* Michael E. Miller St. Louis Vice President, Administration, Monsanto Company Age: 50 Advisory Director: 1 year Philip Needleman, Ph.D. St. Louis Vice President, Research and Development, Monsanto Company Age: 53 Advisory Director: 1 year Robert G. Potter St. Louis Executive Vice President Monsanto Company, President Monsanto Chemical Company Age: 52 Advisory Director: 6 yean Nicholas L. Reding St. Louis Executive Vice President Environment Safety, Health and Manufacturing, Monsanto Company Age: 57 Advisory Director: 10 yean Robert B. Shapiro St. Louis Executive Vice President Monsanto Company; President Monsanto Agricultural Company Age: 53 Advisory Director: 1 year Francis A Stroble St. Louis Senior Vice President and Chief Financial Officer, Monsanto Company Age: 61 Advisory Director: 10 yean Virginia V. Weldon, M.D. St Louis Vice President Public Policy, Monsanto Company Age: 56 Advisory Director: 1 year *Executive officers as defined by the Securities and Exchange Commission. 1991 ANNUAL REPORT DSW 021984 51 STLCOPCB4007293 BOARD OF DIRECTORS Richard J. Mahoney St. Louis Chairman and Chief Executive Officer, Monsanto Company I Age: 58 Monsanto Director: 13 years Joan T. Bok Westborough, Massachusetts Chairman, New England Electric System Age: 62 Monsanto Director: 5 years Earle H. Harhison, Jr. St Louis President and Chief Operating Officer, Monsanto Company Age: 63 Monsanto Director: 6 years Robert M. Heysael, M.D. Baltimore President and Chief Executive Officer, The Johns Hopkins Health System and The Johns Hopkins Hospital Age: 63 Monsanto Director: 3 years Philip Leder, M.D. Boston Chairman, Department of Genetics, Harvard Medical School; Senior Investigator, Howard Hughes Medical Institute Age: 57 Monsanto Director: 2 years Howard M. Love Pittsburgh Retired Chief Executive Officer, National Intergroup, Inc Age: 61 Monsanto Director: 14 years Frank A. Metz, Jr. Armonk, New York Senior Vice President, Finance and Planning, and Chief Financial Officer, International Business Machines Corporation Age: 58 Monsanto Director: 2 years 52 Buck Mickel Greenville, South Carolina Chairman and Chief Executive Officer, R.S.I. Holdings, Inc.; Retired Vice Chairman, Fluor Corporation; Retired Chairman, Daniel International Corporation, a Fluor subsidiary Age: 66 Monsanto Director: 17years John S. Reed New York Chairman, Citicorp and Citibank, NA Age: 53 Monsanto Director: 7years William D. Ruckelshaus Houston Chairman and Chief Executive Officer, Browning-Fenis Industries, Inc.; Former Administrator, U.S. Environmental Protection Agency Age: 59 Monsanto Director: 7years John B. Slaughter, Ph.D. Los Angeles President, Occidental College; Former Director, National Science Foundation Age: 58 Monsanto Director: 9 years Admiral Stansfield Turner (U.S. Navy, Retired) McLean, Virginia Lecturer and Writer Former Olin Professor of National Security, U.S. Military Academy at West Point; Former Director,U.S. Central Intelligence and Central Intelligence Agency Age: 68 Monsanto Director: 11 years MONSANTO COMPANY AND SUBSIDIARIES DSM 021985 STLCOPCB4007294 COMMITTEES OF THE BOARD SHAREOWNER INFORMATION Audit Committee Buck Mickel, Chairman Joan T. Bok Robert M. Heyssel, M.D. William D. Ruckelshaus John B. Slaughter, Ph.D. Corporate Social Responsibility Committee Admiral Stansfield Turner, Chairman Joan T. Bok. William D. Ruckelshaus John B. Slaughter, Ph.D. Executive Committee Richard J. Mahoney, Chairman Earle H. Harbison, Jr. John B. Slaughter, Ph.D. Executive Compensation and Development Committee Howard M. Love, Chairman Frank A. Metz, Jr. Buck Mickel Finance Committee John S. Reed, Chairman Richard J. Mahoney Frank A. Metz, Jr. Nominating Committee Buck Mickel, Chairman Howard M. Love Frank A. Metz, Jr. Pension and Savings Funds Committee Admiral Stansfield Turner, Chairman Earle H. Harbison, Jr. Robert M. Heyssel, M.D. Philip Leder, M.D. Annual Meeting The next annual meeting of the shareowners of Monsanto Company will be held at 1:45 p.m., Friday, April 24,1992, in K Building at the company's world headquarters, 800 North Lindbergh Boulevard, SL Louis, Missouri. A formal notice of the meeting, together with a proxy statement, is being mailed to each shareowner. 10-K Report and Corporate Data Book Monsanto Company's 1991 Form 10-K Report filed with the Securities and Exchange Commission, and the 1991 Corporate Data Book, which both contain additional infor mation relating to Monsanto, can be obtained by contacting: Investor Relations Department Monsanto Company 800 North Lindbergh Boulevard SL Louis, Missouri 63167 (314) 694-1000 Environmental Annual Review Monsanto Company's Environmental Annual Review can be obtained by contacting: Corporate Communications Department Monsanto Company 800 North Lindbergh Boulevard St Louis, Missouri 63167 (314) 694-1000 Stock Symbol -- MTC Stock Exchanges/Bourses Amsterdam London Brussels New York Chicago (options) Paris Frankfurt Tokyo Geneva Zurich Transfer Agent and Registrar The First National Bank of Boston Box 644 Boston, Massachusetts 02102-0644 Printed with soy-based inks on recycled paper with 10 percent post-consumer waste. DSW 021986 53 STLCOPCB4007295 Monsanto Company 800 North Lindbergh Boulevard St Louis, Missouri 63167 Bulk Rate U.S. Postage PAID St. Louis, MO .Permit No. 2935 DSM 02X987 STLCOPCB4007296