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Annual Report 1981 Monsanto 0674496 TOWOLDMONOOI5066 Monsanto at a Glance Monsanto Company, headquartered in St. Louis, is a major multinational chemical company. Founded in 1901, it now has investments in 173 manufac turing plants, laboratories and technical centers in 21 nations. It employs 57,000 people worldwide. The Company sells more than 1.000 products in 100 countries. These include chemical, agricultural, plastic, man-made fiber and electronics products. Monsanto sells little of its production to end users, but supplies materials to other industries which manufacture the end product. Monsanto's operating organization includes five operating companies-- Agricultural Products, Chemical Intermediates, Industrial Chemicals, Plastics & ResinB and Textiles--plus Fisher Controls International, Inc., a majorityowned subsidiary, Monsanto Internationa! coordinates the growing operations outside the United States in conjunction with the operating companies. Contents Operational Highlights To Our Shareowners Technology Meeting Human Needs Citizenship as a Multinational Corporation Current Performance Economics of Major Markets Agricultural Products Chemical Intermediates Industrial Chemicals Plastics & Resins Textiles Fisher Controls International Financial Report Directors and Officers 1 3 K 14 1(1 17 1W HI 2d 21 22 23 24 25 nn Cover________ Flags of 16 nations around the world where Monsanto Company or its subsidiaries have major manufacturing investments. Q67448? I Operational Highlights ) Dollars in millions, except per share) Net Sales Net Income Per Common Share: Net Income Dividends Shareowners' Equity Property, Plant and Equipment Additions Depredation and Obsolescence Research and Development Year End: Shareowners-- Common Shares Employees 1981 $6,947.7 $ 445.1 $ 11.50 3.75 64.37 1980 $6,573.6 $ 148.8 $ 4,10 3.55 77.63 1979 $6,192.6 $ 331.0 $ 9.11 3.35 77.20 $ 667.9 $ 387.4 $ 220.6 $ 780,5 $ 546.9 $ 204.4 $ 565,9 $ 412.7 $ 161.3 79,029 67,391 82,441 61,836 85,603 63,926 1991 1990 MMMi 1979 VM Net Sales $6,947.7 6,573.6 6,192.6 Net Income I960 iwr 146.8 2\ "(i lUilu-fi throughout the Annual Report identify Monsanto's trademarks. 06 74486 * 1 TOWOLDMONOOI5068 l.rft to right: Hr. Lotus h'ernnmlez, IW ChtttrmQH: JnArt H`. Hanley. Chairman uf thv huarti and ( hivfKxixutiw Officer; Rnhard J. Mahoney. Pnvtdenf and Chief Hfh'rtihnf! Officer. TOWOLDMONOOI5069 To Our Shareowners: Despite a persistent and pervasive recession in the United States and many other sections ofthe global econ omy, Monsanto made significant strides in 1981 in developing and supplying products designed to meet basic human needs around the world. During our 80th anniversary year, as anticipated, we raised earnings from the depressed level ofthe preceding 12 months to a record high, We strength* ened our financial position through careful management ofour assets, an importantstock offering, and divesti ture ofa mqjorjoint venture. We reinforced our management team with the promotion ofseveral younger executives to key positions. We pro gressed significantly along strategic directions designed to produce faster growlh and higher profitability in the 198Usand beyond. Financial Strengths Sales for 1981 were $6.9 billion. Our net income rose to $445 million, includ ing the gain from the sale of Monsanto's portion ofajoint venture with Conoco. Earnings per common share were $11,50. We Taced a challenging economy for mart of 1981. Even though some ofour key end-use markets were operating at levels below a year ago, our earnings from operations remained at reasonable levels. We were able to keep tight con trols on our costs and to obtain more favorable prices on raw materials. Monsanto's financial strength improved considerably, a result our management deliberately set out to accomplish, and one we have largely achieved. Several major faclorB contributed to the improvement. Over the past several yearB, Monsanto has withdrawn from unprofitable busi nesses which drained financial and management resources and which did not fit the corporate strategic thrust. That program is substantially com pleted, and we are now seeing the financial benefits of these actions. ' During the year, Monsanto sought additional financing through the sale of three million shares of common stock--the third largest primary stock offering in U.S, history- The $205 million proceeds from the sale wen* used to reduce the Corporation's short and long-term debt. Another $355 million came from the sale to Conoco of our interest in a joint venture at our Chocolate Bayou, Texas, facility. DuPont acquired Con oco during the year, and it was not practical or acceptable to continue to operate this petrochemical business with a partner who was also a major competitor. As a part of the broader negotiation involving DuPont, Conoco and the Federal government, we Bought to be relieved of our equity position in the joint venture. In trie longer run this resolution will be in the best interests of al! parties. We bIbo carefully reviewed the timing of our aggressive capital spending pro gram in view of continuing slow eco nomic conditions. As a result, our spending was trimmed somewhat from earlier expectations, but not in any way that would detract from achiev ing our long'term strategic goals. This reduction, plus our continuing focus on asset management, further added to our financial strength. Finally, we have been able to improve our earnings significantly from their depressed levels of 1980. Monsanto ended 1981 with a financial position which will provide a firm base for our growth initiatives well into the decade. Strategic Directions Careful study ofwhere Monsanto is today and where we should go in the future resulted in the development of clear directions for the 1980a. Our intention, which has largely been met, is to build a company with strong finances, solid businesses and sound management, backed by excellent tech nology. That is the foundation upon which our corporate strategy is based. The chemical industry is changing and we intend to keep ahead ofthe changes. Many ofour traditional markets are maturing. There will be meaningful im provements in products and processes, out we don't see in these businesses alone the growth potential we want. A realistic view of the future shows that we must continually push into new areas. Monsanto's industrial chemicals, repre senting products from across the com pany, have historical positions of sustained strength. Our strategy for these businesses will be to continue to invest prudently and manage them for balanced income growth around the world. Crop chemicals are currently Monsan to's leading businesses worldwide. We are taking advantage ofour position in existing herbicides and will bring' to market a succession of new agricultural chemicals to bolster this record. Fisher Controls International, Inc., a two-thirds-owned Monsanto subsidiary, manufacturescontrol valves and instru mentation for process industries. For the period 1980 through 1985, the company expects income to grow at a rate of 12 to 16 percent a year. Monsanto's Oil & Gas Division has in creased reserves of hydrocarbon liquids and gas steadily in recent years. We in tend to run this division For profit, and are investigating ways to spread the cost ofnew exploration throughjoint venture arrangements. The worldwide economic environment for styrenics and our integrated acry lonitrile operations, including the prod ucts that flow from them, is a troubled one. Our objective is to keep these busi nesses earning their way until demand increases as anticipated. Actions we have initiated are beginning to show improved results. Monsanto recognizes that much ofthe future growth in chemical industry mar kets will occur outside of the United Slates- One*third ofour income already comes from international sales. We plan aggressively to support such growth and have authority from our Board ofDirec tors to pursue an active investment program offshore, Given attractive in vestment opportunities, we are com mitted to investing $1 billion abroad during the 1960s. Focused Technology An important part of Monsanto's stra tegic direction is the use of innovative science to develop new products which meet basic human needs. We intend to keep strong technology at the forefront ofour business strategy. Four areas have been selected for future R&D emphasis including plant growth regulators, animal nutrition, electronics materials and high-technology separations. All ofthese have significant worldwide potential and are areas or strength for Monsanto, Another area -- the exciting field ofbiotechnology-- 0674490 should also make major contributions to our long-term growth. A special section ofthis report highlights Monsanto's significant new research initiatives. We are also aware ofthe need for technology to continually renew our existing businesses. Here we intend to maintain our leadership positions and develop exciting new uses for existing products. Our strategy recognizes we cannot pur sue an unlimited number ofscientific avenues, buttnusl carefully select direc tions based on our technical strengths and market needs. We realize that it takes a consistent effort over many years to achieve viable commercial products, and our R&D expenditures are expected to grow in real dollar terms for the foreseeable future. Management Capability To manage the new directions for stronger growth and higher profitability in the '80s, Monsanto must depend on aggressive leadership and dedicated, able employees. Organizational moves in recent years have helped us to develop unusual depth and breadth in management. During 1981, these strengths were recognized in the realignment ofresponsibilities for managing the Corporation and our oper ating companies. Richard J, Mahoney was elected by the Board ofDirectors as ChiefOperating Officer in addition to his Presidency. Earle H. Harbison, Jr., and Nicholas L. Reding were elected Executive Vice Presidents, Together with Executive Vice President F. J. Fitzgerald, they were assigned broader responsibilities for direction of Monsanto's operating companies and international operations. Additionally, we created a new class of "advisory directors" drawn from a group ofexecutives ofthe corporation who can bringtothedeliberationsofthe Board, judgment, experience and expertise, Tb understand the roles of outside direc tor, inside director and advisory direc tor, it may be well to describe the evolution ofthe Monsanto Board over the past eight years. In 1974 the Board ofDirectors carefully studied its respon sibilities and its operations. It recog nized that large corporations have an increasing obligation tobe sensitive to the environment in which they operate and responsive to the interests ofsuch 4 groups as shareowners, employees, cus tomers, suppliers and the communities in which corporate facilities are located. Governing a corporation in a manner sensitive to these diverse objectives and interests requires that the Board ofDi rectors must have at all times the capacity for independent and objective judgment. This philosophy has guided the Board as it periodically reviews its charter to be certain that its objectives, structure and operations reflect its contemporary responsibilities. For example, it has been decided that over time the Board should steadily reduce the number of inside or employee directors, as retire* ments permit, so that ultimately they constitutenot more than one-third of the Board. This development has been substantially completed. Out of such a review grew a recognition ofthe desirability ofhaving a Boardlevel Corporate Social Responsibility Committee which was established in 1981 under the chairmanship of Margaret Bush Wilson to oversee our extensive in-house efforts in this area. Out of such a review, too, came the recognition that while it is important to maintain the independence ofthe Board--assured by the outside mem bers--it is also important for the Board to have access to the best ofmanage ment's knowledge and expertise. It is for (his reason that the advisory mem berships were created. Elected as Advisory Directors were Messrs. Fitzgerald, Harbison and Red ing, Executive Vice Presidents; Robert L/Berra and Howard A, Schneiderman, Senior Vice Presidents; and Francis A. Stroble, Vice President and Chief Fi nancial Officer. It is expected thatthese senior officers will not only play a role in the delibera tions ofthe Board as a whole, but where appropriate will participate in the activ ities ofour Board Committees. The Board ofDirectors was further strengthened during 1981 with the elec tion ofAdmiral Stansfield Turner. He has brought to our Board the wisdom gained from a distinguished career in public service. Q674491 Two former members ofthe Board retired from Monsanto--James J. Kerley and C. Preston Cunningham. Both contributed in substantial measure to the Board's deliberations and we are grateful for their dedicated service. While we are depending on strength ened leadership in the years ahead, we are also counting on our most important asset--our people throughout the Cor poration--to help implement our busi ness strategies. Their dedication, their spirit and their creativity are the foun dation stones upon which much of Monsanto's future must rest. We are firmly convinced that with this talent, it must be a very bright future indeed. So despite the fact that 1982 has begun with corporate sates and profits under heavy pressure and the prospect ofan unusually challenging year ahead, we are confident Monsanto's strategy ofag gressively building on its strengths will ensure success throughout the decade of the 1980s and beyond. John W. Hanley Chairman of the Board and Chief Executive Officer March 8,1982 Six senior Monsanto etecutn<^si who AflW beta appointed to the newly-designated position of Advisory Directors i(i riRht Francis d, FiUgerald Robert L. Berru' EarU H. Harfnson.Jr Fnane A. Strobte Dr. Howard A Schnetdertnan Nicholas L Reding TOWOLDMONOQ15071 TOWOLDMONOOI5072 Technology Meeting Human Needs Building on o skill base developed over the past 80 years, Monsanto scientists and engineers have accelerated their search for new technologies, new kinds of raw materials and new processes. To this end, significantly increased re sources have been committed to four growth programs which will comple ment and expand Monsanto's existing research strengths and enlarge oppor tunities for new products which meet human needs around the world. They are: plant growth regulators, animat nutrition, high-technology separations and electronics materials. The Company has also increased its efforts in biotechnology which has emerged as a valuable complement to Monganto's chemical technology. Bio technology offers novel ways for Mon santo to manipulate molecules. And, manipulating molecules has been and continues to be the basis of Monsanto's chemical businesses. At the same time as Monsanto has increased its research and development efforts in these new areas, the Com pany's 5,000-member technical commu nity has vigorously moved forward the technology which undergirds Mon santo's traditional products and un covered attractive opportunities for growth in herbicides, plastics, resin products, synthetic fibers, industrial chemicals and building-block chemicals. Successful research projects in these areas led to a number of promising new products during 1981 including Santoprone thermoplastic elastomer, Codon plastic and Bronco herbicide, all of which were introduced in the market place. A major process development, the manufacture of maleic anhydride from butane, is being incorporated in a new world-scale plant due for completion in 1983 at Pensacola, Florida. Technology is clearly the driving force for Monsanto's business today and will be in the future. Recognition of this fact underlies a steady increase in R&D spending over the past five years, from $136 million in 1978 to $221 million in 1961 to an anticipated $267 million in 1962. Agricultural laborers id/ the fields in Northern Mexico. Herbicides and yield I'lji'ic/HceiDi'rii1 technology u til ploy a htai*ir rule tn helping farmers meet the rising demands uf flu1 world's population. <> TOWOLDMONOOI5073 I To encourage originality and innova Plant scientists are continuing to iden tion in the technical community and to tify new substances which destroy enhance the impact of Monsanto scien weeds. At the same time thev are tists and engineers, significant changes learning how herbicides work at the were made last year in Monsanto's molecular level. This kind of funda technical career Fellow Program. Men mental research can hasten the die* and women in science and engineering covery of new herbicides and other can now choose technology as their tile chemicals to enhance the yields of work and be nominated aB an Associate important crops. Fellow early in their careers. Also, the Fellow Program was expanded at its upper end to provide career prospects in technology comparable to those in general management. Longer-range agricultural research Beeks to improve yields by giving plants valuable traits such as insect ana dis ease resistance. Basic investigations are underway to understand what goes on To increase interaction between Mon at the molecular level in plants--to santo scientists and engineers and their unlock the mechanisms of how plants academic counterparts, the Company grow and reproduce. has expanded its j>ost-doctoral program for those who want experience in indue* trial research and its sabbatical pro* gram for university professors to work at Monsanto, The Company has also enlarged its academic research grants program as another means to promote useful interactions between Monsanto scientists and the larger scientific com munity in areas of special interest to the Company. All of these steps taken during 1981 reflect a deliberate decision by the Company to bring highly original sci ence and technology to bear on prob lems of great social and commercial significance. Tissue culture, which involves regen erating plants from single cells, and microbiological techniques, are aspects of biotechnology that figure strongly in Monsanto agricultural product develop ment for the future. Other products also depend on biotech nology and the Company is committed to becoming a world leader in this field. Major exploratory probes are underway in molecular biology, genetic engineer ing, plant genetics, protein chemistry, monoclonal antibodies, membrane sep arations and biocatatysis. In connection with this commitment, Monsanto opened in October a state-of-the-art molecular biology laboratory in St. 1 Feeding A Hungry World-- Crop Production Louis. Scientists are conducting explor atory and fundamental research aimed In a world where 'the population is climbing at a rate of almost two percent at developing a greater understanding of plant biology and animal nutrition. per year, the challenge to produce more Biotechnology alone will not meet the food is urgent. To meet the rising de needg of a hungry world, but it has the mands of the world's population, food potential to make new products that production will have to double in the are unobtainable by traditional tech next 30 years and much of that in niques as well as to make existing crease must come from higher agricul products more efficiently and with less tural productivity. Monsanto research into plant growth energy. It offers powerful new ways to manipulate molecules. regulators is aimed at providing tech nology which will help feed this grow ing number of people from a constantly diminishing cultivated land area. The first plant growth substances were dis* covered 50 years ago; they were used mainly as herbicides. Today's research is directed toward finding chemicals which will make crops more productive as well as more resistant to disease and adverse weather. Monsanto R&D for plant growth regulators draws on its traditional expertise as a leader in agri Top tv Hot/tm: Molnvlar biology. a March for Hcic atrains ofplants: Plant gruuih regulator* resean-h investigates titteringproductivity nfphnis, Developing faucl plant* immune lu c/imyimv Dr. John From. icinncr of the first Edgar A/. (fueeny Au vrcl. His Work (tided in tin- dcivlopnivitl of Kuitudup he/bmde. cultural chemicals and on a major re search program in plant cell biology. 0674494 TOWOLDMONOOI5074 TOWOLDMONOOI5075 I {'nllfr. such an them Hafsfeiti-Frimaw gmetag peawfufty in a Welsh ivfley. an/lti iw day make cmi r<,c?r greater awlnbultnrt to uvrld demand for food. Antmtd fintwth harnwnen being ile lelopcd under a e*>ilahoralne agree* Jui-Nf fo'tami Genentech. Ine.. anti Stnimtmli). ettttld ettnlribule sigrufiniiW/v In greater meat anti mtlk fmtiiui'tH'tty. 1 / k Feeding a Hungry WorldAnimalProduction Monsanto's goal as an innovative pro ducer of chemicals for animal nutrition is to reduce the cost of producing ani* mal protein by making animals use feed more efficiently. The Company continues to provide in* novative technology to support existing products for animal nutrition, such as Santonin antioxidant and MHA methionine hydroxy analog, an impor tant amino add supplement for animal feed. A new methionine plant, presently under construction at Chocolate Bayou, Texas, will be the world's largest and help meet growing world-wide demand. In addition to devising and producing feed supplements to enhance animal protein production, Monsanto scientists are working to increase animal protein production with chemicals made by molecular biology techniques. These chemicals are copies of the animal's own hormones, which enhance the am* mafs growth. Monsanto is involved In a cooperative program with Genentech, Inc., an independent genetic engineer ing company, to produce growth hor mones for cattle and swine. Genentech has developed micro-organisms which Breduce animal growth hormones. lonsanto is testing these new growthstimulating products and is also de veloping processes to produce them on a commercial scale. These growth hor mones should enable farmers to in crease significantly milk production in dairy cows and weight gain in cattle and swine. In addition to research aimed at im proving the efficiency and profitability of both plant and animal agriculture, Monsanto research is directed at en hancing the shelf life and nutrient value of foods, once they are on their way to the consumer. Research in 1981 continued to support Monsanto's wide range of food chemi cals. In particular, significant effort was spent on broadening the market and improving the production processes for sorbic acid, a natural product, and sorbate derivatives. These are used to improve the flavor quality and lengthen the shelf life of certain foods. 0674496 Tap In Buttorrf Lasso herbicide tmproirs mrn fet'd vieldh: Synthetic metkimiinv feed nupplcnient'fortify andpmtevt poultry. Animal g ninth ht/rmtmiv may permit nnpruted milk and men/ yields, fixture rvnoiatmn u nil Maunditp herbicide helps S'eit Zealand sheep farmers iwnijs, pmduvUun TOWOLDMONOOI5076 Conserving Valuable Resources The world needs reliable commercial sources of energy, and society expects industry to finanew ways to conserve valuable energy. The commercial and social benefit of new energy-efficient processes can be enormous. Monsanto Has focused special attention on design ing new processes that conserve valu able gases such as hydrogen, which require large amounts ofenergy to pro duce, Our first commercial products in this area are PRISM separators, which were introduced to the world market place two years ago. These separators are based on a unique system of pat ented hollow-fiber membranes that separate hydrogen from gas waste streams in chemical plants and enable the valuable hydrogen to be reutilized. During 1981r Monsanto innovation in A new entry into the field of special resins, introduced by Monsanto's wholly-owned subsidiary, Radiation Dynamics, Inc., also Eaves natural re sources in the production and protection of materials. Known as Omni-Shrink. this proprietary heat-shrinkable com pound does a better job of protecting wire, cable and pipe from moisture and corrosion. separators was recognized by lave inter national awards, including McGrawHill's prestigious Kirkpatrick Chemical Engineering award, a prize given every two years for the most significant achievement in chemical engineering. Monsanto is investigating other wavs in which hollow-fiber membrane technology may be useful Among these is the energy-efficient separation of carbon dioxide for reuse in tertiary oil recovery operations. Separation technology is also significant in biotechnology processes where fer mentation is used to produce complex chemicals. End products, often very dilute, must be separated from waste materials. Monsanto researchers are investigating ways to combine separa tions and fiber technology to produce novel systems which can be applied to these processes. Top to Bottom: Ed StejthaKJahe Schaefer and Boh McKay, u-ha use nuclear magnetic resonance techniques la determine composition of materials: Monsanto deep gas uvll in Wyoming; PRISM separators saw energy by removing hydrogen from waste gas streams; 9-nation solar-plant in Spain uses Thermitml heat transfer fluid. Another approach to saving energy is to reduce the number of steps required to produce a finished product. Monsanto is introducing a new product--nylon block copolymers for reaction injection molding--which does this for the plas tics industry. Initially designed for large automotive body parts, this advanced-technology system eventually should find broad use in appliance and other markets. 067449? A variety of pctrochcmical-bawd Monsanto products are usr'r/ m prutluee more cro>tomi<o( ami fuel-efficient t at-s and truck.-. 10 TOWOLDMONOOI5077 Q674498 TOWOLDMONOOI5078 Serving Information Needs of a Complex Society As our basic needs for food, energy and shelter place more demands on the innovative abilities of industrial technology, so do the more complex aspects of modem society. In the 35 years since the invention of the tran sistor, many parts of the world have come to view sophisticated electronic equipment as an ordinary part of daily life. Computers, which once occupied whole rooms, now fit on a tabletop and have become the underpinning of business and technology. Microproces sors--composed of tiny silicon chips, each of which may contain tens of thou sands of individual electronic devices-- send messages, control industrial pro cesses, make automatic engines more efficient, help cook meals, tell time, and provide entertainment. Monsanto is the world's largest sup plier of polished silicon wafers to the electronics industry. Since electronic circuits are built into chips about onefourth-inch square which are cut from these silicon wafers, the flatness and quality of the surface beoomes more critical as the circuitry becomes more complex. During 1981, Monsanto's silicon wafer technology achieved new levels of quality, both in cleanliness and in ab sence of surface defects. A new package design introduced early in 1982 main tains this near-perfect condition of the wafers for delivery to customers. Monsanto now produces wafers which have a variance of less than four mi crons 4 a micron is about one-fiftieth the thickness of a human hair* over the surface of a 100 millimeter (4 inch) di ameter wafer. So flat are Monsanto's wafers, in fact, that they challenge the ability of the best measuring devices. Research is underway to produce even flatter wafers, and Monsanto scientists are confident of accomplishing this-- provided instrumentation to measure such flatness can keep pace. 0674499 Earth stations in rural areas usp silicon in collecting information from communications satellites circling the world. TOWOLDMONOOI5079 Near-perfect flatness and wafers with* out contamination or defects of any kind have become more of an issue as the amount of information to be put on a silicon chip has increased. Some of today's chips hold 64,000 memory bits, amounting to 132,000 individual elec tronic devices. As the electronics industry moves toward putting a half-million electronic devices on one silicon chip, Monsanto scientists are working closely with the world's leading producers of semicon ductors and otner electronic devices to ensure that we can provide materials which will meet their needs in the future, Conclusion Success in each or these four growth areas and in Monsanto's main chemical businesses depends on Monsanto strengths, particularly its dedicated technical community. During 1981, a number of people were recognized, both inside and outside the Company, for outstanding technical contributions. Four scientists were the first winners of Monsanto's two new awards. Dr. John E, Franz won the Edgar M. Queeny Award for his vital contributions to the development of Roundup herbicide. The Queeny Award recognizes a significant scientific achievement leading to major commercial success. The Charles Allen Thomas/Carroll A. Hochwalt Award for scientific excellence leven though com mercial implications may not be aparenti was shared by Doctors William Knowles, Billy D. Vineyard, and M. Jerome Sabackv. These three scientists jointly invented a catalyst which re sulted in Monsanto'B unique process to manufacture LrDopa, a drug used to treat Parkinson's Disease. Dr. Knowles also received an award for creative in novation for this same work from the American Chemical Society, the largest chemical society in the world. The American Chemical Society also honored another Monsanto employee, Dr. Clayton Callis, by electinghim chairman or its board of directors for 1982. It is because Monsanto has people who can reach these levels of achievement that the Company is confident of ulti mate success in developing entirely new kinds of products, despite the nigh risks involved. The four growth areas, like existing families of products, are based on Monsanto strengths and are supported by a broad base of experts in research, commercial development, manufacturing and marketing. More important, the choice of these areas reflects a belief by Monsanto that there is significant long-term value in selectively seeking out difficult labels which will meet basic needs of society. Thus, when Monsanto is successful in these ventures, not only the Company but the world at large will reap the benefits. Top Mivrnprttivsxurs i/.sy mln-nn chips to mnnrlor I'numf fumim/ix; Mtmuanio n'Xfarthcru ntctkc cx/wnmcntni integrated arcitits: Montianhi ts a owjor prtfdttt'cr of yilfci/ti it'ofcry fttr thf i'h'tlrt/ttus ;m{tt*lrs \tnrttciiO)putt`r .silicon <7ii/w help mniitlor ht'ttrl i*iiuis to i'tirtluit itiioiistt i' Hire t/itifs 0674500 Citizenship As A Multinational Corporation Top to Bottom; Chemical handling programs are cuiiatrintfy upgraded tit pwrfri-t worker*; A Monsanto donation helped fund this poKl-opcraticc wcoiw.v room near a row/MH.v plant in England; .Wm coinputcriicd ulrarn tnntiiItUiUfi HvstenI rvrfirtrjf rnerfiy crmfx at Texas City Plant; W'onir u aiiT at Huaboit Plant is i li'unucil befuro rpttiru In The live, a Kfthnnii fixlurtf! rn i! to H'nfo.s. Widespread use ofchemicals in every day life'-- clothing, medicine, shelter, nutrition, transportation, work and pleasure -- has convinced people that chemical products are necessary and useful. At the same time, however, some people are fearful ofthe long-term health and environmental effects ofchemicals. In addition, they question the role of busi ness in society and seek evidence of business support for social goals. These concerns have raised public expectations of business far bevond its traditional and continuingphilanthropic role. As a chemical producer with operations in 100 countries, Monsanto must ad* dress these issues. The Company's three basic objectives -- to optimise share owner values, foster a climate in which employees can realize theirpotential, andact in a socially responsible manner -- closely intertwine business and societal concerns. Even though environmental, health, safety and societal issues facing Mon santo are being dealt with responsibly, new concerns may arise in the future. The Company is committed to meeting its responsibilities openly and candidly, and working to identify and address potential concerns. During 1961, a Social Responsibility Committee was formed at the Board of Directors level to work with existing management committees to oversee this commitment. It not only monitors the Company's performance on current issues, but also assesses the likely busi ness impact offuture issues and deter mines how to meet them effectively. The Company's actions during 1981 underline these efforts. Monsanto spent more than $263 million during the year on capital and operating funds to protect worker health and the environment. For example, a new medi cal van equipped with the latest testing equipment began visiting U. S. manu facturing plants to conduct sophisticated examinations and collect data to moni* tor potential employee health effects. This information is added to Monsanto's Medical & Environmental Health In formation system to provide the data base for long*term health evaluations. Maintaining an accident-free workplace also is essential. In 1981, Monsanto had ita best safety record ever, with 114 of 137 locations worldwide significantly improving safety performance. During the year, the Company received the Lammot duPont Safety Award, recog nizing the rate of improvement in Mon santo's safety record in 1979 and 1980 when the Company's performance was nearly five times better than the U. S. chemical industry average. Environmental protection programs continued in 1981, including expansion ofvoluntary environmental audits at manufacturing plants. Thirty-two U. S. plants were inspected for compliance with government laws and Monsanto policies. These audits will continue. Environmental protection can go be yond monitoring. For example. Mon santo manages the Big Sand Mound nature preserve at the Company's Mus catine, Iowa, plant to maintain a habitat for the Illinois mud turtle. The preserve was established voluntarily following a comprehensive study commissioned by Monsanto. Through this program, the plant operates in harmony with Local wildlife. Worker, Product and Environmental Health & Safety Monsanto strives to maintain high worker, product and environmental health and safety standards. These in clude setting stringent regulations to reduce acute hazaras such as fires, accidents and spills, and using state-ofthe-art technology to identify and mea sure possible longer-term risks from chemical exposure. In 1961, nearly 1,000 professional managers, scientists and technicians worked full-time to deal with air, water, solid waste, product and workplace safety issues. u 0674&01 Monsanto doesn't wait until laws and regulations are set to become involved in safety, health and environmental policy. Managers around the world par ticipate in policy`setting discussions on important issues. In the U SM the Com pany is active on the state and Federal level, including giving expert testimony in U.S. Senate and House ofRepresen tatives hearings. Conservation Conserving resources is good business and good social policy. Several Mon santo products help in this effort. One of these is the new Bronco herbicide which when used with no-till cropping prac tices reduces fuel consumption and slows soil erosion. In manufacturing processes, Monsanto continued a program to recycle products which were once considered waste. This program reduces pollution, conserves materials and earns profit by developing markets for materials which were formerly discarded. Materials from nine waste streams are being sold, including a chemical which helps reduce air pollu tion from coal-fired boilers. During 1981, worldwide conservation projects reduced energy consumption 26 percent compared with the pre-oil em bargo year of 1972, saving the Company $200 million in energy costs. Since 1973, Monsanto has invested $370 million in energy conservation, and these invest* ments have saved the Company $700 million in the past nine years. Monsanto was commended in 1981 by three Idaho conservation organizations for restoration projects at the Company's phosphate mine in southeast Idaho. Philanthropy A long-standing element ofsocial responsibility is corporate philanthropy, most ofwhich is conducted through the Company's philanthropic arm, Monsanto Fund. In 1981, commitment was recon firmed to move contributions to a level of2rS ofpretax income by the mid-80s. Total contributions from the Company and the Fund amounted to $6.0 million in 1981, including over $370,000 that matched employee giving to U. S, educational and cultural groups and hospitals. In addition to money, Monsanto em ployees also donated their time. In St, Louis, a group of executives helped develop a United Way program which provided management training and ex* pertise to health and welfare agencies. A Company-sponsored pilot Volunteer Clearinghouse Program also resulted in 200 employees offering their services to community organizations. Affirmative Action Career prospects for minorities and women at Monsanto continued to im prove. In 1981, minorities and women numbered 10 percent of 6,263 manage ment employees, held 22 percent of 6,143 professional positions and 23 per cent of the 981 professional sales posi tions. During the past five years, the number ofminorities and women among middle and upper management has risen from 26 to 117. Purchases from U. S. minority-owned firms totaled $29 million -- a 7 percent increase over 1980. Additionally, Mon* santo maintained a $61 million contract with the largest minority-owned insurer in the U. 5. and had deposits of$41 mil lion in minority-owned banks. More information on Monsanto's world wide social responsibility efforts and Monsanto Fund can be obtained by writing to the Public Affairs Depart ment, Monsanto Company, SOON. Lind bergh Blvd., St. Louis, Mo. 63167. PrtA'itiinft a safe and healthful workplace for employees is a priority al Monsanto. Containing sophisticated medical testing equipment, this moM* medical van tiefit conducts eomprehenstA'e physical examinations al U.S. plants. O674502 Current Performance Monsanto faced difficult economic conditions in 1981. Two ofour Tnqjor markets in the U.S., automobiles and housing, remained depressed, and none ofthe other m^jor economies around the world showed any important recovery. In spite of this environment, Monsanto experienced record sales and earnings. The Corporation's financial strength significantly increased during the year. This has put Monsanto in a better posi tion to take advantage ofthe inevitable economic upturn and pursue longer range growth opportunities. In 1981, the Company continued with its strategy offully; supporting current crop chemicals while accelerating its thrustto develop promising new agricul tural products. Research capabilities for herbicides and plant growth regulators were expanded in Latin America and Europe. Part ofMonsanto's strategy is the con tinued development ofthe industrial chemicals businesses which remained an important contributor to the Cor poration in 1981. For example, the Company pushed ahead of schedule on construction of a plant in Florida which will strengthen its worldwide position for lower-cost production ofmaletc anhydride with our new technology. Monsanto is also a major supplier of chemicals to the rubber industry and entered the fastest-growing segment with a product that performs like rubber and processes like plastic. Monsanto's increased productivity in the manufacture ofstyrene materialsand improved performance in acrylonitrile and fiber operations substantiallyreduced previous operating losses. These businesses are ready to take advantage ofthe economic upturn when it occurs. Fisher Controls continued to record strong sales growth and Monsanto in creased its oil and gas reserves. Overall, the Company made good head way in implementing key strategies to improve profitability and strengthen growth areas. Chemical A Allied Products Production IflfiT - ]|HI 1081 1980 1979 1976 1977 216.6 207.2 211 ft 197.5 1857 Consumer Spending on Goods Billion*of IS72S aofi.5 494 I 012 492.0 472.4 New Housing Units Milliar.* afUttilti 1981 I960 1979 1978 1977 1.3 71 2.0 2.2 Motor Vehicle Production--North America Million* Unit* 1961 - -i. 9.2 1980 ft-naparwy - ______________ u.4 1979 "vr-s .13,1 1978 >r-' ,_____________ n.7 1977 SS&r-tfSrfSiut: -. . 14.4 Nonresidential Investment Billions dMBTZ* Corn A Soybean Acres Millions of Am* 06MS03 If; TOWOLDMONOOI5083 Economics of Major Markets Like many major industrial manufac turing concerns, Monsanto sells few of its products directly to end-users. Major customers are other industries which, in turn, manufacture the end products which reach the consumer. Thus, the demand for Monsanto's products is influ enced by industry growth trends and economic conditions around the world. Monsanto's consolidated world-wide sales, by end-use industry served, are shown m the table below'. World Economy Economic performance of the world's in dustrialised nations in 1981 was, at best, lackluster. In Europe, no major national economy displayed any significant re covery from the recession which began in 1980. although further declines in economic activity had ceased by mid year in most countries. Canada and Japan showed positive, but belowaverage growth, with performance in both weakening as the year progressed. Brazil's economy reflected its first reces sion in over 20 years. Only Australia re mained reasonably robust during 1981. tJ.S, Economy Following one of the shortest recoveries on record, the U.S. economy resumed a downward path starting in August. Dur ing the first halfofthe year, the princi pal weakness was concentrated in mqjor interest-rate-sensitive areas such as automobiles and housing. With rela tively less money being spent on new cars and housing, an increasing portion ofspendable income was made available for purchases ofcarpeting, household furnishing, appliances and apparel. It was this substitution ofspending which helped keep chemical industry ship ments relatively strong during the first halfof the year while two ofthe indus try's important end-use markets were severely depressed, As high interest rates persisted, demand for consumer durable and non-durable goods weakened and inventories began to back up in the pipeline. To avert a repeat ofthe painful inventory liquida tions that occurred in 1980, industry operating rates during the second halfof 1961 were cut back tobalance shipment and production levels. At the year end, these cutbacks had resulted in increased layoffs and rising unemployment. Major Chemical Markets Two major markets for chemicals in the U.S., autos and housing, remained de pressed throughout the year. Motor vehicle production in North America reached a twenty-year low at 9.2 mil lion units while housing starts of 1.1 million units were at their lowest level since World War II. Other markets fared relatively better, with consumer spend ing (after adjustment for inflation) on furniture, appliances, and home fumish- Sales Percentage by End-Use Industry Served Agriculture Construction & equipment Motor vehicles Apparel & textile home furnishings Chemical industry & petroleum refining Carpets Pharmaceuticals, soaps & toiletries Appliances, furniture & fixtures Packaging Other Ijnnr vt-arp hflvt been revised to imrludr petroleum refin injt in Lhc* same 1981 1980 1979 \m 17# 14# 14 14 14 10 11 13 10 10 11 12 11 9 s76 66e 455 55 6 16 14 12 1009 100*2 100# as the chemical industry. ings up 3 percent, spending on apparel up 7 percent, and spending on miscel laneous non-durable goods (which include drugs, medicines, soaps, and toiletries) up 2 percent. However, the furniture, appliance and home furnish ings area has been steadily eroding since spring 1981 and apparel sales de clined m the last quarter. Business investment, after adjustment for inflation, was up 2 percent from 1980's depressed level, with some weak ness becoming apparent in the last quarter. Chemical Industry The chemical industry exhibited a mixed performance, with the production ofbasic chemicals showing a slight de cline from depressed 1980 levels. Pro duction ofplastic materials was up S percent, while synthetic fiberoutput in creased by 3 percent. However, all sec tors in the basic chemical and synthetic material categories showed substantial declines during the final quarter. Downstreamchemical output fared rela tively better with most mayor categories exhibiting some growth. Drugs and medicines were the strongest perform ers, up 9 percent from 1980. Agricul tural chemicals also turned in a strong performance with volume up 5 percent. This performancewas even more impressive, given that farm income de clined 6 percent in 1981 and com and soybean acres planted were 1 percent lowerthan 1980's record levels. This provides evidence that the American Farmer regards agricultural chemicals, particularly pesticides, as an indispens able tool to maximizing yields in bad times as well as good. Export demand was also an importantsource ofstrength for agricultural chemicals in 1981. G67A50* 37 Agricultural Products; Record ResullB Top to Bottom: Coffee plant* in new Brazilian research station, A new plant for Roundup herbicide in Fayetteville, M.C.; Spraying of new package mix bronco hcrhictae introduced into U.S. no-till agricultural market; Rumanian stnbean crops protected frt/m grassy weeds h\ fjpsirn herbicide. (Dollars in miltion&f 1981 1980 1979 1978 1977 Sales 1.213.7 1.012.3 839.9 734.4 654.0 Operating Income 8468.2 400.6 328.6 303.6 274.3 Total Assets 81,000.8 802.7 660.2 6290 579.4 Monsanto Agricultural Products Com* pany continued its record pace during 1981. Sales and derating income rose 20 percent and 17 percent respectively, led by strong gains in worldwide herbi cide sales. Roundup herbicide maintained its outstanding sales growth. This postemergent, nonselective herbicide con trols a broad spectrum ofproblem weeds. Roundup has worldwide utility in mcuor crop production systems and for industrial applications. Marketing and manufacturing resources were increased more fully to exploit the worldwide growth potential for this versatile herbicide. By year-end. Roundup was being marketed in 115 countries. New sales growth was gen erated, and strong world demand con tinued, paced by major volume gains in the United States, Europe and Japan. To meet rapidly growing demand, a new unit for Roundup started production in Fayetteville, North Carolina. Capacity also was increased for key intermediates used in the manufacture ofthis herbicide. Lasso herbicide continued as the largest selling United States herbicide used for the control ofmany grassy weeds, pri marily in corn and soybean crops. The market share for Losso increased in both crops and sales reached a new high. Strong market acceptance of Lasso for shallow incorporation into the soil was a major factor in record sales. Increased marketing emphasis on this method of application, trademarked "Surface Blend," created new demand and al lowed farmers to use lighter, faster equipment resulting in time and fuel savings, while reducing soil compaction and erosion. Sales were further stimu lated by increased use of herbicide mix tures where Lasso is the brand-share leader. New herbicide compounds, based on the Company's proprietary technology, con tinued to be tested in field trials, these candidates show potential for extending the performance ofthe Company's herbi cides in existing and new markets. Sales ofAvadex herbicides, used to control wild oats in wheat and sugar beets, were up substantially. Good farm ing conditions and a prominent market ing presence in North America were significant factors in the year-to-year growth. Machete herbicide was in marked demand in Japan and India, and sales continued to gain in other major rice growing countries. Machete controls many problem weeds in transplanted and directly-seeded rice crops. In United States markets, sales were substantially above 1980 levels. Parathion insecticide sales were well ahead of the previous year, due in pari to a heavy infestation ofgreen bugs in wheat. Sales also increased to sorghum and soybean farmers. Sales of Polaris and Polado plant growth regulators, which increase the sucrose content ofsugarcane, remained steady. Active investigation ofplant growth regulators for other markets continued as a major research thrust. During the year, the Company's world wide research capability was extended. A new herbicide and plant growth regu lator research station opened in Brazil, research facilities in Belgium were ex panded and plans were underway to establish a research station in Asia. At Farmers Hybrid Company, Inc., a wholly-owned subsidiary, safes ofhybrid swine and beefcattle breeding animals were near i960 levels as prices received by farmers remained under pressure. Income from nitrogen-based products continued strong despite lower customer shipments, Selling prices for fertilizer and blasting agents were increased. 0674505 TOWOLDMONOOI5085 Chemical Intermediates: New Plant Ahead of Schedule tDoIhrs in miltionsi 1981 I5sq 1979 1978 1977 Sales $1,088.8 96&.7 358.6 523.2 522.0 Operating Income $124,7 17.8 115.5 75.1 128.0 Total Assets $1,245.2 1,178.6 1,123.4 649.8 735.9 nr ... , t op to Bottom.- worlds largest mateic anhydride (riant under wustrurttan at Pensacola. Fla ; Workers of Seal Sands aetylonitrile'plani, United Kihgjom; Fiiterfilass made with maleic anhydride used in first covered lightuviglit 11.S. hopper car; Slvrene monomer from TWs {?if> Plant, if used in fuel saitng plastic autu component*. During 1981, Monsanto Chemical Intermediates Company pushed ahead of schedule on construction ofa 130 mi11ion-pound-a-ye&r maleic anhydride plant at Pensacola, Florida. Due for com pletion in 1983, the plant is designed to be the worlds largest. It will use Mon santo technology to convert butane to maleic anhydride and eliminate the use ofmore costly benzene feedstock. The Pensacola plant is the centerpiece of Monsanto's plan to expand its world wide maleic anhydride capacity to more than 300 million pounds a year, while simultaneously converting to butane technology at its St Louis facility. This operating company's sales increase was heavily concentrated in the first halfofthe year, due to economic growth and additional shipments from the Chocolate Bayou plant near Alvin, Texas. A second-halfsoftening of market demand and the worsening re cession resulted in the plant operating at about 75 percent capacity, equivalent to the 1980 rate. Petrochemicals--without considering the effect ofthe Monsanto/Conocojoint venturedivestiture--recorded a year-toyear dollar sales improvement of 13 per cent. Process chemical sales were essen tially flat and year-end demand in all product Lines was severely depressed. A determined effort to reduce acryloni trile manufacturing costs brought solid results. For example, the installation of a new, improved catalyst at the Seal Sands plant, Teesside, United Kingdom, increased yield and lowered production costs Better utilization ofnylon inter mediate manufacturing capability and improved demand for acrylic fiber added to the dramatic improvements in the UK acrylonitrile business. Worldwide marketing efforts produced strong results with U.S, exports increasing substantially. Momentum ofthe successful technology licensing program was maintained with agreements signed by two companies in the U.S. and Europe for plant moderni zation programs, using the Monsanto. C-E Lummus ethylbenzene/styrene technology. This brings the number of plants using the process to 14 with a capacity of 6.6 billion pounds a year. Oil & Gas Division Monsanto further strengthened its oil and gas exploration and development activities in 1981. investment in lease hold acquisitions, exploration and de velopment reached a record of $198 million and the division's discoveries again exceeded production. Net sale?, of oil and gas rose 44 percent to $194 mil lion. Pretax earnings--before interest and genera] corporate expenses and excluding the profit on operation ofthe natural gas plants^-increased 24 per cent to $34.1 million. MostofMonsanto's investment was made in the drilling of62 net explora tory wells, and 119 net development wells. Ofthe total, 81 percent were productive with notable successes in North Dakota, Oklahoma, West Texas, Wyoming and offshore GulfofMexico. A number of high-potential leasehold acquisitions increased total undeveloped acreage from 950,000 to 1,045,000 net acres. Included in this total are interests in four GulfofMexico federal offshore blocks. A drilling contract was signed for an exploration program to begin in 1982 on the substantial acreage Monsanto has assembled in the U. K. North Sea. The division added 7.7 million barrels of oil and 45,7 billion cubic feeHBCFi of gas to its proven reserves. After oil and gas sales and revisions ofprior esti mates, proven year-end reserves totaled 33.6 million barrels ofoil and 598.6 BCF of gas. 0674*06 Industrial Chemicals: Seeking New Growth Tnp hj Bottvm: \tiiwi su)ip(vwi\1 nimnshm poultry: XnvnftxlK t'rwvrml. Sabacky and hhuuifvx. unifiers of first TUtunax Hoi huatt award. Their work r^sufti'd in \I"HwIo'k Ulltljlif IwiHt'Kit lo mufti Ldhipn* lined to rrvnr Tar),'menu's Dmcanc: ,\ r,i\ onn hi>w rhi't kt- lire quality. Ih'iihfi'u i wi',rJfiw( Miijinift-s fiutindf sUit>dit\ frt>/< (Dollars in millions} 1981 1980 1979 1978 1977 Sales $1,623.6 1,577.6 1,513.8 1,290.1 1,156.4 Operating Income $ 90.4 132.6 202.1 218.7 211.9 Total Assets $1,160.6 1,113.0 984.1 8496 750.3 Monsanto Industrial Chemicals Company sales in 1981 increased about 3 percent from 1980 Second half weak nesses in housing, automotive and elec tronics markets were the principal factors for the decline in year-to-year operating income. During 1981, this operating company entered the rubber industry's fastestgrowing segment--the thermoplastic elastomer market--with successful commercialization of Scmtoprene ther moplastic elastomer. This first entry in a planned broad product line performs like rubber and processes like plastic. Initial customer acceptance is encourag ing, particularly in the automotive in dustry where five 1982 models use Santoprene elastomer components under the hood. Tire production cutbacks in many countries affected worldwide sales of rubber chemicals. During the year, use ofX-ray units continued to expand as the primary non-destructive quality test for truck, bus and passenger car tires. Detergent and phosphate product sales were up 1 percent for the year. A new dentifrice grade ofdicalcium phosphate was introduced which allows toothpaste manufacturers to increase fluoride stability and improve the taste oftheir products. Specialty chemical sales were led by a strong growth in pharmaceutical raw materials. Capacity for acetaminophen, a non-aspirin analgesic, was increased through process modifications. Field tests were positive on a new Tkerminol heat transfer fluid with a high-temperature operating range de signed especially for oil refineries and solar energy applications. Dequest anti scaling agent made significant progress in formulations for water desalination plants. Worldwide dollar sales ofplasticizers enjoyed a strong first half, but business was Blow in the second half due to weak ness in our primary automotive and housing markets. A sampling program for Santicuer 900 plasticizer resulted in good initial customer reaction. Monsanto continued to phase out lowpotential plasticizer product lines while shifting resources to new growth opportunities. Monsanto Enviro-Chem Systems, Inc., which designs and constructs sulfuric acid plants, achieved record sales. A more efficientcatalyst was introduced to the sulfuric acid industry as well as a line of energy-efficient mist eliminators to control air pollution. Nutrition chemical sales improved 9 percent with sales ofAhmet liquid methionine, a feed supplement for poul try and swine, almost tripling. A new methionine plant is scheduled for com pletion in 1983. Sales for PRISM separators were impressive. These proprietary hollow fiber systems are now installed or under contract in 24 plants in five countries. Monsanto continued its thrust to main tain quality leadership in electronicgrade silicon for the semiconductor industry. During the fourth quarter, the initial phase ofthe world's largest and finest quality silicon wafer plant at Spartanburg, South Carolina, was com pleted. An extensive renovation was underway at the St. Peters, Missouri, plant to bring silicon wafer production there up to the very highest quality standards. During the third quarter, Monsanto introduced the 150mm pol ished slice, the largest available com mercial wafer. Also introduced were controlled oxygen and other wafer inno vations to improve device yields among our customers. 0674507 TOWOLDMONOOI5087 I Plastics & Resins: Improved Performance (Dollars in millions) 1981 1980 1979 1978 1977 Sales 1.368.0 1.383.8 1.414.2 1.223.6 1.111.2 Operating Income $ (9.3) i J 10.5/ 9.6 57.6 76.3 Total Assets 6 958.2 1,000.0 1.110.7 1.088.2 8919 Monsanto Plastics & Resins Company's total sales were below 1980 levels be cause ofdivestiture ofthe Spanish subsidiary, Aisconde), $. A. However, sales from continuing businesses in creased 7 percent in 1981 and, in spite of a sluggish economy, operating losses were substantially reduced. Domestic performance improved largely due to gains in U. S. manufacturing pro ductivity and exports ofstyrene materials. Domestic sales of Lustrex polystyrene grew at greater than the industry rate, and export sales exceeded the 1980 level. Operating income in Europe was better because the Ai&condel sale more than offset a dramatic decline in income from continuing busi nesses affected by worsening economic conditions. Major developments in 1981 included a new Ltisimn ABS molding grade resin that promises to become the industry standard and Codon, a family ofimpactmodified styrene maleic anhydride terpolymers. Initial applications for this en gineering plastic are in the automotive area. However, the special features of Codon offer unique benefits for applica tions such as business machine and appliance housings, electrical equip ment and electronic parts. Sales of Vydyne nylon 66 exceeded 1980 levels. Typical applications were electri cal components, packaging and con sumer items. In the last quarter of 1981 a new line of Vydyne glass-reinforced nylons was introduced to meet high per formance needs of industrial and auto motive applications. Shipments of Saflex polyvinyl butvral interlayer for use in laminated safety glass for automotive windshields de clined following the reduction in auto motive production. Sales for laminated architectural glass applications, how ever, continued to increase. In other resin areas, paper chemicals such as Scripset coating resin, Monsize internal sizing agents and Santo-Ren wet strength resins, recorded higher sales. Sales ofFome-Cor graphic arts boards increased significantly, aided by the introduction of a thinner new ta-inch board designed for display makers and professional picture framers. Sales of Fome-Cof board for other major uses in manufactured housing, home re-sidmg and as a headliner in automobiles were affected by the slump in the housing and automotive industries. Commercial acceptance of the new Monsanto 603 greenhouse film has been very strong. The new him offers up to 50 percent longer life over the former lead ing industry film. Blownware had another solid perform ance in 1981 with improved profitability in spite ofthe recessionary environment AstroTurf-6 synthetic turfsystem's successful introduction continued with sales for professional, collegiate and high school installations. Top to Itadorn An-hitniurnl mm1 of plant: laminated H'flft Hnftcx interlayer; A picture framer myth eat* Fomr-Cw pruphtv arta boanl with a krufr, /thin prilli1 Hm/rft'rf tu {sfiiciratl Alts plant iiv Sprnff (iuanl ram (tups fur truths nit it i't ttA'uther uheel ttpray. 06 74508 TOWOLDMONOOI5088 Textiles: Substantial Improvement 1* Top to bottom: Carpets of t'ttran nylon art id'll suited for (jusv budding*; Fabric wail wirings of SfCF fiber arc flame refarpani and atlravtuv; Disposable gotens and surgical drapes leinfnrcetl bx Crrcx nuiiwrireM nylon: ,-li-n In- fiber* revolt in /nhric# u lYA a ' u-itle range of properties and aerthetu's. (Dollars in millions) 1881 1980 1979 197B 1977 Sales li,A14.2 1,041.1 1,069.4 963.2 884.3 Operating Income $ (2.2) 1261.11 I16B.7I i29.2i 139.01 Total Assets j 859.6 1.019.5 1.022.7 1.050.1 1,011.2 Monsanto Textiles Company a perform ance in 1981 was significantly better than the previous year. Despite slightly reduced fiber volume and sales revenue 3 percent lower, operating; losses were substantially reduced. This resulted from the company's ability to pass through price increases for nylon carpet fiber ana acrylic that have held despite decreased demand in the latter halfof the year. The company's strong first halfwas tempered by a weak second half as high interest rates continued to depress housing and automobile markets and weaken demand for carpet. However, Monsanto is well positioned for in* creased profitability when the carpet market rebounds. Expansions to increase nylon carnet staple production were completed and will be needed when carpet demand strengthens. Monsanto's newest carpet fiber, UltronZ nylon--which repre sents a real advancement in soil resis tance and appearance retention-- achieved an enviable position with the major U. S. carpet mills in its first full year on the market. In the contract carpet area, carpets of Monsanto fibers are increasingly found in office buildings, hotels, banks and departmentstores, indicative of the fine performance offered by UUron nylon and UltronZ nylon in commercial installations. Tne products for this mar ket segment were strengthened with the introduction of Ultron 3D nylon. This product comprises three heavy-denier advanced-generation fibers developed specifically for the contract carpet mar ket. It allows a much broader range of yam sizes, carpet constructions and weights than with existing competitive heavy-denier fibers. Product development work in nylon also addressed fibers for apparel. Work cur rently is underway to develop fibers that provide new and different looks in fabrics along with cost reductions for Monsanto and its customers. As the leading producer of acrylic fiber. Monsanto has long promoted its use in knits and sweaters.The company fur ther strengthened this segment of its business with the introduction of Fi-Lana acrylic, the newest in a broad line ofacrylic fiber products for the textilesmdustry, Fi-Lana makes it possible to achieve softer and more luxurious effects without losing resilience and body. What before was available only with natural fibers now can be obtained with a wide range ofacrylic fibers that offerchoices ofhand, varied colorations, increased flexibility through blending and home washability. Remember bi component acrylic for the handcraft yam market madeexcellent commercial progress. Craft yams of Remember are rapidly being made available through chain and department stores. The Future of Monsanto Textiles Com pany is not limited to fibers with new' or enhanced properties, but also involves new applications for existing ones. Cerex spun-bonded nylon, for example, which traditionally has been used for industrial applications, is now finding new uses such as in disposable surgical gowns. Another example is SEFmodacrylic which in 1981 celebrated 10 years in the marketplace, predomi nantly in the baby blanket sleeper market. Recently.this flame-retardant fiber has been used in fabric wall cover ings for commercial buildings, helicop ters and airports as well as in contract upholstery and drapery fabrics. These applications, which stem from increased awareness of fire safely in public build ings, greatly expanded the horizons for this product. 0674909 Fisher Controls: Strong Sales Growth (Dollars in millions) 1081 I960 1979 1978 1977 Sales *636,4 593.1 496.7 284.2 263.5 Operating Income S&8.6 71.9 44.4 37 0 37.9 Total Assets *434.7 412.8 353 3 202.5 181.7 Fisher Controls' totals for 198), 1980 and 1979 refU'rt ihe oppraiions of z ni`- subsidiary. Kishcr Contruls Internal ionat Inc., formed by Monsanto and The General Klecinc Company l-nnucd of the I'tmid Kmeiiom Totals for 1978 n4 prior years reflecl the eftfraJions of .UomantoR then esisuiis wholly owni'd suliMdturt. Fisher Controls Company, [nr. . Top to Bottom: Usher talvcs marfc at world's target automatic control mire plant t'*l /tMt'B,Flutter ittsiri/mcntniiaa at Bacion, England, aids North Sea gas distribution: /'/iijVii.V swifin fofuMrs and controls production processes; Fisher instrumentation controls California ti>mato-pr(Kvsnmg plant. Fisher Controls International, Inc. recorded strong sales growth in 1981 despite a faltering European economy. Domestic operations generated in creased income, but the effect ofthe strengthened U.S, dollar on interna tional results caused an overall year-toyear decline. Both shipments and new orders for industrial process controls continued at record levels worldwide. A world leader in process controls, Fisher provides a range ofproducts and services including control room instru' mentation, field measurement instru ments and control valves and regulators, Customers in such diverse industries as chemical, petrochemical, food process ing, power,paper, metal processing and oiland gas look to Fisher Controls for solutions to process control problems through products, application engineer ing, education, installation and after sale service. Fisher Controls continued to manage its assets aggressively while positioning the company for significant future growth as an international supplier of integrated process control systems. Cost reduction programs were maintained in all world areas. Two small business lines were sold and one small U. 5. manufacturing facility is being closed in 1962. Capital investment accelerated, capacity was expanded, and a signifi cant number of new products was intro duced. PR$VOXt a major new product family ofdigital distributed control systems, was further expanded. Sates increased significantly with particular success in North America where the product was first introduced, Fisher Controls applications in energy man agement control systems continued to meet customer needs to conserve re sources and lower costs, New field measurement instrument products were introduced to help custo mers measure and control such process variables as pressure, temperature, flow and level. They included a pneumatic indicating controller product line, an innovative temperature controller, and a new family ofcontrol valve positioners. Control valve and regulator products with a wide variety ofprocess control applications were introduced. New products included additions to the high performance rotary control valve line for general service applications, a high pressure globe valve, and several addi tional regulator products. Fisher Controls employs more than 10,000 people at 23 manufacturing and sen1ice centers in 14 countries. Safes offices staffed by engineers with exten sive application engineering capabilities are located in principal cities worldwide to serve customer needs. 0674510 International: Record Earnings ^'! EfTCft Monsanto International sales approached last year's record level despite the severe worldwide economic slump. Consolidated sales outside ofthe United States* including U. S. exports, were $2,562.2 million and represented 37 percent of Monsanto's total net sales. Export sales from domestic manufactur ing locations reached $1,042.0 million even though international competition intensified and the strong surge in the U. S. dollar adversely affected exports. Consolidated international operating income, including operating profits from U. S. exports and the Company's share of net income from overseas affiliates, reached a record $213.9 million, a 42 percent increase from 1980. Earnings improved in all world areas with the Europe-Africa region achieving a signif icant turnaround following two years of losses. Continued weakness ofmajor European economies and a strong dollar dampened Europe*Africa sales growth which de* dined 11 percent to $1,271.2 million. Monsanto's withdrawal from the Span ish subsidiary, Aiscondel, was also a fac tor in the drop in sales. However, the end of losses associated with Aiscondel and cost improvements helped the return to profitability in Europe. The herbicide business, supported by record volume sales of Roundup and Lasso, was a major contributor to the profit gain. The new facility for manu* factoring Roundup herbicide at Antwerp operated near design capacity throughout the year. Saflex interlayer for laminated safety glass again achieved record sales. In industrial and specialty chemicals, as well as plasti cizers, significant contributions were also made to earnings. Top to Bottom: Plant growth regulator sugarcane tnate di Brazilian research farm; Glass with SafleX interlayer protects dncer in 240 mph French supermini Maehete herbicide improves yields of Asian rice crofts; Mitsubishi Monsanto Chemkat Company plastic film iimtrah- tcmfieratitn' rn Japanese greenhouses In the Canada-Latin America area, sales increased by 6percent to $691.3 million* generating$88,7 million in operating income. This strong perform* ance occurred in spite of Brazil s first recession in 25years, the massive deval uation of the Argentine peso, and a general recession in Canada. Canada achieved a record year in sales and income led by the growth in sales of Avodex and Lasso. The startup ofa facility to manufacture Roundup has further strengthened our crop chemical position in Canada. Brazil'seamings continued positive with improved sales and income from our phosphate, rubber chemical and styrene monomer businesses. During the early part of 1982 the Company will start up a new polystyrene plant at Sao Jose dos Compos. In Mexico, ourjoint venture, IRSA. recorded another successful year. ImporteofMonsanto's broad product lines to Mexico also contributed to strong earnings. The Asia-Pacific area continued to im prove with sales up 15 percent to $599.6 million. Consolidated operating income was $61.1 million. Export sales to the region increased despite the slowdown in the Japanese economy and stiffer competition. Demand outside Japan was led by increased sales ofherbicides, as well as growth in chemical intermediates and fibers, with exports to the People's Republic ofChina accelerating. The strong growth ofthe Australian econ omy also contributed to record gains in operating income. In New Zealand. Monsanto Australia Ltd. strengthened its manufacturing position by acquiring a 65 percent interest of Revertex indus tries (N. Z.> Ltd., a producer of industrial resins and chemicals. Monsanto launched a concerted effort to increase business in the Japanese market. Two orders were won for PRISM separators and the Company began to sell Roundup after receiving registration in late 1960. 0674511 Financial Report Content* RcaponeitolllUoc lor Financial Data Financial Review Financial Statamanta Kay-Word Index lo Financial Saellon Financial Summary Management Report independent Auditors' Opinion on System of Internal Accounting Control Page 26 27 Review of the Results of Operations Review ot Liquidity end Capital Resources Oil and Gee Reserve Data Summary cl Significant Accounting Policies Statement of Consolidated income Statement of Consolidated Financial Position Stateroom ot Changes in Consolidated Financial Position Statement Of Consolidated Shareowners' Equity Notes to Financial Statements Independent Auditors' Opinion on Financial Statements 2B 47 54 58 69 60 62 63 64 76 77 70 Except where otherwise indicated by the contort, the term "Monsanto" means Monsanto Company and As consoitcfatsd subsidiaries end me term "Company" means Monsanto Company atone. AH doHae amounts am in minions, except per sham. 0674512 TOWOLDMONOOI5092 Responsibilities For Financial Data Management Report Monsanto Company's management is responsible lor the fair presentation of all financial data, audited or unaudited, included in this Annual Report. All financial data In this Annual Report are consistent with that in the consolidated financial statements. The consolidated financial statements have been prepared in accordance with generally accepted accounting principles consistently applied in all material respects, except where otherwise noted, and reflect necessary estimates by management. The management of Monsanto is responsible for establishing and maintaining a system of internal accounting control. The objectives of such a system are to provide reasonable, but not absolute, assurance that assets are safeguarded against material loss from unauthorized use or disposition, and that transactions are properly authorized and recorded to permit the preparation of financial data. In fulfilling its responsibility, management exercises judgment in assessing the expected benefits and related costs of control procedures. Inherent limitations in systems of internal accounting control include the possibility that errors or irregularities may occur and not be detected. Significant changes in circumstances subject any system to the risk lhal current procedures may become inadequate, or that compliance with the procedures may deteriorate. Management believes that the effectiveness of Monsanto's system of internal accounting controls is maintained by: (1) the selection and training of personnel: (2) a division of responsibility in all organizational arrangements; (3) the establishment and communication of accounting and business policies: and (4) on-going internal review programs and audits with necessary lollow-up by management. As ratified by shareowner vote at the 1981 Annual Meeting, Deloitte Haskins & Sells, independent auditors, were appointed to examine Ihe consolidated financial statements contained in this Annual Report. The principal result of this examination is the expression of an opinion, which appears on page 76, as to the fairness of the presentation of the consolidated financial statements in accordance with generally accepted accounting principles. At management's request, Deloitte Haskins & Sells also performed a study and evaluation of Monsanto Company and Its United States subsidiaries' system of internal accounting control. Their opinion on the system follows this Management Report. 0674513 The Audit Committee of the Board of Directors is responsible lor reviewing and monitoring Monsanto's internal controls, financial reports and accounting practices. The Committee consists of four non-employee directors who periodically meet to discuss audit and financial reporting matters with representatives of financial management, the internal audit function and Deloitle Haskins & Sells. Both the independent and internal auditors have full and free access fo meet with the Audit Committee -- with or without the presence of management representatives -- to discuss the results of their examinations, the adequacy of internal accounting controls and the quality of financial reporting. Chairman of the Board and Chief Executive Officer February 26, 1982 Francis A. Slroble Vice President and Chief Financial Officer Independent Auditors' Opinion on System of Internal Accounting Control We have made a study and evaluation ol the system of internal accounting control of Monsanto Company and its United States subsidiaries in effect during the year ended December 31,1981. These companies constitute approximately 73 percent of consolidated total assets at December 31,1981 and approximately 70 percent of consolidated revenues for the year then ended. Our study and evaluation was conducted in accordance with standards established by the American Institute of Certified Public Accountants. The above report explains management's responsibility to establish and maintain a system of internal accounting control and Hie broad objectives and inherent limitations of such a system. In our opinion, the system of internal accounting control of Monsanto Company and its United States subsidiaries in effect during Ihe year ended December 31,1981, taken as a whole, was sufficient to meet the objectives referred to above insofer as those objectives pertain to the prevention or detection of errors or irregularities in amounts that would be material in relation to Monsanto Company's consolidated financial statements. Saint Louis, Missouri February 26, 1962 0674614 Review of the Result* of Operations The following discussion reviews Monsanto's consolidated sales and net income for 1981 vs. 1980 and 1980 vs. 1979. Consolidated Sales 1901 0,947.7 1900 6.573,0 1979 HH 6,192.6 1981 vs. 1980 Sales for 1981 reached $6,947.7. a 5.7 percent increase over 1980. The 19B1 sales increase was due principally to higher selling prices. Volume levels overall were off 2.2 percent year-to-year, reflecting the impact of two 1960 divestitures -- Aiscondei. S.A., a two-thirds owned Spanish plastics subsidiary, and the polyester filament business. Otherwise, volumes overall were up a modest 1.9 percent, with continued softness being experienced in those businesses dependent on the sluggish automotive and housing industries. Another economic factor, the strengthening ot the United States dollar in 1981 against many foreign currencies, adversely impacted domestic export sales. Agricultural products, however, did have further notable volume gains worldwide in 1981. 1980 vs, 1979 Sales for 1980 reached $6,573.6, a 6.2 percent increase over 1979. This increass was principally driven by higher selling prices, as volumes for I960 declined 6.6 percent Irom 1979 levels. Recessionary factors in the U.S. and in Europe were the primary reasons for the decline in sales volumes. Declining demand from two of Monsanto's largest customer industries -- automotive and housing -- impacted the results ol Monsanto's petrochemicals, industrial chemicals, plastics and man-made libers businesses. In contrast, 1980 volume gains were recorded Irom agricultural products and the Fisher Controls subsidiary. Consolidated Net Income 1950 mmmmm 146.8 331.0 1981 ve. 1980 Net income in 1981 was $445.1 ($11,50 per share), a significant increase over the $148.8 ($4.10 per share) reported lor 1980. The 1980 net income reflects charges totaling $107.7 ($2.97 per share) related to the disposal of Aiscondei, S. A. and the polyester filament business. In 1981, net income includes a $67.7 ($1.75 per share) gain on the sale of the Company's interest in the Monsanto/Conoco joint venture. (See "Divestitures" note to the financial statements.) Excluding the impact of this unusual gain in 1981, and the two unusual losses in 1980, net income increased 47.1 percent to $377.4 ($9.75 per share) in 1981 trom $256.5 ($7.07 per share) in 1980, 28 0674515 In addition to the economic conditions and unusual items discussed previously, certain other lactors Influenced the year's results. The financial programs Monsanto began in 1980 to improve profitability and the utilization of working capital clearly enhanced 1981 results. Interest expense was lower in 1981 as compared to 1980, reflecting reduced borrowing levels. Interest Income in 1981 increased significantly because Of Monsanto's improved cash and short-term securities position. Equity income from affiliated companies, excluding gains or losses from foreign currency translation, decreased in 19B1 compared to 1980. Total pretax foreign currency gains (losses) were $(27.6) in 1981 compared to $11.5 In 1980. Because gains or losses realized on (onward currency contracts and other transactions are tax effected, while the translation impacts generally are not, foreign currency gains included in net income were $29.0, or $0.75 per share, in 1981 vs. $1.2, or $0.03 per share, in 1980. The effective tax rate increased in 1981 to 3S.B percent, from 27.7 percent in 1980. This increase is a result ol reduced levels and impact ol investment tax and Domestic International Sales Corporation (DISC) credits available, offset somewhat by the effect of ex-U.S. subsidiaries with no tax benefits or provisions. Earnings per share in 19B1 also include the effect Of three million additional shares issued In April, 1981. The pro forma earnings per share are disclosed in the "Earnings Per Share" note to the financial statements. 1980 vs. 1979 Net income for 1980 was $148.8 ($4.10 per share) compared with net income of $331.0 ($9.11 per share) lor 1979. Two major unusual factors occurring in the fourth quarter of 1980 significantly impacted the decline. The Company decided to terminate all of its interests in Aiscondel, S. A,, resulting in a charge of $38.7, or $1.07 per share and it withdrew from the polyester filament business, incurring a charge of $69.0, or $1.90 per share. Both businesses had experienced losses from operations in recent years. In 1979. net income was reduced by $53.2, or $1.47 per share, due to shutdown costs of European nyion operations and certain ex-LI. S. plastics businesses. Prior lo these unusual factors, the disappointing results for I960 were due in large part to recessionary conditions in the U.S. and Europe. In response to these conditions, Monsanto launched a program early in 19B0 to improve profitability and the utilization of working capital. While this program was successful overall, il did have the effect ol reducing earnings as the Company absorbed idle capacity costs significantly higher in I960 than had been experienced in 1979. A change in accounting lor interest costs -- as required by a recent Financial Accounting Standards Board Statement -- had a positive effect on 1980 profitability. In 1979 and prior years, all interest costs were charged to expense as incurred. In 19B0, Monsanto capitalized $51.6 of interest costs related to financing construction-in-progress expenditures. 0674516 29 As a result, net income was increased 127.5, or $0.76 per share. The required capitalization of interest costs moderated the earnings impact of a significant increase in interest cosfs incurred -- from $123.3 in 1973 lo $163.4 in i960. This increase was driven principally by the issuance of commercial paper, the relatively high interest rales in 1980 and additional financing costs associated with Aiscondel, S.A. Other nonoperating factors influence a comparison of 1980 results with the prior year's. Interest income in 1980 was $36.4, down sharply from $63.6 of Interest income in 1979. In 1980, there were foreign currency translation and transaction gains of $1 2, after taxes, as compared with losses of $32.1, after taxes, in 1979. The effective lax rale was 27.7 percent for 1980 as contrasted to 31.2 percent for 1979. primarily reflecting higher investment tax credits. Analysis of Chang* In Earning* Per Shan -- Increase (Decrease) 1981 Vis 1890 fietllna Prices Safes volume and mix Raw material prices OthpT manufacturing costs Divestitures Start-up costs Nonmanufacturtng expenses Operating Incom* *1031 2.37 (147) (4.10) 4.73 9x62 (1.14) 9.1 Interest costs incurred Interest costs capitalized Other income credits--net Effective tax rate Shares outstending Net Income Per fiber* 0.39 (0.18) (0.31) (1.SS) (0.77) $ 7.40 I960 vs. 1979 $13.66 (3.65) (527) (5,07) (1.60) 1040) 12.15) 15241 (0.54) 0.76 (0.19) 0.20 5(501) 0674817 30 Snlci by Product Group The table below sets forth the dollar amount and percentage ol Monsanto's consolidated net sales contributed by each operating company and Fisher Controls and each product group during the last three years. 1SS1 Agricultural Products; Herbicides, insecticides & other products $1,216.7 17.5% Chemical Intermediates: Petrochemicals Process chemicals Oil & gas Total 720.9 181.9 106.0 1,069.8 10.4 2.6 2.7 15,7 Industrial Chemicals: Detergents & phosphates Specialty and nutrition chemicals Rubber chemicals Plasticizers Electronic materials ar>d chemical 0. environmental syslems Total 410.5 397.8 281.7 302.4 231.4 1.923.9 5.9 5.7 4.1 4.4 3.3 23.4 Plaallca ft Resins: Plastic materials Resin products Fabricated products Total 751.2 433.9 102.9 1,399.0 10.9 8.3 2.6 19.7 Textiles: Man-made libers 1,014.2 14,6 Flahor Controls: Valves, regulators & electronic process conirole 639.4 9,1 Total coneoildatad SB,9*7.7 100.0% 1930 $1,012.3 15.4% 643.5 196.9 125.4 965.7 98 3.0 1.9 14.7 405.3 6.2 385.1 2965 2994 5.9 45 4.5 169.3 2.9 1,577.0 24.0 793.2 12.1 376.2 5.0 212.4 3.2 1,363.0 21.1 1,041.1 15.B 593.1 9.0 $6,573-6 100.0% 1979 $ 839.9 136% 565 1 192.1 61.4 055.6 9.4 3T 1.3 13.8 399 9 6.5 353.0 292.5 275.2 5.7 4.7 4.5 109.4 3.1 1.513.0 24.5 799.2 404.7 210.3 12.9 6.5 3.4 1,414.2 220 1.069 4 17.3 496.7 B0 $6,192.6 100.0% 067*516 31 TOWOLDMONOOI5098 Raw Materials and Energy Purchased Raw Material Costa i9Bi mm^mmmm^mmmmm $2,439.2 1980 mmmt^mmmwa^mmmm 2,459.0 1979 2.345.2 Purchased Energy Costa i98i mmmmmmm .i i960 mmmmmmmmmmm 5314 1979 mmtmmmtmmmm 4947 Purchased raw materials include petrochemical feedstocks that are very Significant to Monsanto. The relatively small increase in purchased raw material costs in 1961 over I860 is a result of two offsetting factors: lower volumes and higher raw material prices. Raw material prices advanced approximately 13 peroent In 1981, following approximate 25 and 30 percent increases in 1980 and 1979, respectively. Raw material and energy prices reflect continual escalation in the United Stales due to decontrol ol crude oil and gas prices. Monsanto continues to pursue a policy of securing its raw material position for the years ahead. Until August 1981, this policy Included participation in a joint venture with Conoco Inc. lor the production of ethylene and co-products. This joint venture was terminated when Monsanto sold its interest in the venture, as discussed in the "Divestitures" note to the financial statements. Subsequent to this sale, the Company secured long-term contracts for its basic raw materials, including ethylene, benzene and propylene. These long-term contracts contain Terms and conditions which provide the Company security of supply at very competitive prices. In addition, Monsanto continues to have available the hydrocarbon resources from its Oil & Gas Division which can be used in its hydrocarbon sourcing programs, if required. Research and Development Coats i9Bi wm^mmmmm^mmmmm 3220.6 i9eo mmmmmmHi 204.4 1979 mmmmmmmt^m 161.3 As a percent of sales, research and development costs have increased lo 3.2 percent in 1981, compared to 3.1 and 2.6 percent in 1980 and 1979, respectively. This level of funding represents Monsanto's continuing commitment to generate new products and processes, with particularly intensive research programs related to agricultural products, electronic materials and biotechnology. In 1981. the Molecular Biology Center, established in 1980, occupied stale-ot-the-art facilities in a new research building at the Company's St. Louis Research Center. Supplementing this substantial commitment to research funding are investments in high technology companies. In 1980, the Companv made 32 0674819 three such investments, totaling $57.3, as follows: an acquired subsidiary, Radiation Dynamics, Inc., principally involved in the manufacture and sale of high-voltage electron accelerators and in developing irradiation processes and irradiated products: a minority interest in Collagen Corporation, a developer of patented and proprietory methods of processing and purifying collagen from animal sources into products which can be implanted in the human body to replace lost or detective tissue; and a minority interest in Biogen, S.A., a Swiss-based company engaged in the lietd ol molecular biology and recombinant DNA research. Research and Development Costa by Operating Unit 1991 1999 1979 mmm^^B Agricultural Products ^m^B 959,5 m 4i.3 29.6 ' 19B1 1 i9ao mmmBm 1979 Chemical Intermediates S35-2 30.9 21.9 1981 mm 1980 ^^^^mmm 1979 Industrial Chemicals $53.9 5i.6 39.9 m1981 HMMNi 1990 I^BmBmmB1 1979 Plastics A Resins $38.5 36.1 32.7 1981 Mm 1990 MMM 1979 amaHHMi Textiles $21.4 33.3 30.1 i9Bi i960 1879 -- Fisher Controls 912.1 11.2 _________________7A 0674920 TOWOLDMONOOI5100 Foreign Currency Seine (Losses) Foreign currency transactors and translation ot ex-U, S, subsidiaries' financial statements Translation ol ex-U.S, affiliated companies' financial statements Forward exchange contracts Pretax gains (losses) Related income taxes Aftertax gains (losses) Par share ini $26,4 16.2 <70.1} (27.6) (M.9) m.o $0.75 1960 1979 $155 <17.51 13.5 11.5 10.3 S 1.2 $0-03 $(35.0) 2.3 56 (269) 5.2 (32.1) itOBB) Of the total effect of foreign currency transactions and translation of ex-U.S, subsidiaries' financial statements, gains (losses) ol $1.0, $(2.7), and $(22.3) were classified in cost of goods sold in 1981 -1979, respectively. The remaining pretax gain (loss) on foreign currency ol $(2B.6), $14.2, and $(4.6) for 1081-1979, respectively, is reflected in other Income -- net. For 1981, Monsanto reported significant net foreign currency gains. Translation gains were offset, in part, by losses from forward exchange contracts. During 1981, in a period when the dollar was gaining strength and gains were being experienced from the translation of ex-U. S. subsidiaries' and affiliates' linancial statements, the Company generally reduced its level of hedging from what it had been in prior years. Because the Company's general level of outstanding forward exchange contracts was higher in 1980, as compared to 1981, the I960 translation losses were considerably offset by hedging gains. In 1979, the Company also had significant forward exchange contract positions, but nevertheless experienced a substantial translation loss Irom the maxl-devaluation of the Brazilian cruzeiro, a currency in which hedging is prohibitively expensive. Monsanto has reported its foreign currency gains and losses for 1981-1979 using the requirements ol Financial Accounting Standards Board Statement No. 8 (FAS No. 8). Under FAS No. 8, working capital items (except inventory) and long-term debt -- when denominated in foreign currencies -- are translated at current exchange rates. The net balance sheet amounts translated at the current rates of exchange determine the level ot translation gains or losses that are charged immediately to earnings. In Monsanto's case, except in a limited number of countries, these net balance sheet amounts represent a net liability exposure. 0674321 34 In December 1981, the Financial Accounting Standards Board finalized new loreign currency translation rules (FAS No. 52) that Monsanto will adopt beginning in 1962. Under FAS No. 52, most of Monsanto's ex-U.S. assets and liabilities will be translated at the current rate and most translation gains or losses will be deferred in a shareowners' equity account until realized. Monsanto will generally be in a net exposed asset position under FAS No. 52, as compared with the generally net exposed liability position under FAS No. 8. Had these new rules been in place lor 19B1-1979, Monsanto would not have reported foreign currency translation losses or gains in net income for mosl of its ex-U.S. operations and. as a result, its forward exchange contract position would have been significantly different. Ouirterly Foreign Currency Gain* (Lone*) Quarter 1901 First Second Third Fourth s 9.7 23.0 (1.2) (2S) Total (29.0 1980 S 5.9 (12.0) 5.3 2,8 3 1.2 1979 S .4 (10.4) (17.4) (10.7) 5(32.1) 0*74522 Quarterly Results Year 19B1: Total Quarter Final Second Third Fourth Net Salas si,mo 1,855,6 1,633,8 1,558,3 $6,947-7 Cost of Goods Sold $1,390.0 1,472.8 1,190,0 1,247.8 85,300.8 Net Income $176.0 93.8 123.6 51.7 $445.1 Earnings Per Share S 4.S1 2.35 3.09 1.25 $11.50 1980: Total First Second Third Fourth $1,622,5 1,548.6 1,536.7 1,663.8 $6,573.6 $1,330.4 1.281.7 1,306.6 1,555,1 $5,476.0 $1642 23.2 29.6 (66,2) st4s.e S 4.53 0.64 061 (180) $ 4.10 1979; Tola) First Second Third Fourth $1,623,6 1,526.8 1,496.7 1,545.3 $6,192.6 $1,153.7 1,264 9 1,178.4 1,335.0 $4,932.0 $161-6 59.5 96.9 10.8 S331.0 $ 4.44 1.64 2.73 0.30 $ 9 11 Quarterly consolidated sales typically exhibit the seasonality of the agricultural products segment of Monsanto's business. Agricultural products accounted lor 17.5, 1S.4 and 13.6 percent of consolidated sales in 1961-1979, respectively. Of the total agricultural products sales, 35.8, 3B.9 and 44.0 percent were concentrated in the first quarter of 1961 -1979, respectively. In addition to this seasonal factor, both 1981 's and 1980's last three quarters' sales were depressed by the lower volumes resulting from the sluggish U. S. and European economies. Sales for 1979 were strong in the second and third quarters due to accelerated customer purchases in anticipation ol price increases from rapidly rising costs of raw materials in that year. The fourth quarter 1979 sales, however, began to reflect the softening of customer demand that carried into and depressed sales volume lor 19B0. Quarterly net income is particularly affected by the seasonality ol the agricultural products segment of the Company's business because of the relatively greater profitability of this operating unit. Agricultural products accounted lor 66.7, 190.7 and 67.5 percent ol consolidated operating income for 1981-1979, respectively. Following its sales pattern, agricultural products' operating income is heavily concentrated In the first quarter. Of the total agricultural products operating income for ihe year, 42.5,42.3 and 52.3 percent was reported in the first quarter of 1981-1979, respectively. Beginning in 1981. certain marketing, administrative and technological costs associated with agricultural products, which were previously allocated lo income based on sales 36 0674523 activity, were expensed as incurred. This accounting change was made to better reflect seasonal operating results of the agricultural products segment and increased the 1981 first quarter net income by $11.7, or 0.32 per share. The 1981 second, third and fourth quarters' net income were reduced correspondingly by $1.9, ($0.06 per share), $4.9 ($0.13 per share) and $4.9 ($0.13 per share), respectively. Total year results were not affected by the accounting change. Beyond the seasonal factor of agricultural products, 1981's quarterly net Income pattern reflects general economic conditions. First quarter 19B1 results show strengthening demand in certain areas, but the second and third quarter results were impacted by more sluggish economic conditions. The 1981 recession is evident in the fourth quarter results. Similar to 1981, 1980's quarterly net income pattern reflects the elfecls of the recession in that year, most notably in the second and third quarters as compared to the prior year. The second and, particularly, the third quarter ol 1980 also include higher idle plant costs incurred to control inventory levels during Ihoss difficult periods. In contrast, the 1979 second and third quarters had significant gains resulting irom strong demand in those quarters. As mentioned above, 1979's fourth quarter net income was impacted by softening demand. Certain nonrecurring gains and losses also impacted the quarterly results, which items are discussed In the "Divestitures" note to the financial statements. In addition to the agricultural products accounting change in 19B1 referred to above, an accounting change in 1980 to implement the required capitalization of interest costs increased 1980's quarterly net income by $4.9 ($0.14 per share), $5.3 ($0.14 per share), $8.3 ($0.23 per share) and $9.0 ($0.25 per share) tor the first through fourth quarters, respectively. A 1980 third quarter change in estimate of the effective tax rate increased net income $14.9 ($0.41 per share), which amount principally relates to the lirst quarter. In 1979's fourth quarter, a change in estimate of the effective tax rate increased net income $12.3 ($0.34 per share), and a change in estimate of the LIFO provision decreased net earnings $6.1 ($0.22 per share). The changes in estimates for the UFO provision and the effective lax rate in the fourth quarter of 1979 were not significant to any other quarter of that year. A 1979 third quarter reversal ol prior periods' income taxes due to a change in tax laws in the United Kingdom increased net income $18.8 ($0.46 per share). 06745Z4 37 Operating Unit Segment Dala Agricultural Products Chemical Intermediates Industrial Chemicals Plastics & Resins Textiles Fisher Controls Eliminations Corporate Expenses Total Operating Income Charges -- net Nonoperating Assets Total Consolidated Net Salee 1981 $1,216.7 1,088.8 1,623.6 1,368.0 1,014.2 636.4 6,947.7 6,947.7 $6,947.7 19B0 $1,012.3 965.7 1,577.6 1,383.8 1,041.1 593.1 6,573.6 6,573.6 $6,573.6 1979 $ 839.9 658.6 1,513.8 1,414.2 1,069.4 496.7 6.192.6 6,192.6 Operating Income (Loss) 1081 1960 1970 $468.2 124.7 90.4 (9.3) (7.2) 68.6 $ 400.8 17.8 1326 (110.5) (261.1) 71.9 $ 328.B 115.5 202.1 96 (168.7) 44,4 740.4 (2.1) (35.9) 702.4 9.4 251.5 (2 0) (39.3) 210.2 4.5 531,7 (8.2) (36.6) 486.9 5.8 $6,192.6 S 693.0 $ 205.7 $481.1 Trie bove data should be read in conjunction with the "Segment Information" note to financial statements on page 74. World Area Segment Data United Stales Europe-Africa Canada-Latin America Asia-Pacific Eliminations Corporate Expenses Total Operating Income Charges -- net Nonoperating Assets Total Consolidated Net Sales Quteide Customer* $4,873.6 1,247.0 485.6 341.3 6,947.7 1981 InterAre* $553.9 115.1 4.2 25.0 698.2 (698.2) Outside Customers $4,464.4 1,377.8 459.2 272.2 6.573.6 19B0 Inter* Araa S 534.5 59.2 4.0 27.4 625 1 (625.1) Outside Customers $4,233.7 1,316.6 409.1 233.2 6,192.6 1979 Inter* Area $451.0 65.5 4.6 26.2 547.3 (547.3) 6,947.7 6,573.6 6,192.6 $6,947.7 $ - $6,573.6 $ -- $6,192.6 $ - The above dala should be read in conjunction with the "Segment information" note to financial statements on page 74. 38 067452$ TOWOLDMONOOI5105 Total Assets mi 1980 SI ,000.8 1,245.2 1,160.6 958.2 859.6 434.7 $ 802.7 1,176.6 1,113.0 1,000.0 1,019.5 412.8 5,659.1 5,526.6 1979 $ 660.2 1,123.4 984.1 1,110.7 1,022.7 353.3 5,254.4 Depreciation and Obaoleacence 19B1 1900 1979 $ 63.6 121.5 91.5 63.1 42.5 13.2 385.4 $ 44.5 85.6 88.2 135.7 1B0.8 10.5 545.3 $ 38.4 76.4 71.1 78.0 136.4 9.1 411.4 Capital Expenditures 1901 19S0 $111.8 294.1 123.8 59.4 49.1 24.2 $ 74.1 306.4 181.3 88.3 99.6 22.8 662.4 774,5 5,659.1 5,526.6 5,254.4 2.0 367.4 1.6 546.9 1.3 412.7 662.4 774.5 410.1 269.8 284.7 $6,069.2 $5,796.4 $5,539.1 $387.4 $546.9 $412.7 5.5 $667.9 6.0 $7B0.5 1979 $ 43.4 222.2 126.7 91.6 59.1 18.9 561.9 561 9 4.0 $565.9 Operating income (Loee) Total Aaaeta 1901 $650.1 38.4 40.9 24.9 754.3 (16.0) ($5.9) 702.4 9.4 $693.0 1900 $255.4 (43.8) 24.2 12.9 248.7 0.6 (39.3) 210.2 4.5 $205.7 1979 ` 1981 1900 1979 $564.2 (66.8) 3.6 20.4 $4,436.7 1,049.0 290.2 227.2 $4,256.0 1,026.3 291.3 176.1 $3,840.3 1,198.3 300.6 161.0 521.4 2.1 (36.6) 5,993.1 5,749.7 5,520.1 (334.0) (223.1) (265.7) 4B6.9 5.8 5,659.1 410.1 5,526.6 269.6 5,254.4 284.7 $481.1 $6,069.2 $5,796.4 $5,539.1 0674526 39 TOWOLDMONOOI5106 Operating Unit Segment Data Certain major chemicals, such as acrylonitrile, ammonia, styrene monomer, nylon salt, phosphorus and phenol are used by several Monsanto operating units as intermediate "building block" materials. To control process development and reduce manufacturing costs, Chemical Intermediates is responsible for the management of the manulacturing operations related to most of these materials. However, each operating unit that uses the "building block" chemicals in the manufacture of end products is considered to be the joint owner of the manufacturing facilities and shares the product manufacturing costs and Investments based on its annual production commitment. Each operating unit's share of these costs and investments is reflected as part of its financial data. Agricultural ProdUCta had a 20.2 percent increase in 1981 over f9B0 sales, benefiting from both price and volume increases. Operating Inoome increased 16.8 percent in 19B1 compared to (he prior year. Sales and operating income for 1980 vs. 1979 reflect increases over the prior year of 20.5 and 21.9 percent, respectively. Highly successful proprietary products, particularly Lasso and Roundup herbicides. contributed significantly to ils increased sales and income. Chemical Intermediates 19B1 sales increased 12.7 percent over 1980, principally as a result Of volume improvements related to the Monsanto/Conoco joint venture, and some selling price increases. Operating income advanced significantly in 1981 compared to 19B0, but this increase was entirely due to a gain on the third-quarter sale of the Company's interest in the Monsanto/Conoco joint venture. Without this nonrecurring gain, operating results were lower in 1981 than in 1980. Sales for 1980 vs. 1979 increased 12.5 percent, while operating income declined 94.6 percent. Except lor increases Irom the Oil & Gas Division, operating results were impacted in 1980 and 1981 by the sluggish demand for its basic intermediate chemicals. Industrial Chemicals results reflect a 2.9 percent sales increase in 1981 compared to 1980. This increase generally was driven by selling price improvements. Operating income in 1981 tell 31.8 percent Irom the 1980 level. Sales for 1980 vs. 1979 Increased 4.2 percent, but operating income declined 34.4 percent. Operating results over the last two years have been Impacted by the general worldwide economic difficulties during the period, and particularly by the prolonged slowdown in the semiconductor, housing and automotive markets, The environmental systems subsidiary, however, has been an area of strength. Plastics & Resins had a 1.1 percent sales decrease in 1981 as compared to 1980, due to lost volume resulting Irom the 1980 withdrawal from Aiscondel, S.A. However, sales from continuing businesses improved 7.1 percent reflecting volume and selling price gains in selected product groups. Operating losses were measurably reduced year-to-year. The 1980 results reflect the signilicant charge to terminate Monsanto's interest in Aiscondel, S.A. Sales tor 1980 vs. 1979 decreased 2.1 percent, and operating results turned negative from the 0674527 modest operating income reported for 1979. Aiscondel's substantial operating losses in 1979 and 1980 heavily impacted the reported results of Plastics S Resins in those years. In addition, many of the products of Plastics & Resins have automotive and housing related end-uses. The difficulties of operating in these end-use markets in 1980 and 1981 have been noted previously. Textiles had a modest 2.6 percent decrease in sales lor 1981 as compared to 1980, reflecting the volume lost by the disposition ol its polyester filament business at the end of 1980, partially offset by strong nylon demand in the first half of 1961. The business operated at a modest loss in 1981, which represented a significant turnaround from the major losses of 1980 and 1979. The 1981 reported results include a 86.6 gain from the reversal of an overestimalion of costs associated with the 1980 closure ol the polyester lilament operation. Also included in 1981 is a favorable impact of approximately $24.7 on cost ol goods sold from the nonreplacemenl of tow cost inventory tiers resulting Irom the UFO method of accounting. During Ibe first half of 1981, Textiles was operating at a profitable level, but the spreading weakness in the U.S. economy heavily impacted fibers demand and the results for the year as a whole. Sales for I960 vs. 1979 decreased 2.6 percent, and operating losses were substantially larger. In 1980 and 1979, significant losses were incurred by the now discontinued polyester filament business and, in 1979, by the Company's European nylon business which was disposed of in that year. Fisher Control* sales improved 7.3 percent in 1981 over 1980, reflecting a combination of selling price and volume increases. Operating results on a year-to-year basis were down slightly in 1981. Sales and operating income for 1980 vs. 1979 reflect increases of 19.4 and 61.9 percent, respectively. Results for 1980 were strong due to North American sales of control valves and instrumentation, and this strength continued in 1981. Foreign currency losses adversely impacted 1981 operating results as compared to 1980, however. World Area Segment Data The World Area Segment Data or page 38 was prepared on an "entity basis" -- i.e., sales and income as recorded in the financial statements of the legal entity are assigned to the world area where the entity is located (e.g., a sale from a United States subsidiary to a customer in Brazil is repoded as a United States transaction). This presentation is required by generally accepted accounting principles. However. Monsanto International, the unit responsible tor coordinating ex-U. S. operations, views iinancial results on an "area basis" with a final sale perspective. On an "area basis," sales and income are assigned to Ihe world area where the customer is located (e.g., a sale from a United States subsidiary to a customer in Brazil is reported as a Latin America transaction). The table which follows summarizes Monsanto ex-U.S. results of operations. The discussion focuses cn Monsanto "area basis " results. 0674528 41 International Sales and Operating Income Sales by eX'U'Se subsidiaries; Europe-Alrica CanadA'Latin America Asia`Pacific UeS. export talas Intar-area eliminations Totel Consolidated International Sales {Area Baals) Operating income (ices) ot ex-u.S. subsidiaries: Europe-Afrlca Canada-Lalin America Asia-Pacific U.S. export operating profit, net of allocated administrative expenses Equity In exU. S. affiliates1 net Income Total Consolidated International Operating Income (Area Baele) 1961 $1,362.1 400.0 366.3 2,216.4 1,042.0 (606.2) $2,562.2 $ 30.4 40.6 24.6 104.2 76.2 30.5 $ 213.9 1630 $1,437.0 463.2 296.6 2,199.8 1.026.4 (625.1) $2,601-1 $ (43.6) 24,2 12.9 (6?) 141.6 157 $ 150.6 1679 1.3621 4137 259 4 2.055.2 857.4 (547.3) $2.3653 $ (66.B] 3.6 20 4 [428] 1743 26.3 S 157.8 Europe-Afrlca sales tor 19S1 were lower than In 1980, reflecting the divestiture of Aiscondel, S.A. and a general weakness throughout the year In many European economies. Significantly decreased losses from Monsanto's Seal Sands, United Kingdom, operation and the disposal ol Aiscondel, S.A. resulted in a profitable level ol operations for 1981, as compared to a net loss in 1980. Canada-Latln America sates in 1981 improved modestly over 1980. The Canadian economy's activity generally tracked the United States' activity. Latin America countries' economic activity levels were mixed, with Brazil experiencing ils first recession in many years. Operating results reflect a good improvement in 1981 over 1980 and include a small gain from the sale ol the remaining operations of a plaslics subsidiary whose principal operations were shutdown in 1979. Asia-Pacific sales for 1981 had a significant increase, led by excellent results from a strong Australian economy. Agricultural products sales in this world area for 1981 had a good increase over I960, but other export products' sales were adversely impacted by the strength of the United States dollar against many foreign currencies. Overall, operating results improved in 1981 over 1980. 0674529 Supplemental Financial Data Adjusted for the Effects of Changing Prices Net sales Cost ot goods sold, excluding depreciation and depletion Depreciation and depletion expense Marketing, administrative and technological expense Other expense and income--net Income taxes Net Income from operations Income from operations per share Gain from decline In purchasing power of net amounte owed Historical Cost Adjusted tor Adjusted Changes In tor Qonorsl Current Inllallon Costs (In Average 1931 Dollars! 36,947.7 $6,947.7 36.947 7 4.939,7 361.1 5.0068 521.7 4.972.4 561.7 944.5 94 47.9 $ 445.1 3 11.50 944 5 9.4 247.9 $ 217.4 $ 5.61 944.5 94 2479 3 211.8 S 5.47 $ 98.3 $ 98.3 Monsanto's financial statements are prepared in accordance with generally accepted accounting principles, which include the concept of historical cost. Under this concept, inventory and property generally are reported at the amounts originally paid and do not reflect subsequent changes in (1) the general purchasing power of the dollar, (2) the current cost of replacing the asset, or (3) the amount for which the asset could be sold -- its market value. Financial Accounting Standards Board Statement No. 33 (FAS No. 33), entitled "Financial Reporting and Changing Prices." requires the disclosure in the above table of selected data under two different sets of assumptions. One set of data -- the "constant dollar" discloaures -- reflects the adjustment of the historical cost financial statements for changes in the general purchasing power o( the dollar. The other set of data -- the "current cost" disclosures -- reflects adjustments based on estimates of the current cost to replace, In kind, existing assets. The current cost data attempt to measure the impact of price changes which are specific to Monsanto. Only the following items are adjusted in the current year under the constant dollar and current cost disclosures: inventories; property, 067A53Q 43 plant and equipment: cost of goods sold: and depreciation and depletion expense. Income tax provisions are not adjusted for the inflation effects. Monsanto generally believes that the current cost method best rellects certain impacts of inflation. However, in most years the difference between the current cost and constant dollar methods will not be significant in terms of their ability to demonstrate inflation impacts. It is clear from both methods that, in a period of inflation, historical cost earnings overstate the ability of most manufacturing companies to generate cash flow from operations sufficient to provide lor business growth and dividend growth in a "real" sense. Inflation's effects must first be "financed" from historical cost earnings by increased expenditures to replace worn out and obsolete facilities. While these facilities will not be replaced in their current form as the computational methods of the data suggest -- technological advances will be incorporated as replacement occurs and some facilities will never be replaced -- nevertheless, the impact reflected in the FAS No. 33 data is a useful approximation of certain inflation eflects. However, Impacts from Inflation can be mitigated by management actions and, from the shareowners' perspective, are mitigated through the existence of debt. Recognizing the impact of rising costs in selling prices is frequently mentioned as one way management responds to inflation. Cyclical overcapacity in the chemical industry, aggravated by the recent recessions in 1980 and 1981, has allowed Monsanto to pass along in the form of higher selling prices only a portion of the higher costs incurred as the market lor many products will not currently support full cost pass-through. Accordingly, to maintain profitability in an inflationary environment, the Company continually searches for ways to reduce costs. Improved technology, increased productivity and programs such as the Company's successful energy conservation efforts allow Monsanto to remain competitive from a selling price standpoint, while mitigating some Of the impact of rising costs. In addition, the Company is constantly reviewing its businesses to determine those whose long-term economics will not justify continued investment. Monsanto has disposed ol several such businesses in rscent years. To the extent that creditors also bear some of the impact ol inflation, shareowners' equity is protected. An approximation of the net effects of inflation borne by creditors is shown in the table on page 43 as 'gain from decline in purchasing power of net amounts owed.1' Also shown in the table on page 43 are a statement of net income Irom operations and certain other information for the year ended December 31, 1981, adjusted lor changing prices in accordance with FAS No. 33, and the historical cost information reported in the primary financial statements tor the same period. The increase in current cost of inventories and property, plant and equipment for the year ended December 31, 1981. stated in average 1981 dollars, was 44 0674931 $448.7. This amount was $29.7 less than the increase that would have been caused solely by general inflation. At December 31, 1981. the current cost of inventory and property, plant and equipment (net of accumulated depreciation) was $1,423.7 and $4,345.5, respectively, stated in year-end 1981 dollars. Net income from operations reflects higher depreciation and depletion expense and cost of goods sold. Income taxes have not been adjusted for these higher costs resulting in an effective lax rate of 53.3 and 53.9 percent for the constant dollar and current cost data respectively. These rates are significantly higher as compared to an effective tax rate of 35.B percent under historical cost. Adjustments for general inflation have been made using the Consumer Price Index -- All Urban Consumers as required by FAS No. 33. The amounts reported as the estimated current costs are calculated as described below. These estimates, although based on the best judgments of management, are not necessarily indicative of either the amounts for which the assets could be sold or the cost at which such assets might be replaced in the future. Inventories determined on a FIFO basis were used to approximate inventories on a current cost basis. Cost ol goods sold as determined on a LIFO basis, or techniques that approximate the results obtained on a LIFO basis, was used to approximate cost ol goods sold on a current cost basis. The current costs (specific prices) ol property, plant and equipment were generally estimated using appropriate construction and equipment indices. Accumulated depreciation and depletion for the current cost of existing facilities and related expenses were estimated using the same methods and rates as used in the historical cost financial statements. 0674532 45 TOWOLDMONOQ15112 Certain additional historical cost, constant dollar and current cost data appear in the following table. Selected Financial Data 1981 1980 1979 1976 1077 Historical Coat, aa reported; Nel sales Net income Earnings per share Total assets Net assets Long-term debt Dividends per common share Constant Dollar Dele, In average 1981 dollars: Nel income (loss) from operations Mel income (loss) from operations par share Net assets *8,947,7 445.1 11.50 6,069,2 3,330.2 1,110.3 3.75 217,4 5.61 4,561,3 $6,573.8 143,6 4.10 5,796.4 2.808-2 1,370,5 3.55 $6,192.6 331,0 9.11 5,539.1 2,781.8 1.202.5 3.35 (77.1) 213.3 (2.13) 566 4,352.0 4,574.4 $5,018.7 3026 B.29 5,035.7 2,579.4 1.223.5 3.175 $4,504.5 275.6 7 46 4.350.1 2.400.9 1,030.6 3.025 Currant Cost Dele, in average 1981 dollars: Net Income (toes) from operations Net income (loss) from operations per share Net assets Increase in specific prices of inventory end property over {under) increase caused solely by general inflation Other Data, In average 1981 dollars: Net sales Gain from decline in purchasing power cf net amounts owed Dividends par common share Market price ol common stock at year-end 211,0 5.47 4,879.4 (33.0) 235.2 (9-94) 4.486.5 6.47 4,665,6 (29.7) (307.7) 120.1 6,947.7 7,257.3 7,759.6 6,996.7 6.695.6 96.3 148.4 153,8 3.76 3.66 425 4.46 4 56 t 67.66 $ 72.36 $ 70.64 $ 63.10 $ 84.72 Average Consumer Price Index 272.4 246 8 217.4 195.4 181.5 46 0674533 TOWOLDMONOOI5113 I Review of Liquidity end Capital Resources 1981 HiHVi 1980 1979 mam The following discussion reviews Monsanto's ability to generate cash and describes Its principal capital resources. Cash (Funds) Flow Cash, Time Deposits and Short-Term Securities ss i 210-6 271.3 Funds Provided by Operations (Before Working Capital Changes) 1981 HHHMMIHW $806.1 1980 Hmm^m^m 667,5 1979 mmmm see? Monsanto's 1981-1979 sources and uses ol funds, defined as cash, time deposits, certificates ol deposit and short-term securities, are shown in the Statement ol Changes in Consolidated Financial Position on page 62. Funds provided by operations, before working capital changes, increased significantly in 1981 as compared to the two prior years reflecting the improved operating results for the period. Sources of funds in 1981 also include substantial proceeds from the sale of a joint venture interest and a common stock offering. Combined with lower capital expenditures for the period and a continued emphasis on working capital support levels, these substantial sources of funds resulted in a much improved cash and short-term securities position at the end of 1981. Funds provided by operations, before working capital changes, increased slightly In 1980 as compared to 1979. White cash Is generated by operations throughout the year, significant receipts from agricultural product sales are concentrated in the first quarter. Tax and dividend payments are made quarterly, but most other significant sources and uses of funds do not occur on a predetermined, regular basis throughout the year. 0674534 47 TOWOLDMONOQ15114 Short-Term Liquidity and Capitol Resource Measures Working Capital isbi 1980 1979 Hi$1,485.6 HH 1,226.4 1,322.7 19B1 mmm 1900 VHH 1979 Short-Term Debt $174.7 238.0 233.1 The current ratio, after decreasing to 2-1:1 in 1980 from 2.2:1 in 1979, improved to 2.4:1 at the end ol 1981. The 1981 improvements in working capital levels and current ratio reflect increased operating results for the year and the proceeds from the sale of a joint venture interest. In 1980. working capital levels were aflected by the recession in that year, requiring higher than expected short-term financing. Management believes that a working capital ratio ol at least 2.0:1 is desirable. - Monsanto's additional investment in working capital, excluding cash and cash equivalents and considering inventories valued on a "first-in, first-out" FIFO basis, for 1981 and 1980 was $82.4 and $44.4, respectively. These 1981 and 1980 Increases contrast with an additional investment in working capital on the same basis of $274.4 in 1979. Although 1979 was a stronger year in terms ol business growth, the Company's working capital utilization programs in 1981 and 1980 have been successful in light of continuing high inflation. Most significant has been the control of inventory investment, which, on a FIFO basis, increased only 5.9 percent in 1981, was virtually flat in 1960, but grew by 36.8 percent in 1979. Trade receivable levels have been relatively stable in dollar terms over the last two years, despite a cumulative increase in sales ol 12.2 percent over that period. Reflecting stronger business conditions, trade receivables increased 19.9 percent in 1979 over the prior year. Accounts payable and accrued liabilities have been relatively flat over 1981 and 1980, although a significant reduction in trade payables was offset, in 1960, by the related liabilities at year-end for the Aiscondel, S.A. and polyester filament shutdowns. Following the increase in inventory investment, trade payables in 1979 were al a substantially higher level than in the prior year. The Company has available $100.0 ol existing domestic revolving credit, $100.0 ol short-term lines ol credit, $100.0 ol Eurocurrency revolving credit and $416.2 through ex-Ll.S. subsidiaries' short-term facilities. Only $77.4 under these existing credit arrangements was utilized at December 31, 1981, all of which related to short-term facilities of ex-U.S. subsidiaries. Short-term lines of credit and commercial paper, when necessary, are Intended to be used to periodically finance working capital needs and to provide "bridge" financing until more attractive rates prevail in long-term debt markets. 0674535 Long-Term Liquidity and Capital Resource Measure* Capital Expenditures i9Bi $624.4 I960 WHHMmmmmmmmm 72B.9 1979 1^--565.9 Long-Term Debt i860 1979 MHB 1,370.5 1,202.5 Capital expenditures shown above exclude $43.5 and $51.6 of capitalized Interest lor 1981 and 1980, respectively. Expenditures for capital equipment have typically been financed by a combination ol cash provided from operations and long-term debt. In 1981, however, the Company issued 3,000,000 new common shares whose proceeds were used to reduce debt that was incurred to lund the capital expenditure program. Long-term debt at the end of 1981 decreased to $1,110.3, as compared to $1,370.5 and $1,202 5 at the end of 19B0 and 1979, respectively. As a result ol the common share offering and the reduction of long-term debt, the long-term debt to capitalization ratio decreased to 25.0 percent In 1981 as compared to 32.8 and 30.2 percent in 1980 and 1979, respectively. Over the long term, Monsanto believes that its appropriate long-term debt to capitalization ratio is approximately 33.3 percent. The interest coverage ratio (times), excluding the effect ol capitalized interest in 1981 and 1980, was 5.5 in 1981, as compared to 1.9 and 4.9 in 1980 and 1979, respectively. The 1980 interest coverage ratio was impacted significantly by nonrecurring charges, recession depressed earnings and sharply higher interest costs. The Company has made extensive use of pollution control and industrial development bond financing when the projects qualify. Because of the tax-free nature of these obligations, the associated interest rates are quite favorable. Total outstanding pollution control and industrial development bond obligations at December 31,1981, were $210.8. While the Company will continue to pursue this form of financing when available in the future, the Individual issues have generally not exceeded $10.0 in the past and the average offering has been substantially smaller. In addition to Ihe use ol long-term debt, Monsanto has occasionally used Other forms of financing, principally lease arrangement and joint venture arrangement involving take-or-pay contracts. These alternative forms of financing are used when the effective interest cost is attractive or the nature of the capitl project requires Iheir use. The Company will continue to use lease, joinl venture and other innovative financing arrangements in the future as appropriate, but Ihe extent of their use in Monsanto's overall financial structure has not been significant in the past. 0674536 49 1961 1980 1979 1901 m 1980 1979 1991 1990 1979 1961 1 1990 1 1978 1 Virtually all of the assets reflected in Monsanto's financial statements are free from lien and are not used to collateralize debt. Accordingly, these assets represent a source of additional debt capacity, although the Company has no present plans to pursue this source of financing. Monsanto is involved in oil and gas exploration activities and owns reserves whose current value is not reflected in the accompanying financial statements. (See "Oil and Gas Reserve Data" on page 54.) The Company's proved reserves represent a valuable asset that could be used to increase its total debt capacity. In addition, the Oil & Gas Division's undeveloped acreage, or some portion ol It, may be used in the future in joint arrangements with outside parties to provide lunding for exploration and development of the acreage. Capital Expenditures by World Area w^mtm i United States 1569.6 eas e 430.7 Europa-Atiica $ 57.6 102.7 96.9 Canada-Latin America $ 26 9 27.1 26.9 Asia-Pacific $ 8.3 7.9 7.5 0674537 TOWOLDMONOOI5117 Common Stock Data Dividend* Per Common Share Quarter First Second Third Fourth Total 19B1 SQ.M 0.05 0.95 0.95 55.75 1980 30.85 0.90 090 0 90 S3 55 Common Stock Prices Quarter IBS! 1980 High Low High Low First Second Third Fourth S77V. B7'/j 72ft SS7 65'4 59% BOtt $62* 54'/59'4 70% 346'/; 42 'A 50% 50% Monsanto's common stock is traded principally on the New York Stock Exchange. The number of common shareowners as of February 22, 1982, was 78,772. In April, 1981, the Company issued 3,000,000 common shares in a public offering. The Company last issued convertible securities in the 1969-1974 period. Currently, Monsanto has convertible preferred stock, convertible debentures and convertible loan stock outstanding. In addition, common shares are regularly issued under employee slock option plans. The total common shares reserved for convertible securities and stock option plans was 2,554,067 at December 31,1981. A treasury slock acquisition program is in place to mitigate, when appropriate, the dilutive effect of the issuance of common shares under slock option plans and outstanding convertible securities. However, certain financial criteria permitting purchases under the program were not met in 1981 or 1980 and, accordingly, no treasury shares were acquired in those years. Also, the Company has an employee stock purchase program whose requirements are immediately funded with the purchase ol treasury shares. 0674638 51 The Company has paid dividends on its common shares -- without interruption or reduction -- since 1928. The dividend is paid quarterly and has been increased in each of the past nine years. The dividend payout ot 32.6 percent for 1981 is indicative of dividend payouts in recent years, although the Company's dividend policies are not necessarily tied to a set payout percentage. In I960, due to the depressed level ol earnings, the dividend payout percentage was considerably higher than in either 1981 or 1979. Shareowner*' Equity Par Common Share t96i i960 1979 M *84.37 77.63 77.20 1931 s 1930 42%^^^MMMH70Ve 1979 4S^MMBB2 Common Stock Price (Low and High) H $8716 0674939 TOWOLDMONOOI5119 1981 HMHI 1980 mmm 1979 1961 1960 1979 HIMMM Pension Plan*' Funding Statue Actuarial Present Value of Accumulated Plan Benefits si ,379.2 m2 692.2 Net Assets Available for Benefits $1,357,7 1,260.3 957.8 Monsanto provides pension benefits for substantially all of its employees. Funding these obligations represents a significant future commitment. The actuarial present value of accumulated plan benefits and the related net assets available for benefits shown above relied the combined funding status lor United States and ex-U.S. pension plans representing approximately 99.6 percent of pension expense. This accumulated beneiits information was determined in accordance with the requirements of Financial Accounting Standards Board Slatemenl No. 36, "Disclosure of Pension Information." Under these requirements, it Is not permissible to use a salary increase assumption. Accordingly, Ihe accumulated benefits represent vested and nonvested benefits that have been accrued based on employee service and earnings to date. The plans1 net assets are slated at market values determined al Ihe end of each reapectlve period. Annual valuations of the major pension plans are made by an outside firm of actuaries to determine funding requirements and pension expense. The "entry age normal" actuarial method is used. The "Pension Plans" note to financial statements discusses changes in the major plans' assumptions and benefits for 1981 and 1980. The key actuarial assumptions currently used for the largest domestic plans include an annual average investment return on pension assets of 7.5 percent and an average salary increase, when applicable, of 6.5 percent. The plans' status and assumptions are reviewed regularly by the Company's outside actuaries and the Pension and Savings Funds Committee of the Board of Directors. Monsanto believes that the methods and assumptions used, In the aggregate, are reasonable for the purpose of determining the annual pension funding requirements and pension expense. Q67A540 S3 TOWOLDMONOQ15120 Oil and Gas Reserve Data In recent years, Monsanto has expanded its exploration efforts lor hydrocarbon reserves. Certain reserve and related data regarding the Company's oil and gas activities follow. The following definitions are important to understanding these data: Proved Oil and Gas Reserves are the estimated quantities of crude oil. natural gas, and natural gas liquids which geological and engineering data demonstrate with reasonable certainty to be recoverable in future years from known reservoirs under existing economic and operating conditions, i.e., prices and costs as of the date the estimate is made. Prices include consideration ol changes in existing prices provided only by contractual arrangements, but not on escalations based on future conditions. Proved Developed Oil and Gas Reserves are reserves that can be expected to be recovered through existing wells with existing equipment and operating methods. Proved Undeveloped Oil and Gas Reserves are reserves that are expected lo be recovered from new wells on undrilled acreage, or from existing wells where a relatively major expenditure is required for completion. Estimated Future Net Revenues ere computed by applying current prices of off and gas (with consideration of price changes only to the extent provided by contractual arrangements) to estimated future production ot existing proved oil and gas reserves, less estimated future expenditures (based on current costs) to be incurred in developing and producing the proved reserves, and assuming continuation of existing economic conditions. Present Value of Estimated Future Net Revenues is computed using a discount (actor oHO percent applied to the Estimated Future Net Revenues. Reserve Recognition Accounting (RRA) is an accounting method that reflects: 1. Proved oil and gas reserves as assets in the balance sheet; 2. Additions to proved reserves and changes in valuations ol proved reserves in the income statement: and 3. All costs associated with finding and developing addilions to proved oil and gas reserves, together with all costs determined to be nonproductive during the current period, in the income statement. RRA is prescribed by the Securities and Exchange Commission lor supplemental disclosure only and is the basis used in determining the results of oil and gas producing activities reflected in the "Summary" included in this section. The "value" assigned to proved reserves under RRA is the present value of the estimated future net revenues from those reserves. However, the basic financial statements include Monsanto's oil and gas activities using the successful efforts method of 54 0674541 accounting, which doss not recognize the value of reserves as assets, reflect Income only to the extent that oil and gas are sold, and provide for capitalization of costs to find reserves and drill and develop successful wells. Net Quantities of Proved Reserves United States Oil <1| Natural Gee (2} Dll ID Canada Natural Gas (2) Oil (1) Total Natural Gaa (2) Developed and Undeveloped Reeerw. December 31, 1979 Revisions of previous estimate Purchases of minecals-m-place Extensions, discoveries and other additions Production Dacambac 31.1080 Btvliloni cl previous aatlmata Purchaua of mlncr*lt-in-placa Entanilont, dlacovorleo and other addition* Production December 31,1961 27,3 (0.1) 0.1 3.9 (2.8) 286 (0-9) 2.0 5.7 (98) 32.8 554.9 (14.3) 1,3 62.1 (33.6) 570.4 (26.2) 0.9 39.5 (37.6) 547.0 1.2 (0.1) 1,1 (0.1) 1.0 56.8 (10,1) 1.9 (24) 48.2 0.5 5.3 (241 51.6 28.5 (0.1) 0.1 3.9 (2.7) 29.7 (09) 2.D 5.7 (29) 33.6 613.7 (244) 1.3 64.0 (36.0) 616.6 (25.7) 0.9 44.8 (40.0) 598.6 Dovalopod Reoervor. December 31, 1979 December 31.1960 December 31,1961 25.1 265 31,2 452.1 449.4 433.1 1,1 56.2 262 508.3 1.0 45.6 27,5 4950 0.9 49.0 32.1 482.1 |1) Sla'Bd In millions of barrels. (2| Slated In billions ol cubic teal (Bcf). (3! Oil and gas reserves relating to loyally Internals are not available and, tnarelore. are not included in IhB net quantises ol proved reserves. Monsanto's share ol production from (hose royally oteresls is not signilicant. In delermining the estimated future net revenue data which follow, current prices were based on actual 1981 year-end selling prices for oil and gas. In accordance with the Securities and Exchange Commission's requirements, effects ol future price decontrol or inflation were not considered. Similarty, luture expenditures were determined by using the actual 1981 year-end cost levels to develop and produce reserves. 067*1542 55 Eetlmeted Future Hat Revenue* of Proved Raaarvaa At December 31,1M1: Stataa Developed and Undeveloped Reserve!: 1962 1983 1984 Remainder $ 150.6 143.6 121.1 1,970.8 Total $2,306,1 Developed Reeenree: 1902 1983 1984 Remainder $ 150.6 143+6 121.0 1,417.3 Toil) $1,832,5 Canada 3 4.6 S.4 5.8 70.7 $86.5 $ 4.6 5.6 5.8 66.3 $82.3 Total $ 155.2 149.0 1269 2.041.5 $2,472.6 $ 155.2 1492 126.8 1.483-6 $1.9140 Praaant Value of Estimated Futuro Nat Ravanuaa of Prevad Raaarvaa at December 31: Developed and Undeveloped Resarvee: Developed Reeenree: 1979 1980 1981 1979 1980 1981 Unitad Stales 331.6 S535.0 $761*7 $317.0 $482.5 $733,7 Canada 30.6 $397 $43.2 $301 36.6 $41,9 Total $362.3 $574.7 6604.S $347.1 $521.1 $775.6 A summary of oil and gas producing activities using RRA and an analysis of the net change in present value of estimated future net revenues for 1981 and 1980 follow. This summary is prescribed by the Securities and Exchange Commission. Monsanto recommends that the RRA results be evaluated with caution and an awareness of the inherent (Imitation Of any prescribed method lor determining changes in value. Changes in the discount rate, future selling prices, costs or reserve estimates made in developing the RRA data could significantly affect the results. As indicated above, the future selling prices and costs used in calculating the present value of oil and gas reserves are based on currant -- not probable future -- selling prices and costs. 06 74543 56 The results Of oil and gas activities in the Summary do not include the operation of natural gas plants, which operations are included in the product group data on page 31. Monsanto's historical cost linancial statements include pretax earnings of $34.1 and $27.6 lor 1981 and 1980, respectively, corresponding to the oil and gas activities reflected in the Summary. No interest costs or general corporate expenses have been allocated to either the historical cost or RRA results ol oil and gas activities. The 1980 RRA results have been restated to reflect a consistent method of determining evaluated costs. Aggregate property acquisition costs, costs of uncompleted exploratory wells and major development costs that have been deferred pending further evaluation, and, accordingly, are not reflected in the Summary, were $118.5 and $76.8 as of December 31, 1981 and 1980, respectively. Related to this amount, valuation allowances of $9.6 and $6.6, were provided during 1981 and 1980, respectively. Total valuation allowances related to the deterred costs were $25.2 and $19.1 as of December 31, 1981 and 1980, respectively. Summary of Oil and Qai Producing AcUvIlM For tlM Vaar Endad Pacambor SI: Additions to estimated proved reserves, gross Revisions to estimates of reserves proved in prior years: Changes in prices other Accretion ol discount Totet Additions and Revisions Evaluated acquisition, exploration and development costs Incurred, including valuation allowances Present value of estimated future development and production cosls Expenditures during the year dial reduced lulure development costs estimated at the prior year-end Purchase of minerals In place Sales of oil and gaa and value of transfers, net of production costs of $54.4 and $34.& wr 1961 and t9B0, respectively hatching* Additions and revisions to proved reserves excess of evaluated costs provision for Income taxes Aftertax Results Change in Praaent Vatu* of EatlmitHl Nat Ravanuaa 1961 1960 $143,7 $101.6 66.4 4S.0 574 315.6 221 3 (26.7) 362 332.6 (20*8) 22-7 38.6 (126.2) $230.2 143.6) 8.3 3.4 (00.3) $212.4 RRA Results ol Oil $ Gie Producing Activities 1961 I960 $143.7 SKM.6 66.4 45.0 G7.5 315.6 22T 3 (28.7) 35.2 332.6 (133.7) (28.6) (99 4) (436) 161.1 61.6 $ 69.6 169.6 71.4 $110.2 0674544 57 Summary of Significant Accounting PolIclot Management has selected the following accounting principles from acceptable alternatives in preparing the consolidated financial statements. Baals of Consolidation The consolidated financial statements include the Company and its majority-owned subsidiaries. Significant intercompany transactions have bean eliminated in consolidation. E*-U.S. subsidiaries' financial statements are translated to United States dollars for consolidation purposes in accordance with the requirements of Financial Accounting Standards Board Staiemenl No. 8. Investments in affiliates in which Monsanto has an ownership interest greater than 20 percent, but which are not majority-owned, are accounted for by the equity method. Depreciation Monsanto generally uses the straight line method of computing depreciation. income Taxes Investment tax credits are recorded under the "flow through" method of accounting as a reduction of income tax expense in the year in which they.are used to offset the Federal income tax liability. Income taxes have not been provided on the undistribuied earnings of ex-U.S. subsidiaries since any taxes on dividends received from those subsidiaries would be substantially offset by foreign lax credits. Also, income taxes have not been provided on a substantial portion of the undistributed esrnings of domestic subsidiaries, including domestic international sales corporations (DISC'S), whose distribution would be subject to additional taxes, because Monsanto intends to indefinitely reinvest those earnings. Inventory Valuation Inventories are staled at the lower of cost or market. Actual cost is used lor raw materials and supplies, and standard cost, which approximates actual cost, is used for finished goods and goods in process. Standard cost includes elements for direct labor, raw material, and manufacturing overhead based on practical capacity. The cost of substantially all domestic inventories is determined by the lesl-in, lirst-ouf (UFO) method. The cosi of olher invenlories is generally determined by the first-in, first-out (FIFO) method. Oil and Gas Activities Oil and gas exploration and production activities are accounted for using the successful efforts method. Change In Presentation For the year ended December 31,1981, the Company changed its presentation of the Statement ot Changes in Consolidated Financial Position Irom an analysis Of changes in working capital to an analysis of changes In cash, lime deposits and certificates of deposits, and short-term securities. The Statements ol Changes In Consolidated Financial Posilion for 1980 and 1979 have been restated to conform with the 1981 presentation. SB Statement of Consolidated Income [Dollars '0 millions, except per share] Net Sales Cost of Goods Sold Marketing and Administrative Expenses Technological Expenses Operating Income Other Expense and Income: Interest expense Other income -- net Income Before Income Taxes Income Taxes Net Ineome Earnings per Share Monsanto Company and Subsidiaries mi $6,947.7 5,300.6 659.9 294.6 6,245.3 702.4 1980 $6,573.6 5,476.0 617,9 269.5 6,363.4 210.2 1979 $6,192.6 4,932.0 551.6 222.1 5,705.7 486.9 100.9 91.5 9.4 693.0 247.9 $ 445*1 $ 11.50 111.8 107.3 4.5 205.7 56.9 $ 148.8 $ 4.10 123.3 117.5 5.8 431.1 150.1 $ 331.0 $ 9.11 Thg above statement should be read in conjunction with page 50 and pages 64 through 75 of this report. 0674*546 59 TOWOLDMONOQ15126 I Statement ot Consolidated Financial Position (Dollars in millions, except per share) AtHlt Currant Assets: Cash Time deposits and certificates of deposit Short-term securities -- at cost which approximates market Trade reoeivables, net ot allowances ol $39.0 in 19S1 and $43.4 in 1980 Miscellaneous receivables and prepaid expenses Inventories Investments and Other Assets: Investments in affiliates Other Property, Plant and Equipment, at Cost: Land Buildings Machinery and equipment Mineral rights and oil end gas properties Construclion-in-progress Less accumulated depreciation and depletion Total Assets At DtCtmbtr 61 1611 I960 $ $1.8 127.4 216.9 1,072.9 177.3 873.2 2,549.5 $ 44.8 104.3 61.5 1,105.9 228,2 B32.3 2,377.0 175.1 160.7 335.6 15B.2 152.1 310.3 57.7 665.4 4,600.1 475.4 418.9 6.217.5 3.033.6 3,183.9 *6,069.2 57.0 670.3 4.628.4 352.0 365.9 6,073.6 2,964.5 3.109.1 $5,796.4 The above etetament should be read In conjunction with page 58 and pages 64 through 75 of this report. TOWOLDMONOQ15127 I Liabilities end Shareowners' Equity Current Liabilities: Accounts payable Wages and commissions Income and other taxes Miscellaneous accruals Short-term debt Long-Term Debt Deferred Credits and Other Liabilities; Deferred income taxes Other Minority Interests In Subsidiaries Shareowners' Equity; Preferred stock authorized, 10,000,000 shares, no par value: - Issued and outstanding, 99.151 shares in 1981 and 123,139 shares in I960 Common slock authorized, 100,000,000 shares, par value $2 each; issued, 39.978,064 shares in 1981 and ' 36,978,084 shares in 1980 Additional contributed capital Reinvested earnings Less common slock in treasury, at cost (509,800 shares in 1981 and . 808,435 shares in 1980} Total Uabllltlea and Shareowners' Equity Monsanto Company and Subsidiaries Al December 31 1H1 i960 $ 492.3 106.7 99.4 190.8 174.7 1,063.9 1,110.3 $ 425.8 105.4 60.2 320.4 23B.B 1,150.6 1.370.5 421.2 30.1 451.3 113.5 336.1 26.3 364.4 102.7 0.2 0.3 79.9 BS3.5 2,422.7 3,356.3 73.9 651.6 2,122.7 2,846.7 26.1 3,330.2 *6,069.2 40.5 2,808.2 $5,796.4 0674546 TOWOLDMONOQ15128 Statement of Changes In Consolidated Financial Position (Dollars in millions) Monsanto Company and Subsidiaries toureti |Uin| ol Fund* Operation*: Net income Charges not using (credits not providing) funds: Depreciation, depletion and obsolescence Deterred income taxes Net gain on sale Of Joint venture property Other -- net Funds provided from operations, belore changes in working capital Investment and Other Transection*: Working capital changes Property, plant and equipment additions Net proceeds from sale of joint venture property Property disposals Other--net Financial Transactions: Issuance of common stock Outside financing Dividends Debt reduction Increaee (Decrease! In Funde Increase (Decrease) In Elements of Funds: Cash Time deposits and certificates ol deposit Short-term securities Increase (Decrease) In Funds from Changes In Working Capital Elements: Trade receivables, net Miscellaneous receivables and prepaid expenses Inventories Accounts payable Accrued liabilities Short-term debt 1U1 1980 1979 S 445.1 387.4 83.1 (67.7) (41.*) 806.1 $ 148.8 546.9 60.0 (88.2) 667.5 $331.0 412.7 (17.1) (59.9) 666 7 (43.7) (667.9) 216.6 33.3 50.6 (409.1) 35.6 (780.5) 8.4 (70.4) (806.9) (103.3) (565.9) 35,7 49.6 (583.9) 205.5 31.5 (145.1) (273.4) (161.5) S 216.5 266.3 (126.4) (59.2) 78.7 $ (60.7) 55.4 (121.2) (93.3) (159.1) $ (76.3) 6 37.0 23.1 155.4 $215.5 S 1.1 10.1 (71.9) $ (60.7) $ (21.7) (53-1) (1.5) $ (76.3) $ 33.0 50.9 (40.9) 66.5 (89.1) (64.1) S (43.7) $ (20.8) (36.1) 77.6 (159.6) 168.6 5.7 $ 35.6 $(179.9) 14.7 (189.1) 188.7 42.0 20.3 $(103.3) The above statement should be read In conjunction with page 58 and pages 64 through 75 of this report. 62 067*5<i9 TOWOLDMONOQ15129 Statement of Consolidated Shareowners' Equity (Delias m millions, excepl per share) Monsanto Company and Subsidiaries Preferred Stock Balance, January 1 Conversion to common slock Balance, December 31 Common Stock Balance, January 1 Issuance ol new shares Balance, December 31 Additional Contributed Capital Balance, January 1 Conversion of convertible securities and Issuances under employee stock plans Issuance ol new shares Other Balance, December 31 Reinvested Earnings Balance. January 1 Nel income Preferred dividends ($2.75 per share) Common dividends ($3,75, $3.55 and $3.35 per share for 19B1-1979, respectively) Balance, December 31 Common Stock In Treasury Balance, January t Shares purchased Conversion ol convertible securities and issuances under employee stock plans Reclassification from miscellaneous investments Other Balance, December 31 1**1 I960 1979 $ 0.3 $ 0.3 $ 0.4 (0.1> (0.1) $ 0.2 $ 0.3 $ 0.3 $ 73.9 $ 73.9 $ 73.9 6.0 C 79.8 $ 73.9 S 73.9 $ 651.8 1.3 199.5 0.9 9 8S3.S $ 652.9 $ 651.5 (1.4) (0.8) 0.3 2.2 $ 651.8 $ 652.9 $ 2,122.7 $2,102.3 $1,892.5 445.1 14B.8 331.0 (0.3) (0.4) (0.5) (144.8) (128.0) (120.7) *2,422.7 $2,122.7 $2,102.3 $ (40.5) $ (47.6) $ (38 9) (15) (4.0) (12.4) 15.9 11.1 7.9 (4.4) 0.2 S (26.1) $ (40.5) $ (47.6) Tta above statement should be read in conjunction with page 58 and pages 64 through 75 of ttils report. 067*1550 63 Not** to the Financial Statamanta Divestltura* In August 19B1, Conoco Inc. purchased the Company's Interest in the Monsanto/Conoco joint venture facilities and certain related assets of the Company's olefins and aromatics business to satisfy the terms of a Justice Department consent decree which allowed the merger of E. I. duPont de Nemours. Inc. and Conoco. The Company's gain on the sate was recorded as a reduction of 1981 cost of goods sold of $124.1, or $87.7 ($1.75 per share) net of related lax effects. The facilities were a part of the Chemical Intermediates operating unit in the United States and generated sates of approximately $167.4 for Monsanto in the first eight months of 19B1. In January 1981, the Company's Textiles operating unit withdrew from the polyester filament business in the United Slates. Accordingly, 1980 cost ol goods sold included a provision for losses of $121.2, or $69.0 ($1.90 per share) net of related tax eftects. In connection with the withdrawal from this business, the Company sold certain polyester manufacturing facilities and related technology and certain patent rights to a subsidiary of Celanese Corporation. The remaining related manufacturing facilities have been shut down and facilities that do not have alternative future uses within the Company will be disposed ol as soon as practical. This business had sales ol approximately $134.0 in 1980. . In 1980, Monsanto decided to terminate all of its interest in Aiscondel. S.A., a majority-owned Spanish subsidiary whose results were included with the Plastics & Resins operating unit. Cost ol goods sold for 1980 included a provision for losses of $66.3, or $38.7 ($1.07 per share) net ol related lax effects, as a result of this decision, and the Company subsequently sold its interest to the minority shareowners lor a nominal amount in February 1981. As part of the sales agreement, the Company obtained a revision of certain intercompany obligations and guaranteed a new $12.6 line Of credit on behalf of Aiscondel. In addition, the Company paid certain debts ol Aiscondel under previous guarantees. On a U. S. dollar basis, Aiscondel had sales of approximately $126.0 tor the 11 months its results were included in the consolidated financial statements in 1980. In 1979, the Textiles operating unit withdrew from nylon operations in Europe. Accordingly, the related manufacturing facilities were shut down by the end of 1979 and are in the process of disposal. The Textiles operating unit recorded a charge to coat of goods sold relating to this withdrawal ol $77.4 or $42.7 ($1.18 per share) net of related lax effects. Also in 1979, Monsanto discontinued certain operations of a plastics subsidiary in the Canada-Latin America world area, whose remaining operations were sold to an affiliate in December 19B1, and closed certain product lines of Aiscondel. Due to these actions, the Plastics & Resins operating unit's results included a charge to cost of goods sold in 1979 of $27.7 or $10.5 ($0.29 per share) net of related tax effects. 64 0674551 As of December 31, 1981, the remaining accruals for the divestitures discussed above have been reduced to $69.1, which amount is principally included in accounts payable and miscellaneous accruals ($33.2) and as a reduction of receivables and other assets ($26.4). The reduction in accruals resulted from actual expenditures lor shuldown or withdrawal costs, disposal Of certain facilities, and operating losses subsequent to the recording of the provisions. The remaining accruals are estimated to be sufficient to absorb any additional costs related to these actions. Depreciation, Depletion, and Obaoleacence and Rent Expense 1981 1980 1979 Depreciation and depletion Obsolescence Total $381.1 26.3 $367.4 S327.D 219.9 $546.9 $294.9 117.0 $412.7 Rent S 73.9 $ 71.0 $ 62 2 The above table includes depreciation, depletion and amortization expense related to oil and gas production and exploration activities (see "Oil and Gas Activities" note). Obsolescence expense for 1960 and 1979 included $187.5 and $93.1, respectively, related to "Divestitures" discussed above. The weighted average assigned lile for buildings is approximately 23 years and lor machinery and equipment is approximately 12 years. Pension Plans Most Monsanto employees are covered by noncontributory pension plans. The expense related to these plans was $126.8, $97.7 and $92.3 in 1981-1979, respectively. These amounts include charges applicable to current sen/ice and amortization of unfunded prior service costs over periods generally ranging (rom 10 to 30 years. It Is Monsanto's policy to fund pension costs accrued. As ol January 1,1981, certain amendments to Monsanto's major domestic pension plans became effective. These changes increased retirement benefits, decreased the number of years of combined age and service required for unreduced early retirement benefits, and reduced the eligibility requirements for surviving spouses' automatic retirement benefits. The net effect of these plan changes was to increase 1961 pension expense by approximately $52.1. Certain policy changes in the actuarial assumptions for Monsanto'S major pension plans became effective on January 1,1980. These changes ware adopted to reflect more current assumptions with respect to projected future events and conditions. The investment return assumption was changed from 7.0 percent to 7.5 percent. The salary increase assumption was changed Irom a uniform 6 0 percent to a set of age-dependent assumptions which had an overall average of .5 percent. Also, Monsanto increased the contribution for one major pension plan to the maximum deductible amount for lax purposes. The net effect of these policy changes was to decrease 1980 pension expense by approximately $1.0. 65 0674552 Estimated benefit and asset information for plans representing 99.6 and 96.1 percent of total pension expense for 1981 and 1980, respectively, is presented below on an aggregate basis as of December 31 of each year. Net assets were measured at market value at those dates and year-end accumulated benefits were estimated from actuarial valuations made earlier In the year. The 1981 amounts include the effect of the increased benefit levels discussed above. Actuarial preeenl value of accumulated plan benefit*: Vested Nonvested Total Nat aaaota available for benaftta 19S1 $1,220.9 157.3 $1,370.2 $1,357.7 1980 7755 1147 890.2 $1.260 3 Technological Expenaaa Research and development Engineering, commercial development and patent Total 1981 $220.0 64.0 $204.0 I960 $204.4 651 $269.5 1979 $161.3 606 $222.1 Interest Costs and Income Effective January 1, 1980, Monsanto began capitalizing interest costs related to construction-in-progress expenditures in accordance with Financial Accounting Standards Board Statement No. 34. In prior years, all interest costs were expensed as incurred. Total interest costs Incurred during 1981 and 1980. respectively, were $144.4 and $163.4, Dt which $43.5 and $51.6 were capitalized. The net effect of adopting Statement No. 34 was an increase in 1980 net income ol $27.5 ($0.76 per share). Interest Income Included in other income-net for 1981-1979 was $68.3, $36.4 and $63.6, respectively. Equity In Aflillatee Monsanto's equity in the net income ot affiliates including foreign currency gains or losses on translation of financial statements, totalled $37.5, $17.3 and $25.8 in 1981-1979, respectively, and is Included in other income-net. Foreign Exchange Net exchange gains (losses) resulting from foreign currency transactions and translation of foreign currency financial statements were $(27.6), $11.5 and $(26.9) in 1981-1979, respectively, including a gain (loss) ol $16.2, $(17.5) and $2.3, respectively, related to the translation of equity affiliates' financial statements. 66 0674553 Income Taxes ThB U.S. and ex-U.S, components of income before income taxes were: teai 1930 1979 Income before Income tax**: US. Ex-US. $5464 144.4 $211.5 (5.9) $526.9 (45.6) Total 6663.0 3205.7 $481.1 The components of Inoome tax expense were: 1961 19*0 1679 Current: Deferred: Total Federal Slate Ex-U.S. Federal Slate Ex-U.S. 6 90.8 8.6 37,6 137.0 10X1 9.0 (1.2) 110.9 9247,9 $(5.0) 4.6 24.6 24.2 16.0 2.B 10.6 32.7 $56.6 $126.1 16.0 25.1 167.2 44 2 4.0 (65 31 (17 rj $150.1 A change in tax laws, related to slock relief, in the United Kingdom (U.K.) during 1979 resulted In a reversal of deferred taxes of $16.8 ($0.46 per share), which amount was reflected in deferred ex-U.SIncome tax expense for 1979. These deferred faxes were established in prior years for differences in book and tax bases Of U.K. inventories. Investment tax credits for 1981-1979 were $21.6, $48.5 and $28.4, respectively. The sources of timing differences in the recognition of revenue and expense for tax and financial statement purposes and the tax effect of each were: Q67A5SA TOWOLDMONOOI5134 Additional depreciation and obsolescence for (book) tax purposes Reversal ol deferred taxes related lo UK. stock reliel Net change in accrual for pension expense Intangible drilling and development costs Interest capitalisation Other Total 1961 $ 66.0 5.7 23.1 14.6 1.6 1110.9 I960 S (7,6) (4.5) 14.6 23.4 6.B $32,7 1979 6(22.1) (16 81 146 It 0 (*01 *(i7 n Factors causing Monsanto's effective income tax rale to differ from the federal statutory rate were: 1961 I960 1979 Federal statutory rate Investment tax credit Tax treatment afforded earnings of DISC'S Results ol ex-U. S. subsidiaries (or which there were no tex benefits or provisions U.K. slock relief, Including reversal of previously deferred taxes Other Effective Income fee nfe 46.0% (3.1) 0.2) (2.) OH 35.6% 46,0% 123.6) 02.*) 19.0 0.3) 27.7% 46.0% (5,9) (*.B) 18 (5.1) (0.7) 31 2% Undistributed earnings ol subsidiaries lor which additional taxes that may be required in the event of distribution have not been provided were: 1961 1980 1979 Ex-U.S subsidiaries US. subsidiaries, including DISC'S 6165.9 349.5 S 77.7 290.5 S 78.2 2161 Tout 5535.4 $368.2 5296.3 Ex-U.S. net operating loss carryforwards at December 31, 1981 lor which no tax benefits have been recorded were approximately S114.5, a substantial portion of which has an unlimited carryforward period. 067<iSS5 SB TOWOLDMONOOI5135 Earning* Par Share Earnings per share were computed using the weighted average number of common and common equivalent shares outstanding each year (38,703,604, 36,287,314 and 36,315,279 in 1961-1079, respectively). Common share equivalents included in the computation consist of common stock issuable upon exercise of outstanding stock options (200,801, 24,611 and 5,026 in 1981-1979, respectively), and conversion of loan stock of Monsanto pic. (144,952, 202,204 and 242,638 in 1981-1979, respectively). Earnings per share assuming full dilution were not significantly different from the primary amounts. Had the shares issued in the April 29, 1981 common stock offering (see "Capital Stock" note) been issued as of January 1, 1981, earnings per common and common equivalent share would have been $11.36 for the year ended December 31, 1981. The pro forma earnings per share amount reflects the effect of decreased aftertax interest expense through the reduction of long-term debt, as well as the increased number of shares outstanding. Inventories Valued on FIFO baala: Valued on a LIFO baata Total Finished goods Goods in process Raw materials Supplies. 1981 $162.5 65.0 104.B 142.2 3767 $673.2 1960 $1639 6fl,8 995 130.1 370.0 $832 3 The LIFO method used does not identify inventories by classification (i.e., finished goods, goods in process, raw materials and supplies). Inventories al December 31,1981 and 1980 would have been $548.0 and $509.3, respectively, higher than reported if the FIFO basis of inventory valuation (which approximates current cost) had been used for all inventories. Commitment* and Conlfngenclee Monsanto was contingently liable as guarantor of bank loans and for discounted customers' receivables totaling approximately $39.8 al December 31,1981, including $14.0 related to guarantees of loans of affiliates. Commitments in connection with uncompleted additions to property aggregated approximately $152.9 at December 31, 1981. Monsanto is a party to a number of lawsuits, which il is vigorously defending, arising in the normal course of business. Certain of these actions seek damages in very large amounts. While the results of litigation cannot be predicted with certainly, management believes, based upon the advice of Company counsel, that the final outcome of such litigation will not have a material adverse effect on Monsanto's consolidated financial position. 0674556 69 Long-Torm Dbt long-term debt, exclusive of current maturities and repayable in U.S. dollars, except where indicated, was as follows: Monsanto Company: 8% notes due 19B5 7Y*% promissory notes due 1983/1989 4**% promissory note* due 1993 BVa% sinking fund debentures due 2000 9Vb% sinking lund debentures due 1997 3%% income debentures due 2002 4V*% income debentures due 2008 8%% sinking fund debentures due 2008 4%%--1 l*i% industrial development bond obligations due 1983/2021 Capitalized tease obligations Commercial paper 14%%-20Y% (a) Monsanto International Finance Company: 414% sinking lund debentures due 1985 (bj Monsanto p.l.c. (U.K. subsidiary) (British pound): 5% loan stock due 1983/1986 (c) Other Monsanto (Suisse) 8.A, (Swiss subsidiary) (Swiss franc): 6Ys% sinking fund debanturaa due 1988 Monsanto Europe. 8. A, (Belgian subsidiary) (Belgian franc): 9%%-14Vi% bank loans due 1983/1988 (d) 9%% bonds due 1983/1991 Other Total 1981 19BQ * 100.0 7,9 S3.3 174.5 89.7 88.7 SO.O 199.0 210.8 13.3 7.5 S 100.0 99 58.D 174.4 89.7 91.0 50. D 198.9 184.4 12.4 225.0 10.0 8.1 9.7 5.8 29.8 26.8 26.6 56.4 9.8 17.9 $1,110.3 80.9 12.6 72 $1,370.5 Not** (a) This amount of commercial paper outstanding at December 31,19B0, was included in Long-Term Debt because the Company intended to refinance these borrowings on a longterm basis, and long-term licencing was available under then existing bank credit agreements. The proceeds trom the >981 common stock Issue (see "Capital Stock" note) were used to reduce commercial paper outstanding, fb) These debentures are currently convertible into the Company's common stock at $85 per share, subject to adjustment under certain conditions. (0) This loan stock is convertible into the Company's common stock at a rate equivalent to $55 per share, subject to adjustment under certain conditions. |d) The Interest rates on certain of these bank loans are reduced by a government subsidy ranging trom 4.0 pereant-2.8 percent, which is scheduled to expire over the next two years. 70 0674&97 Maturities and sinking fund requirements on long-term debt are $36.1, $35.4, $33.7, $146.0 and $41.2 lor the five years ending December 31, 1982 through 1986, respectively. Covenants of certain loan agreements restrict maximum borrowings and dividend payments. It is not anticipated that additional future borrowings will be affected by these restrictions, and none of the Company's reinvested earnings were restricted as to dividend payments at December 31, 1981. Monsanto has various parallel loan agreements, scheduled to expire from 1982 through 1986, with U.K. companies and their subsidiaries. Monsanto's borrowings of $84.5 and $92.4 in British pounds starting and U.S. dollar loans ol $62.2 and $90.4 as of December 31, 19S1 and 1980, respectively, are reflected net in the accompanying Statement ol Consolidated Financial Position since both parties have the legal right of offset in case of default. Interest rates on the sterling loans are 272 percent to 2% percent higher than the interest rates on the corresponding dollar loans. Substantially all long-term debt of subsidiaries is guaranteed by the Company, , Short-Term Debt and Bank Credit Arrangements 1961 1960 Noles payable 10 banka Commercial paper Current portion of lono-term debt Total *138.6 36.1 61747 167-2 14,9 36.7 236 6 During 1981, the Company had available a $400.0 domestic Revolving Credit/Term Loan Agreement with twenty-one banks. This Agreement provided lor a five-year revolving credit period with any borrowings outstanding at the end of that period convertible into a three-year term loan. Effective January 1,1982, the Company amended this Agreement to reduce the commitment to $t00.0 and to extend the revolving credit period through December 31, 19B6, with any borrowings outstanding at the end ol that period convertible into a three-year term loan. The interest rate on any borrowings until December 31, 1986, al Monsanto's option, will ba at the prevailing Citibank, N.A. prime rate, or will be at a spread above either Ihe prevailing rate on Certificates of Deposit or the Nassau intetbank offer rate. In conjunction with the foregoing changes, the Company secured $100.0 of short-term lines ol credit with the same group of banks. The interest rate on any borrowings under the short-term lines of credit will be at the prevailing prime rale of each bank. 0674558 During 1981, the Company also had available $200.0 under Eurocurrency Revolving Credit Agreements. Effective January 1, 19B2, the Company amended its Eurocurrency Revolving Credit Agreement to decrease the commitments to $100.0. These commitments are subject to mandatory reduction after 4VS years and terminate at the end ol seven years. Interesi rates for the Eurocurrency Agreements are Vi percent to'/ percent above the prevailing London or Luxembourg interbank offer rate. No borrowings were made under either the Revolving Credit/Term Loan Agreement or the Eurocurrency Revolving Credit Agreements through February 26, 19B2. In addition, certain ex-U. S. subsidiaries have short-term loan facilities aggregating approximately $416.2, under which loans totaling $77.4 were outstanding at December 31,1981. Intereat on these loans is related to various ex-U.S. bank rates. Capital Stock The outstanding preferred stock Is stated at $2.24 per share, has a cumulative dividend of $2.75 per share and is convertible into 1.12 shares of the Company's common stock, subject to adjustment in certain events under antidilution provisions. Preferred stock may bs redeemed solely at the Company's option at $73 per share (the voluntary liquidation preference) and has an involuntary liquidation preference ol $35 per share, or an aggregate of $3.5 al December 31, 19B1. The Company issued 26,860, 39,241 and 30,120 common shares principally out of treasury stock upon conversion of 23,986, 35.042 and 26,931 preferred shares in 1981-1979, respectively. The Company also issued 59,997, 40,775 and 41,136 shares out of treasury stock in 1981-1979, respectively, upon exercise of conversion rights by holders of convertible loan stock issued by Monsanto p.l.c,, and 130,066,14,624 and 15,355 in 1981-1979, respectively, upon exercise of stock options. In 1981, ihe Company issued 58 shares from treasury stock for conversion of convertible debentures issued by Monsanto International Finance Company. There were no conversions of these debentures in 1980 or 1979. The Company held 34.600 and 58.106 shares of its common stock in treasury for specific purposes (principally for distribution to participants in the Employee Stock Purchase Plan) al December 31, 1981 and I960, respectively. In addition, at December 31,1981, there were 340,628 common shares reserved for conversion ol convertible securities and 2,213,439 for stock options. On April 29, 1981, Ihe Company sold 3,000,000 shares of common stock in a public offering- The net proceeds of $205.5 from this issuance were used to reduce outstanding commercial paper reflected in long-term debt as of Dscember 31,1980. 72 0674559 Stock Option Plan* The status of authorized common shares for stock option plans and the changes occurring during 1981 were: 1SSB and 1974 Plant Sham Under Option* Outstanding Share* Available For Grant January 1, 1881 December Si, 1981 Grants Exercises Cancellations 1,422,643 265,200 (125.562} (87,097) 1,475,184 949.669 [265,200) 53766 738,255 Options outstanding at December 31,1961, were granted at prices ranging from $47.25 to $92.68, or a weighted average of $63.23 per share. Options for 979,143 shares were exercisable at December 31, 1981. The options exercised during the year had been granted at prices ranging from $44.50 to $73.19 per share. Stock appreciation rights (SAP's) are authorized to be granted at the same time the related non-qualified options under the 1974 Plan are granted. In addition, SAP's may be granted retroactively lor any unexerelsed non-qualified options under either the 1974 or 1969 Plan, The exercise Of an SAR cancels the related option; conversely, the exercise ol an option cancels the related SAR. Al December 31, 1981, SAR's related to options for 407,969 shares were outstanding; of these, 265,491 were exercisable. In 1981, SAR's related to options for 93,169 shares were granted; 33,331 were exercised; and 23,670 were cancelled. Oil and Qaa Activities Monsanto's net revenue (gross revenue less production costs) from oil and gas production for 1961 and 1980, respectively, was $126.2 and $88.3 ($122.5 and $84.1 United Slates and $3.7 and $4.2 ex-U.S.). These net revenue amounts exclude royalty interests and Ihe operation of natural gas plants. The aggregate amount of capitalized costs (including construclion-inprogress) and the aggregate amount of the related accumulated 0674560 depreciation, depletion and amortization (DD4A), at December 31, 19B1 and 1980, were: Proved properties: Cross capital DD&A Unproved properties: Qross capital DD&A United Slates EX'U.S. Total 1081 $408.5 1980 30 7.8 1981 125.1 I960 107.8 $14.0 13.7 6.4 5.9 $422.5 321-5 131.5 1137 1981 111.6 1980 68.6 1981 20.9 1980 15.7 6.9 116.5 80 76.8 4.3 25.2 3.4 191 Costs incurred tor the years ended December 31, 1981 and 1980, were: Property acquisition Exploration Development Production DD&A Amortization of undeveloped leases 1991 1990 1981 19BO 1981 1980 1981 1980 1981 1980 1981 1980 United Steles $81.1 32.9 65.1 449 68.5 44.4 63.5 39.7 19.7 11.8 8.3 60 Ex-U.S. s 2.6 2.5 10.5 0.3 0.3 1.9 14 0.5 0.6 1.3 0.6 Total $61.1 35.5 67.8 55 4 68.8 44.7 65.3 41.1 20.2 12.4 9.6 6.6 Segment Information Certain operating unit and world area segment data tor 1981-1979 appear on pages 3B and 39 of this Annual Report and are integral parts of the accompanying linancial statements. Unusual or nonrecurring charges or credits were included in the operating units and world areas as discussed in the "Divestitures" note. In addition, the Canada-Latln America world area data lor 1979 includes a charge of $8.5 related to the devaluation of the Brazilian cruzeiro. This charge is reflected in various operating units, principally industrial Chemicals. The impact ol adopting Financial Accounting Standards Board Statement No. 34 in 1980 (see "Interest Costs and Income" note) was not material to the results of any of the operating units or world areas. 74 067456; Intercompany or inter-area receivables and profit derived from intercompany or inter-area sales are the principal items reflected in eliminations in arriving at the consolidated totals. Certain corporate expenses, primarily those related to the overall management ol the Company, were not allocated to the operating units or world areas. Nonoperating assets principally include cash, time deposits and certificates of deposit, short-term securities and investments. The principal product lines included in each operating unit are shown in the "Sales by Product Group" data on page 31. Total sales between operating units (made on a market basis) were $238.5, $249 8 and $229.7 in 1981-1979, respectively. These sales were nol significant lor any operating units except Chemical Intermediates ($174.1, $165.3 and $151.9 In 1981-1979, respectively) and Industrial Chemicals ($30.6, $45.3 and $44.1 in 1951-1979, respectively). Inter-area sales, which are sales from one Monsanto location to another Monsanto location in a different world area, ware made on a market basis. Export sates included in United States net sales to outside customers were as follows: 1981 1980 1979 Europe*Africa Cfmada*Latin America Asia-Pacific Total I 41.4 187.7 248.0 $488.1 $ 68,5 182.4 241.0 $491.9 $ 557 178.3 172.4 $406.4 Following is a reconciliation of ex-U. S. operating income and total assets as Shown on pags 39 to the Company's equity in the net income (toss) and net assets of consolidated ex-U.S. subsidiaries: 1081 1980 1979 Operating Income (Ion): Europe-Africa Canada-Latln America Asra-PacHic Income charges (credits)--net Income toxoo Not income (lose) ol consolidated X-U.S. eubtldlertoe Total aaaat*: Europe-AIrtea Cajiftda-Latin America Asia-Pacific Total llabilMn Net mat* of conaoWated ax-U.S. eubetdlariaa 8 38.4 40.0 24.9 104.2 (37.6) 300 S 111.* S (436) 24 2 12.9 67) 46.2 10.9 $ (65.8) $ (66.6) 36 20.4 (42.5) 56,7 (69.5) $ (30.0) $1,048.0 280.2 227.2 1,556.4 881.7 S 664*7 $1,026.3 291.3 1761 1,493,7 699.9 $ 793.8 $1,198.3 300.5 181.Q 1,679.8 918.4 $ 761.4 0674562 75 Independent Audllori' Opinion on Financial Statements To the Shareowners ol Monsanto Company: We have examined (he statement of consolidated financial position of Monsanto Company and Subsidiaries as of December 31.1981 and 1980 and the related statements of consolidated inoome, shareowners' equity and changes in financial posilion for each ol the three years in the period ended December 31,1981. Our examinations were made in accordance with generally accepted auditing standards and, accordingly, included such tests of the accounting records and such other auditing procedures as we considered necessary in the circumstances. In our opinion, such consolidated financial statements present fairly the linancial position oi Monsanto Company and Subsidiaries at December 31, 1981 and 1980, and the results ol their operations and changes in their financial posilion for each of the three years in the period ended December 31,1981, in conformity with generally accepted accounting principles consistently applied during the period except for the change, with which we concur, In 1980 to (he method of capitalizing certain interest costs as described In the "Interest Costs and Income" note to the financial statements. Saint Louis, Missouri February 26, 1982 76 0674563 Ky Word Index To Flnenclel Report Bank Credit Arrangements Capital Stock Cash (Funds) Flow Commitments and Contingencies Common Stock Data Consolidated Sales Consolidation, Basis oi Consolidated Nat income________________ Depreciation and Depletion Depreciation Policy OwastituTes______________________________ Earnings per Share, Analysis of Earnings per Share. Computation of EquUyTn Affiliates........................................ Foreign Currency Gains flosses)_________ Gain on Sale ol Joinl Venture (DJveatilurea} incoma Taxes income Taxes Policy inflation, Supplemental Adjusted Financial Data Interesl Coats Interest Income Inventories Inventory Valuation Policy______________________ Long-term Debt long-term liquidity and Capital Resource Measures Obsolescence Oil and Gas Activities Historical Revenues and Coats Reserve Recognition Accounting Revenues and Costs Oil and Gas Reserves Estimated Future Net Revenues Net Quantities of Proved Reserves Present Value ol Estimated Future Net Revenues Pension Plans Pension Plans Funding Status Quarterly Results Raw Materials and Energy FtenI Research and Dsvslopmant Seles by Product Group Segment Information, Notes to Selected Financial Dale, Five-Year Historical and Three-Year Inflation Adjusted Short-term Debt Short-lerm Liquidity end Capital Resource Measures Shutdown Costs (Divestitures) Slock Option Plans________ __________ Technological Expense___________________________________ World Area Segment Data___________ __ _____ 71 72 47 51 68 85 58 64 30 69 66 34 64 67 56 43 50 70 49 73 57 56 55 56 65 S3 36 33 65 32 31 74 46 71 46 64 73 Q674564 TOWOLDMONOQ15144 Financial Summary (Defers m millions, except per snare) Operating Result* Earning* per Shire Veer-End Financial Position Other Data Net Sales Operating Income interest Expense Income Taxes Net Income Percent ol Net Sales Percent of Average Shareowners' Equity Primary Fully Diluted Total Assets Working Capital Property. Plant & Equipment Gross Net Long-Term Debt Shareowners' Equity Per Common Share: Dividends Shareowners' Equity Property, Plant & Equipment Additions Depreciation, Depletion and Obsolescence Shareowners: Common Preferred Common Shares Outstanding (in Millions) Employees IASI $6,948 702 101 246 445 6.4% 14,5% $11.50 11.43 $6,069 1,466 $6,218 3,164 $1,110 3,330 $ 3.75 64.37 $ 666 387 79,029 775 39.5 57,391 I960 $6,574 210 112(f) 57 149(1) 2.3% 5.3% $ 4.10(1) 4.06 $5,796 1,226 $6,074 3,109 $1,371 2,BOS $ 3.55 77.63 $ 781 547 82.441 871 36.2 61,836 (1) Beginning January 1,1980, Ihe Company began capitalizing interest coals related to construction-in-progreas expenditures In accordance with financial Accounting Standards Board Statement No. 34, Capitalization of Interest Cosl." In years prior to 1960, afl interest costs were expensed as incurred, The effect of the new accounting principle was to increase 1980 net income by 527.5 or 0,76 per ` primary share. (2) As of January 1,1974, the Company and certain ol its domestic subsidiaries changed Uiair method ol inventory valuation for substantially all United Slates inventories Irom Ihe FIFO basis to the LIFO basis. The effect ol this change was to decrease 1974 income by $77.5 or $2.26 per primary share. 78 0674565 TOWOLDMONOQ15145 I Monsanto Company and Subsidiaries 1979 $6,193 487 331 12.3% $ Q 11 ' 9.03 $5,539 1.323 $5,529 2.S1B $1,203 2,702 $ 3.35 77.20 $ 566 413 85,600 952 36.0 63,926 1078 $5,019 632 103 274 303 6.0% 12.2% $ 8.29 6.21 $5,036 1,296 $5,167 2,605 $1,224 2,579 $3,175 71.26 $ 480 288 86,775 1,156 36.2 62,851 1977 $4,595 610 86 246 276 6.0% 11.9% $ 7.46 7.37 $4,350 1,060 $4,745 2,406 $1,031 2,401 $3,025 66.16 $ 607 296 85,021 1.404 36.3 61,519 1076 $4,270 668 80 251 366 8.6% 17.3% $10.05 9,77 $3,959 1.106 $4,206 2,090 $ 915 2,253 $ 2.75 61.79 $ 647 226 64,647 1,956 36.4 61,903 1975 $3,625 547 56 230 306 8.4% 16.4% $ 8.63 8.22 $3,451 1,150 $3,620 1,660 $ 645 1,977 $ 2.55 56.62 $ 528 173 91,725 2,836 34.8 59,242 1974 1073 $3,498 550 43 251 323(2) 9.2% 20.0% $ 9.25(2) 8.73 $2,646 406 39 173 238 9.0% 17.2% $ 6.90 6.54 $2,938 968 $3,157 1.312 $ 587 1,755 $ 2.30 51.39 $ 313 172 96,542 3,709 34.1 60,926 $2,545 855 $2,852 1,152 $ 579 1,484 $ 1.90 44.26 $ 205 170 98,964 3.855 33.4 SB,277 1972 $2,225 216 37 81 122 5.5% 9.7% $ 3.49 3.40 $2,237 677 $2,765 1,133 $ 576 1,294 $ 1.60 39.05 $ 166 194 104,369 3,939 33.0 57,691 1071 $2,067 178 39 66 94 4,5% 7.8% $ 2.65 2 63 $2,154 547 $2,735 1,170 $ 556 1,226 $ 1.80 37.16 $ 205 187 110.490 3,697 32.8 59,271 067*566 4 1 TOWOLDMONOQ15146 I Directors and Officers Board of Directory John W, Hanley St. Louis Chairman of the Board and Chief Executive Officer Edmond 8. Bauer St, Louis Chairmen of the Board and President Fisher Controls International, Inc. Dr. Donald C< Carroll Philadelphia Dean of The Wharton School University of Pennsylvania C. Raymond Dahl San Francisco Retired Chairman of the Board Crown Zellerbach Corporation Dr. Louis Fernandez St. Louis Vice Chairman of the Board J. William Fisher Marshalltown, la. Former Chairman of the Board FiBher Controls Company, Inc. Richard I, Frlcke Montpelier. Vt, President National Life Insurance Company Howard M. Love Pittsburgh Chairman of the Board and President National Steel Corporation Richard J. Mahoney St. Louis President and Chief Operating Officer Dr. Jean Mayer Medford. Mass. President Tufts University Buck Mlckel Greenville, S.C. Chairman of the Board Daniel International Corporation la subsidiary of Fluor Corporation) Edward L. Palmer New York Chairman of the Executive Committee Citicorp and Citibank, N. A. Francis E. Reese St. Louis Senior Vice President Monte C. Throdahl St. Louis Senior Vice President Admiral Stanefteld Turner U.5. Navy, Retired Arlington, Va. Consultant and Lecturer Margaret Bush Wilson St. Louis Attorney Wilson, Smith and McCullin Advisory Directors Robert L. Berra Francis J* Fitzgerald Earle H. Harblson, Jr, Nicholas L. Reding Dr. Howard A. Schnelderman Francis A, Stroble Committees of the Board of Directors Audit Dr. Jean Mayer Buck Mickel Edward L. Palmer Margaret Bush Wilson Corporate Social Responsibility Dr. Louis Fernandez J. William Fisher Admiral Starafield Turner Margaret Bush Wilson Executive Dr. Louis Fernandez John W, Hanley Richard J. Mahoney Margaret Bush Wilson Executive Compensation and Development Richard I. Fricke Howard M. Love Buck Mickel Finance Dr. Donald C. Carroll C- Raymond Dahl J. William Fisher John W. Hanley Richard J. Mahoney Edward L. Palmer Nominating C. Raymond Dahl Howard M. Love Buck Mickel Pension and Savings Funds Dr. Donald C. Carroll Dr. Louis Fernandez Richard 1. Fricke Dr. Jean Mayer 067<iS(>7 BO TOWOLDMONOQ15147 Officer* Chairman of the Board and Chief Executive Officer John W. Hanley Vice Chairman of the Board Dr. Louie Fernandes President and Chief Operating Officer Richard J, Mahoney Executive Vice President* Francis J. Fitzgerald Earle H. HarbiBon, Jr. Nicholas L Reding Senior Vice President* Robert L. Berra Francis E, Reese Dr Howard A. Schneiderman Monte C. Throdah! Group Vice Presidents Robert E, Burke Harold J. Corbett Vice President and Chief Financial Officer France A. Stroble Vice President, Secretary and Genetul Counsel Richard W. Duesenberg Vice President* Dr. Constantine E. Anagnostopouloa Alfred W. Andrews Leonard A. Cohn Thomas L. Go&Bage Dr. S Allen Heininger Dr, Joseph T. Nolan Sam Pickard Robert G. Potter Ernest S, Robson, Jr. Treasurer John A. Rolls Controller Michael F. Me* Annual Meeting The next Annual Meeting of the shareowners of Monsanto Company will be held at 1:45 p,m., Friday, April 23, 1982, at the Company's General Offices, 800 N. Lindbergh Blvd,. St. Louis County, Mo. A formal notice of the meeting, together with a proxy statement and form of proxy, is being mailed to each shareowner. 1Q.K Report A Corporate Data Book A copy of Monsanto Company's Form ICbK Report filed with the Securities and Exchange Commission for 1981, and a 1981 Corporate Data Book, which contain additional information relating to Monsanto, can be obtained by writing to: Shareowner Relations Department, Monsanto Company, 800 N. Lindbergh Blvd., St Louis, MO 63167. Transfer Agent and Registrar The First National Bank of Boston Motuinto Company 800 North Lindbergh Boulevard Bt. Louis, Missouri 63167 TOWOLDMONOQ15149