Document NGqk66pVMNgpKyJM3Z0vRYQ2b

Annual Report 1979 OSH 021212 TOWOLDMONOQ14918 Annual Meeting The next Annual Meeting of the shareowners of Monsanto Company will be held at 1:45 pm, Hitdav. April 25.1980, at the Company's General Offices, 800 N. Lindbergh Blvd., SL Louis County, Mo. A formal notice of the meeting, together with a proxy statement and form of proxy, is being mailed to each shareowner. 10-K Report A copy of Monsanto Com pany's Form 10-K Report filed with the Secunties and Exchange Commis sion for 1979, which con tains additional informa tion relating to Monsanto, can be obtained by writing to: Shareowner Relations Department, Monsanto Company,800 M. Lind bergh Blvd., St. Louis. Mo. 63166. Italics identify Monsanto 's trademarks. OSH 021213 TOWOLDMONOQ14919 Operational Highlights 'Dollars m millions, except per share) _____________ 19791978 7Net Sales,. ........................... .......... . ~ ... $6,192.6 $5,018.7 Net Income................. ....................... --...........___ $ 331.0 % 302.6 Per Common Share: Primary Earnings................................................ $ 9.11 Fully Diluted Earnings................................... 9.03 Dividends................................................. 3.33 Shareowners' Equity...........................................................77.2071,26 $ 8.29 8.21 3.175 Property, Plant and Equipment Additions ...I Depredation and Obsolescence........................ Taxes--Income, Payroll, Property and Other. Research and Development................................. 563.91 479.9 $ 412.7 $ 288.3 t 320.8$ 419.0 ( 173.5I 144.3 Year End: Shareowners--Common Shares..................... 83,608 Employees............................................................ .............. 63,92662,851 86,775 Contents Operational Highlights Monsanto at a Glance To Our Shareowners Current Performance Growing for the Future Energy and Feedstocks Research and Innovation Environmental and Worker Health Corporate Citizenship Financials Directors and Officers t2 6 11 19 24 28 31 35 37 72 DSU 021214 TOWOLDMONOOI4920 Monsanto at a Glance Monsanto Company is headquartered in St. Louis, Mo,, where it was founded in 1901. It is today the fourth largest U.S. chemical company with annual worldwide sales of $6.2 billion. The Company manufactures and sells a diversified line of chemicals and related products derived from petroleum, natural gas, phosphate ore and other raw materials. Monsanto sells little of its production to end users, but supplies materials to other industries which manufacture the end product. Worldwide operations include investments (either directly or through affiliates) in more than 180 manufacturing plants, labora- Monaanto Agricultural Products Co. serves agri cultural and other markets through six major business areas: herbicides, insecti cides. plant growth regula tors, fertilizer materials, blasting products and hybrid breeding animals. Major products include: > Lasso, Roundup. Avadex, Far-Go and Machete herbi cides--used to control many annual and perennial weeds in major crop and industrial uses. > Parathion insecticides protect feed and fiber crops from destructive pests. > Plant growth regulators-- increase the sucrose con tent of sugar cane. > Ammonium nitrate--fer tilizer for agriculture and blasting agents for mining. > Farmers Hybrid Compa nies. Inc., (wholly owned subsidiary) develops and markets boars and other breeding stock. Monsanto Chemical Inter mediates Co. manufac tures more than 60 "build ing block" materials that go into industrial and con sumer products. MCI's bus iness areas are petrochemi cals, process chemicals and textile intermediates. The company's major markets are plastics, rubber, textiles and chemicals. A signifi cant percentage of the com pany's production is used internally by various Mon santo operations. Major products and their uses: t> Acrylonitrile--fibers, plastics, synthetic rubber. t> Styrene--plastics, syn thetic rubber, paints, o Phenol--plastics, lac quers, chemicals, pharma ceuticals. o Acetic acid--cellulose acetate, vinyl acetate, textiles. t> Ethylene--plastics, chemicals. t> Methanol--formalde hyde. antifreeze, solvents. Maleic anhydride--poly ester resins, agricultural chemicals, plasticizers. o Phosphorus and deriva tives--insecticides, oil addi tives, ore flotation. t> Caustic potash--oil refin ing, fertilizer, soaps. Sulfuric acid and oleum--chemicals, metal treating, fertilizer. Adipic acid, adiponitrile--textile fibers. Monsanto Industrial Chemicals Co. serves a broad range of markets through eight business areas: detergents and phos phates, electronics, engi neering services, nutrition chemicals, plasticizers, pol lution control equipment, rubber chemicals and spe cialty chemicals. The prod uct line includes: & Detergent builders, sur factants, antimicrobials and dentifrice agents. & Electronic-grade silicon for semiconductor devices. > Rubber chemicals and testing instruments for tires and other rubber products. > Plasticizers--impart flexi bility and other desirable characteristics to plastics. o Pharmaceuticals includ ing analgesics and L-Dopa for Parkinson's Disease, o Fire-resistant additives for plastics and foams. > Functional fluids for metalworking and heat transfer applications. o Water treatment chemi cals for swimming pools and industrial uses. t> Animal feed ingredients to retard spoilage and enhance nutritional values, o Food ingredients includ ing flavorings, preserva tives, leavening agents, o Enviro-Chem Systems, Inc., provides engineering services and pollution con trol equipment. 2 DSW 021215 tories and technical centers in 20 nations. The Company's prod ucts are sold in 123 nations. The organizational structure includes five operating companies (based on market focus--see below) and the Fisher Controls Cor poration of Delaware, a majority-owned subsidiary. These units manage their businesses on a worldwide basis with assistance from Monsanto International, R&D and Environmental Policy staffs, and other support groups. Monsanto has approximately 64,000 employees worldwide and 86,000 individual and institutional owners of common shares. Monsanto Plastics ft Resins Co. is composed of three divisions: plastics, resin products and fabri cated products. Major products and markets are: i> Lustran ABS/SAN plas tics--extrusion and injec tion molding uses in large and small appliances, auto parts, toys, dishes. t> Lustre* polystyrene plas tic--food packaging, dispos able dishes, cassettes, toys, o Vydyne and Vydyne R (reinforced) nylon--electri cal and automotive applica tions, industrial machinery, appliances. o Fane-Car board --auto mobile headliners, graphic arts material, energy-saving sheathing for manufac tured housing and home improvement. > Saflex interlayer--safety windshields and laminated architectural glass. t> Specialty resins for paints, coatings, adhesives and paper manufacturing, o AstroTurf recreational surfaces and doormats. -> Blow-molded plastic containers and bottles, o Polyethylene film--used for disposable diapers and energy-saving greenhouse cover. i Spray Guard rain flaps for trucks. Monsanto Toxtlloa Co. makes synthetic fibers for a variety of uses shown below. Garments and home furnishings made with Monsanto libers often can be identified by the WearDated trademark, a unique warranty that Monsanto offers directly to consumers. t> Acrilan, Bi-Loft So-Lara acrylic fibers--apparel, home furnishings, craft yams and canvas-like products. o Nylon (including Ukron carpel fibers)--home fur nishings, tire cord, indus trial fabrics, hosiery and apparel. o Cerex spunbonded nylon--air filters, rubber and urethane reinforce ment, upholstery backing, disposable clothing and parachutes. c> SEFmodacrylic fiberfire-resistant apparel, `drapes and blankets, o Polyester fiber--apparel filament and staple, o Bidim engineering fab ric-- stabilizing underlay for streets, highways, railroad track beds and drainage systems, and for control of soil erosion Fisher Controls Corp. of Oslswars is a worldwide leader in the manufacture of process control equip ment including valves, regulators and electronic and pneumatic instrumen tation. Fisher products are used broadly throughout the chemical, petrochemi cal, power, paper, metal processing, and oil and gas industries. The company is owned approximately twothirds by Monsanto and one-third by The General Electric Company Limited of the United Kingdom. Monsanto International coordinates operations out side the U.S. in conjunction with the five operating companies and manages joint ventures worldwide. Monsanto International has local management responsibility wherever the Company conducts busi ness outside the U.S, These operations are organized into three major world areas: Europe-Africa, Canada-Latin America and Asia-Pacific. Area and regional headquarters are located in Brussels, London, Parts, Dusseldoif, Tokyo, Singapore, Melbourne. Toronto. Mexico City, Sao Paulo and Buenos Aires. 3 OSU 021216 Net Sate* Dollars in millions JoWG a 70 71 72 75 74 75 76 77 78 79 As fractionating columns rise 265 feet above Choco* late Bayou. Tex., the giant ethylene and coproducts plant being built by Mon* santo and Conoco pro grasses toward its 1980 completion date. 4 OSH 021217 TOWOLDMONOOI4923 DSU 021218 TOWOLDMONOOI4924 To Our Shareowners: B y most traditional yardsticks of corporate perfor mance, 1979 was a good year for Monsanto. The Company achieved record sales of $6.2 billion. Our net income, boosted by a substantially lower effec tive tax rate, reached $331 million. Thus, despite a disap pointing fourth quarter and loss provisions associated with the closing or restructuring of some problem busi nesses, 1979 net income was up 9.4 percent from 1978. Primary earnings per common share were $9.11 com pared with $8.29 for the previous year. However, 1979 was a year marked by such nontradi- tionai developments--in terms of national and world economies, the pricing of energy and precious metals, and, of course, international relations--that our share owners might well wonder about the validity of traditional corporate measurements. The price of gold bullion finished the year almost three times higher than it opened 12 months earlier. During the year, the average cost of crude oil rose more than 80 per cent in the U. S.. with even greater increases in other parts of the world. The prime interest rate hit an all-time high in the U. S. while inflation reached levels that were unthinkable to most Americans only a few years ago, Against this unsettling backdrop, it's difficult to inter pret the results of any corporation. Should Monsanto's results be considered inadequate compared with the sky rocketing vaiues of precious metals, or outstanding in that the Company withstood the economic shocks of 1979 while still achieving higher levels of profitability? Even more important, what has the Company accom plished in 1979 to assure continued growth, profitability and financial strength in the 1980's, despite a cloudy eco nomic outlook? These key questions provide the focus for this Annual Report In it, we try to give our shareowners a broad per spective on Monsanto. This perspective includes not only a look at current performance, but also at our efforts to grow for the future, to overcome the obstacles posed by increasingly expensive energy an 4 raw materials, to find and exploit new business opportunities through research and innovation, and to accomplish all of this in a socially responsible manner. >r Seated in foreground: John W. Hanley, Chairman and Chief Executive Officer. Background, left to right: James J. Keriey, Chairman of the Finance Committee; H. Harold Bible, Vice Chairman; Richard J. Mahoney, President: Louis Fernandez, Vice Chairman. Ready for the 1980k We don't expect the 1980s to provide an easy business climate. While more careful control of federal spending and U. S. monetary growth is required and should result in a long-term cooling of today's torrid inflation rate, most economists believe that rising prices will be with us for some time to come. Even more troublesome is the uncertainty which faces the U. S. and most of the indus trialized world regarding the availability and price of petroleum. These factors suggest that the decade ahead will be one of slower economic growth than this country experienced in the Sixties and early Seventies. 6 DSW 021219 TOWOLDMONOOI4925 Nevertheless, the 1980's also promise some new oppor tunities. The U S. chemical industry as a whole should continue growing somewhat faster than the gross national product, and some areas within the industry should grow much faster than the average. We believe that Monsanto is positioned to recognize and seize the appropriate opportunities of the 1980's. For several years, my messages to shareowners have dealt with our twin strategies of trimming weaknesses that were slowing financial progress and building strengths in professional management, technical exper tise, and a well-balanced product line generally charac terized by leadership positions. The trimming continued in 1979 as we announced the closing of our unprofitable European nylon fibers busi ness in the second quarter. We spent many months dis cussing possible options with appropriate European gov ernment officials and employee representatives. Unfortunately, these discussions failed to produce a workable alternative to withdrawing from this business. Another problem area that we addressed in 1979--but did not fully resolve--was our Spanish plastics subsi diary AiscondeL The management of that company is taking steps to reduce its lasses in 1980, although we do not expect it to achieve profitability this year On the positive side, 1979 saw us building strengths by expanding product lines, exploring new markets and making new investments in high-potential businesses. Our capital spending in 1979 amounted to 1566 million and is expected to rise some 20 percent (not including capitalized interest) in 1980. The vast majority of this new capital is being directed into businesses where we now hold--or intend to achieve--leadership positions. Tins emphasis on leadership should enhance future profit potential while helping insulate the Company from general economic swin^. The capital spending figures above include invest ments in added capacity for such growing products as Roundup herbicide, Saflex interlayer and electronicgrade silicon. We've announced major capital projects to incorporate new Monsanto-developed technology with substantial cost advantages into the manufacture of existing products. Let me dte a couple of examples: >Monsanto announced plans to build the world's larg est synthetic methionine plant, capable of producing 100 million pounds annually. We market this chemical as MHA amino add supplement for animal feeds and have just introduced a new liquid form to meet the needs of modem feed miDs. > We're also investing in proprietary new technology to make maleic anhydride, an important chemical interme diate, from fcnitane instead of benzene. While adding ca pacity in maleic anhydride, we're also sharply improving our costs and the reliability of our raw material supply. Ready Around the Globe These kinds of technological advances--in step with the times--reinforce our confidence regarding Monsanto ! prospects for the Eighties. Timely technology is also a key factor in expanding Monsanto's global presence to promote geographic growth of our product line. Sales outside the U. S. in 1979 jumped 39 percent com pared with the previous year The increase reflected, in part, the full consolidation of Fisher Controls and Aiscondel results into Monsanto's total results. But the most important factor in our international sales gam was the strength of U. S. exports. This performance was enhanced by the effects of the U. S. dollar's weakness against other major world currencies, renewed eco nomic growth in other nations, and feedstock cost advantages enjoyed by U. S. chemical companies gener ally. These factors should continue working to Mon santo's benefit in 1980. partially offsetting die effects of an expected U. S. recession. That's not to say, however, that when these factors dis appear from the scene, our advantages in international markets will also disappear. Monsanto's world-scale plants, strong raw material positions and technological leadership assure our continued ability to serve not only traditional markets, but also the faster-growing develop ing nations. We plan to continue building our multina tional presence by taking advantage of carefully re searched and analyzed opportunities around the world. Tempo of Innovation . "In step with the times'' certainly describes a new indus trial product line that Monsanto unveiled during 1979-- Prism separators. This system removes hydrogen from industrial gases by using hollow fibers made of pomeable membranes. The system offers the potential for sig nificant energy savings and other cost and processing advantages in certain industrial operations where hydro gen is an important ingredient. We're continuing our research programs to find additional applications for separations technology. Research and development capabilities are an extremely important element of our readiness for the Eighties. Monsanto spent $174 million on R&D in 1979 and will boost that figure by more chan 20 percent in 1980. We fully intend to continue providing first-dass technical support and innovation within existing product lines while exploring new scientific frontiers that will be the basis of Monsanto's success in the future. lb that end, the Board of Directors last year elected Dr. Howard A. Schneiderman, formerly the Dean of Biologi cal Sciences at the University of California-Imne, as Monsanto's new Senior Vice President for R&D. The Company is indeed fortunate to have this eminent scien tist leading its overall R&D efforts. Furthermore, his expertise in biology and genetics should be particularly helpful as Monsanto's R&D team expands its involve ment in biochemistry--the chemistry of living cells, We believe that this evolving science holds great promise for helping the chemical industry cope with an energy-tight, environment-conscious world in the 1980's, Responsibilities to Society It seems safe to say that, energy and economic problems notwithstanding, concerns over environmental protec tion in its broadest sense will remain with us in the Eighties--as well they should. Fortunately, there is also growing concern about the negative impact of poorly OSW 021220 TOWOLDMONOOI4926 conceived and executed government regulations. At least one major event of 1979 involving Monsanto under scores this and offers some hope for more reasonable regulation in the years ahead. A U. S. Court of Appeals ordered the Food and Drug Administration to take another look at its 1977 decision banning Monsanto's Cycle-Safe plastic bottle. The court held that the FDA did not have sufficient data to support its decision. This is an encouraging development, even though it will not recreate the attractive commercial opportunity nor the thousand jobs that were lost when the bottle was banned. Monsanto management remains committed to the principle that safety and sensibility must go hand in hand--in the laws, in regulations and, most of all, in our own actions. While the government has a proper role to play in establishing acceptable standards of industrial conduct, no one can relieve us of the primary responsi bility for the safety of our own products and processes. This attitude of social responsibility is no less than what the public expects and no more than what is proper. It's an attitude as essential to contemporary man agement as professional competence and appropriate analytical tools for guiding a multibillion-doQar enter prise. In my judgment, the Monsanto management team possesses all three in readiness for the Eighties. Ready to Manage the Amm The Board of Directors took several important actions on February 22. I960, relating to our readiness to manage the future I'd like to take a moment to report these actions, which anticipate the January 1981 retirement of Vice Chairman H. Harold Bible. The Board elected Louis Fernandez to the position of Vice Chairman and Richard J. Mahoney to be the Presi dent of Monsanto. While this means that 1 am relin quishing the role of President, the Board reaffirmed my roles as Chairman and Chief Executive Officer These changes are effective April 1.1980, Dr. Fernandez's new responsibilities will include chair manship of the Corporate Administrative Committee, which assists the CEO as the Company's principal policy and strategy-setting body. He will also supervise major portions of the Corporate Staff and retain overall respon sibility for our technical community. Me Mahoney will have responsibility for the world wide activities of the five operating companies and Mon santo International .. While dealing with our readiness to manage the future. I'd be remiss if I failed to acknowledge the con tributions of two individuals in making Monsanto what it is today. One is Me Charles H. Sommer former Chair man of the Board, who died February 6,1980. While we are saddened by his death, we shall remember him warmly and always admire him for the leadership he provided during his 45-year association with the Company. I also want to express our special thanks to Me Bible, who will continue working closely with the Monsanto management team to effect a smooth transition as he moves toward retirement His comprehensive knowl- % edge of our business--based on 11 years as a Board member and 38 years of total Monsanto service--have made him a trusted adviser and a source of strength to me and my colleagues. Additionally, let me salute the dedicated managers at all levels of operations and staff who provide such able support to top management In particular, the caliber of our senior management today--enhanced by a substan tial number of personnel changes in recent years--attests to the high priority that Monsanto gives to human resources planning. This senior management group rep resents a sound combination of youthfulness and matu rity, backed up by many talented middle managers who are honing their skills in preparation for future respon sibilities. From the Chairman's perspective. I have great confidence that Monsanto will not run short of profes sional management resources in the 1980's--or beyond. Tb summarize the thrust of this report, the positive ele ments of Monsanto's 1979 performance reflect in many ways the quality of our preparations for the future. We expect that our 1980 performance will be adversely affected by the general economic slowdown in the United States. But we believe that our many strengths will continue working to our benefit Looking beyond the current year, we're well aware that this new decade will not be an easy one. Undoubt edly, there will be some unpleasant surprises compound ing the difficulties we're already expecting Nevertheless, the management of Monsanto is confident that we have prepared ourselves as fully as possible. We intend to do better than just coping with thee problems. In fact we intend to seize the opportunities invariably created by unsettled time such as these--particularly opportunities involving such important human needs as enhanced food production, health and safety, energy conservation and economic growth. Above all, Monsanto shareowners should understand that its management team believes in the future. We refuse to participate in an oversold sense of pessimism-- quite evident in world gold markets--that today's prob lems are beyond human resolution. We don't believe that's true of society as a whole, and we know it's not true of Monsanto. John W Hanley Chairman and Chief Executive Officer March 14.1960 State-of-the-art industrial technology, such u that employed at this Loui siana ammonia plant, is a major Monsanto strength For the 1900'*. OSU 021221 TOWOLDMONOOI4927 DSW 021222 TOWOLDMONOOI4928 OSH 021223 TOWOLDMONOOI4929 Current Performance Monsanto's consolidated net sales in 1979 climbed to a record S6.2 billion, a 23.4 percent increase over 1978. Part of the gain reflected the expanded sales base of the new Fisher Controls Corporation (created bv a merger early in 1979) and the first hill year for consoli dating the sales of Aiscondel (a majority-owned Spanish plastics subsidiary). Adjusted for these two factors, the sales gain would have been about 19 percent. Met income for 1979 was up 9.4 percent to $331 million, and primary earnings per common share were $9.11 compared with S8.29 for 1978. The dividend paid on a common share during 1979 was increased by 17,5 cents to $3.35. The sales revenue improvement was about evenly divided between higher volumes and price increases that attempted to recover sharply higher raw material costs, particularly for feedstocks and energy derived from oil and natural gas. Business was strong for the first 10 months of 1979, Late in the fourth quarter, however, inventory corrections by downstream industrial custom ers--primarily in the automobile and housing indus tries--curtailed Monsanto shipments and severely squeezed profit margins. Earnings benefited substantially from a high level of interest income, improved results from affiliates abroad and a lower effective tax rate. The most significant tax factor was a nonrecurring event involving a changed law in the United Kingdom. Other factors included higher levels of DISC export credits, based on strong export sales, and a lower LT.S. statutory tax rate. Earnings were lowered, however, by loss provisions associated with efforts to resolve certain problem situa tions, thus improving prospects for future profitability. The largest write-off covered the costs'of closing the Company's European nylon fibers operations, with an after-tax impact of $42.7 million or $1.18 per share. Earn ings were further penalized by $10,5 million or 29 cents per share when Aiscondel provided for the planned clos- Lasso herbicide is widely used in ihe U.S.. South America and Europe *o control grasses and ccr* tain broadlcaf weeds which infest com and soy bean acreage. Monsanto specialty plasttc:?.ers include those used in food wrap to achieve clahty. [legibility, permeacility to oxvgen and safety for food contact DSM 021224 TOWOLDMONOOI4930 Above: High-Fashion sweater garments have acaicd a sljong market for Monsanto acrylic fibers, including the highbulk Fli-Lo/t Tiber Kighi: Wear-Dated carpels ol UUron nylon libers carry a live-vcar consumer wniramy. This premium carpet filler resists static and slams. IJ Left: The lag :h.at identi fies Wear Dated apparel with fibers by Monsanto has high consumer recog nition and acceptance. Right: A garment manu facturer turns out new fashions made wilh Mon santo polyester filament. ingof some product lutesTMa proposal now pending before die Spanish government. Despite these losses, Monsantos international busi nesses made a major contribution to the Company's results. Sales abroad rose 39 percent and accounted for 38 percent of the Company total. The international sales increase reflected strong exports from the U.S. and, to a lesser extent, the first time consolidation of Aiscondel and Fisher Controls sales. U.S. exports rose 31 percent to S406 million, stimu lated by technological and cost advantages, plus the effects of the dollar's weakness against other major currencies. Foreign exchange losses, although slighdy less than in 1978, were significant at 88 cents per share: The largest single piece of this was due to devaluations of the Brazilian cruzeiro throughout the year. Each of Monsanto's live operating companies pro duced sales gains. However, only two operating compa nies improved their income performance. Monsanto Agricultural Products Company's highly successful herbicides led the way to new records in sales and operating income. Total sales were $840 million, a 14 percent increase over 1978. Operating income (before taxes, interest expense and other income charges and credits) rose 8 percent to $329 million. Among the best performers: Lasso herbicide continued as the largest selling herbi cide in the U.S., protecting com and soybeans from grassy weeds. Roundup herbicide maintained its spectac ular sales growth, based on its worldwide utility in crop and industrial applications: the U.S. government granted approval for using the product in new sites and with additional application techniques, Avadex herbicide, used primarily to control wild oats in wheat, enjoyed steady growth. Machete herbicide, which protects rice crops in other parts of the world, is now under consider ation by the U.S. government for use in this country. Monsanto Chemical Intermediates Company achieved the highest gain in operating income among the companies, with a 54 percent improvement over 1978. Sales grew 64 percent to $859 million, and operat ing income reached $116 million. Tight markets lor several important products, espe- QSH 021225 TOWOLDMONOQ14931 QSW 021226 TOWOLDMONOOI4932 More than 30.000 iquarc fed of laminated gjau form t he roof of thia new courthouse in Vancouver, 13,C. Architectural u*e of Suflex lamin ate interlayer tion of total *ale. Further growth is aiao expected in automotive markets out' aide the U.S. DSW 021227 TOWOLDMONOOI4933 eiaily styrene monomer, allowed tms opeeau.-a _;ut pass along a large percentage of higher costs, hut. not enough to prevent some profit margin deterioration. Volume increases, high plant utilization and manufactur ing cost reductions were also factors in the year's results, aided by a strong export market Phenol, a widely used resin for plywood and other construction materials, enjoyed a strong year until the declining housing market began impacting volumes. Acrylonitrile performed well in the U.S., where down stream consumer buying of nylon and acrylic fibers remained Ann, but less well in Europe where a soft mar ket was further aggravated by the dosing of Monsanto's nylon operations. Production of elemental phosphorus finished the year aL full capacity in response to strong demand. Monsanto Industrial Chemicals Company achieved J1.5 billion in sales, up 17 percent from 1978. However, escalating costs of hydrocarbon-based raw materials squeezed operating income to S202 million from S219miIlion in 1978. In rubber chemicals, where Monsanto has the broad est product line in the industry, the company was able to offset the effects of a declining U.S. auto market by increasing market penetration and emphasizing other markets. Plasticizers, also heavily dependent on the auto industry as well as housing, nevertheless achieved higher U.S. volumes and increased export sales. The growing electronics industry kept demand high for Monsanto sili con. Detergents and phosphate products, specialty chemicals and Enviro-Chem businesses also enjoyed excellent sales growth. Monsanto Plastics & Resins Company sales grew almost 16 percent to $1,4 billion, but operating income declined from $57,6 million to $9.6 million- Selling prices trailed rapidly rising raw material costs, and shortages of some materials hampered production. Losses by Aiscondel and a wholly owned Monsanto subsidiary in Mexico--including provisions for closing certain operations--are consolidated with the Plastics & Resins Company's results. These losses were significant in 1979. as they were in 1978. Plastics & Resins sales in all world areas exceeded prior year levels. Despite the sluggish automobile mar- Strong markets for deter gent products i,n 15*79 spurred demand loc deter gent builders and cic men tal phosphorus. the key raw material USW 021228 TOWOLDMONOQ14934 Above: Monsanto prod* ucts found throughout many new can include weight-reducing Vydynt nylon and Lusirun ABS plastics. Sufftx interlayer in the windshield, R* merre resins in the finish and headliners of Fome-Cor board. Right: Monsanto testing instruments an: the siandard of the ru bber in dustry. Now the Company is establishing its leader ship in x-ray nondestruc tive lire testing. 16 Leri: A loatir.f puip -ni.i conuuilP.g control valves furnished by a subsidiary of Fisher Controls was built in Japan and towed 15,000 miles across the world's oceans to the Amazon forests of Brazil. Right: Already the acknowl edged technological leader in industrial control valves, Fisher Controls is building its reputation for excellence in process con trol instruments as well. ket, major product areas serving that industry main tained or improved sales on a year-to-year basis. For instance, the drive for fuel efficiency in automobiles caused increased demand for weight-reducing ABS and nylon plastics. Monsanto Textiles Company results slipped to a $168.7 million operating loss. In part, this reflected the write-off for the closing of European nylon operations ($77.4 mil lion before taxes). Worldwide fiber shipments were up 7 percent despite the European nylon shutdown, and sales revenues of $U billion surpassed 1978 by 11 percent Loss factors included filament polyester in the U.S. and generally weak European nylon and acrylic markets. U.S. nylon results were adversely affected by comparatively highcost raw materials shipped in from Monsanto facilities in Europe after the closing of the company's nylon opera tions there. Bright spots for the year included a tripling of sales volume for Ultron nylon staple and improved market share for Monsanto acrylic fibers going into sweater and knit garments. Some technical progress was made toward improving the quality of filament polyester for downstream high-speed texturing uses. Monsanto International operations--Europe-Africa, Canada-Latin America and Asia-Pacific world areas all contributed to the international sales gain. While exports from the U.S. were up substantially in all areas, the inter national performance was further strengthened by improved operations in several countries. Major contrib utors included businesses in Australia and Argentina, both of which registered record sales and earnings. Busi ness growth was also strong for major joint ventures including Mitsubishi Monsanto Kasei in Japan and Industrias Resisted, SA, in Mexico. Fisher Control* Corporation of Delaware reported sales of $4967 million and operating income of $44.4 mil lion. Because this joint venture was formed early in 1979, the results are not directly comparable with those of 1978. Adverse factors affecting Fisher results included a nationwide labor dispute in the U nited Kingdom and a management decision to dose a manufacturing facility there. On the positive side, the year was characterized by the highest level of orders for standard products in DSM 021229 TOWOLDMONOOI4935 DSW 021230 TOWOLDMONOOI4936 OSW 021231 TOWOLDMONOOI4937 Fisher history. Performance leaders included rotary valves--used in viscous slurry applications such as pulp production--and gas regulators, which are enjoying a resurgence as residential and commercial structures switch to natural gas heating. 2 Growing for the Future During 1979, Monsanto continued directing its man agement technical and financial capabilities toward developing growth prospects for the 1980's. This included efforts to identify new business opportunities which, while relating to existing technological strengths, are outside the areas Monsanto is pursuing today. However, most of Monsanto's growth for the 1980's is expected to come from existing businesses. New applica tions, new markets and new related products will help retain the vibrancy of established businesses. Worldwide capital investments of S566 million in 1979 stressed products and businesses where Monsanto's strat egies call for aggressive growth. New investments by the operating companies are being targeted to gain competi tive advantages based on capacity, technology and cost A premier growth product today--in practically every part of the world where the Company does business--Is Roundup herbicide. As a manufacturing facility under construction at Antwerp, Belgium, progresses toward a 1980 start-up, Monsanto Agricultural Products Company has announced plans to build yet another new plant at Fayetteville, N.C. Together, these facilities will almost double present capacity for Roundup. To test new generations of herbicides, plant growth regulators and othercrop chemicals--and to broaden the uses for existing products--Monsanto Agricultural Prod ucts Company continues to expand its research presence in Belgium, Brazil, Japan and the U.S. A new 575-acre research farm in Troy, Mo., began operations in4979. Polished silicon wafers, which share the bright growth prospects of theelectronics industry generally, will soon enjoy the added stimulus of a new 125-millimeter size Left: Demand is brisk for Monsanto's high-purity ailicon. used as substrate For integrated circuits, as elec tronic devices find their wav into such everyday items as toys, appliances and automobiles. Right: A laser scanner measures the flatness of a 125-mi Dimeter silicon slice a new size '.hat will be made at Monsanto s Spartanburg. S.C . plant. h Specially dev e toped breeds ol boars arc sold through sate* centers operated bv Farmers HvbridCompanies. lne..a whollvuwned subsidiary of" Monsanto. OSU 021232 Greenhouse owners worry about heating costs too. Monsanto 602 polyethy lene him. placed over glass greenhouses, has been shown to cu t fuel consum ption by almost 60 percent. TOWOLDMONOOI4938 Prism separators recover hydrogen from the ammonit manufacturing process at Monsanto's Luling. La., plant This new proprietary technology, which Monsanto Intro- duced last year, generally requires no more energy to operate than the pressure of the gases flowing through it. OSW 021233 TOWOLDMONOOI4939 Lur.g sirariLiA ;< low libers uved m - . />! separators tu rninau u; an end-plug like this, whicH allows I he retuvered hy drogen to exit separately. The fibers are made uf mem brancs t hat are sc Icctivcly permeable 10 hydrogen gas. and proprietary technological advantages. Monsanto Industrial Chemicals Company will begin operations later this year at the world's largest and most advanced plant for making polished silicon wafers at Spartanburg, S.C. The facility will double the company's total capacity, on top of recently completed expansions at St. Peters, Mo., and Kuala Lumpur, Malaysia. Other aggressive growth areas for Monsanto Indus trial Chemicals Company include general purpose plasti cizers and nutrition chemicals. In 1979, the company formed a new division to spur development of nutritionrelated businesses and announced plans to build the world's largest synthetic methionine plant at Chocolate Bayou, Tbx. This chemical is marketed as MHA, an amino add supplement for animal feed. Last September, a new liquid version was introduced, offering more con venient handling in modem feed mills. In plasticizers, the company's world Leadership-- already reinforced in 1979 with the start-up of a new Bra zilian facility--got a further boost with the announce ment of a new general purpose plasticizer that can be priced competitively while providing performance advantages of certain premium-priced products. Plans are to build world-scale plants in the U S. and Canada to make this new plasticizer. Monsanto Textiles Company has capital projects underway in nylon carpet staple and Bidim engineering fabric. Annual capacity for the carpet staple will be boosted by 90 million pounds with the completion late this year of an expansion project at Pensacola, Fla. Bidim will be produced in the United States when a facility at Fayetteville, N.C., begins operations this year. Businesses operated by Monsanto Plastics & Resins Company are deriving new growth stimulus from prod uct-line additions. For example, new grades of Luscran ABS and SAN molding resins and Vydyne nylon engi neering plastics were introduced in 1979, broadening the applications and potential markets for these lines. One of the new Vydyne plastics is reinforced with a combination of mineral plus glass fibers to meet rigid specifications as a metal substitute in automotive and industrial uses. Saflex interlayer continues to show growth in architec tural uses in the United States and automotive applica tions abroad. An expansion project completed in 1979 21 DSW 021234 TOWOLDMONOOI4940 TOWOLDMONOQ14941 approximately doubled capacity at the Ghent, Belgium, plant. Two more expansion projects are underway in the IJ.S. and will come on stream in 1980. Monsanto Chemical Intermediates Company's empha sis on achieving proprietary process and cost advantages has created additional growth potential for maleic anhy dride. The company's worldwide capacity for this prod uct will be boosted 60 percent by a new plant to be built at Pensacola, Fla., based on low-cost butane technology. Complementing aggressive strategies for these and other individual businesses, Monsanto also has mapped out plans for geographic ex pansion of existing product lines. The markets for many Monsanto products are larger and faster growing in other world areas than in the United States, Worldwide opportunities are being pur sued through aggressive exporting as well as manufac turing investments in other nations. In particular, inter national growth strategies for the 1980's include greater emphasis on fast-developing nations where the Com pany can make responsible contributions. In Brazil, for instance, Monsanto's total investment passed the S100 million mark in 1979 with the dedication of a laboratory for testing rubber products, and plants to formulate major herbicides and make plasticizers. Addi tionally, the Company has strengthened its business organization responsible for broadening relationships with the People's Repu blic ofChina. Greater emphasis on international growth could mean somewhat greater risks than would be encountered in more familiar markets, but Monsanto also expects greater rewards. To minimize the potential risks and maximize rewards, Monsanto's global expansion efforts in the 1980's will focus on businesses and technologies where management has proven experience. These efforts will be supported by world-scale plants and strong raw material positions. Business judgments will be enhanced by the same sophisticated analytical tools that provide the basis for all strategic planning at Mon santo, And management will continue using a variety of proven approaches to expansion such as joint ventures with local companies. These global activities demonstrate management's intent to take full advantage of the growth opportunities of existing product lines--where the Company expects to TJus new imallercije of Roundup herbicide encoumgus firsL-Lme users to try il. Crowing work! demand for Roundup is making ihis herbicide a sairs and profit leader for Monsanto. Right: Bidim, a nonwovea cngu>erring fabric made of continuous filament polyester, helps stabilise foadbeds and disperse ex cess mnisujre, [ V i Telephones aj<u uU*Lr small household ippiit wees represent a major nevr marketing aiea f for LusfrofT A.lis/SAN ^ molding resins. The grass-like surface on Spray Guard rain Haps re duces spray troin-lruck Lfrca more than 50 percent by Lrapptng the water and letting it drain safely lo the pavement. OSU 021236 ii TOWOLDMONOOI4942 Mnn-.Lintu > Sc^i Santis England, fauiiiv became tuilv operational m 1^79 Monsanto is the world's largeM producer of jervtomLrilc. achieve the vast majority of its growth in the 1980's. Longer term, Monsanto will also need new growth opportunities. Thus, the search is underway for business opportunities outside the chartered areas of current operating companies--opportunities that relate to Mon santo's technological strengths, provide excellent growth prospects, and offer a chance for Monsanto leadership. Such efforts led in late 1979 to a merger agreement with Radiation Dynamics, Inc., the world's leading pro ducer of electron-beam processing equipment, with 1978 sales of approximately $8,5 million. This technology is presently used for vulcanization, curing and sterilization of industrial materials. Monsanto expects it to be used in a widening series of applications related to the Com pany's own expertise in processing industrial materials such as plastics. Finally, as a science-based company, Monsanto expects its own research labs to be a major source of new businesses for the 1980's and beyond. More on the directions of these efforts can be found in the "Research and Innovation ' section of this report. 3 Energy and Feedstocks There's little disagreement among investors, managers or economists regarding the most critical uncertainty facing industry in the 1980's, It's the supply and cost of petroleum and, secondarily, natural gas. The issue has a special impact on the chemical industry, whose dependence on oil and gas for raw mate rial feedstocks far outweighs its fuel uses of these hydrocarbons. The U.S. petrochemical industry uses as feedstocks only about 4 ri percent of the oil and gas consumed in this country, although petrochemicals and resulting products account for nearly 23 percent of all business sales and about 19 percent of all nongovern ment employment. Monsanto, recognizing that interruption of chemical industry feedstocks would be a serious blow to the U.S. economy, strongly supports national energy conserva- 24 DSU 021237 TOWOLDMONOOI4943 a This panel controls the acetic aetd process at Vlonsantos Texas City, Tex,, plant. Technology such as I his supports the Chemical Intermediates Co. in its outside market- ing effort. The acetic acid process itself has been licensed for plants in six countries, the latest being Yugoslavian 1979 DSW 021236 TOWOLDMONOOI4944 DSW 021239 TOWOLDMONOOI4945 'Jon goais. Monsanto s own stringent energy corner, arion program has been so successful that the Company actually used three trillion fewer BTU's last year than in 1972--even though output has grown substantially dur ing that period The Company needed about 22 percent less energy per pound of product in 1979 than it did in 1972, thus saving $141 million on last year's energy bill compared to 1972 levels of energy efficiency. Engineering for energy efficiency goes hand in hand with process selection for feedstock reliability. For exam ple, Monsanto is striving to lessen its dependence on petroleum-based aromatic compounds, which have increased in price dramatically in recent years. Thus, the Chemical Intermediates Company has been converting its hexamethylenediamine (a nylon intermediate) pro duction to propylene feedstock instead of cyclohexane. Similarly, the company is planning to switch its entire U.S. production of maleic anhydride to butane feedstock instead of benzene. Meanwhile, ensuring the reliability of more traditional feedstock supplies also has high priority. A joint project between Monsanto and Conoco Inc. will boost ethylene and coproducts annual capacity at Chocolate Bayou, Tex., to eight billion pounds by late this year. The joint project also includes a new unit being constructed at Conoco's Lake Charles, La, refinery. By matching up Conoco's strength in crude oil supplies with Monsanto's strength in petrochemical processing, the Company gains an important measure of feedstock security. Pushing even further upstream. Monsanto continued aggressive exploration for new oil and gas reserves sn 1979. For the fourth consecutive year, the Company increased its reserves of these hydrocarbons by discover ingmore than it produced. These efforts resulted in significant new finds in the Gulf of Mexico, Texas, Wyo ming, and Alberta, Canada; an additional license for off-shore drilling in the United Kingdom; and an interest in a Guatemalan drilling venture. While these efforts are relatively modest compared to those of major oil companies, Monsanto's 1979 pro duction supported about one-third of our liquid feed stock requirements. Thus, the program is an important element of Monsanto's strategy for obtaining adequate supplies of feedstocks and fuel. Left: Therminot Hu id is used for heat transfer tn this solar collection sys tem. Growing concern for energy conservation is ex panding markets for Monsanto products, in* ciudmg engineering plas* iics to reduce auto weight, herbicides in low.tillage farming, and sheathing board to insulate manu factured housing. The Chocolate Bayou ethylene plant, part of a joint project involving Monsanto and Conoco, nears completion. Left: A Monsantooperated ng drills for nat ural gas in Fremont County, Wyoming OSH 021240 TOWOLDMONOOI4946 fell A Monsanto ru searcher conducts a por tion oi the joint biomedi cal project with Harvard Medical School. The pro gram is advancing know,! edge ot the molecular basts of organ and tissue development. Dr. Howard A. Schneider* man. one ot the naiion's mosi rcspecicd academic scientists in the fields of biology and gcncucs. oined Monsanto last October as Senior Vice President for R&D Left, above, and opposite page: Cell biology re search may help uncover the mechanisms that con trol plani growth and pro ductivity. By joining the sciences of chemistry and biology, Monsanto may be able to create new kinds of plant growth regulators and herbicides, and ultU malcly new kinds of plants wiih improved properties. Research and Innovation The 1980's will witness the early stages of what might well become the chemical industry's most significant technical revolution since the development of hydrocar bon technology. During the decade, chemical compa nies--Monsanto included--will pioneer new processes and products with technologies patterned after the chemistry of living cells. Biochemistry is a natural extension of Monsanto 's expertise in many areas, including agricultural products and pharmaceuticals, Biochemical research will comple ment ongoing scientific investigations relating to more traditional Monsanto strengths. These more traditional investigations will push on toward new herbicides and plant growth regulators, synthetic fibers that are softer and easier to clean, engineering plastics and laminates to replace heavier metal parts in automobiles, detergent builders, nutrition and preservative chemicals, and scores of other new product and process ideas. However, these already successful Monsanto business areas will be joined by new ones based on the life sciences. Cell chemistry may suggest new industrial pro cesses more in tune with an age of tight energy and heightened environmental concerns. For example, while today's chemical industry technology typically employs high temperatures and pressures, livingceils can synthe size incredibly complex molecules at ordinary tempera tures and pressures. By learning to mimic these biologi cal processes, Monsanto hopes to reap the benefits of their great efficiency and synthetic powers. Monsanto has had some involvement in biochemical research in recent years, particularly with investigations into plant cell biology, drugs to stimulate the body's own natural defenses against disease, and a joint biomedical research program with Harvard Medical School. Mow the Company is formalizing and expanding its presence in the field of biochemistry by establishing a Molecular Biology Center as part of its corporate research facilities. The center will conduct long-term OSW 021241 TOWOLDMONOOI4947 TOWOLDMONOOI4948 Ultra-dean research envi ronments protect cell cul tures from contamination that could ruin months of painstaking and costly ex perimental work- In addi tion. Monsanto meets or exceeds all government safety standards for bio chemical research. DSU 021243 30 TOWOLDMONOOI4949 basic research on cell chemistry, including recombinant DNA techniques, and will seek applications for this science in solving industrial and societal problems. As the program moves forward, Monsanto will consult with the National Institutes of Health to assure compli ance with guidelines for safe recombinant DNA research. Furthermore, a distinguished panel of world leaders in molecular biology is being formed to serve as public interest advisors. The Company will make sure that its biochemical programs, with their tremendous potential for meeting human needs, also meet the high standards of social responsibility by which all Monsanto activities are judged. 5 Environmental and Worker Health Monsanto's scientific and management capabilities for aealing with safety and health issues matured in many ways during 1979. TheCompany established an international advisory committee that includes some of the world's preeminent academic scientists in such disciplines as epidemiology, pathology and biochemistry. The committee provides highly qualified and objective outside guidance on mat ters relating to health and the environment. To enhance response to U.S. environmental and safety regulation, management appointed a senior-level coor dinator for each of five major laws: the Occupational Safety and Health Act, the Clean Water Act, the Clean Air Act, the Toxic Substances Control Act, and the Resource Conservation and Recovery Act. The Company also created a top-level European Environmental Coun cil. By strengthening this corporate function around the world, Monsanto will be able to identify emerging environmental issues and deal with problems before they become crises. Development proceeded on a computerized Medical and Environmental Health Information system, known as MEHI, which is now about 30 percent operational. When completed, MEHI will provide a highly sophisti- Monsanlu's Environmen tal Health Laboratory fiaw il$ lirsl full year of opera tion irt 1979, The Cumpanv also established an inde pendent quality a-stiruncc unit to validate internal andcxiernal lexicology testing. DSW 021244 31 TOWOLDMONOOI4950 DSW 021245 TOWOLDMONOQ14951 Left-. Effluent control tech nology u$eti by Monsanto include* aeration poods to enhance The biological aciron of sped*! microrgiuv isms that break down un voted waste product*. Right: In The Fen* region uf England, Roundup her bicide is tested for residual uttecu in aquatic weed '.ontrol Canals and imgauon diichn could become in important market for his herbicide. cated tool for handling data on toxicity, regulatory requirements, employee health and exposure. Regarding on-job injury rates, Monsanto extended the strong and steady improvement trend of recent years. The 1979 rate of injuries requiring medical treatment was one-third of the 1976 rate, thanks to a determined continuing effort to make ail Company workplaces as safe as possible, Other advances in 1979 included successful retrofitting of a number of plants to meet regulatory requirements, a new employee hearing protection program, and a major increase in analytical capabilities to detect ultra-trace amounts of potentially hazardous chemicals. Further more, Monsanto now has two laboratories accredited by the American Industrial HygieneAssociation. This accred itation, which only HO laboratories in the U.S. have earned, means that these facilities meet the strictest sci entific standards. Operating and management expenses for environmen tal and health protection reached $173 million in 1979, and capital expenditures were almost $55 million. Neatly 900 employees in the U,S. alone worked full time to deal with air, water, solid waste, product and workplace safety issues. The Company estimates that about $90 million of its total 1979 government-mandated expenditures in these areas were questionable or downright unnecessary when judged by sound scientific and management principles. While Monsanto does not object to any expenditures that provide real protection, unnecessary spending caused by unreasonable regulations shortchanges employees, customers, shareowners and the society as a whole. Nevertheless, Monsanto intends to make good Faith efforts to comply with all applicable government standards for environmental and worker protection. Finally, it should be noted that about 50 percent of Monsanto's toxicological testing today is not even required by regulation, but by management's own sense of responsibility for product safety and for advancing toxicological science generally. This practice is evidence that, where governmental safety standards are less strin gent than what the Company considers necessary to pro tect health and the environment, Monsanto will adhere to its own more exacting standards. Bdow; This mobile aquatic itb built tut year can be tnikred to plant lo cation* for effluent testing. It was designed at Mon santo Research Corpora tion. whose state-of-theart environmental tech nology is often adopted by other companies and gov ernment agencies. TOWOLDMONOOI4952 6 as qualified suppliers to Monsanto plants and offices throughout the U.S. has grown to more than 325. Monsanto's deposits in minority-owned banks exceeded Corporate Citizenship $36 million in 1979, Monsanto's participation in important national debates included expert testimony in legislative and reg Monsanto could not consider itself ready for the 1980's without asking whether its reputation as a ulatory hearings and expanded involvement with state government units. Shareowners were offered an oppor good citizen will be as solid in 1989 as it was in 1979. This tunity to join a grassroots political action network which seif-examination is particularly critical in view of evolv encourages individual communications with elected offi ing concepts that carry corporate citizenship far beyond cials. The Monsanto Citizenship Fund, a strictly volun its traditional boundaries. tary political action committee for employees, saw its Certainly, Monsanto believes it performed well the tra ranks swell as the coming elections stirred interest. ditionally accepted roles in 1979. Chemical risks and benefits--and the need for bal Corporate philanthropy for a broad range of commu anced thinking on these issues--continued as the pri nity, educational, cultural, health and welfare programs mary message of a broad communications effort entitled throughout the United States and the world reached $7,4 "The Chemical Facts of Life." Monsanto's leadership has million in 1979. This included $62 million from the Mon encouraged other chemical companies to take up similar santo Fund and the remainder from corporate accounts. themes, and an industrywide communications program As recently as 1975, Monsanto's yearly charitable contri is now underway. These initiatives should magnify the butions in the U.S. amounted to one-half percent of pre positive results Monsanto has already achieved. tax corporate earnings. The figure is now about 1.5 per Each of these traditionad areas of activity will remain cent, and the Company's long-range objective is to move important to Monsanto and subject to timely innovation toward 2 percent during the 1980's, However, management also wants to Because of strong employee response to a three-year- make sure its own eyes and minds are open to new old matching gift program for ed ucational institutions-- expectations and opportunities in the realm of respon 1199,000 in employee contributions were matched last sible corporate citizenship. year--the program was expanded early in 1980 to indude During 1979, Monsanto refined an issues management hospitals, arts and cultural organizations. Employees system designed to aid this effort. The system provides also donated more than $2.1 million while the Fund mechanisms for gathering information and ideas about donated another $1.4 million to 110 United Ways in emerging social issues, analyzing their impact on the cor communities where Monsanto people live and work. poration, setting priorities and initiating appropriate Equal opportunity programs completed a decade of responses. Thus, Monsanto hopes to deal more effec progress in 1979 with minorities and women making up tively with emerging issues involving such matters as 8.4 percent of management employees and 17.6 percent how management skills might be lent to improve the of professional employees. These statistics indicate operations of community agencies: how to modernize increases of more than 300 percent for minorities and the means of corporate governance; and how to provide females in both categories since 1970. While Monsanto an internal climate where each employee can fully must continue emphasizing affirmative hiring efforts develop his or her own human potential. in the 1980's, the Company has made real progress A system does not guarantee sensitivity, of course, and in moving women and minorities into nontraditional and management jobs. sensitivity does not guarantee responsiveness. But when all three are brought together by the people of Mon Purchases from minority-owned firms topped $23 mil santo, the Company is assured of remaining a leader in lion in 1979. The total number of such firms identified responsible corporate citizenship, Left: Contributions to nority colleges and univer sities return long-range benefits to Monsanto by increasing the supply of qualified job candidates. Monsanto educational grants totaled $2.7 million in 1979. Right: Monte C.Throdahl (left in photo). Senior Vice President, meets with Sen ate aides before testifying on legislation affecting the chemical industry. OSH 021248 35 TOWOLDMONOOI4954 TOWOLDMONOOI4955 Responsibilities for Integrity of Monsanto Company management is responsible far the integrity of all financial data, whether audited or unaudited, included in this Annual Report. The consolidated financial statements have been prepared in accordance with generally accepted accounting principles consistently applied in all material respects and reflect estimates by management where necessary. Where acceptable alternative accounting principles exist, as described in the Summary of Significant Accounting Policies on page 56, management has used its best judgment in selecting those principles that, in the circumstances, reflect fairly the consolidated financial position, results of operations and changes in financial position of Monsanto. All financial information in this Annual Report is consistent with that in the consolidated financial statements. In order to gather financial data and safeguard assets, Monsanto establishes accounting and reporting systems supported by internal accounting controls. Internal accounting controls an maintained by: (1) the selection and training of personnel; (2) a division of responsibility in all organizational arrangements; (3) the establishment and communi cation of accounting and business policies; and, (4) a program cl internal audits with follow-up, when necessary, by management. In establishing internal accounting controls, the cost cf such controls is weighed against the benefits to be derived. Management believes that Monsanto's internal accounting controls provide reasonable assurance that assets are safeguarded against material loss from unauthorized use or disposition and that the financial records are reliable for preparing financial statements and other data and maintaining accountability for assets. As ratified by shareowner vote at the 1979 Annual Meeting, Deloitte Haskins 6c Sells, an international firm of independent auditors, examined the consolidated financial statements contained in this Annual Report. Their examination was made in accordance with generally accepted auditing standards, which provide for a review of internal accounting controls and tests of a limited number of transactions. The principal result of this examination is the expression of an opinion. which appears on page 69, as to the fairness of the presentation of the consolidated financial statements in accordance with generally accepted accounting principles consistently applied. The Audit Committee of the Board of Directors is responsible for reviewing Monsanto's financial reports and monitoring the Company's accounting practices. The membership of the Committee consists of three non-employee directors. At periodic meetings, the Committee discusses audit and financial reporting matters with representatives of financial management, the internal audit function and Deloitte Haskins & Sells. The independent auditors and the director of the internal audit function have foil and five access to 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. John W. Hanley Chairman and Chief Executive Officer February 21,1980 James J. Kerley Chairman of the Finance Committee (Chief Financial Officer) 'We believe that Mon* tamo is positioned to rec ognize end seize the op portunities of the 1980V... particularly regarding such important human needs as enhanced food production, health and safety, energy conserva tion and economic growth* '--from "To Our Shareowners.1 page 6. 021250 TOWOLDMONOOI4956 Financial Review (Dollars in mtltkra, accept per short) \r* Motor wiiid* si mUlton* of units 1*0 Total N*w Hotuing Unlti million* of units__________ 2.4 Economics of Major Markets Because Monsanto is a producer of materials that are supplied to a wide variety of industries, the demand for its products is influenced by growth trends in a number of major end-use markets. The accompanying charts depict the growth trends in several of these end-use markets for the United States as well as the overall industrial growth trends in several of the major world areas outside of the United States that are of particular importance to Monsanto. For tte most part, major US. consumer markets of importance to Monsanto exhibited slower growth in 1979 than in the pries: year. In some cases there were significant absolute declines in volumes. Overall, consumer demand experienced the lowest rate of growth since the recession of 1974-75. For 1979, motor vehicle sales--automobiles and trucks--declined by 13 million units, or 8.4 percent from a peak of 15.4 million units for 1978. With consumer purchasing power being squeezed by inflation and the cost of owning and operating an automobile escalating rapidly, this sector was especially hard hit. The situation was made worse for U.S. automobile producers by the fact that fuel-efficient small cars, offered by Ex-U-SA. manufacturers, captured an increased share of the U.S. market. The emphasis an lighter automobiles has and will continue to create new opportunities for lightweight materials--such as plastics--to assist automobile designers in their quest for improved gasoline mileage. Another key end-use market, the construction of new housing units--both conventional and manufactured housing units--abo experienced a fall-off in 1979. This decline amounted to over 12 percent and can be attributed to a tightening in the availability of mortage funds and a reduced consumer ability to buy and finance new homes. The underlying demographic demand for housing, however, remains strong. Furthermore, a personal preference for investment in home ownership as an inflation hedge and regulatory changes have made this sector less vulnerable to economic cycles than in the past. Excluding the declines in the automotive and housing sectors, real consumer spending for all goods--after allowing for inflation--exhibited marginal growth from 1978 levels. Showing particular strength during the year were such important end-use products to Monsanto as appliances, furniture, apparel, carpeting and other household furnishings. Seeking to minimize the future effects of inflation, consumers purchased 3* Con*unr Spending on Goods tM*a$oi]mdoU*n 500 NonrtskUndai Umsamot bliltaubf 1973 dolUfi__________J5P osw T*xtU Mill Production Com and Soybean Acrtt million* of cr*___________________140 021251 TOWOLDMONOOI4957 products, such as these, with long service lives. Other important end-use markets, such as pharmaceuticals, soaps and detergents and prepared and packaged foods also exhibited modest growth. Textile mill production exhibited a strong growth in volume of 4.6 percent for 1979, h^rn-fiting from the strength in apparel, carpeting and other home furnishings markets. The demand for man-made fibers was more robust, however, because of particularly strong export markets for fibers and a reduction in imports. N'onresidential investment (eg., business construction and equipment) showed a solid gain in 1979, increasing by 5.8 percent--in real terms--over 1978. This sector of the economy is expected to be particularly strong during the 1980's providing increasing demand for various Monsanto products. The agricultural sector is relatively independent of general economic fluctuations. Of the major oops in the United States, com and soybeans historically have been the most important to Monsanto's herbicide [noducts. Combined acres planted for these two crops have advanced steadily in recent years, averaging nearly a 3.5 percent annual growth rate since 1975. During 1979. com acreage maintained the high level of 1978, while acres planted in soybeans reached a record. All major countries of the world with markets of particular importance to Monsanto exhibited stronger economic growth and industrial performance in 1979 than did the United States. This is in sharp contrast to the 1975-1978 period when the U.S., recovering vigorously from the 1974-1975 recession, led the major industrialized nations in economic growth. As U.S. economic growth slowed sharply in 1979, Western Europe's economies exhibited some renewed strength after several yean of sluggish economic performance. The growth of industrial output in Canada and Japan is also estimated to have surpassed that of the U.S. last year. Industrial activity accelerated in Brazil and Mexico continued to benefit from its increased oil wealth. Overall, in spite of a slowing eamomy in the U.S., 1979 was the best growth year for much of the rest of the world since the 1974-1975 recession. U.S. Industrial Production I97g 100_______________ ________I3S Japan Industrial Production iws-ioo___________ _ ___ us 74 77 `Eiomaitd 78 79* Mcdco Industrial Production 1973-100_______________________ 3U 73 76 *E*tinuxl 77 78 79* Waatara Europe IndiutrUl Production 1 g?s * 100 [35 73 76 77 78 79* Canada InduftriaJ Production 1973-100_______________ ________133 73 76 77 78 79* Brazil Induatrlal Production 1975-100 ._________ _________ 135 75 76 77 78 T9* Consolidated Operate* Rwte for 1979*1979 For 1979, Monsanto's consolidated sales were $6,193 billion--a 23 percent increase over 1978 sales of $5,019 billion. Hie revenue gain includes the first full-year results of two partially owned subsidiaries-- Aiscondel, a Spanish plastics producer and Fuller Controls Corporation of Delaware. Adjusting for these factors, the year-to-year sales gain was closer to 19 percent and was almost evenly split between higher sales volume and increased selling prices. Net income for the year--$331.0 million--was the second highest in the history of the Company and represented a nine percent year-to-year improvement. While improved sales volumes and higher year-to-year selling prices helped to o&et some part qj g 021252 39 TOWOLDMONOOI4958 of higher raw material and conversion costs, two important contributors to the level of net income were a higher level of interest income and a substantially lower effective tax rate for 1979. Quarter First Second Third Fourth Year Net Sales Net Sales 1979 $1.6234 $16264 $1496.7 $16486 $6,1924 1978 ...................... $1642.7 $t, 185.0 $U87.0 $16090 $5,018.7 % Change ........ 20.9% 284% 26.1% 186% 234% Net Income 1979 ..................$ 1978 .....................$ %dHgi ........ 1614 $ 596 $ 98.9 $ 104 $ 135.7$ 76,1$ 46.8$ 440$ 196% (214)% 1116% (736)% 3310 3024 94% Earnings per Share Primary 1979 .................... $ 444$ 144$ 2.73$ 060$ 9.11 1978 ....................... $ 3.71$ 2.09$ 168$ 161$ 869 %daia ........ 19.7% (216)% 1136% (736)% 9.9% Fully Diluted 1979 .................... $ 440$ 143$ 2.70$ 060$ 94$ 1978 ......................$ 3.67 * 207$ 167$ 160$ 861 % Chane ........ 19.9% (216)% 1124% (764)% 104% Primary earnings per common share for 1979 were $9.11 while fully diluted earnings per common share were $9.03. For the year, Monsanto's net income and earnings per share were affected severely by the absorption of costs associated with the closing of some of its unprofitable businesses and the restructuring of others. The closure of Monsanto's European nylon operations and the impact of a planned retrenchment in Spain by Aiscondel that has been submitted to governmental authorities for approval resulted in charges to 1979 net income of $53-2 million--equal to $1.47 per primary share. The quarterly pattern of sales in 1979 was somewhat different from the pattern exhibited in recent prior years. The sales of the Company's principal crop protection chemicals are seasonal in nature and, as a result, they are concentrated in the early months of the year. Because of this, Monsanto's first-quarter sales are the highest of any of its quarterly reporting periods. For 1979, sales for the second and third quarters declined--as is the Company's normal pattern--but sales far these periods of 1979 were stranger than normal because our customers stepped up purchases in anticipation of sales price increases resulting from the rapidly rising costs of raw materials--primarily petrochemicals and their related products. Fourthquarter sales, while higher than the prior two quarters, reflected some softening of demand as customers--primarily, in automotive production related businesses--reduced purchases to work doiwn inventory levels toward the end of the year. The strong first quarto: herbicide sales performance was supported further by physical volume gains from most business units. Sales volumes were up by 15 percent over the first quarter of 1978 with selling prices up a modest 6 percent 40 $6600 0 75 76 77 78 79 0 75 76 77 78 79 OSM 021253 TOWOLDMONOOI4959 over the same period of 1978. The first quarter witnessed strong export sales as well as an improvement in the performance of businesses operated outside of the United States. In spite of the improved level of profitability from most operations outside the United States, losses continued from nylon operations in Europe and from Aiscondel in Spain. Second-quarter sales gained 29 percent over the same period in 1978. Volumes continued strong and were up by approximately 18 percent over the second quarter of the prior year and prices--pushed by escalating raw material costs--were up some 11 percent. Overall second-quarter results from operations were strong. The financial results were less satisfactory because of the impact of the decision to dose the European nylon operations which resulted in a charge against second-quarter net income of $42.7 million or $1.18 per primary share. The third quarter produced a significant year-to-year sales gain of 26 percent. Volumes gained almost nine percent and selling prices--driven by rising raw material costs--increased approximately 17 percent. Sales of basic commodity chemicals, the continued growth for Roundup herbicide and strong demand for various specialty chemicals provided the impetus for the fine third quarter. Net income for this quarter was impacted favorably by the reversal of deferred income taxes of $16.8 million or $0.46 per primary share as a result of a change in UJC tax laws. For the fourth quarter, sales gains of almost 19 percent woe achieved. Vfcdumes were impacted by inventory corrections of many customers. This resulted in an unplanned build-up in inventory at Monsanto plants. Products for the automotive and residential construction businesses in the United States were particularly hard hit and high feedstock and raw material costs placed heavy pressure on profits. Other significant items that penalized profit in this period were the establishment of a reserve for the planned dosing of a portion of the Aiscondel operation in Spain and the maxi-devaluation of the Brazilian cruzeiro. Fourth-quarter 1979 operating results also indude the effects of year-end changes in accounting estimates--principally of the provision for UFO and the adjustment to a final effective tax rate for the year. The higbff UFO provision decreased net income by $8.1 million whereas the lower effective tax rate increased net income by $123 million. Net IncomePercent of Side* Net IncomePercent cf Avenge Shareowners' Equity Analysis of Chang* hi Primary Earnings par Share The year-to-year gain in 1979 sales volume and the higher year-to-year selling prices were more than offset by higher raw material costs, higher nonmanufacturing expenses and higher costs in all other areas of the business. The impact of the closure of the European nylon business and the planned restructuring of Aiscondel are reflected in the higher other manufacturing costs. Higher other 12% 10 18% a 75 76 77 78 79 OSW 021234 41 TOWOLDMONOOI4960 income results from a higher level of interest income and improved profit results from most Ex-USA. affiliated companies represented 'pluses* to income. A lower effective tax rate--1979 vs. 1978--had a major impact on net income. The lower rate was attributable primarily to a lower U.S. statutory rate, a higher level of DISC credits because of increased exports from the United States and a change in tte United Kingdom tax laws that had the effect of reducing deferred income taxes. The net effect of all of the above factors was an increase in primary earnings per share of $0.82 from $8.29 far 1978 to $9.11 for 1979. In contrast to 1979, the year-to-year gain in 1978 sales volume and higher year-to-year selling prices were more than sufficient to offset higher raw material costs and higher other manufacturing and nonmanufacturing expenses. Tnrhufal in other manufacturing costs was the favorable impact of the $020 per primary share gain on the sale of the high density polyethylene business in 1978 versus a $085 per primary share adverse impact in 1977 far the shutdown costs and write-down of investment regarding Cycle-Safe containers. Other manufacturing costs far 1977 also included a $039 per primary share charge due to terminating or divesting certain product lines. Interest expense increased in 1978 as a result of additional borrowings in the United States. Increase (Decrease) in Primary Faming* per Share 1979 1978 vs. 1978 v*. 1977 Operating Income: Selling price*.......................................... Sale* volume and product mix ................... Raw material prices.................................... Otho-manufacturing costs.......................... Start-up coats............................................... Normanufacturing erpenaei....................... S 9.11 3.13 (8X2) (Ml) (0.10) (1X8) Increase (decrease) in Operating Income........................... KIM) OthcCsuse* '` Interest expense.......................................... Othg income credits net........................... Effective tax rate .......................................... Share* outstanding...................................... 0lSO) 1X1 2.13 0X4 Increase from Other Caueee............... 1 2-90 Net Increeae.................................... $ 0X2 $ 1.76 OJO (0.19) (0.79) 022 (0.98) 3 022 *024) 068 (002) 0.09 S 031 $ 0X3 This, plus a higher effective tax rate--which reflected continued losses in certain manufacturing operations outside the United States that could not be tax effected--resulted in an unfavorable impact on earnings. The net effect of these factors was an increase in primary earnings per share of $083--from $7.46 per share far 1977 to $829 far 1978. 42 OSW 021255 TOWOLDMONOQ14961 Agricultural Products Operating Sales Income Tbul Aaseti Agriculture Products Net Sales 1979.................................. 1978 ............................................. 1977 ............................................. 1976 ............................................. 1975 ............................................. **9 734.4 6540 573.2 547.4 J328S 303.8 274J 2420 2550 *6602 629.0 579.4 463.4 347,6 For 1979, Monsanto Agricultural Products Company continued to record solid sales gains with an increase of 14 percent over 1978. Operating income increased eight percent 1979 vs. 1978. These results were due primarily to the continued expansion of the sales of the herbicide products of this operating unit. The year's major growth was exhibited by Roundup herbicide. Roundup is a post-emergent, non-seiective herbicide that controls a broad spectrum of problem weeds. Since its introduction in 1974, Roundup has been widely accepted with continually expanding uses being developed. Markets for Roundup are international in scope with more than half the sales coming from outside of the United States. Roundup herbicide exceeded the company's expectations with continued sharp sales growth dining 1979. This rapid growth has been accelerated by a very intensive marketing effort designed to develop the product's worldwide market potential as quickly as possible. This intense marketing program should assure continued profit growth during the decade of the 1980's. Lasso herbicide continued to be the largest-selling herbicide in the United States for the control of the many grassy weeds that cause cultivation and harvest problems in com and soybean firming. As a remit, Lasso remained the dollar sales leader for the Agricultural Products Company for 1979. Avadex herbicide--a product used to control wild oats in small grain, wheat, and sugar beet fields-- generated a record sales gain as did Machete--the company's rice herbicide. Sales of other products--including insecticides, nitrogen-based fertilizers and blasting products and swine breeding-stock--continued to perform up to expectation. Chemical Intarmatflaftaa Operating Sake Income "fatal Asm 1900 750 400 450 300 150 0 7 5 76 77 78 79 1979 ........................................ 1978 .............................................. 1977 ........................................ 1976 ........................................ 1975 ............................................. SUM 523.2 522X1 498.2 426.2 *119.5 75.1 128.0 156.7 105.9 Sl.UM 8499 735.9 611.1 4504 Intercompany isles made on a market baai* were *131.9, *1163, 51295, *1172 and 11002 far 1979 through 1975, respectively. For 1979, Monsanto Chemical Intermediates Company recorded its best-ever sales year with sales increasing by 64 percent over 1978 lewis. Operating D$M 021256 43 TOWOLDMONOOI4962 income-^while not a record--increased by 54 percent on a year-to-year basis. The Chemical Intermediates Company is the primary supplier to other Monsanto operating units. The demand for petrochemicals--the industry's basic chemical 'budding blocks*--led the sales gain with a year-to-year dollar sales increase of 102.9 percent. Shipments of acrylonitrile were strong and volumes were up significantly. A new plant at Teesside, England, became operational at mid-year. The petrochemical plants operated at high levels at capacity throughout the year. This--together with successful manufacturing cost reduction programs--helped to moderate rapidly rising raw material costs. Sales of process chemicals increased 19.4 percent during 1979 and ail and gas sales grew by 10.1 peicent. Construction continued on an expansion aimed at assuring a reliable long-term supply of raw materials and feedstocks. This joint project--an effort in partnership with Conoco Inc,--with completion scheduled for the fourth quarter of 1980--will more than double the output at Monsanto's existing Chocolate Bayou plant near Alvin, Tbcas. The agreement with Conoco will also provide Monsanto with additional feedstock security when a new refining unit at Conocos Lake Charles plant is completed in 1981. Gas and oil revenues from production and exploration were up on a year-to-year basis due to price increases. \bfumes were lower due to lower year-to-year demand for intrastate natural gas. Industrial Chemicals Net Sales $1800 1500 1200 Detergents 4 ritoepltttes Specialty Chemtaii S Rubber Chemical! 1 Plasticizers a Electronic Material! snd Environmental Systems 1000 600 300 o 75 76 77 78 79 Industrial Chwntests Operating Saits Income fetal Assets 1974 ....................................... 1978 ....................................... 1977 ....................................... 1976 ....................................... 1975 ....................................... $1,3134 1290.1 1,1544 1,1084 9484 $2024 218.7 2119 220.1 1849 $984.1 8494 750-3 651.9 572.7 Intercompany sales made an a market bash were $44.1, $244, $24.0, $229 and $ 194 for 197Vthrc^h 197$, respectively. Continuing its trend of the last eight years, Monsanto Industrial Chemicals Company set another new sales record, recording strong increases across its broad product spectrum. For 1979, sales increased 17 peicent over 1978. Operating income, however, was down 8 percent from the level of the prior year. Higher mamriacturing and hydrocarbon-based raw material costs--offset only partially by increases in selling prices were the principal actors responsible for the decline in year-to-year operating income. Sales of detergent and phosphate products increased 15 percent over 1978, as sides of sodium tripolyphosphate, linear alkylbenzene and sodium nitrifotriacetate moving to detergent producers were strong throughout tha year. The phosphate complex in Brazil achieved good sales volume growth over DSW 021257 TOWOLDMONOOI4963 1978 but net income was affected adversely by the significant devaluation of the cruzeiro. Pludc* & Retina Net Saia $1500 For electronics, significant volume growth was achieved for silicon polished wafer products as the 1250 demand from the semiconductor industry continued unabated. The divestiture of the m-V Materials LOOO and Devices business was completed successfully in early 1979. Wbrldwide dollar sales of plasticizers for 1979 were M Plastic Materials Resin Products 750 up 22 percent over 1978 as sizable increases in selling Fabricated Products prices were implemented in response to the sharp 500 increases in raw material costs. Sales demand for Sanricizer 160 and 711 plasticizers remained high. ISO Strong exports and equally strong sales for Ex-U.SA. plants plus increased market penetration in the U.S. offset the drop in US. auto production and housing 75 76 77 78 demands. Specialty and nutritional chemicals sales were up 10 percent as demand held for a broad range of products. Sales of rubber chemicals increased 14 percent over the previous year due primarily to higher exports and Ex-USA sales. Exports to the People's Republic of China and Eastern Europe showed strong gains. Activity in the sulfuric arid plant construction and catalyst market accelerated in 1979. Monsanto Enviio-Chem Systems, Inc. received five new contracts for plant construction. Opentiut Sals Income Thud Aset* 1979 ....................................... 1978 ....................................... 1977 ....................................... 1976 ....................................... 1975 ....................................... $14144 14234 1,1114 11)18.7 7684 $ 94 574 764 1004 414 $1410.7 1,0884 891.9 7324 6774 Wbrldwide sales far the Monsanto Plastics & Resins Company for 1979 were up 16 percent over the previous year but operating income declined significantly. A primary cause of the decline in income was the rapidly increasing raw material costs which were only partially offset by higher prices for products. In gHAtrtnn provisions for the planned restructuring of Aiscoodd and far a similar decision to close another small wholly owned plastics fabricating business adversely affected operating income. The finnwtal results of these entities are consolidated with the Plastics & Resina Company. Strong economic conditions in the first three quarters of the year increased demand for plastics and resins in construction, durable goods and the automotive sectors of the economy. By the end of the fourth quarter, recessionary factors caused inventory corrections by many customers resulting in a significant drop in shipments and only modest year-to-year volume gains for most products. Lustmn ABS and SAN plastics, Monsanto's largest selling plastic products, completed another record sales year. Accelerated technical programs resulted in OSM 021258 45 TOWOLDMONOOI4964 the introduction of several new molding grades of ABS with applications for small appliances, housewares and toys. lustra polystyrene sales grew during 1979. Raw material shortages throughout the year kept lustra in relatively short supply. Selling prices kept pace with cost pressures. Sales of Monsanto's Fome-Cor insulation board continued strong in 1979. A slowdown in the automotive headliner market was offset by greater consumer interest in the energy-saving potential of Fome-Cor in home improvement and manufactured housing uses. Rapid customer acceptance of a new `high productivity' resin and strong market demand contributed to a record level of sales of Vydym nylon resins. Monsanto retained its leadership position as a supplier of polyvinyl butyral interlayer to the laminated safety glass market as 1979 sales of Sofia interlayer set a record. North American automotive demand slowed during the latter part of the year but European automotive demand remained steady. Teitilts Net Sales Textles Operating Saks (nrome Tbtal A--rts 1979....... ............. 1978..................... ................. 1977 ..................... ................. 1976 ..................... ................. 1975 ..................... ................. 963.2 8843 8533 7473 $(168.7) (293) <39j0) (13) (12.7) $1*17 1.050.1 1.0113 9473 8123 Despite an 11 percent sales gain over 1978, Monsanto Textiles Company suffered a substantial loss for 1979. The loss included a non-recurring charge of $77.4 million to provide for the costs associated with the closure of the European nylon operations. Over and above this factor, however, spiraling raw material and other costs more than offset higher sales volumes and selling prices and exerted continued pressure on profit margins during 1979. Nylon carpet staple fiber demand remained firm throughout 1979 and market share was improved. Sales of Monsanto's soil-hidins, static-free Ultron carpet fiber grew threefold reflecting excellent consumer acceptance of this fiber. Carpets of Ukrvn nylon are now eligible for a full five-year consumer warranty under Monsanto's Wtar-Dated program. Higher cost raw materials supplied to US. operations from Monsanto's own facilities in Europe severely penalized the 1979 reported performance of the nylon business. US. sales of acrylic fiber--as well as exports from US. plants remained strong. In Europe, however, selling prices remained depressed and acrylic fiber operations were in a loss position Polyester filament shipments by US. producers grew 7 percent during 1979 reflecting igw<fL-T* strength in exporting markets, while domestic consumption remained level. Raw material costs 46 (1200 0 75 76 77 73 79 OSM 021259 TOWOLDMONOOI4965 escalated rapidly during the year. Price increases did not fully recover coat increases because capacity utilization eased in the second half. Consequently, all producers recorded unsatisfactory performances. Monsanto's ambitious quality improvement targets were not folly realized and this further impacted results for 1979. Major capital investment commitments were made in 1979 to position two fiber businesses for increased profitability. Nylon carpet spinning capacity will be raised and overall product cost reduced with an expansion, which incorporates the latest spinning technology, at the Pensacola, Florida, plant. Work is also underway to build Bidim manufacturing facilities at Fayetteville, North Carolina, so that this engineering fabric can be marketed aggressively. Bidim is a 100 percent polyester non-woven product designed for road construction and repair, railroad track beds, drainage systems and erosion control. Fbhr Control* N<1 Salas FWmt Controls Operating Saks Income Ibtai Aaeta 1979....................................... 1978 ....................................... 1977 ....................................... 1976 ............................................. 197! ....................................... J496.7 284.2 2633 2108 1863 *4*4 37j0 37.9 243 203 *38*3 2023 181.7 1488 137.4 Fisher Controls Corporation of Delaware recorded sales cf $496.7 milium and operating income of $44.4 million. This subsidiary was formed early in 1979 as a result of the combining of Fisher Controls Company, Inc.--a wholly owned subsidiary of Monsanto--and segments of The General Electric Company Limited of the United Kingdom. Sales and operating income for prior yean do not reflect the former GEC segments of the new subsidiary formed in 1979 because this is treated as a purchase of assets by Monsanto. The year 1979 saw Fisher positioning itself for the future as it took time to evaluate its facilities, product technology and organization. For the first full year of merged operations, sales reflected reasonable growth but operating income was imparted by a nationwide labor dispute in the United Kingdom and by a decision to close a manufacturing plant in that country. Sales of the control valves product line in 1979 were strong in North America despite being a year of reduced contract business. The year was characterized by the highest level cf orders for standard products in Fisher history, Output of rotary valves--used in viscous slurry applications, such as pulp production--more than doubled. The gas regulator business enjoyed a continued resurgence as residential and commercial structures switched to natural-gas heating. Sales of control valves in Europe were affected adversely by the United Kingdom labor dispute. Process controls instrumentation sales in North America and in Europe fall short of 1600 500 V 400 ~ TM ijii Hill 0 75 7* 77 78 79 OSM 021260 47 TOWOLDMONOOI4966 expectations due primarily to low order intake in the UjS. and to the strike in the UiC. imvmawrai upwraonv 1979......... 1978......... 1977 ......... United Stste* Net Sate* Outside Customer! Inter- Operating Ana* Income $44377 3,631.1 3,409.3 $4816 33*2 317.9 $5486 630.7 614.1 Europe-Africa Ibtal Assets $36404 34649 36304 Net Sales Outside Customer! Inter* Ana* Opoating Income Ibtal Assets 1979 ......... 1978 ......... 1977 ......... $161*6 848-2 7060 $ 656 $(326) 56.9 154 43.4 36 Canada-Latin America Net Saks Outside Customers Inter. Operating Ana* Income $14986 1.147.7 910J Ibtal Assets 1979 ......... 1978 ......... 1977 ......... $ 405.1 38SJ 3526 Net Sales Outside Customers $ 46 1.7 0.1 * 3.7 106 11.9 Aak-ftdflc Intn. Operating Ana* Income 9 3806 3086 2709 -Baal Aaseti 1979 ......... 1978 ......... 1977 ......... $ 2334 1336 1264 $ 36J 23.7 13.1 $ 3*6 106 76 $ 1816 1584 1149 U.S. Expert Saks to Outside Customers EuropeAfrica Latin America 1979 ......... 1978 ......... 1977 ......... 9 95.7 732 496 11724 1016 134.9 'These tales ere made 'at market/ A*l*?adfic 31756 1356 639 -Baal $ 4084 310.1 2484 Pta-e Sales 1979 1978 (BmsaMn United States Europe-Africa Canada-Latin America . Asia-Psdflc .. $4437.7- $3631.1 16166 8484 4884 3836 2334 1536 Baal ConaolidaSad ... $44916 $56187 Opnting Ino United States $ MU 1 630.7 Europe-Africa ............... (336) 154 Canada-Latin America . 3.7 106 Ana-Padfic .. 346 106 Eliminations and Unallocated Corpcemta Expenses.. (376) (34.7) "Baal Consolidated ... 3 4569 $ 6317 16.7 % 684% 534 216 36 66 316 36 334 1006 (13.1)% 1116% (106) (636} 06 1336 36 (76) (22.9) 1006 Monsanto's operating companiea have worldwide profit responsibility. His intetnadonal secdoo, however, provides another perspective of the OSU 021261 TOWOLDMONOOI4967 Company's worldwide operations. Monsanto's markets outside at the United States grew at a rapid rate during 1979 and were served from manufacturing plants both imriA. and outside of the US. For the year. Ex-USA sales--including exports from U.S. plants--topped the $2 billioa mark for the first time and represented 38 percent of the Company's consolidated net sales. Exports of products manufactured at plant locations in the United States reached $406.4 million for 1979--an increase of 31 patent over 1978's results. Exports were aided by both the weakness of the U.S. dollar and the lower costs enjoyed by US. manufacturers--particularly for petroleum-based intermediate materials. Sales of products produced and sold outside of the United States alan improved significantly and reached $15 billion--an increase of 42 percent. Far 1979, Monsanto's net loss from its Ex-U.SA operations decreased substantially despite the costs associated with closing the Company's European nylon operations and the provision for the planned restructuring of Aiscondei, The improvement was a result primarily of price and volume gains, but it also reflected turnarounds to profitability by several Ex-U5A businesses and the effects of divesting certain unprofitable operations in 1978. Salas by Product Gragi 197* 1978 1977 1976 1975 Agricultural Product*: Herbicides, insecticides & Other Products.................... ............ Chemical Intermediates: Petrochemicals..................................... Process Chemicals ............................... Chi ii Gas Production and Exploration............................... Industrial Chemicals; Detergents & Phosphates .................... Specialty and Nutritional Chemicsls .. Rubber Chemicals ............................... Plasticizers .......................................... Electronic Materials and Chemical . . ti Envirotunaital Systems.............. Plastics A Resins: Plastic Materials ................... ................ Ream Products .................................... Fabricated ftoducts............................. Textiles: Man-Made Fibers................................. Tbtal Operating Companies ............. Fisher Controls: Valves. Regulators St Electronic Process Controls.............. "local Openting Companies and Fliher Controls ...................... Cyck-Saft Containers ............................... Tbtal Consolidated ........................ I 839.9 585.1 192.1 814 399.9 3JU 2925 2792 1894 7992 404.7 2103 1D684 54919 4907 6,1924 *64924 $ 7344 2884 160.9 73.9 348.5 324.1 2554 228.1 1334 661.1 3552 2072 9632 4.7345 2842 5018.7 $3018.7 $ 6540 2864 1544 804 311.4 293.7 2284 203.7 1184 589.9 321.1 2002 8843 4317.9 2635 45914 3.1 *459*4 * 3732 2840 1472 670 2885 254.9 1990 1860 1802 5144 2915 2124 8535 4.0522 2104 4263.0 72 *42702 * 547.4 2305 1372 585 2795 2063 1724 158.7 131.7 3605 2235 1443 7472 3.437.7 1863 3,624.0 0.7 $3524.7 Cycl&Sdfit, an operatmi terminated in 1977 (see "Legal Proceedings* in Notes to Roudsl Statements)had operating loases of $51-9: $43.4 and $35.8 far 1977-1975. respectively. OSW 0*1262 TOWOLDMONOOI4968 Major Operating Expenses Monsanto'* average purchase price for firedstorlrs for its petrochemical operations increased approximately 42 percent--1979 vs. 1978--and the total price of purchased raw materials--cm a year-to-year basis--increased by 36 percent. On the same basis, the costs of energy and utilities increased at an approximate 29 percent rate. Energy conservation programs that were initiated in 1973 continued to reduce our energy consumption rates which are down 22 percent since the inception of the program. If these programs had not been put into place, Monsanto's cost of energy would have been an estimated $141 million higher for 1979. Wages, salaries and employee benefits were up 16 percent and related payroll taxes increased by 22 percent for 1979 as compared with 1978. The higher level of expenditures for property, plant and equipment in recent yean resulted in increased depredation and repairs and maintenance. Depredation increased by 11 percent for 1979. Repain and maintenance were up 16 percent while property and other taxes were up 12 percent. Rental expenses increased approximately 13 percent--reflecting the higher level of business activity in the operating companies requiring additional leased facilities. Research and development expenditures were up 20 percent reflecting both inflation and the Company's continuing commitment to RAD programs. lm 1978 Purchased raw material* .................... Purchased energy................................. Depredation......................................... Repairs and maintenance.................... Research and development.................. Wages, alariea and employee bendlts . "ttxe* Income.............................................. Payroll.............................................. Property and other........................... Rents.................................................... *2,3484 4847 2944 4084 1734 14284 1504 974 734 624 *1438.4 3752 2654 3494 1444 1J18.1 273.7 804 654 54.9 Income taxes for 1979 were down significantly from an effective tax rate of 474 percent for 1978 to 312 percent for 1979. There were several reasons for the significant decline, including a Deduction in the statutory U.S. rate. In the United Kingdom, a recent change in the tax laiws served to reduce the provision for income taxes by $244 ntilHrm, which includes a $16.8 million reversal of previously deferred taxes. Also, substantially impnmd export volume led to a higher level of DISC credits. Foreign Currency For 1979, earnings were reduced by loa* from foreign currency transactions and the translation of foreign currency financial statements by $321 million--equal to 88 cents per primary share. This compares with $324 million and 89 cents per primary share for 1978. The Company reports its gains or lasses resulting Rftw Material Coat Indtx vs. 300 0 73 76 77 7B 79 OSW 021263 TOWOLDMONOOI4969 from foreign currency transactions and translation of financial statements denominated in foreign currencies according to the Financial Accounting Standards Board's Statement No. S. This statement requires that working capital (excluding inventories) and long-term debt be translated into U.S. dollars from foreign currencies at current exchange rates. Inventory and property, plant and equipment an translated using historical exchange rates. According to Statement No. 8, the effect of changes in exchange rates must be charged immediately to earnings. As is evidenced by the fluctuations in the Company's repeated gains and losses from quarter to quarter and as compared with last year (see `Quarterly Financial Data (Unaudited)* in Notes to Financial Statements), the US. dollar has not experienced a steady decline but it has suffered the vagaries of an uncertain marketplace. An analysis of the losses that were incurred by the Company will aid somewhat in an undostanding of this problem. Hie major portion of 1979s fosses were generated by the devaluation of the Brazilian cruzeiro and the Argentine peso. Due to the twin impact of the high costs of borrowing in these countries plus the lack of any meaningful local long-term debt capital, Monsanto's operations in three countries are heavily financed with dollar-denanunated loans. Accordingly, Monsanto has a net exposed asset position while, in most other countries in which it operates, it has a net exposed liability position. A net asset position, under conditions of a devaluation of the load currency, results in a loss. Devaluation is a 'fact of life* in three two countries where extremely high inflation rates and regular devaluations are costs of doing business. According to Statement No. 8, these costs must be reported as a part of foreign currency gains or losses. The price increases that should recover these costs are not reported, however, as a part of foreign currency gains or losses. As a consequence, the reported foreign exchange losses are higher than the net economic effect of three devaluations on the Company's income. During the month of December 1979, the Brazilian government undolook a `mari-devaluation* of the cruzeiro. Obviouaiy.thii has not yet been recovered in pricing. The effect an the Company of this * maxi-devaluation* was approximately $9.8 million, which amount is principally reflected in cost Cot of Goods Sold 197? Oder Income Foreign currency transaction* end translation of Ex-USA whUttbiW financial statement......................... ......... Thtmlarino offoreign currency financial statements of affiliated companies ............. Forward exchange contracts ........................ Befcce-taa (loan).......................................... Related income taxes..................................... After-tax (lenses) ............. .............................. $<ZL3) I92J) $(119) U as $(44) Coot of "fetal Goods Sold 1978 Other Income Tbtal $034) n <4 OM) $02.1) $09) $09) $(214) (14.1) 134 $02-*) OSW 021264 $(277) (14.1) 134 (284) (44) $(324) 51 of goods sold. Currencies other than the Brazilian cruzeiro and Argentine peso had much less of an impact on 1979 than was the case for 1978. The Company's foreign currency risk management program--which was adopted in late 1978--resulted in hedging gains. These gains are the result of forward foreign exchange contracts that were entered into to offset the Company's exposures to foreign currency losses. Hedging South American exposures, however, is prohibitively expensive and was not undertaken. The Financial Accounting Standards Board has concluded tentatively that Statement No. 8 is in need of major revision. Hie Company is supportive of the Financial Accounting Standards Board's plans to modify Statement No. 8 and hopes that the modification will provide a more accurate reporting of operating results while continuing to recognize the risks of investments outside of the United States. Capital Expenditure* and Depredation Expenae Earningi per Share 5900 *30 0 :? 76 77 '8 -9 Si 2 GO Capital Spemfng Worldwide capital expenditures for 1979 were $565.9 million--18 percent higher than the $479.9 million for 1978. Expenditures in the U.S. were $434.7 million-- 77 percent of the total--while the expenditures outside the U.S. were $1312 million--primarily in the Europe/Africa area. For 1979, the largest percentage of capital expenditures--as well as the largest year-to-year increase in such expenditures--occurred in the Chemical Intermediates Company. Major expendi tures included continuing construction at Chocolate Bayou on the joint venture project in which Conoco is our partner, oil and gas development and several significant cost improvement projects. Major project capital spending for the Industrial Chemicals Company included capacity expansion for silicon materials in the United States and completion of a plasticizer plant in Brazil. Plastics & Resins Company's principal expenditures were the capacity expansions for Saflex polyvinyl butyral interlayer at Ghent, Belgium, and in the US.; and the capacity expansion for Lustran ABS/SAN plastics at Antwerp, Belgium. Compared with 1978, capital expenditures for Monsanto Textiles Company were up as capacity expansion for nylon staple-and a new manufacturing plant for Bidim engineering fabric got underway. 0 75 "b 77 *3 79 rtnsncM rasmn Monsanto's financial position remained reasonably strong with a cash position that appears adequate for current operational requirements. Working capital --current assets less current liabilities--remained at virtually the same dollar level as at the 1978 year-end but the current ratio was reduced from 2.5:1 in 1978 to 22:1 in 1979. Net property, plant and equipment was increased by $213 .0 million. The year-to-year increase represented capital expenditures of $565.9 million offset, in part, by depreciation and other reductions of $352.9 million. Long-term debt was reduced by $210 DSU 021265 TOWOLDMONOQ14971 1979 1978 Working capital............................................... Net property plant and equipment ........... Long-term debt .......... Other assets (liabilities)--net.................... Shareowners equity .................................. Current ratio ................................................... Debt-tcxapoaliiation.................................... Interest coverage (times)................................ Return on average shareowners'equity ... 11,322,7 1417-8 14024 (156.2) 52.7814 24:1 104% 4.9 124% SI.295 7 2.60*8 14234 (97.6) 52.579 4 2.5:1 324% 6.6 124% Dividend* per Share 16.00 500 4 00 million. This resulted from debt repayments of $933 million offset, in part, by an additional $223 million of pollution control industrial development bonds and other new financing of $49.8 million. At December 31. 1979, Monsanto's long-term debt represented 302 percent of total capitalization. Debt retirements scheduled for the next five years--1980-1984--total $2783 million. Dividend Payment* Common stock dividends paid in 1979 amounted to $120.7 million--the equivalent of $335 per share and a $0,175 per share increase over 1978. Effective with the second quarter payments in 1979, the Board of Directors increased the quarterly dividend from $0.80 to S0.85 pier share. The dividend has been increased in each of the past seven years and has been paid quarterly--without interruption or reduction--since 1928. The dividend yield on the average price of Monsanto common stock--based on year-end prices-- was 623 percent for 1979 and 6.08 percent for 1978. Preferred dividends amounted to $03 million for 1979--equivalent to $2.75 per share. Quarterly dividends of $0.6875 per share have been paid regularly since issuance of the preferred shares in 1969. Common Stock Price* - At December 31 0 U20 too so 60 40 20 0 Common Stock Dividend* per Share Quarter 1979 1978 First..................................................................... Second ...................................................................... Third ........................................................................... Fourth........................................................................ $040 049 049 049 50.775 0.80 0.80 040 5349 Stock Prices Common Slock Mem Quarter (979 High Lam ]978 High Low First ........................ ................. 95239 Second.................... ................. 54% Third ...................... ................. 60% Fourth .................... ................. 62 $48 46% 49% 53 557% 56% 59% 60% 944% 46% 49% 47 Convertible Preferred Stock Mom 1979 Quarter High Low 1978 High Low First ............................................. 557 Second......................................... 59% Third ........................................... 64 Fourth ....................................... 66% 552 52% 5734 62 558 603* 66% 66% 55034 513* 55 53 75 76 77 78 75 76 77 78 79 53.175 0SW 021266 TOWOLDMONOOI4972 Operating Company Data 1979 Operating Company; Agricultural Ptoducti................... Chemical Intermediaua ............. Induatrlal Chemlcak ................... Plastics 4i Resins........................... Textiles . . ,..................... , Total Operating Companies ..................... Fisher Controls ......................... ... Total Operating Compenieaand Fisher Controls..................... Eliminations ...................................... Unallocated Corporate Espenasa ......................................... total Operating......................... Income charges--net ....................... Nonoperating aaets......................... total ConaoHdated ................... 1978 Operating Company: Agricultural Products................... Chemical Intermediates............... Industrial Chemicals ................... Plastics & Resins ............................ Textiles ............................................. Total Operating Companies.............................. Fisher Controls .................................. Total Operating Companies and Fisher Controls ..................... Unallocated Corporate Expenses ......................................... Total Operating..................... Income charges--net ....................... Nonoperating aaets......................... Total Consolidated ............... Niet Sales Operating Income (Loss) Total Assets Depreciation and Obsolescence Capital Expenditures Research and Development S 839.9 858-6 1.513.8 1,414-2 1.069.4 5,695,9 496.7 6,1928 6.1928 16,1928 J 734 4 5232 1290.1 12236 9632 4,7346 2842 5,018.7 5,018.7 $5,018.7 $3286 115 J 202.1 94 (168.7) 487J 44.4 531.7 (82) (368) 486.9 58 $481.1 $303.8 75.1 218.7 57.6 (292) 626.0 37.0 663.0 (313) 631.7 554 $5763 $ 6602 1.123.4 984.1 t.110.7 1022.7 4,901.1 353 3 52544 52544 284.7 $5539.1 $ 629.0 849.8 849 6 1.0882 1,050.1 4,466.7 2025 4,6692 4,6692 366.5 $5635.7 $ 38.4 76.4 71.1 78-0 1384 4023 9.1 4114 ___ 13 412.7 $412.7 $ 34 6 362 61 1 695 80.6 2820 5.1 287 1 12 2883 $2883 $ 434 2222 126.7 918 59,1 5436 189 561.9 561.9 ___46 $565.9 S 575 185.7 882 91.9 445 4678 9.0 4768 4768 3.1 $479.9 5 294 21.9 39.9 32.7 30.1 1542 193 1733 173.5 $173.5 S 26.9 15.8 34 0 29.1 25.0 1308 13.5 144.3 144.3 $144,3 The principal product lines included in each operating company are shown in the `Sales by Product Group* data on page 49. Total sales between operating companies (made an a market basis) were $229.7 and $1695 for 1979 and 1978, respectively. These sales were not significant for any operating company except Chemical Intermediates (SI51.9 for 1979 and SI 16 J for 1978) and Industrial Chemicals (44.1 for 1979 and $26.6 for 1978). Unusual or nonrecurring charges or credits to operating income in 1979 and 197B were as follows: Textiles operating loss fur 1979 included a charge of $77.4 relating to withdrawal from the European nylon business: Plastics & Resins operating income for 1979 included charges of 112.1 relating to the shutdown of a plastics business and SI 56 for the planned closing of certain product lines of a Spanish subsidiary; and Plastics & Resins operating income for 1978 included a credit of $10.1 Erom the sale of die high density polyethylene business. The Fisher Controls amounts for 1979 reflect the operations of a new corporation formed by Monsanto and The General Electric Company Limited, as further described under" Business Combinations* in the Notes to Financial Statements. Profit derived bom intercompany sales is the principal item reflected in eliminations in arriving at the consolidated totals Certain corporate expenses, primarily those related to the overall management of the Company, were not allocated to the operating companies. Nonoperating assets principally include cash, short-term securities, time deposits and investments. OSH 021267 'U TOWOLDMONOQ14973 World Araa Data 1979 United States .................................................... .................. Eurcpe-AfHc* . . . ............................................. .................. Canada-Latin America....................................... ................. Ada-Padfk ..................................... ................ .................. Eliminations ...................................................... Unallocated Corporate Expenses ...................... Total Operating ............................... .................. Income charges--net ......................................... Nonoperating aaets ........................................... Total Consolidated............... ............................. .................. 1978 United States...................................................... .................. Europe*Afnca...................................................... .................. Canada* La tin America ... ............................... .................. Asia-Pacific......................................................... .................. Eliminations .................................................. Unallocated Corporate Expenses ......................... Total Operating ..................................................... ..................... Income charge^^net................................................. Nonoperating assets................................................. Total Consolidated................................................. ..................... Net Sales Outside Cos comers Inter Area $4237.7 13166 405.1 2332 6,1926 $451.0 653 46 262 (5473) __ S6.1926 $3,631.1 8482 385.8 1536 5,018.7 $-- $3382 56.9 1.7 23.7 (4203) -- S 5.018.7 S-- Income (Loss) Total Capital Assets Expend! tures $5483 (526) 3.7 243 (0.4) (366) 486.9 56 $481.1 $630.7 (52 (0.0 105 (3.4) (31.3) 631.7 55.4 $5763 $36403 1.1983 3003 181.0 (265.7) 5254.4 284.7 $5339.1 $3 264 9 1,147.7 308.6 158.4 (210.4) 4,6692 3665 $5,035.7 $430.7 96.9 266 73 5*1.9 4.0 $565.9 $337 9 114 7 16.1 81 476 8 31 $479 9 Inter-area sales, which are sales from one Monsanto location to another Monsanto location in a different world area, were made on a markel basis Export sales included in United States net sales to outside customers were as follows: EuropeAfrica CanadaLatin America AsiaPacific Tbtal 1979 ......... 1978 ........... J 53.7 732 SI77.4 101.6 $1783 135J $4066 310.1 Unusual or nonrecurring charges or credits to 1979 and 1978 operating income were as follows: Europe-Africa operating i nco me for 1979 Included charges of $77.4 relating to withdrawal from the European nylon busines and SI 56 for the planned dosing of certain product lines of a Spanish subsidiary: Canada-Latin America operating income fior 1979 included charges of SI 2.1 relating to the shutdown of a plastics business and S8 5 relating to the maxi-devaluation of the Brazilian cruzeiro: and United States operating income for 197B included a credit of $10.1 from the sale of the high density polyethylene business. Inter-area receivables and the profit derived from interarea sales are the principal items reflected as eliminations in arriving at the consolidated totals. Unallocated corporate expenses and nonoperating assets are the same as those described for the Operating Company Data. Following is a reconciliation of Ex-USA operating income and total assets as shown above to the Company's equity tn the net income (lass) and net assets of consolidated Ex-USA subsidiaries: Operating income (loss): Europe-Africa................................. ......... Canada-Latin America ................. ......... Asia-Pacific..................................... ......... Income charges--net......................... ......... Income taxes ................................. ......... Net (loss) of consolidated Ex-USA subsidiaries..................................... ........... 1979 $(526) 3.7 243 (24.4) 72.4 (696) $(276) 1978 $152 10.0 10.5 35.7 80 5 13.7 $(58.5) 1979 1978 Total assets: Europe-Africa ................................. ......... Canada-Latin America ................ ______ Asia-Pacific..................................... ........... Total liabilities............ ...................... ........... Net assets of consolidated Ex-USA subsidiaries..................................... ............ $1.1983 3003 1816 16796 918.4 $ 761.4 $1.147 7 308.6 158 4 1.614.7 1.025 3 $ 5894 OSW 021268 TOWOLDMONOQ14974 Summary of Significant Accounting Policies Management has selected the following accounting principles from acceptable alternatives in preparing the consolidated financial statements of Monsanto Company and Subsidiaries (Monsanto). These principles have been consistently applied in all material respects. Basis of Consolidation The consolidated financial statements include Monsanto Company (Company) and its majorityowned subsidiaries. Significant intercompany transactions have been eliminated in consolidation. 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; however, the sum of the years digits method is used for mast domestic assets placed in service prior to January 1,1972. 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 undistributed earnings of Ex-USA subsidiaries si nee any taxes on dividends received from those subsidiaries would be substantially offset by foreign tax credits. Also, income taxes have not been provided on a substantial portion of the undistributed earnings of domestic subsidiaries, including domestic international sales corporations (DISC's), w hose distribution would be subjec t to additional taxes, because Monsanto intends to indefinitely reinvest those earnings. Inventory Valuation Inventories are stated at the lower of cost or market. The cost of substantially all domestic inventories is determined by the last-m, first-out (LIFO) method. The cost of other inventories is generally determined by the first-in, first-out (FIFO) method. DSU 021269 TOWOLDMONOQ14975 Statement of Consolidated Income Monsanto Company and Subsidiaries !Dollars in millions, except per share) Net Sale* .............................................................................. ................................ Co*t of Goods Sold ............................................................. ................................ Marketing and Administrative Expenses ....................... ................................ Technological Expenses ...................................................... ................................ Operating Income ............................................................... ................................ Other Expense and Income: Interest expense .................................................................... ................................ Other income--net................................................................ ................................ Income Before Income Thxeg............................................ ................................ Income Taxes......................................................................... ................................ Net Income ......................... .................................................. ................................ Earnings per Common Share: Primary............................................................................... ................................ Fully diluted ..................................................................... ................................ 1979 56,192.6 4,932,0 331.6 222.1 3,703.7 486.9 123.3 117.3 3.8 481.1 130.1 $ 331,0 5 9.11 9.03 1973 $5,018.7 3.743.6 453.2 190.2 4.387.0 631.7 102.8 47.4 55.4 576.3 273.7 $ 302.6 $ 8.29 8.21 The above statement should be read in conjunction with pags 56 and pages 62 through 69 of this report OSU 021270 TOWOLDMONOQ14976 Statement of Consolidated Financial Position Monsanto Company and Subsidiaries lDollars in millions, except per then) Assets Current Assets; Cash.................................................................................................................. .. . Short-term securities and time deposits, at cost which approximates market ............................................................................... . Receivables, net of allowances of $35.6 in 1979 and $32.2 in 1978 .,., ... Inventories ...................................................................................................... . . . Dec.31,1979 $ 43.7 227.6 1,277.2 909.9 2.438.4 Dec. 31.1978 $ 65.4 282.2 1,112.0 720,8 2.180.4 Investment* and Miscellaneous Assets: Investments in affiliates ........................................................................................... 129.8 Miscellaneous investments and receivables............................................................................. 41.848.9 171.6 118 5 167 4 Property, Plant and Equipment, at Cost: Land................................................................................................................................. 5S.9 Buildings........................................................................................................................ 619.9 Machinery and equipment...................................................................................... 4,086.0 Mineral rights and oil and gas properties .......................................................... 314.1 Construction-in-progress .......................................................................................................... 432.8457.7 49.1 597.8 3,801.9 260.4 5,328.75,166.9 Less accumulated depreciation.............................................................................. ............... 2,710.92,562.1 2.817.82.604.8 Deferred Charges................................................................................................................................. 91.383.1 $3,339.1 S5.035.7 The above statement should be read in conjunction with page 56 and pages 62 through 69 oi this report. OSW 021271 TOWOLDMONOOI4977 Dec. 31,1979 Dec. 31.1978 Liabilities and Shareowners' Equity Current Liabilities: Accounts payable and accruals.............................................................................. $1,042.8 $ 801.1 Income taxes ...................................................................................... ........................ 28.4 39.7 Current portion of long-term debt ............................................................................................. 64.343 .9 1,135.7 Long-Term Debt............................................................................................................. ................1,202.3 ______1,223.5 Other Liabilities and Deferred Credits: Deferred income taxes.............................................................................................. 293.4 312 5 Miscellaneous ............................................................................................................. ................... 123.735.6 419.1 348 1 Shareowners' Equity: Preferred stock--authorized, 10,000,000 shares without par value, issuable in series; outstanding, 158,181 shares in 1979 and 185.112 shares in 1978; involuntary liquidation preference, $35 per share, or an aggregate of S5.5 in 1979 and $6.5 in 1978 .............. 0-3 0.4 Common stock--authorized, 100,000.000 shares, par value $2 each; issued, 36,978,084 shares in 1979 and 36,976,516 shares in 1978 .. 73.9 73.9 Additional contributed capital .............................................................................. 632,9 651.5 Reinvested earnings.................................................................................................................. 2,102.31,892.5 _______________________________________________________ Less common stock in treasury, at cost (946,916 shares in 1979 and 786,653 shares in 1978)........................................................................................ ..................... 47;63^9 _______________________________________________________________________ 2,781.82.579.4 $3,339.1 $5,035.7 OSU 021272 TOWOLDMONOQ14978 Statement of Changes in Consolidated Financial Position Monsanto Company and Subsidiaries 'Dollars in millions) ___ 1979 1978 Source of Working Capital: Net income................................................................................................................... $ 331.0 302.6 Changes not affecting working capital: Depreciation and obsolescence ......................................................................... 412.7 288.3 Deferred income taxes.......................................................................................... (17.1) 765 Other--net ............................................................................................................... ................... (59.9)24,8 Working capital from operations ................................................................. Outside financing--net of unexpended funds from industrial development bonds............................................................................ Property disposals ............................................................................ Other--net ............................................................................................................... 666.7 55.4 35.7 49.6 692.2 2849 47.3 807.41,024.4 Application of Working Capital: Property, plant and equipmentadditions............................................................. Dividends ............................................................................................................................... Debt reduction ........................................................................................................... Other--net ................................................................................................................... 565.9 121.2 93.3 780.4808.7 479.9 115.4 133.2 80.2 Increase in Working Capital................................................................................ 5 27.0 215.7 Changes In Elements of Working Capital: Increase (decrease) in current assets: Cash, short-term securities and time deposits................................................ $ (76.3) 149 3 Net receivables ....................................................................................................... 1652 301 3 Inventories ............................................................................................................... ................... 189.1(56) 278.0445.0 (Increase) decrease in current liabilities: Accounts payable and accruals.......................................................................... (241.7) Income taxes ........................................................................................................... 11.3 Current portion of long-term debt ....................................................................................... (20.6)9^6 (249.3) 10-4 (251.0)(229.3) Increase In Wfarklng Capital................................................................................ ............ 27.0 215.7 The above statement should be read in conjunction with page 56 and pages 62 through 69 of this report. 01 0SW 021273 TOWOLDMONOQ14979 Statement of Consolidated Shareowners' Equity Monsanto Companv and Subsidiaries Dollars in mUhons, except per short) Balance. January 1. 1978 ............................... . Net income ......................................................... Preferred Stock $0.6 Common Stock $73.7 Additional Contributed Capita] $650.6 Reinvested Treasury Earnings Stock St,7 05.3 $(29.3) 302.6 Dividends: Preferred--$2.75 per share......................... Common--$3,175 per share ..................... (0.6) (114.8) Conversion of $2.75 Preferred Stock to common stock ............................. . (0.2) 02 Shares issued under employee stock ownership and option plans ..................... 0.8 3.2 Shares purchased.............................................. (12.8) Other..................................................................... Balance, December31, 1978 ....................... . 0.4 73.9 0.1 651.5 1,892.5 (38.9) Net Income ........................................................ 331.0 Dividends: Preferred--$2.75 per share...................... Common--$3-35 per share ...................... (0.5) (120.7) Conversion of $2.75 Preferred Stock to common stock........................... .. Shares Issued under employee stock ownership and option plane................... (0.1) (1.3) 03 1.4 4.5 Shares Issued upon conversion of Monsanto Limited convertible loan stock ..................................................... 03 2.0 Shares reclassified from -. Miscellaneous Investments ................... (4.4) Shares purchased .......................................... (12.4) Other.................................................................... Balance. December 31, 1979 ..................... .. $03 $73.9 22 $652.9 $2.1023 0.2 $(47.6) The above statement should be read in conjunction with page 5b and pages 62 through 69 of this report. OSH 021274 t: TOWOLDMONOOI4980 Notes to Financial Statements (Dollars m millions, except per short} Business Combinations On February 28, 1979, Monsanto signed an agreement with The General Electric Company Limited (GEC), an English limited company, that provided for the formation of a new corporation consisting principally of Fisher Controls Company, Inc., a then wholly owned subsidiary of the Company engaged in the manufacture of valves, regulators, controllers and process controls instrumentation, and similar operations of GEC. GEC contributed net assets with an estimated fair value of approximately $70.0 and received 33.5 percent of the common shares of the new corporation, Fisher Controls Corpo ration of Delaware (FCCD). Monsanto contributed net assets wi th a book value of approximately $ 134.0 and received 665 percent of the common shares of FCCD. The transaction was accounted for under the purchase method with no excess ofcost over fair value of the GEC operations' net assets. The effective date of the transaction was specified as January 1,1979. Accordingly, the results of FCCD's operations have been included in Monsanto's consolidated financial statements for all of 1979. The effect on Monsanto's 1978 consolidated financial statements of including FCCD on a pro forma basis would not be material. On February 21,1980, Monsanto acquired substantially all of the common stock of Radiation Dynamics, Inc. for 31.9 in cash in a transaction to be accounted for under the purchase method. Shutdown Costs In June 1979, Monsanto's Board of Directors authorized the withdrawal from nylon operations in Europe. Accordingly, the related nylon manufacturing facilities were shut down by the end of 1979 and will be disposed of as soon as practical. Also in June, the Board authorized withdrawal from an Ex-USA plastics business. In December, the Board approved the planned closing of certain product lines of Aiscondel. a majority-owned Spanish subsidiary. Monsanto recorded provisions for losses related to these actions in 1979 of$ 105.1 in cost of goods sold or $53.2 ($1.47 per primary share) net of related tax effects. As of December 31,1979, the remaining accruals for these losses had been reduced as a result of the actual expenditures for shutdown costs, disposal of certain facilities, and operating losses subsequent to the recording of the provision. The remaining accruals are estimated to be sufficient to absorb any additional costs related to these actions. Depreciation, Obeolescence and Charges to expense were: 1979 1978 Depreciation............................................. Obsolescence............................................. Repairs and maintenance .................... S294.9 117.8 $412.7 $405.4 $265.5 22.8 52883 $349 5 Included in obsolescence expense For 1979 is $93.1 related to ' Shutdown Costs* discussed above. Pmaton Flans and Other Post-Retirement Denellta Most Monsanto employees are covered by non contributory pension plans. The expense related to these plans was $92J in 1979 and $842 in 1978. These amounts include charges applicable to current service and amortization of unfunded prior service costs over periods ranging from 15 to 30 years. It is Monsanto's policy to fund pension costs accrued. Annual valuations of the major pension plans are made by an outside firm of actuaries. The 'entry age normal* actuarial method is used. The key actuarial assumptions used include an annual average investment return on pension assets of seven percent, an average salary increase (when applicable) of six percent and an average retirement age of 61 years. The actuarial method and assumptions were consistent for 1979 and 1978. Plan benefit and asset information for plans representing 97 percent of total 1979 pension expense is presented below on an aggregate basis as of December 31, 1979 Net assets were measured at market value at that date and year-end accumulated benefits were estimated from earlier actuarial valuations. Assets in Excess of Benefits Benefits in Excess of Assets Actuarial Present Value of Accumulated Plan Benefits: Vested............................................... . Nonvested ...................................... . Net Assets Available for Benefits .... . $524 J 16 6 $540.9 $653.7 $339.0 12 J $3513 5304.1 Monsanto also provides life insurance and medical benefits for many retirees. The cost of such benefits is not significant and is charged to expense as incurred. Technological Expenses Technological expenses consisted of the following: 1979 1978 Research and development .............. Engineering, commercial developmmt and patent.................... $ 173J 48.6 $222.1 $144 3 4;,9 S190-2 62 OSH 021275 TOWOLDMONOQ14981 Equity in AWilii Monsanto's equity in the net income (loss) of affiliates, including foreign currency gains or losses on translation of financial statements, totaled $25.8 and $(10.1) in 1979 and 1978, respectively, and is included in other income-net. Foreign Exchange Net exchange losses resulting from foreign currency transactions and translation of foreign currency financial statements were $26.9 and $283 in 1979 and 1978, respectively, including a gain floss) of $23 and $(14.1), respectively related to the translation of equity affiliates' financial statements. Income Ifcxee The components of income tax expense were: 1979 1978 Current: Federal (after investmait tax credits of S28.4 in 1979 and J2S.0 in 1978) .................................... State ......................................................... Foreign..................................................... Deferred: Federal..................................................... State......................................................... Foreign..................................................... $124.1 16j0 25.1 1472 442 4j0 (45J) 7.1) $tJ $1645 168 16.1 1972 695 6.1 i.i 76.5 $373.7 A change in tax laws in the United Kingdom resulted in a reversal of deferred taxes of $16.8 ($0.46 per primary share), which amount is reflected in the above deferred foreign income tax expense for 1979. The deferred taxes woe established in prior years for differences in book and tax bases of UJC. inventories. The sources of timing differences in the recognition of revenue and expense for tax and financial statement purposes and the tax rffcct of each were: Additional depreciation and obsolescence far (book) tax purposes Reversal of deferred taxes related to UK. inventories ............................. Net change in accrual for pension expense............................. Other items -- net.................................... 1979 $(22.1) (165) 145 7.0 S(I7.1) 1978 $ 58 .6 0.7 17 2 5 76.5 Monsanto's effective income tax rate differed from the federal statutory rate due to the following factors: 1979 1978 Fedoal statutory rate............................. Investment tax credit ............................. Tix treatment afforded earnings of DISC'S ................................................ Losses of Ex-USA subsidiaries for which no tax benefits are currently available..................... . .. U.K. stock relirf. including reversal of dderted taxes............ . . Foreign, state and local income taxes ........................................................ Othre .......................................................... Effective income tax rate....................... 46.0% (5.9) (4.9) 1A (5.1) 1.1 (18) 312% 48.0% (4.9) (2.9) 48 35 (08) 47.5% Undistributed earnings of subsidiaries for which additional taxes in the event of distribution have not been provided were: 1979 1978 Ex-USA subsidiaries....................... . . Domestic subsidiaries. including DISCs ......................... . . S 782 218.1 $2965 S 30.0 159.5 $239.5 Ex-USA net operating loss carryforwards for which no tax benefits have been recorded were approximately $2083 at December 31, 1979 and expire in various years beginning in 1980. DSW 021276 o3 TOWOLDMONOOI4982 Earnings par Common Shars Income and the number of shares used in tiv computation of earnings per common and common equivalent share were determined as follows: 1979 1978 Fully Fully Primary Dlltasd Primary Diluted Income Net income............................... Preferred dividends................. Interest (less tax) on: Loan stock of Monsanto Limited.......................... Debentures of Monsanto International Finance Company......................... Mumher of Shares (In thousands) Weighted average shares: Outstanding ........ ........... . Incremental shares far outstanding stock options........ ... . Shares i suable upon oonversion: Loan stock of Monsanto Limited ....................... . Debentures of Monsanto International Finance Company..................... $2.75 Preferred Stock . . $331.0 $3314 (03) 03 03 ___ 03 $3304 $33t4 36.068 36.068 S 24 243 242 174 t9t 36313 36499 $302.6 $3024 (0.6) 03 03 ___ 04 $3023 $3033 36212 36212 9 11 259 259 36,480 194 248 36,924 Inventory Vriuatkxi Inventories at December 31, 1979 and 1978 would have been $4293 and $2583, respectively, higher than reported if the FIFO basis of inventory valuation (which approximates current cost) had been used for all inventories. Bank Credtt Arrangatnanto At December 31, 1979, Monsanto had $150.0 of open domestic short-term lines of credit and $1500 committed under a Revolving Credit/Tferm Loan Agreement with twenty-one Banks. The open domestic short-term lines of credit are renewable annually and any loans thereunder bear interest at the prime commercial rate of the various banks. The Revolving Credit/firm Loan Agreement, dated December, 1978, provides for a four-year revolving credit, with any borrowings outstanding at the end of that period convertible into a three-year term loan. Interest on borrowings undo' the revolving credit is at the prime rate and interest on borrowings under the term loan will be one-quarter percent above the then prime rate. No borrowings were made under any of the arrangements through February, 1980. In addition, certain Ex-USA subsidiaries have short-term loan facilities aggregating approximately $3413. under which loans totalling $93.7 were outstanding at December 31, 1979. Interest on these loans is related to various Ex-USA bank rates. Kay Employes Bonus Data relating to the Monsanto Management Incentive Plan of 974 were: 1979 Maximum allowable addition to bonus reserve......................................................... Actual charge to expense (and addition to bonus reserve) as determined by the Executive Compensation and Development Committee of the Board of Directors ..................................................... Bonus awards: Number ofdirectors and officers............ Number of other key employees ............ Amount ..................................................... * Balance in bonus reserve at yearend ........ $124 $11.9 2S 488 $124 $ 54 1978 $14.5 S 8.4 25 471 S 9.5 $ 6.7 The bonus award amounts for 1979 and 1978 include respective five-year accumulated award payments to 33 and 36 officers and employees of $ 1.8 and $1.6 for the long-term incentive program established under the Monsanto Management Incentive Plan of 1974. OmtsmImi, l.sw and Othf Communionto Monsanto was contingently liable as guarantor of bank loans and for customers* receivables discounted aggregating approximately $95.1 at December 31, 1979. Rent expense under operating leases with a term of more than one month was approximately $62 3 in 1979 and $54.9 in 1978. Minimum rental commitments under operating leases with an initial term ofone year or more at December 31,1979 were approximately: 1980 ...................................................................................... 1981 ...................................................................................... 1981 ...................................................................................... 1983 ...................................................................................... 1984 ...................................................................................... After 1984 .............................................................................. $ 16.7 13.7 10.2 8.8 5.6 53.6 108.6 Commitments in connection with uncompleted additions to property aggregated approximately $191j6at December 31,1979. OSH 0212 77 64 TOWOLDMONOOI4983 Long-TtHm Debt Long-term debt, exclusive of current maturities and repayable in U.S. dollars, except where indicated, was as follows: Monsanto Company: 3% notes due 1985 ............................... promissory notes due 1981/1986 ................................... 434% promissory notes due 1993 .... 8W% sinking fund debentures due 2000 ............................................ Vt9 % sinking fund debentures due 2000 ............................................ 3*4% income debentures due 2002 -........................................ 414% income debentures due 2008 ............................................ S 34% sinking fund debentures due 2008 .......................................... 434-736% industrial development bond obligations due 1983/2009 ... Capitalized lease obligations ............ Other U.S. dollar.......................-................ West German deuuche mark........ Monsanto International Finance Company: 4 34% sinking fund debentures due 1985 (a)........................................ Monsanto International N.V. (Netherlands Antilles subsidiary): 834% sinking fund debentures due 1985 ............................................ Monsanto Limited (United Kingdom subsidiary) (British pound); 5% loan stock due 1982/1986 (b)........ Other ....................................................... Monsanto (Suisse) S A. (Swiss subsidiary) (Swiss franc): 614% sinking fund debentures due 1985(c)........................................ 634% sinking fund debentures due 1986 ............................................ Monsanto Europe, S A. (Belgian subsidiary) (Belgian franc): 9% bank loan due 1981/1986 ............... 934%-l 133a% bank loans due 1981/1988 (d)...................................... 934% bonds due 1982/1991 AiscondeJ, S A. {Spanish subsidiary): 9%-l 934% bank and commercial loans due 1981/2015: U.S. dollar.......................................... Spanish peseta ................................. Other (principally West German deutsche mark}...................................... December 31, 1979 1978 $ 100.0 12-3 62.7 1734) 844) 9t4) 500 2000 156.7 13.7 13 $ 100.0 143 673 175.0 114.0 91.0 50.0 200.0 1342 14.1 1.4 5.6 113 15.0 31 46 no 31-7 12.1 29.4 301 03 1000 143 16.1 295 12 1002 13.9 320 16.9 33 $13003 173 11.0 6.0 $12235 Notes: (a) These debentures are currently convertible into the Company's common stock at $86 per share, subject to adjustment under certain conditions. (b) 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. Of the total loan stock originally issued m 1969, 54 percent has been retired through December 31.! 979 by conversion into 354,097 shares of the Company's common stock. (c) Current maturities for 1980 include the planned early redemption of these debentures. (d) The interest rates on these bank loans will be reduced by a government subsidy ranging bom 4.0%-2.8%, which expires in 1981. Monsanto has the option of repaying these loans in 1931 Maturities and sinking fund requirements on long-term debt are $64.5, $595, $58.7. $52.3, and $43 5 for the five years ending December 31,1980 through 1984, respectively. Covenants of certain loan agreements restrict maximum borrowings. It is not anticipated that additional future borrowings will be affected by these restrictions. Under various parallel loan agreements, Monsanto has borrowed $855 in pounds sterling from United Kingdom companies and has made United States dollar loans to the U K. companies or their subsidiaries aggregating $86.7 as of December 31. 1979. These agreements require the parties to either make additional loans in the respective currency or repay loans whenever the exchange rate varies by a predetermined percent. At December 31,1979 the U.K. companies were required to make additional pound sterling loans or repay U.S. dollar loans of $12, which amount is reflected as a current asset. As both parties to the agreements have the legal right to offset in case of default by the other party, the parallel transactions are reflected net in the accompanying financial statements. Interest rates on the sterling loans are 214% to 2Vb% higher than the interest rates on the corresponding dollar loans. Maturity dates of the loans range from 1982 through 1986. Substantially all long-term debt of subsidiaries is guaranteed by the Company. Monsanto is a party to a number of lawsuits arising in the normal course of business. The more significant litigation is discussed below. The Company has been a defendant in various lawsuits alleging damages horn products containing polychlorinated biphenyls (PCB's). Suits filed in 1976 in the US. District Court for the Northern District of Georgia, the Superior Court of Fulton County, State of Georgia, and the U.S. District Court for the Northern District ofAlabama relating to alleged PCB pollution of the Coosa River and its tributaries and Weiss T jL located between the States of Georgia and Alabama were dismissed in 1979 without any payment by the Company. In another PCB case still pending, the United States Environmental Protection Agency filed suit on March 17,1978, in the District Court for the Northern District of Illinois against Outboard Marine Corporation of Waukegan, Illinois. The action is based on several federal pollution statutes and seeks recovery of unspecified civil penalties and damages for the removal of PCB s DSW 021278 TOWOLDMONOOI4984 allegedly discharged by Outboard Marine into Waukegan Harbor and North Ditch, a tributary of Lake Michigan. In November 1978, the Company was joined as a third-party defendant from whom indemnity is sought for products allegedly sold by it to Outboard Marine. The Company will vigorously defend this action. Monsanto no longer manufacture or sells PCB's. The Company is one of several defendants in a number of lawsuits arising out of the use by the United States government of an herbicide known as agent orange in the Vietnam war. The first lawsuit in which the Company was served as a defendant was filed on February 1, 1979. Many of these actions have been consolidated for pretrial purposes in the United States District Court for the Eastern District of New York. Certain of these actions are alleged to be class actions, although no determination has been made of the class action issue. The actions allege death, illnesses and birth defects resulting horn exposure of United States Vietnam war veterans to agent orange. It is impossible to determine the total amount of damages or remuneration sought in these suits. The Company will vigorously defend these actions. The Company is a defendant in a number of lawsuits filed in the federal and state courts in Missouri and a state court in Illinois arising out of a tank car derailment which occurred in Sturgeon, Missouri on January 10,1979. The lawsuits, which seek in excess of $126.0 actual damages and $355.0 punitive damages, have been filed against the Company, the railroad which had control of the tank car, the manufacturer of the tank car and the manufacturer of an allegedly defective coupling device. The first lawsuit was filed June 11,1979. Plaintiff* are property owners in Sturgeon and workers involved in the cleanup of the resulting spill of orthochlorophenol crude, who allege that the Company negligently failed to warn of the alleged hazards of this material, failed to properly containerize the chemical, and supplied an unreasonably dangerous product. The Company has denied the material allegations in each lawsuit and intends to vigorously defend these actions. While the results of litigation cannot be predicted with certainty, management believes, based upon the advice ofCompany counsel, that the final outcome of such litigation will not have a material adverse effect on Monsanto's consolidated financial statements. On February 21,1980, a federal jury in the Northern District of Illinois returned a $3J million antitrust verdict against Monsanto. Company's trial counsel has advised that there are substantial bases for appeal. Any final judgment would be trebled. No provision has been made in the accompanying financial statements for any amounts which may be paid as a result of this case. Following a February 1977 announcement by the Food and Drug Administration (FDA) of its intention to suspend the food additive regulations permitting the use of acrylonitrile copolymers in the fabrication of plastic containers for carbonated beverages, the Company suspended production of its acrylonitrile/ styrene copolymer Cycle-Safe container. In September 1977, the FDA issued a final decision prohibiting the use of acrylonitrile to make plastic beverage containers. Accordingly, in 1977 the Company wrote off its net investment in Cycle-Safe container operations and provided for related expenses. During 1978, the Company filed a petition in the U.S. Court of Appeals for the District of Columbia seeking renew of the FDA's decision. In 1979, the Court ruled that the FDA must reconsider its decision because it was made without sufficient supporting data. Management continues to believe that the use of the Cycle-Safe container poses no health hazards but, rather, possesses considerable positive environmental and consumer convenience attributes. 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 the Company's common stock. The conversion rate of 1.12 shares of common for each share of preferred is subject to adjustment in certain events under antidilution provisions. The Company issued 30,120 and 96,505 common shares upon conversion of 26,931 and 86,194 preferred shares in 1979 and 1978, respectively. The 1979 issuances included 28,552 shares horn treasury stock. Of2,330,510 preferred shares originally issued in the period 1969 through 1974, a total of 2,172,329 preferred shares has been converted to 2,432,658 shares ofcommon stock through December 31,1979. The outstanding preferred stock may be redeemed solely at the Company's option at $73 per share (the voluntary liquidation preference). The Company also issued 41,138 common shares out of treasury stock in 1979 upon exercise of conversion nghts by holders of convertible loan stock issued by Monsanto Limited, a United Kingdom subsidiary. There were no conversions of loan stock in 1978. No common shares wane issued in 1979 or 1978for conversion ofconvertible debentures issued by Monsanto International Finance Company. The Company held 55,174 and 81,882 shares of its common stock for specific purposes (principally for distribution to participants in the Employee Stock Purchase Plan) at December 31,1979 and 1978, respectively. These shares are included in Miscellaneous Investments in the accompanying Statement of Consolidated Financial Position at December 31,1978; in 1979, they have been reclassified to Common Stock in Heasury. There wore 2,959/)54 shares of common stock reserved for the following purposes at December 31,1979: QSU 021279 66 TOWOLDMONOOI4985 Conversion of$2.75 Preferred Stock ............................. Stock option plan*................................................. Conversion of convertible loan stock of Monsanto Limited.................................................... Conversion of debentures of Monsanto International Finance Company ............................... Shares 177.163 2391367 217,17S 173.349 2.959.054 Net Sales Cost of Goods Sold 1979: First Quarter. Second Quarter . 51 *232 13248 $1,183.7 1244.9 Net Income Earnings per Common Share Fully Primary Diluted 51612 893 54.44 164 (4.40 1.63 Slock Option Ptaro The status of authorized common shares for stock option plans and the changes occurring during 1979 were; At January 1,1979 ........ Grants......................... . Exercises ................... ... Cancellations................... At December 31.1979 ... 1969 and 1974 Plans Shares Under Options Outstanding Shanes Available For Grant 1,070.784 253,600 (15,355) (70,790) 1238239 1256313 (233.600) 50215 1,153,128 Options outstanding at December 31,1979 wens granted at prices ranging from $32.50 to $92.88, or a weighted average of $6430 per share. Options for 758,393 shares were exercisable at December 31, 1979. The options exercised during the year had been granted at prices ranging from $3230 to $57.75 per share. Stock appreciation rights (SAR's) are authorized to be granted at the same time the related non-qualified options under the 1974 Plan are granted, hi addition, SAR's may be granted retroactively far any unexercised non-qualified options under either the 1974 or 1969 Plan. The exercise of an SAR cancels the related option; conversely, the exercise of an option cancels the related SAR. At December 31, 1979, SARs with respect to options for 330871 shares were outstanding; of these, 259,204 were exercisable. In 1979, SAR's with respect to options for 75,667 shares were granted; oone were exercised; and 24,145 were cancelled. Sagnwnt Infomurilon Financial Accounting Standards Board Statement No. 14 requires disclosure ofcertain industry and world area `segment' data. Accordingly, the Operating Company and World Area data for 1979 and 1978 appearing on pages 54 and 55 of the Financial Review Section of this Annual Report are integral parts of the accompanying financial statements. Quarterly Financial Data (Unaudited) Unaudited quarterly financial data far 1979 and 1978 follow: Quarter . Fourth Quarter. Year.. 1978: first Quarter . Second Quarter . Third Quarter . Fourth Quarter . Year .. 1.494.7 13453 54.1928 51342.7 1,185.0 1,187.0 1304.0 55,018.7 1.178.4 13350 54.9323) 5 903.4 885 1 9185 1.036.6 $3,743.6 96.9 102 53313 5135.7 76.1 46.8 440 53026 2.73 030 59.11 53.71 2.09 128 1 21 58 29 2.70 030 59.03 53.67 2,07 137 120 5821 The 1979 operating results include the following effects of foreign currency gains or losses: first quarter gain $6.4 ($0.18 per primary share); second quarter loss $ 103 ($039 per primary share); third quarter loss $17.4 ($0.48 per primary share); and fourth quarter loss $ 103 ($029 per primary share). The 1979 second quarter operating results include a charge of $42,7 ($1.18 per primary share) relating to certain ` Shutdown Costs* discussed above. Third' quarter 1979 results include a reversal of deferred income taxes of $16.8 ($0.46 per primary share) resulting from a change in tax laws in the United Kingdom. The fourth quarter 1979 operating results include the effect of a $7.7 ($021 per primary share) charge far the planned closing of certain product lines of Aiscondel, a majority owned Spanish subsidiary. Also in the fourth quarter of 1979, operating results reflect the effects of year-end changes in accounting estimates, principally of the LIFO provision and the effective tax rate. A higher LIFO provision decreased net income by $8.1 ($022 per primary share); a lower effective tax rate increased net income by $ 12 3 ($034 per primary share). The effects of these accounting estimate changes were not significant to any other quarter of 1979. The 1978 operating results include the following effects of foreign currency losses: first quarter $ 12.8 ($035 per primary share); second quarter $2.7 ($0.07 per primary share); third quarter $12.5 ($035 per primary share); and fourth quarter $4.5 ($0.12 per primary share). In addition, third-quarter 1978 operating results include a gain of $7.1 ($020 per primary share) related to the sale of the high-density polyethylene business. DSW 021280 TOWOLDMONOOI4986 Supplementary Financial Data Adjusted for the Effects of Changing Prices i L naudi ted) Monsantos financial statements are prepared in accordance with generally accepted accounting principles, which include the concept of historical cost. Under this concept, inventory and property generalIv are recorded and reported at the amounts originally paid and do not reflect subsequent changes in'l) the general ptirchasing power of the dollar, t2) the current cost of replacing the asset, or (3) the amount for which the asset could be sold -- us market value. The Financial Accounting Standards Board has recently issued Statement of Financial Accounting Standards No. 33 (FASB No. 33), entitled 'Financial Reporting and Changing Prices,' which requires the disclosure of selected data under two different sets of assumptions. One set of data -- the "constant dollar' disc losures -- reflects the adjustment of the liistorical cost financial statements for changes in the general purchasing power of the dollar. The second 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 specific items are adjusted in the current year under the constant dollar and current cost disclosures: inventories; property, plant and equipment; cost of goods sold; and depreciation expense. Under the rules established by FASB No. 33, income taxes cannot be adjusted. The supplementary current cost data are based on the best judgments of management and the assumption -- required by FASB No, 33 -- that Monsanto would replace its entire inventory and existing facilities with identical assets at the end of its fiscal year. Of course, in replacing inventory and existing facilities, the Company will take advantage of available technological improvements to increase the efficiency and cost effectiveness of its operations, Accordingly, the supplemental information should not be interpreted as indicating Monsantos results of operations from replacement of its productive capacity. Actual replacement will not take place in the manner assumed in estimating the supplemental current cost information, In addition, the computation of the supplemen tary data reflects only certain inflation effects on a limited number of assets. The resulting adjusted net assets and net income amounts are. accordingly, of questionable value Ear purposes ofdetermining the overall or specific impacts of inflation on Monsanto s financial position and operating results. Management believes that the above data adjusted for changing prices -- which data are disclosed under the requirements of FASB No. 33 and are not otherwise utilized by management --should be evaluated with caution and careful consideration of the appropriateness of the underlying concepts used in its preparation. The Financial Accounting Standards fd Board, :n issuing FASB No. 33. noted that the iniormation is experimental in nature and that its usefulness has not been proven. A statement of net income hum operations and certain other information for the year ended December 31. 1979 adjusted for changing prices in accordance with FASB No. 33, and the historical cost information reported in the primary financial statements for the same period, are shown below: Historical Cost adjusted for General Inflation Adjusted tor Changes m Current Costs tin Average [979 Doliars) Net sales...................... Cost of goods sold, excluding depreciation............ Depreciation expense.................... Marketing, administrative and technological expenses .................. Otho* expense and income --net........................ Income taxes .. - ... Net income Tom operations .............. Income from operations per primary share ........ Cain from decfine in purchasing power of net amounts owed........ Net aaaeti at year-end.............. Shareowners' equity per common share ........................ S6.I92.6 4,637 1 2949 773.7 5.8 130 1 % 33! 0 J 9.11 12.781.8 I m* - o- 36.192.6 4,693,8 399 0 773.7 5.8 ___150.1 I 170.2 i 468 $ 122 7 S3 650.5 S 101.3! '*` 56,192 6 4 655.1 42C\.Z 773 7 58 1501 S 1877 S 5.16 S !22 7 53,7236 .S. 1.0. 3...34 The increase in current cost of inventories and property, plant and equipment for the year ended December 31,1979, stated in average 1979 dollars, was $6443, of which $95-9 was in excess of the increase caused solely by general inflation. At December 31,1979, the current cost of inventory and property, plant, and equipment (net of accumulated depreciation) was $ 1 3463 and $3337,3. respectively, stated in year-end 1979 dollars. `Adjusted net income from operations' reflects higher depreciation and cost of goods sold. As indicated above, income taxes have not been adjusted for these higher costs resulting in an effective tax rate of approximately 46.9% and 44.4%, respectively, for the constant dollar and current cost data as compared to 312% under historical cost. Also not considered in the adjusted net income is the impact of changing prices on expenses other than those derived from inventory and property. Adjustments for general inflation have been made DSW 021281 TOWOLDMONOOI4987 using the Consumer Price Index-All Urban Consumers as required by FASB No. 33. The amounts reported as t he estimated current costs are caicula ted as described below. These estimates, although based on the best judgments of management, are not necessarilv 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. Inventones determined on a FIFO basis were used to approximate inventories on a current cost basis. Cost of goods sold, excluding depreciation, as determined on a LIFO basis or techniques that approximate the results obtained on a LIFO basis, was used to approximate cost of goods sold on a current cost basis. The current costs (specific prices) of property, plant and equipment were generally estimated using appropriate construction and equipment indices. Accumulated depreciation and depreciation expense related to the current cost of existing facilities were estimated using the same depreciation methods and lives as used in the historical cost financial statements. Certain five-year data adjusted to average 1979 dollars in accordance with FASB No. 33 follow: 1979 1978 Year Ended Drranhts-31. 1977 1976 197S Independent Awftors' Opinion Monsanto Companv: We have examined the accompanying consolidated financial statements (pages 56 through 69) of Monsanto Company and Subsidiaries as of December 31, 1979 and 1978 and for the years then ended. 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 financial position of Monsanto Company and Subsidiaries at December 31,1979 and 1978 and the results of their operations and changes in their financial position for the years then ended, in conformity with generally accepted accounting principles applied on a consistent basis. A Saint Louis, Missouri February 21,1980 _ Net sales . . Dividends per common share......... Market price of common stock at year-end . $6,193a $ 3-39 3 3638 S3J83 J S 336 * 5036 *53033 * 3.64 S 67.61 *5.4443 * 352 * 109.92 *4388.4 * 3.46 * 9934 The average Consume: Price Index was 217.4, 195.4,181.5,170.5, and 1612, respectively, for 1979-1975. OSH 021282 TOWOLDMONOOI4988 Ten-Year Summary Monsanto Company and Subsidiaries tin millions, except per short and when italicized)1979 Operating Result* Net sales ................................................................................................................................. Operating income................................................................................................................. Interest expense..................................................................................................................... Income taxes ......................................................................................................................... Income before extraordinary charge .............................................................................. Extraordinary charge.......................................................................................................... Net income........ . ................................................................................................................. Percent of net sales .............................................................................................................................. Percent ofavenge shareowners'equity........................................................................................ Earnings per common share: Primary: Before extraordinary charge...................................................................................... After extraordinary charge........................................................................................ Fully diluted: Before extraordinary charge...................................................................................... After extraordinary charge ........................................................................................ Year-End Financial Position Total assets .............................................................................................................................. Working capital..................................................................................................................... Property, plant and equipment--gross................................................................................... Property, plant and equipment--net .............................................................................. Long-term debt ..................................................................................................................... Shareowners' equity.................................................................................................................... Other Data Per common share: Dividends .......................................................... ................................................................. Shareowners'equity......................................................................................................... Property, plant and equipment additions ...................................................................... Depreciation and obsolescence ........................................................................................ Year-end: Shareowners: Common .......................................................................................................................... Preferred .......................................................................................................................... Common shares outstanding Employees............................................................................................................................ $6,193 487 123 ISO 331 331 53% 123% $ 9,11 9,11 9,03 9,03 $5,339 1,323 3,529 2,818 1,203 2,782 $ 3,33 77.20 $ 566 413 85&OB 952 36,0 63,926 1978 $5,019 632 103 274 303 303 6.0% 12.2% $ 8.29 8.29 8.21 8.21 $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 (1) Aset January 1, 1974, the Company and certain of its domestic wbsidiaries changed their method of inventory valuation far substantially all United States inventories from the FIFO basis to the UFO basis. The effect cf this change waa to decrease 1974 income by $775 or 52-26 per primary share. (I) Excludes J 16.0 applicable to extraordinary charge. 70 DSW 021283 TOWOLDMONOOI4989 1977 $4,595 610 86 248 276 276 60% 11.9% $ 7.46 7.46 7.37 7.37 $4,350 1,080 4,745 2,409 1,031 2,401 $3,025 66.16 $ 607 296 85,021 1,404 36.3 61519 1976 $4,270 668 80 251 366 366 8.6% 17.3% $10.05 10.05 9.77 9.77 $3,959 1,106 4,208 2,090 915 2,253 $ 2.75 61.79 $ 647 226 84647 1,956 36.4 61,903 1975 $3,625 547 56 230 306 306 8.4% 16.4% $ 8.63 8.63 8-22 8.22 $3,451 1,150 3,620 1,660 845 1,977 $ 2.55 56.62 $ 528 173 91,725 2536 34.8 59M2 1974 $3,498 550 43 251 323(1) 323(1) 9.2% 20.0% 1973 $2,648 406 39 173 238 238 9.0% 17.2% $ 9.25 9.25 8.73 8,73 $2,938 968 3,157 1,312 587 1,755 $ 6.90 6.90 6.54 6.54 $2,545 855 2,852 1,152 579 1,484 1972 $2,225 216 37 81 122 122 5.5% 9.7% $ 3.49 3.49 3,40 3.40 $2,237 677 2,765 1,133 576 1-294 1971 $2,087 178 39 66 94 94 45% 7.8% $ 2.65 2.65 2,63 2.63 $2,154 547 2,735 1,170 558 1,226 1970 $1,972 128 33 35 78 11 67 3.4% 3.6% $ 2.17 1.83 2.17 1.83 $2,145 538 2,637 1,170 589 1,194 $ 2.30 51.39 $ 313 172 $ 1.90 44-26 $ 205 170 $ 1.80 39.05 $ 168 194 $ 1.80 37.16 $ 205 187 $ 1.80 36-27 $ 301 170(2) 98542 3,709 34,1 60,926 98,964 3,855 33.4 58577 104569 3,939 33.0 57,891 110,490 3,897 32.8 59571 121599 3,941 32.8 62,940 OSW 021284 ri TOWOLDMONOOI4990 Directors and Officers Board of Directors John W. Hanley, St. Louis Louis Fernandez, St. Louis Buck Mlckel, Greenville. S.C. Chairman of the Board and Chief Vice Chairman of the Board Chairman of the Board. Executive Officer Edmond S. Bauer, St. Louis J. William Fisher, Marshalltown, la. Former Chairman of the Board. Daniel International Corporation (asubsidiary of Fluor Corporation) Chairman of the Board and President, Fisher Controls Company, Inc. Edward L. Palmer, New York Fisher Controls Corporation of Delaware H. Harold Bible, 5t. Louis Vice Chairman of the Board Donald C. Carroll, Philadelphia Dean of The Wharton School, University of Pennsylvania Richard I. Fricke, Montpelier, Vt. President, National Life Insurance Company Chairman of the Executive Committee, Citicorp and Citibank, N.A. Janies J. Kerley St. Louis Chairman of the Finance Committee Francis E. Reese, St. Louis Senior Vice President Howard M. Love, Pittsburgh President, National Steel Corporation Monte C. Throdahl, St. Louis Senior Vice President C. Raymond Dahl, San Francisco Chairman of the Board, Crown Zelterbach Corporation Richard J. Mahoney St. Louis President Jean Mayer, Medford, Mass. Margaret Bush Wilson. St. Louis Attorney, Wilson, Smith and Smith President, TLfts University Audit Buck Mickel Edward L. Palmer Margaret Bush Wilson Executive H. Harold Bible Louis Fernandez John W, Hanley James J. Kerley Richard J. Mahoney Margaret Bush Wilson Officer* Executive Compensation and Development C. Raymond Dahl Richard I. Fricke Howard M. Love Buck Mickel Finance Donald C. Carroll J. William Fisher John W. Hanley James J. Kerley Richard J. Mahoney Edward L. Palmer Chairman of the Board and Chid Executive Officer John W. Hanley Vice Chairmen of the Board H. Harold Bible Louis Fernandez President Richard J. Mahoney Chairman of the Finance Committee James J. Kerley Senior Vice Presidents Robert L. Berra Francis E. Reese Howard A. Schneiderman Monte C. Throdahl Group Wee Presidents Robert E. Burke James E. Crawford, Jr. C. Preston Cunningham Francis J. Fitzgerald Earle H. Harbison.Jr. Nicholas L. Reding Wee President, Secretary and General rjumssi Richard W. Duesenberg TL Nominating C. Raymond Dahl John W. Hanley James J. Kerley Howard M. Love Buck Mickel Pension and Savings Funds H. Harold Bible Donald C. Carroll Louis Fernandez Richard I. Fricke James J. Kerley Jean Mayer Wee Presidents Leonard A. Cohn Harold J. Corbett S. Allen Heininger Joseph T. Nolan Richard C. O'Sullivan Sam Pickard Ernest S. Robson, Jr. Francis A. Streble Treasurer John A. Rolls Controller Michael F. Mee OSW 021285 TOWOLDMONOQ14991 Lfe-fiiri It OSW 021286 TOWOLDMONOOI4992 Monsanto Company S00 North Lindbergh Boulevard St. Louis, Missouri 63166 DSW 021287 TOWOLDMONOOI4993