Document QJOw3eQvj6x07VYy4gmnaQaz8

PLAINTIFF'S EXHIBIT MAR 000796 LAM016855 1965 ANNUAL REPORT MONSANTO COMPANY FINANCIAL. HIGHLIGHTS (Dollars in Millions, Except Per Share Figures) Earnings a Share............................................................. Cash Dividends a Share................................................. Stock Dividend............................................................... . Income: Net sales................................................................... Interest, dividends, etc............................................ Costs of Doing Business: Raw materials, fuel, supplies, etc........................ Wages and salaries to employes.......................... Depreciation, depletion, etc.................................. Taxes (income, property, etc.).............................. Interest expense..................................................... Minority interests in subsidiaries......................... Net Income...................................................................... Cash Dividends Paid..................................................... Retained for Future Growth......................................... Per Cent of Sales: Gross profit............................................................... Selling and administrative expenses................... Research, development, patent, engineering... Net income............................................................... Plant Additions and Replacements............................ Investment in Affiliated Companies.......................... Long Term Debt (Exclusive of Current Maturities) Shareowners' Equity..................................................... Equity to debt ratio................................................. Common Shares (In Millions)..................................... Book Value a Common Share...................................... Working Capital.............................................................. Current Assets to Current Liabilities Ratio.............. Employes......................................................................... Shareowners................................................................... 1965 $ 3.89 1.45 2% 1964 $ 3.72 1.25 2% $1,468.1 16.1 1.484.2 751.4 343.9 133.5 111.4 18.9 2.1 1.361.2 123.0 44.8 $ 78.2 $1,358.7 15.7 1.374.4 681.0 313.6 120.3 127.3 15.5 1.8 1.259.5 114.9 37.6 $ 77.3 29.2% 10.2 4.8 8.4 $ 295.2 l.i $ 467.5 957.5 2.05 31.6 $ 30.27 $ 350.1 2.31 56,227 93,538 30.8% 9.9 4.9 8.5 $ 218.1 13.3 $ 345.5 871.7 2`.52 30.9 $ 28.25 $ 294.1 2.22 52,284 89,833 MAR 000797 LAM016856 TO THE SKA t , 1 Taking advantage of a vigorous economy and a more favorable U.S. tax climate for domestic opera tions, our company in 1965 achieved another record year and prepared itself for future growth. Advanc ing to new levels were such traditional indicators as sales, net income, per-share earnings and dividends paid to shareowners. Yet, all expectations for the year were not achieved, as reflected in a decline in pretax income. Consolidated sales totaled $1,468,147,000, which represented a year-to-year increase of 8 per cent. Al though pretax income was down 5 per. cent, net in come was up 7 per cent to $122,967,000. Earnings came to $3.89 a share on 31,634,357 shares outstand ing, compared to $3.72 a share on 30,859,927 shares in 1964. In the fourth quarter, the Board of Directors voted to increase the quarterly dividend rate from 35 to 40 cents a share. Tabulations in the adjoining column, which reflect some of our disappointments as well as some of our achievements, indicate how various factors contrib uted to, or limited, the 1965 earnings increase. The effect on earnings of the higher costs of starting up plants, especially some involving new technology, was so appreciable that it is listed separately for the first time. Two other operating factors caused a drag on earnings. The decline in selling prices in some prod uct groups not only continued but intensified. In line with the company's growth, the costs of admin istrative, marketing and technological activities rose in 1965, but the year-to-year increase was less pro nounced than in 1964. Higher sales provided the major stimulus for the year's gains. Abroad, as well as in the United States, most major products were in firmer demand. Sales The year-to-year increase in earnings of 17 cents a share is accounted for as follows: Earnings a Share Year 1964 earnings.................................................. $3.72 Reductions in earnings caused by: Lower selling prices.................................... $.37 Higher start-up costs........................................26 Higher selling, administrative, research, development and other expenses.............................................. 23 .86 Additional earnings resulting from: Higher sales volume......................... $.49 Manufacturing cost savings..................23 Lower raw material prices.......................01 .73 Decrease in operating results.........................................i3 3.59 Nonoperating items: Higher investment tax credit on property additions........................................ 26 Lower income taxes, due primarily to difference in tax rate................................14 Profit on sale of land....................................... 07 Higher interest costs.............................05 Higher other income charges......... .02 .07 Effect on earnings of shares issued during the year........................... .10 .30 Year 1965 earnings................................................. $3.89 Italics indicate deduction. Italics in the text of this Annual Report indicate Monsanto trademarks. MAR 000798 LAM016857 beyond U.S. borders amounted to $311 million, compared to sales of $286 million in 1964. Monsanto also benefitted in 1965 from newly instituted manufacturing economies. Such savings, which affect earnings so dramatically, are a satis fying reward for the careful planning and hard work that made them possible. Two nonoperating items in the earnings analysis are of special significance. These are lower income taxes and higher tax credit on investments, the latter reflecting the company's high level of capi tal expenditures. Looking beyond the year's gains in sales and earn ings, Monsanto's management views as particularly significant the big investment the company made in its future. Perhaps 1965 is best characterized as a year of record expansion into promising areas, many of them new to the company. Capital outlays for plant and equipment far exceeded those of any prior year. They totaled $295,160,000, which was 35 per cent higher than the previous record expenditures of $218,105,000 in 1964. Investments in affiliates amounted to $1,126,000 in 1965 and $13,340,000 a year earlier. Here are some major projects for which expan sion capital was spent: Using new technology, Monsanto (1) became the world's first large-scale producer of an organic chemi cal (a nylon-yarn intermediate) by an electrolytic process, (2) began commercial production of Ramrod weed killer, (3) established itself as a producer of polyester fibers, (4) opened a plant to provide dye ing and finishing services to the textile industry, (5) completed the first part of a two-phase expansion that will add more than 280 million pounds to annual capacity for acrylonitrile -- a basic raw material for production of Acrilan acrylic fiber, nylon yarn and certain plastics -- and (6) increased its ammonia capacity by one-third. Other projects completed in 1965 included a nylon-yarn plant in Luxembourg; units for making cyclamate sweeteners, ammonium phosphate, and cold-water soluble fumaric acid for flavoring pro cessed foods; and expansions involving acrylic fibers, saccharin, bulk aspirin, detergent phosphates, and a number of plastics resins and raw materials. In various phases of construction at year-end were a nylon-yarn plant in Scotland; an enlargement of facilities for producing Acrilan acrylic fiber in Northern Ireland; and, domestically, a major ex pansion of phosphorus capacity. Much of the required capital for this enormous expansion program is being generated internally. The balance has been arranged through outside financing. In February, 1965, a group of U.S. banks agreed to lend the company $100 million, $75 million of which was taken down during the year. In addi tion, Monsanto in 1965 formed a subsidiary to help raise capital to finance overseas projects, primarily in the United Kingdom and continental Europe. In the fourth quarter this new subsidiary, Monsanto International Finance Company, successfully raised $25 million outside the United States through a sale of debentures which give buyers the option of future conversion into Monsanto Company common stock. In keeping with the government's desire to strengthen the U.S. balance-of-payments position, the debentures were offered only to purchasers abroad. Additional funds of $32,776,000 were borrowed by overseas affiliates in their local currencies. Although most of 1965's operational highlights are detailed later, in this Annual Report, a few merit mention here. Indicative of a significant trend in our business, the agricultural chemicals group has become our fastest growing product area. In 1960, in terms of sales it was seventh largest of Monsanto's 11 product groups. By 1965, it had become fourth largest. In dications are that the growth trend will continue and that direct sales to farmers will represent an increasingly important market. Growth in plastics was aided by a Monsanto improvement in the plastic interlayer for laminated safety glass. In windshields of 1966-model automo biles it gives motorists increased protection in the event of highway mishap. Also noteworthy is the important role our com pany played in helping detergent makers convert quickly to so-called biodegradable intermediates which minimize detergent-linked foaming that for merly plagued U.S. surface waters. Monsanto supplied MAR 000799 LAM016858 3 the first commercial shipments of these intermediates and is now a leading producer of them. Another significant development in 1965 was our attainment of a basic raw-material position in salt. In March, at the 1965 Annual Meeting, Edgar M. Queeny stepped down as chairman of the Fi nance Committee. Mr. Queeny, the son of Monsanto's founder, and a former president and board chairman, remains on the board and the Finance Committee. Charles Allen Thomas retired from the board chairmanship, a post he had held since 1960. He continues as a director and was elected chairman of the Finance Committee. He is also chairman of the Technical Committee. At the same time, the board elected Edward A. O'Neal chairman of the board to succeed Dr. Thomas. Later in the year, Vice President Edward J. Bock was elected a director of Monsanto and a member of the Executive Committee. Mr. Bock had been general manager of the Inorganic Chemicals Division. We wish to conclude this letter by acknowledging our appreciation to Monsanto people all over the world for their contributions to the progress of our company. Sincerely, COMPARATIVE CONSOLIDATED SALES, INCOME AND EARNINGS A SHARE BY QUARTERS SALES: 1965 1964 (In Thousands) First quarter.. $ 358,703 $ 324,414 Second quarter 384,309 358,898 Third quarter... 356,547 326,957 Fourth quarter. 368,588 348,409 $1,468,147 $1,358,678 Increase Decrease 10.6 7.1 9.1 5.8 8.1 INCOME: First quarter..$ Second quarter Third quarter... Fourth quarter. $ 34,194 $ 38,791 25,169 24,813 122,967 $ 28,696 35,285 23,023 27,887 114,891 19.2 9.9 9.3 11.0 7.0 &J.a. CTW2_ Chairman of the Board President St. Louis February 21, 1966 The next annual meeting of the shareowners of the company is to be held at 10 a.m. Thursday, March 24, 1966, at the company's General Offices, 800 N. Lindbergh Blvd., St. Louis County, Mo. A formal notice of the meeting, together with a proxy statement and form of proxy, is being mailed to each shareowner. 1965 1964 Adjusted for 1965 Stock Dividend As Reported EARNINGS A SHARE First quarter............ .. Second quarter___ .. Third quarter.......... Fourth quarter........ $1.08 1.23 .79 .79 $ .91 1.12 .73 .89 $ .93 1.14 .75 .90 $3.89 $3.65 $3.72 SHARES OUTSTANDING DECEMBER 31: 1965..................................................... 31,634,357 1964......................................................30,859,927 (1) Restated for the first three quarters of 1965 to reflect the shares outstanding on December 31. MAR 000800 LAM016859 4 1965 OPERATIONAL HIGHLIGHTS Most of Monsanto's activities relate in some way to the manufacture and sale of products. Therefore the year's more significant developments are dis cussed here primarily in terms of products. Informa tion is classified according to Monsanto's 11 product groups and treated on a worldwide basis. CHEMICAL FIBERS Chemstrand's fibers moved in record volume. Their year-to-year gain in sales amounted to 7 per cent. Industry-wide demand for acrylic, nylon and poly ester fibers is expected to extend its rapid growth through at least the 1960s. Five-year projections in dicate that the industry will have to make major expansions if it is to meet a world demand for the three fibers which is expected to total nine billion pounds a year by 1970. This is 2.5 billion pounds in excess of the installed capacity expected at the end of 1966. Since I960, consumption of acrylic fibers by rug and carpet makers has increased eightfold. And another doubling is expected by 1970. Monsanto is participating strongly in this growth. In 1965, the company's sales of Acrilan acrylic fiber to the carpet industry gained particularly well. Sales also benefitted in 1965 as a result of a "Warm Coat" mer chandising program in behalf of outerwear containing the fiber in pile and fleece forms. Capacity to make Acrilan acrylic fiber was doubled in Decatur, Ala., and was being doubled in Northern Ireland. The popularity and use of nylon, oldest of the man-made noncellulosic fibers, continued to increase. Its total U.S. market is expected to grow about 50 per cent in the next five years. And overseas markets, particularly in the United Kingdom and Western Europe, are expected to expand even faster. In 1965, Monsanto's sales of nylon gained well in such important markets as tires, industrial fabrics, upholstery, hosiery and texturing applications. Yarns for texturing were in especially strong demand for use in stretch garments, which have been promoted heavily under the company's Actionwear trademark. Monsanto's new nylon-yarn plant in Luxembourg began producing late in 1965. In Dundonald, Scot land, another nylon-yarn plant is scheduled for completion in 1966. In the United States, new facili ties for making nylon polymers were added in Greenwood, S.C. The Decatur plant in 1965 began producing a key nylon-yarn intermediate by a patented electrochemi cal process discovered and developed by Monsanto. The new method, which, for the first time, enables the company to make both nylon yarn and Acrilan acrylic fiber from the same acrylonitrile starting material, will result in manufacturing economies. Sales of spandex stretch yarns increased during the year. Such uses as foundation garments, bras sieres, and hosiery tops represent important uses for the product. The company entered a major market late in the year when production of polyester fibers got under way in Decatur. Addition of polyester to the Chemstrand fine signficantly enhances Monsanto's already strong position in the apparel market. Polyester fibers now go mainly into clothing of polyester-cotton blends. The U.S. market for such fabrics, which used about 250 million pounds of polyester in 1965, is expected to more than triple within five years. This growth pattern reflects increasing demand for apparel with crease resistance and wash 'n' wear qualities. MAR 000801 LAM016860 5 In Orangeburg, S.C., construction was completed on a new plant which offers the textile industry dyeing and finishing services on polyester-cotton blends and other textile fabrics. PLASTICS. RESINS ANT CQAT;!\'eS Total demand for Monsanto plastics -- including raw materials, resins and finished products -- was greater than ever. Sales increased 7 per cent as the company's network of plastics-producing plants in nine countries ran at near capacity. There was continuing emphasis on sophisticated plastics, the specialized performance of which enabled them to extend their markets. For example, Lustran acrylonitrile-butadiene-styrene (ABS) polymers strengthened their position in such end uses as refrigerators, appliance housings, pipe and luggage. A transparent form of Lustran styrene-acryloni trile (SAN) polymer was introduced for making automobile instrument lenses. And heat-resistant forms of Lustrex polystyrene gained ground in the fast-growing market for plastic packages. Capacity for Lustran was enlarged in Addyston, Ohio. Other expansions involving the same tough plastic occurred in France and the United Kingdom. A new unit to make the product is scheduled for early 1966 start-up in Canada. These expansions increased Monsanto's need for styrene monomer, principal raw material for both Lustran and Lustrex plastics, and new monomer capacity was added in Texas City, Tex. Demand for low-density polyethylene ran ahead of capacity in the first half of the year. Prices strengthened accordingly. Monsanto's product mix was upgraded, and new sales of polyethylene for insulating wire and cable was one result. CONSOLIDATED SALES BY PRODUCT GROUPS PER CENT INCREASE 1965 OVER 1964 1960 7 103 7 93 2 34 32 141 10 33 1 24 2 19 15 32 3 15 5 16 ---- Chemical Fibers.................................................... ......... Plastics, Resins and Coatings............................ .......... Phosphates and Detergents............................... ......... Agricultural Chemicals.............................. .................... Intermediates and Plasticizers............................ ........ Rubber and Oil Chemicals............................................ Petroleum -- Net of purchases................................... Fine Chemicals and Food Ingredients......................... Textile and Paper Chemicals........................................ Heavy Chemicals................................................... ........ Other....................................................................... ......... PER CENT OF TOTAL 1965 1964 I960 28.6 25.1 9.6 9.0 8.9 6.1 4.7 2.9 2.4 2.0 .7 29.1 25.2 10.1 7.4 8.7 6.6 5.0 2.7 2.5 2.1 .6 23.6 21.7 12.0 6.3 11.2 8.3 6.6 3.6 3.5 2.9 .3 100.0 100.0 100.0 MAR 000802 LAM016861 6 Another 1965 introduction was a polyethylene for high-speed extrusion coating of packaging mater ials. It already has gained wide acceptance in the United States and the United Kingdom. Also in the United Kingdom, the company began marketing a new ethylene-vinyl acetate copolymer, one use of which is in flexible hose for food processing. Monsanto's vinyl plastics, including film, were virtually in a sold-out position. In the United States, a clear form of Vyram rigid polyvinyl chloride was introduced for molded bottles to package a variety of products. A form of Vyram for making pipe was marketed for the first time in Argentina, Canada and Mexico. And polyvinyl chloride expansions occurred at Monsanto plants in all three countries, as well as in the United States. The company's plastic building products, made mostly of Vyram, bettered their year-earlier sales with panels and residential siding particularly strong. Yet, building products did not move in hoped-for volumes. Sales volume of the Mexican plant that produces plastic housewares, containers and appliance parts approximated that of the prior year. Also in Mexico, the company started making corrugated vinyl panels. In England, there was an expansion of facilities for fabricating plastic building products. Anticipating a continuing high level of automo bile production and an increasing demand for greater driving safety, Monsanto speeded its development of an improved plastic interlayer for laminated safety glass. The new product, a form of Safiex polyvinyl butyral, materially increased sales and added to driving safety by giving windshields extra strength and resilience. The improved windshields already have become standard among U.S. and Canadian auto makers. At the Chocolate Bayou Plant near Alvin, Tex., a new unit in 1965 began producing phenolic resin adhesives. Successful product introductions included a line of plywood adhesives for hard-to-bond southern pine. Among Monsanto's innovations in plastics pack aging were glass-clear containers made of polyvinyl chloride; a package for mustard featuring easy, one- hand dispensing; a vinyl bottle suitable for oily foods; an embossed, translucent cup for cold-drink vending; a cottage-cheese tub thermoformed from a specially tailored resin; and a transparent meat tray affording shoppers easy inspection of pre packaged meat and poultry. In 1965, a new plant to produce nestable cups and other containers neared completion in Bridgeview, 111. PHOSPHATES AND DETERGENTS The group's sales were 2 per cent higher than in the prior year. Production of phosphorus and its derivatives topped all earlier records. Expansions and process improvements are under way at Monsanto's phosphorus plants in Columbia, Tenn., and Soda Springs, Idaho. At the latter site the world's largest furnace for making elemental phosphorus is being installed. It is scheduled for early 1966 start-up. The soap and detergent industry's good year was reflected in record sales of Monsanto's detergent ingredients. These include phosphate salts (the socalled detergent builders) and the compounds known as detergent actives. Among the latter are the com pany's alkyl benzenes, one of the biodegradable raw materials to which detergent makers switched in 1965. With the help of Monsanto and other pro ducers, the conversion to biodegradables was com pleted by June, six months ahead of schedule. Also in 1965, Monsanto introduced other new biodegradable actives developed especially for use in controlled-suds detergents. ACL solid, chlorine-bearing chemicals for use in dry bleaches and swimming-pool disinfectants showed a year-to-year sales increase. Phosphorus intermediates, used in oil additives and insect killers, moved in good volume. Installa tion of additional capacity to make them was com pleted in Monsanto, III., and is under way in Anniston, Ala. Sales of a new type of phosphate-based leavening agents first marketed to makers of prepared baking mar 000803 LAM016862 7 PARENT COMPANY 220 220 INDEX OF HOURLY WAGE RATES. PRICES OF RAW MATERIALS AND SELLING PRICES HOURLY WAGE RATES PRICES OF RAW MATERIALS SELLING PRICES 140 130 *% 140 130 1947-1949 = 100 90 90 80 80 1956 1957 1958 1959 1960 1961 1962 1963 1964 1965 mixes in 1963 continued to increase. Their 1965 gain far exceeded that of the market in which they compete. Phos-Chek fire retardant for combating forest fires came into wider use in 1965. New techniques of applying it from ground tankers and fire engines (in addition to regular airplane drops) were tested successfully in Australia, Canada and the United States. AGRICULTURAL CHEMICALS Farm chemicals, which had a 32 per cent sales increase, showed the largest year-to-year gain of all the product groups. Domestic business benefitted from greater food consumption and a healthy farm economy. Active 1965 markets reflected better use of technology, continuing weed and insect problems and steadily increasing fertilizer usage. Marketing efforts were supported by innovative programs to merchandise Monsanto's agricultural know-how to growers. Farm tours, informational meetings and strategically placed demonstration fields helped illustrate the effectiveness and profit ability of the company's techniques and products. Proven scientific methods -- spectographic analysis of plant tissue, for example -- were used to deter mine the precise nutritional needs ofcustomers' crops. Plant-food materials -- including ammonia, ammonium nitrate and related fertilizer products -- sold in record volume through hundreds of outlets. MAR 000804 LAM016863 MONSANTO'S DIVISIONS The company in 1965 had these eight divisions: Agricultural Division, Chemstrand Company Division, Hydrocarbons & Polymers Division (formerly the Hydrocarbons Division), Inorganic Chemicals Division, International Division, Or ganic Chemicals Division, Packaging Division and Plastic Products & Resins Division (formerly the Plastics Division). Production of fertilizer materials was expanded at three U.S. plants. The most significant expansion was a doubling of ammonia capacity in Luling, La., where Monsanto now has the largest computercontrolled unit for ammonia production in the United States and the first anywhere to employ a new engineering concept in high-efficiency am monia production. Also in Luling, Monsanto increased ammonium nitrate capacity and started making ammonium phosphate, another widely used plant food. The latter product is being manufactured in a new unit with a capacity of 240,000 tons a year. To the network of Monsanto-owned and inde pendent outlets for farm chemicals were afded 45 Monsanto .Agricultural Centers. The centers, which numbered 120 at year-end, sell fertilizers, insecti cides and herbicides direct to growers in prime U.S. farm regions. Pesticides made strong sales gains, with overseas markets accounting for about one-third of total business. Looking toward future growth, Monsanto is testing pesticidal formulations on five continents. Sales of Randox weed killer doubled for the third year in a row. Ramrod herbicide, a companion prod uct to Randox, was introduced in the U.S. Corn Belt with outstanding first-year success. There are plans to broaden the distribution of Ramrod in the United States in 1966 and, at the same time, introduce it to Canadian and European growers. Late in 1965, facilities to make Ramrod were completed in Mus catine, Iowa. Production capacity for Rogue weed killer was doubled as sales to rice growers gained strongly. U.S. demand for Avadex wild-oat killer was over shadowed by large-volume use in Australia, Can ada, Europe and Latin America. Proof that autumn application of Avadex gives weed control through the next year sparked new interest in the product. Demand for Monsanto's parathions to control insects in cotton, fruit and vegetable crops outpaced supply despite earlier capacity boosts. The company scheduled a 1966 expansion to help ease the situation. A new parathion-formulating plant in Guatemala enabled Monsanto to increase its sales in Cen tral America. Animal-nutrition products moved well. MHA pro tein supplement for poultry rations showed espe cially good improvement. Domestic business got a boost when rising costs of other meats influenced American housewives to serve more chicken. In overseas markets Santoquin antioxidant, which preserves the nutritive values of feeds, was a big gainer. New business included treatment of fish meal, an important feed material, to prevent oxidation during long storage. INTERMEDIATES AND PLASTICIZERS Most of the group's products were in firm demand. Total sales increased 10 per cent. Phenol and other intermediates in the group are utilized in manufacturing other chemicals. Monsanto makes intermediates mainly to insure ample, lowcost supplies for its own use. Since the company's capacity exceeds its needs, however, large volumes are also marketed. World demand for intermediates is expected to go on rising for at least the next five years. Monsanto -- a producer in the United States, continental Europe, the United Kingdom and elsewhere -- should benefit. Plasticizers, used mainly to improve the proper ties of plastics, moved in record volume. High levels MAR 000805 LAM016864 9 of activity in the automotive and building industries, each a major user of plastics, helped spur the gain. So did increasing popularity of embossed vinylasbestos floor tile, largest outlet for Santicizer 160 primary plasticizer. During the next five years more than half the projected growth in plasticizer sales is expected to occur beyond U.S. borders. European demand for Santicizer 160 is already heavy enough to justify a production unit now being built in Antwerp, Belgium. Several plasticizers were added to the Monsanto line in 1965. One is used in tough, yet soft, plastic and rubber compounds for such automotive appli cations as upholstery, trunk liners, side panels and floor pads. Another is for acrylic lacquers to pro vide durable, transparent coatings for protecting metal structures exposed to weather. Resin materials represent an area of particularly intense competition caused by excess capacity. Despite this problem, sales increased. There were encouraging signs that demand for phthaLic anhydride is rapidly catching up to active capacity. The big-volume product -- a key ingredient of paints, industrial finishes and reinforced plastics -- has been in oversupply for years. Functional fluids remained a fast-growing seg ment of the company's business. These products are used as hydraulic fluids, heat-transfer agents, lubricants and -- in electrical equipment -- as in sulators. Each has outstanding fire resistance and thermal stability. Skydrol fire-resistant hydraulic fluid for aircraft, in 15 years of use, has flown 35 million miles with no failures. Safety-conscious aircraft manufacturers and airlines the world over now accept it as a standard. Monsanto maintained its position by developing new fluids to meet the more severe temperature and pres sure conditions imposed by higher-flying, faster aircraft and by smaller, more powerful hy draulic systems. An extremely active industrial construction mar ket helped increase sales of dielectric fluids to makers of capacitors and transformers. A new, low-priced form of Pydraul fire-resistant hydraulic fluid was well received in the metalworking industry. A new heattransfer fluid was used successfully in tankcar heating systems to keep pitch, sulfur and other chemicals molten during shipment. And another Monsanto heat-transfer fluid is being checked out as a possible means for making nuclear power stations simpler and less expensive. RUBBER AND OIL CHEMICALS The group's total sales were 1 per cent above year-earlier levels. Long-time growth in the market for synthetic rub ber was thrown off stride by price cuts in natural rubber. Styrene monomer, a principal ingredient of the synthetic product, only approximated its 1964 sales to rubber companies. But butadiene, another synthetic-rubber ingredient, sold at capacity. Sales of additives to speed rubber manufacture and improve the durability of automobile tires increased. More than half the total volume was sold outside the United States, the bulk of that coming from plants in England. Santoflex antidegradants, which protect tires from cracking caused by oxygen and. ozone in the air, sold well. One type protects tires in motion; another protects uhem at rest. Among recent Monsanto developments are a stabi lizer package for synthetic rubber, and special sys tems for core bonding and vulcanization. In the petroleum-additives field, Monsanto is rapidly attaining a position of technological leader ship. This is particularly true in the important engine-oil market, which represents about 60 per cent of the company's total market for oil chemicals. As engines have become more powerful and op erating conditions have grown more stringent, Monsanto has been a pacesetter in developing suit able additives. Such additives effectively counteract the increased engine rust and carburetor deposits caused by equipment put on new automobiles to control air pollution. They also go into high-grade lubricating oils for highway-construction equip- MAR 000806 LAM016865 ment, gas-compressor engines and other off-theroad machinery. PETROLEUM PRODUCTS Sales of these products were 2 per cent higher. The refinery in El Dorado, Ark., operated at capacity, and there were firmer prices on most of its output. Wholesale prices of gasoline and fuel oil rose early in the year and stayed above their 1964 levels. Retail sales of gasoline gained 8 per cent, partly a result of intensive promotional effort. Sales of crude oil and natural-gas liquids were slightly above year-earlier levels. There was a 10 per cent increase in sales of natural gas. Significant oil and gas discoveries opened new fields in Louisiana and Oklahoma. Development of existing fields in Oklahoma and New Mexico was highlighted by production from new gas wells with immediate markets. Participation in the completion of 84 producing wells gave Monsanto a net gain of 46.96 wells for the year. FINE CHEMICALS AND FOOD INGREDIENTS The group, which includes some of the company's earliest products -- among them, saccharin -- and some of its newest, continued to flourish. Its sales climbed 15 per cent. Aspirin sales benefitted when the product was offered in a new form to makers of time-release, pain-and-fever relievers. Monsanto is increasing its domestic aspirin capacity about 50 per cent in three stages to keep pace with mounting world demand. The group's best growth prospects are in the area of food ingredients, where 1965 saw promising progress in new flavor enhancers and nonnu tritive sweeteners. The year's developments included first commer cial production of CITS' cold-water soluble fumaric acid for use in dry beverage bases and fruit-juice drinks. The patented product, which imparts tartness, dissolves much faster than normal fumaric and is much less expensive than citric acid, the traditional acidulant for many food products. Also in 1965, saccharin capacity was increased and production of Vietose sodium and calcium cyclamates began. Less sweet than saccharin, the cyclamates are often combined with it in low-calorie food products. Monsanto is now the only basic supplier of all nonnutritive sweeteners. TEXTILE AND PAPER CHEMICALS Sales of chemicals for the manufacture of textiles and papers rose 3 per cent. Customer sales of acrylonitrile, the group's main stay, increased and Monsanto itself consumed great volumes in the manufacture of chemical fibers, principal end use for this raw material. An earlier shortage of acrylonitrile was eased by the completion of the first part of a two-phase installation of new facilities at Monsanto's Chocolate Bayou Plant near Alvin, Tex. The second phase is to be in operation in mid-1966. The two-part expan sion will add more than 280 million pounds to the company's yearly acrylonitrile capacity. Of the many paper chemicals offered by Monsanto, the most important is Mersize sizing agent, which improves the water resistance of paper. The product sold well in 1965. Scripset additive to improve the dimensional sta bility and printability of offset printing papers also moved in good volume. Products now under development and being counted on to provide further growth include sur face sizes, coating-pigment binders, alkaline sizes and wet-strength agents. HEAVY CHEMICALS Sales of heavy chemicals were up 5 per cent for. the year. MAR 000807 LAM016866 11 Sales of sulfuric acid, a basic raw material for a broad range of industries, increased. Monsanto's four sulfuric units ran at capacity. And the company designed and sold more sulfuric plants for other producers worldwide than in any previous year. The steel industry in 1965 found benefits in using hydrochloric acid in place of sulfuric under certain conditions in the pickling of steel. Because of this development, Monsanto's sales of hydrochloric gained strongly. Caustic potash also moved well. The chemical, of which Monsanto is a major U.S. producer, is used in catalytic reactions and as an important raw mater ial in making soaps and detergents, medicinals, and potash salts for various other uses. Capacity for specialty silica products was expanded to keep up with growing demand. One of the prod ucts, Santocel silica aerogel, underwent a quality refinement that made it the most efficient flatting agent available for various types of lacquers and varnishes. Worldwide sales of vanadium catalyst (for sul furic acid manufacture) far exceeded previous records. Brisk demand for lampblack and bone ash helped sales of those products climb to new peaks. OTHER PRODUCTS Silicon was in strong demand. As the year pro gressed, its sales increased steadily. Silicon and other semiconductors are essential in the manufacture of electronic devices. In 1965, makers of such devices used more semiconductors than ever in radios, TV receivers, computers and other electronic equipment. RESEARCH, DEVELOP V EH T AX'D ENGINEERING Massive technological effort was rewarded in 1965 by significant innovations in Monsanto's products and processes. Many previously existing product lines were upgraded by the introduction of new models with improved quality and performance. In addition, 43 basic new products were marketed for the first time. Some of these are expected to produce substantial sales volume over the next several years. Others serve mainly to broaden the variety of materials available to Monsanto's customers. In 1965, the company received 368 U.S. patents and 1,486 foreign patents. Expenditures for research, development, patent work and basic engineering amounted to $69.9 mil lion, compared to $66.8 million in 1964. Important forward strides were taken by the Central Research Department into relatively new areas of technology during the year. For example, new fluids were developed as candi dates for the jet-lubricant market. They operate over the incredible temperature range of 40 degrees below to 445 degrees above zero. The department is developing a new, integrated approach to the design, function, fabrication and chemical properties of heavy-duty plastic products. The goal is to eliminate several conversion opera tions, making possible the one-step production of complex shapes from very simple chemicals. The company's research work in the electron ics field, to which Monsanto supplies silicon and other semiconductors, has produced a number of interesting instruments for use in testing and meas uring. Among their special features are lightness, GROSS ADDITIONS TO PROPERTY AND DEPRECIATION 1956.......................... 1957.......................... 1958.......................... 1959.......................... 1960.......................... 1961.......................... 1962.......................... 1963.......................... 1964.......................... 1965.......................... Property Additions Depreciation, Obsolescence, Amortization and Depletion (Millions of Dollars) 77.1 64.8 58.1 68.7 121.3 153.8 168.8 42.4 48.2 52.9 56.1 79.0 86.9 97.6 114.5 218.1 295.2 114.6 120.3 133.5 Chemstrand and subsidiaries not included in years prior to 1960. j ! i ; MAR 000808 LAIVI016867 12 compactness, high reliability and excellent cost performance. In the area of man-made fibers, Chemstrand developed a new antistatic acrylic for use in blankets. It provides freedom from static electricity through at least five home launderings. Because of improvements made in 1965, Acrilan acrylic fiber now offers superior heat stability and dyeing properties, the latter making possible carpets of brighter, more lustrous colors. Intensive research and development effort into the problem of flat-spotting in nylon-reinforced tires led in 1965 to the formulation of a new nylon tire yarn. Initial test quantities have been rated by some automobile makers as suitable for tires on new cars, a market in which nylon has only small participation. Work on nylon hosiery yarns has resulted in products that give knitters a broader base for a variety of hose with improved styling, fit and textures. Twisloc nylon yarns have been successfully intro duced into raschel fabrics, where their performance is markedly superior in such applications as slips, blouses, dresses and other apparel. And, for use in textured nylon stretch fabrics, Chemstrand has created yarns that offer such new performance advantages as greater recovery power in stretch garments. In August, the engineering departments of all oper ating divisions were consolidated into Monsanto's Central Engineering Department and moved into the new Engineering Center in St. Louis. This move enabled Monsanto to utilize the company's entire engineering resources more efficiently in imple menting its large expansion program. In November, Monsanto received Chemical Engi neering magazine's 1965 Kirkpatrick Chemical Engi neering Achievement Award. The company was so honored for successfully scaling up to commercial reality its patented electrolytic process for making organic chemicals. The process is being used to convert acrylonitrile into an intermediate for making nylon yarn. Wholly owned Monsanto Research Corporation in 1965 continued its successful execution of research programs for government agencies. A number of its projects show promise of profitable application in the civilian marketplace as well as in military or space programs. The research subsidiary's 1965 achievements in cluded successful preliminary testing of its hydrazineair fuel cells as silent sources of electric power for military use; new progress in devising a low-cost means for making high-strength fibers from such metals as boron, beryllium and special alloys; promis ing results in use of the plasma torch to apply in soluble, intractable, temperature-resistant coatings; synthesis of new antimalarial drugs; and additional success with its deicers for aircraft runways. Mound Laboratory, which the research subsidiary operates for the Atomic Energy Commission in Miamisburg, Ohio, continued to conduct important research, development and manufacturing activities. Noteworthy in 1965 were Mound's contributions to the commission's programs for the development of new isotopic sources of heat and power for U.S. space efforts. PERSONNEL To accommodate the expanding company's needs for additional manpower, Monsanto hired more technical and professional personnel than in any prior year. Recruiting activities were supplemented by an enlarged grants-in-aid program. At the same time, Monsanto strengthened its liaison with university faculties through joint meetings to explore areas of mutual interest. The scope of the company's management-develop ment program was expanded to include Monsanto's worldwide operations. New methods of improving managerial skills received special emphasis. Courses offered to employes for the first time dealt with such subjects as computer utilization, prob lem solving and decision making. The sales-training program was enlarged and significantly improved. MAR 000809 LAM016868 13 In 1965, new three-year work contracts were negotiated at nine Monsanto locations. A 30-month contract was signed at another plant. There were no major work stoppages during the year. Despite the occurrence of several fatal accidents. Monsanto's over-all safety record for 1965 was again among the best in the industry. Monsanto employes worldwide numbered 56,227 at year-end. This represented a year-to-year increase of 8 per cent. Among the executive personnel changes that occurred during the year were these: Vice President John R. Eck, who had been gen eral manager of the former Plastics Division, be came general manager of the Inorganic Chemicals Division. He succeeded Vice President Edward J. Bock, now a director of the company. William H. Bromley succeeded Mr. Eck as gen eral manager of what is now the Plastic Products & Resins Division. Prior to that, Mr. Bromley had been president of Shawinigan Resins Corporation, a former Monsanto subsidiary and now a part of the division Mr. Bromley heads. James D. Mahoney, formerly president of 50 per cent owned Mobay Chemical Company, was appointed general manager of the Organic Chemicals Division. He replaced Robert M. Morris, who resigned from the company. Messrs. Bromley and Mahoney were elected vice presidents of the company in December. Earlier, Irving C. Smith was elected a Monsanto vice president and transferred to St. Louis from Brussels, Belgium, where he had served as managing director of Monsanto Europe S.A. He now heads a staff responsible for formalizing and coordinating corporate profit-improvement efforts. At the time of Mr. Smith's move, Vice President Monte C. Throdahl, general manager of the Inter national Division, moved his headquarters from St. Louis to Brussels and added to his duties those formerly handled by Mr. Smith. SHAREOWNERS OF RECORD 1965 1964 Number of Share- owners Number of Shares Number of Shareowners Number of Shares Men.......................... 32,084 4,610,890 30,446 4,691,800 Women..................... 29,211 3,872,397 28,328 3,850,905 Joint Accounts............. 18,431 897,004 17,770 909,442 Charitable Institutions.. 488 204,768 480 204,432 Educational Institutions. 128 197,391 136 190,164 Estates and Trusts... . 9,770 1,723,319 9,384 1,669,731 Insurance Companies... 270 1,322,827 236 1,196,581 Brokers and Nominees.. 1,800 17,853,952 1,685 16,629,555 All Others................... 1,356 951,809 . 1,368 1,517,317 Total.................. 93,538 31,634,357 89,833 30,859,927 1963 Number of Shareowners Number of Shares 1962 Number of Shareowners Number of Shares 1961 Number of Shareowners Number of Shares 27,863 4,354,601 28,545 4,557,252 28,722 4,723,196 24,322 3,603,280 24,657 3,640,656 24,565 3,647,262 16,881 876,116 17,375 858,686 17,346 852,952 395 144,691 224 87,445 234 125,849 127 151,485 117 178,808 111 154,489 8,065 1,395,227 8,446 1,697,284 8,191 1,875,843 211 1,058,065 201 988,887 190 859,916 1,640 13,397,722 1,133 9,856,764 1,120 9,090,762 1,104 4,982,638 : 1,754 7,144,365 ;; 1,724 6,693,171 80,608 29,963,825 82,452 29,010,147 V 82,203 28,023,440 In 1965, 69 per cent of Monsanto shareowners held fewer than 100 shares. MAR 000810 LAM016869 WiG MS' A.[\TO' VV ORLD V,' 11 This list of Monsanto's principal equities gives some indication of the scope and diversity of the company's international operations. Per cent owner ships, in some cases rounded to the nearest whole number, are shown parenthetically. NORTH AWEF.ICA UNITED STATES: Chemstrand Research Center Inc. (100%) conducts research in the field of textiles. Fabric Services Inc. (100%) specializes in dyeing and finishing polyester-cotton blends and other fabrics for the textile industry. Filtered Rosin Products Company (100%) produces gum naval stores and synthetic resins. Leonard Construction Company (100%) designs and builds chemical plants and other types of plants. Mobay Chemical Company (50%) is a major producer of ure thane chemicals. Monsanto Export Company (100%) is a trade corporation to handle export sales of Monsanto products in the western hemisphere. Monsanto International Finance Company (100%) was formed in 1965 to obtain investment funds abroad to help finance overseas expansion. Monsanto Research Corporation (100%) does research for government agencies and for Monsanto; produces nuclear sources; operates a government-owned laboratory for the Atomic Energy Commission. Polythane Corporation (100%) manufactures spandex elas tomeric yarns. Wood Treating Chemicals Co. (100%) produces wood pre servatives. CANADA: Monsanto Canada Limited (100%) manufactures chemicals and plastics raw materials. Plax Canada Limited (50%) produces plastic blownware. MEXICO: Monsanto Mexicana S.A. (100%) produces chemicals, plastics raw materials and building products. A major subsidi ary makes consumer products of plastic. CENTRAL AND SOUTH AMERICA ARGENTINA: Monsanto Argentina S.A.I.C. (100%) manu factures chemicals and plastics raw materials. COLOMBIA: Fabrica de Hilazas Vanylon S.A. (49%) produces nylon 6 yarns. PANAMA: Monsanto Overseas S.A. (100%) handles certain investments and licensing outside the United States. PUERTO RICO: Chemstrand Overseas S.A. (100%) markets chemical fibers exported to areas outside Europe and handles certain investments outside the United States. VENEZUELA: Monsanto Venezuela Inc. (100%) produces oil. EUROPE AND MIDDLE EAST BELGIUM: Monsanto Europe S.A. (100%) provides manage ment supervision of investments and marketing activities in Europe and the Middle East; produces polyvinyl butyral plastic interlayer for laminated safety glass; and will begin producing plasticizers in 1966. FRANCE: Societe Monsanto (100%) makes plastics raw ma terials and chemicals. ISRAEL: Israeli Chemical Fibres Limited (60%) manufactures Acrilan acrylic fiber. ITALY: Applicazioni Chimiche Societa Per Azioni (40%) pro duces acrylic fiber. LUXEMBOURG: Monsanto Cie S.A. (100%) manufactures nylon 6,6 yarns. SPAIN: Aiscondel S.A. (50%) makes consumer products of plastics. Two subsidiaries produce chemicals and plastics raw materials. UNITED KINGDOM: Chemstrand Limited (100%) manufac tures Acrilan acrylic fiber and will start making nylon 6, 6 yarns in 1966. Lansil Limited (100%) produces acetate flake and yarn, textile fabrics and apparel. Monsanto Chemicals Limited (67%) manufactures chemicals, plastics and plastics raw materials. Major subsidiaries produce plastics for construction and packaging. Polythane Fibres Limited (100%) makes spandex yarns. A subsidiary produces rubber yarns. ASIA AND ALSTN..: AUSTRALIA: Australian Petrochemicals Limited (55%) manu factures plastics raw materials. Monsanto Chemicals (Australia) Limited (80%) makes chemi cals and plastics raw materials. A subsidiary produces fluoro carbons. JAPAN: Mitsubishi Monsanto Chemical Company (50%) manu factures chemicals, plastics and plastics raw materials. Mitsubishi Vonnel Company Limited (38%) makes acrylic fiber. Monsanto's participation in international commerce and trade is further revealed in this listing of companies engaged in various activities on a more modest scale than those listed above. Omitted entirely are more than 100 sales agencies representing Monsanto in most parts of the world: Chemstrand International S.A. -- Switzerland Helen Harper Inc. -- United States Monoil UK, Inc. -- United Kingdom Monsanto Chemicals of India Private Limited -- India Monsanto Chile Comercial e Industrial Limitada -- Chile Monsanto Comercio e Industria Limitada -- Brazil Monsanto (Deutschland) GmbH -- West Germany Monsanto (El Salvador) S.A. -- El Salvador Monsanto Far East Limited -- Hong Kong Monsanto (Guatemala) S.A. -- Guatemala Monsanto International Engineering Company -- United Kingdom Monsanto Japan Limited -- Japan Monsanto Oils Ltd. -- Canada Monsanto Research S.A. -- Switzerland Monsanto (Venezuela) C.A. -- Venezuela Plax A.G. -- Switzerland Sidaplax S.A. -- Belgium MAR 000811 LAM016870 ACCOUNTANTS' OPINION 15 HASKINS & SELLS CERTIFIED PUBLIC ACCOUNTANTS BOATMEN'S BANK BUILDING SAINT LOUIS 63102 Monsanto Company: We have examined the statement of consolidated financial position of Monsanto Company and its subsidiary companies as of December 31, 1965 and the related statements of consolidated income and paid-in surplus and retained earnings for the year then ended. Our examination was made in accordance with gener ally accepted auditing standards, and accordingly included such tests of the accounting records and such other auditing pro cedures as we considered necessary in the circumstances. In our opinion, the accompanying statement of consolidated financial position and statements of consolidated income and paid-in surplus and retained earnings present fairly the financial position of Monsanto Company and its subsidiaries at December 31, 1965 and the results of their operations for the year then ended, in conformity with generally accepted account ing principles applied on a basis consistent with that of the preceding year. ** February 7, 1966 7/ 6*4*4^ MAR 000812 LAM016871 16 MONSANTO COMPANY STATEMENT OF CONSOLIDATED FINANCIAL POSITION ASSETS Current Assets: Cash............................................................................................. Marketable securities, at cost which approximates market Net receivables........................................................................... Inventories.................................................................................. 1965 1964 (in Thousands) $ 33,124 $ 27,768 58,151 52,806 267,296 239,753 258,726 617,297 214,915 535,242 Investments and Miscellaneous Assets, at Cost or Less: Investment in and advances to associates..................... Miscellaneous investments and receivables................... 23,893 63,496 87,389 25,250 60,650 85,900 Property, Plant and Equipment, at Cost.................... Less accumulated depreciation and depletion, etc. Net property....................................................... 1,962,041 925,328 1,036,713 1,698,250 822,267 875,983 Deferred Charges.............................................................................................. 42,710 37,843 LAM016872 The above statement should be read In conjunction with pages 20, 21 and 22 of this report. $1,784,109% - Vif $1,534,968 MAR 000813 D SUBSIDIARIES DECEMBER 31, 1965 AND 1964 LIABILITIES Current Liabilities: Accounts payable and accruals.................................................................... Income taxes................................................................................................... Current portion of long term debt (less $1,000,000 debentures in treasury) 1965 1964 (In Thousands) $ 197,567 59,832 9,806 267,205 $ 154,770 75,870 10,500 241,140 Notes, Debentures, etc.--Less Current Portion Above............................. 467,554 345,480 Other Liabilities and Deferred Credits: Deferred income taxes................................................................. ................ Miscellaneous................................................................................ ................ 53,853 9,827 63,680 46,375 3,436 49,811 Minority Interests in Subsidiary Companies............................................... 28,180 26,858 Shareowners' Equity: Common shares--authorized, 35,000,000 shares, par value $2 each; outstanding, 31,634,357 shares in 1965 and 30,859,927 shares in 1964 ...................................................................................................... Paid-in surplus................................................................................................. Retained earnings........................................................................................... 63,269 524,033 370,188 957,490 $1,784,109 61,720 466,030 343,929 871,679 $1,534,968 MAR 000814 LAM016873 ' 18 MONSANTO COMPANY STATEMENT OF CONSOLIDATED INCOME Net Sales........................................................... .................. Cost of Goods Sold.............................................. .................. 1965 1964 (in Thousands) $1,468,147 $1,358,678 1,039,598 940,077 Increase Decrease $109,469 99,521 Gross Profit.......................................................... .................. 428,549 418,601 9,948 Less: Selling and administrative expenses............ .................. Research; development, patent and engineering expenses.................................. .................. 149,418 69,969 219,387 134,279 66,796 201,075 15,139 3,173 18,312 Operating Profit................................................................... Income Charges -- Net.................................... .................. 209,162 6,557 217,526 3,457 8,364 3,100 Income Before Income Taxes........................ .................... 202,605 214,069 11,464 Provision for Income Taxes: Current.................................................. ................................. Deferred............................................... ................................. 72,160 7,478 79,638 87,198 11,980 99,178 75,035 4,502 19,540 Net Income............................................. $ 114,891 $ 8,076 The above statement should be read in conjunction with pages 20. 21 and 22 of this report. MAR 000815 LAM016874 and subsidiaries 19 S TAT E M E N T OF CONSOLIDATED PAID-IN SURPLUS AND RETAINED EARNINGS Balance at Beginning of Year PAID-IN SURPLUS Additions: Excess of approximate market value of common capital stock distributed as a stock dividend over the par value thereof........................................ Excess of amounts received over the par value of common capital stock issued under stock option plans................................................................. Balance at End of Year........................................................................................... 1965 1964 (In Thousands) $466,030 $406,243 50,213 7,790 $524,033 48,263 11,524 $466,030 RETAINED EARNINGS Balance at Beginning of Year Addition -- Net Income for the Year Deductions: Dividends on capital stock of parent company: Cash -- $1.45 a share in 1965 and $1.25 a share in 1964 Stock -- 2%................................................................................. One-half of deficit for period from date of acquisition of initial 50 per cent interest to December 31, 1964 of Blume Knitwear, Inc. and subsidi aries, which became wholly-owned subsidiaries in February 1965.... One-half of deficit at December 31, 1963 of Polythane Corporation and subsidiaries, 50 per cent-owned companies, which became whollyowned subsidiaries in May 1964................................................................ Balance at End of Year........................................................................................... The above statement should be read in conjunction with pages 20, 21 and 22 of this report. $343,929 122,967 466,896 $318,062 114,891 432,953 44,809 51,453 96,262 37,606 49,471 87,077 446 LAM016875 __________________________ 1,947 96,708 89,024 $370,188 $343,929 mar 000816 20 FINANCIAL REVIEW The accompanying financial statements (pages 16 through 19) consolidate all active domestic and foreign subsidiaries in which Monsanto Company directly or indirectly has more than a 50 per cent interest. The Revenue Act of 1964 provides for a credit against Federal income taxes equal to approximate ly seven per cent of expenditures for machinery and equipment purchased and placed in service during the year. The reductions in income tax provision resulting from this investment credit were SI4,199.000 in 1965 and $6,049,000 in 1964. The use of the sum of the years digits method for computing depreciation on most of new assets ac quired since 1954 was continued in 1965. The excess of depreciation provided by this method over straight line depreciation was $19,189,000 in 1965 and $17,252,000 in 1964. For income tax purposes only, the company in 1962 adopted the guideline lives established for machinery and equipment by the United States Treasury Department. The additional depreciation taken for tax purposes reduces the current income tax liability. Net income for the year, however, is not affected, since an amount equivalent to the reduction in current taxes payable is charged to income to provide for deferred taxes payable in future years. Charges against income for depreciation, obsoles cence and depletion amounted to $133,485,000, of which $129,644,000 was depreciation and obsoles cence and $3,841,000 depletion. In 1964, such charges were $116,596,000 and $3,672,000. Repair and maintenance charges included in oper ating expenses were $89,956,000 in 1965 and $80,432,000 in 1964. The company has a number of lease agreements covering the use of transportation and other equip ment, certain buildings, and retail outlets, which are generally cancellable without penalty. For the most part, the agreements are short term, with a few extending up to 20 years. The annual rental for all leases amounts to approximately $19,908,000. In certain prior years, provisions were made for income taxes payable in future years resulting pri marily from the excess of depreciation and amortiza tion of facilities constructed under Certificates of Necessity for income tax purposes over deprecia tion for accounting purposes. For the years 1965 and 1964, $3,590,000 and $1,821,000 of such taxes be came payable and were charged against the reserve provided in prior years. The company's Federal income tax returns have been examined and closed for all years through 1956. Returns for the years 1957 through 1959 have been examined by the Internal Revenue Service, and returns for the years 1960 and 1961 are presently under examination. Differences of opinion exist between the company and the Service on the tax treatment of certain items of income and expense, principally depletion and foreign-source income. The Internal Revenue Service has proposed an assess ment for the years 1957 through 1959 of approxi mately $8 million and the company is contesting the assessment. The ultimate disposition of the items in question is not presently determinable, but it is believed that adequate provision has been made in the accounts for possible deficiencies. Reserves for doubtful accounts were $5,564,000 in 1965 and $5,446,000 in 1964. Inventories are stated at the lower of cost or mar ket, determined generally on the first-in, first-out basis. Annual rate of turnover was 4.4 in 1965 and 4.6 in 1964. To assist in financing the company's large pro gram of capital expenditures, a credit agreement was entered into in February 1965 under which mar 000817 LAM016876 21 the company may borrow up to S100 million from certain banking institutions during a commitment period expiring August 15, 1966. The loans, which carry interest at the rate of 4Vi per cent to February 15, 1970, and thereafter to maturity at a 4-4 per cent rate, are repayable in installments beginning May 15, 1970 and ending February 15, 1975. Under the credit agreement, $75 million had been borrowed as of December 31, 1965. In November 1965, Monsanto International Finance Company, a wholly-owned subsidiary, sold $25 million of 4'/2 per cent Sinking Fund Deben tures Due 1985 to investors outside the United States. The debentures, which are fully guaranteed by Monsanto Company, are convertible into Monsanto Common Stock beginning May 1. 1966 at $93 a share, subject to adjustment under cer tain conditions. The long term debt of the company and its sub sidiaries, exclusive of current maturities, totaled $467,554,000 at the end of 1965, as shown in the table on page 22. The company is a defendant in several antitrust actions and in a patent infringement suit. The defense of these cases is generally in early stages of preparation. Company counsel believe that these ac tions can be successfully defended and that, in any event, the results of such litigation will not have any materially adverse effect on the financial position or operations of Monsanto. The company was contingently liable as guarantor of bank loans to 50 per cent-owned companies and others aggregating approximately $8,600,000 at De cember 31, 1965 and $12,300,000 at the end of 1964. In 1965, cash dividends of 35 cents in each of the first three quarters and 40 cents in the fourth quarter were paid on the common shares. Also, 620.138 common shares were distributed on December 23. 1965 in payment of a two per cent stock dividend. The equity in the unaudited 1965 net income of 50 per cent-owned companies was $58,000, com pared with $1,614,000 in 1964. The decline in equity in 1965 was caused by erosion of selling prices on products of Mobay Chemical Company and by adverse economic conditions in Japan. Dividends of $401,000 were received from these companies in 1965 and $1,112,000 in 1964. The equity in the un audited net assets of such companies at the end of the year was $26,568,000, which exceeded the carry ing value of $23,893,000 by $2,675,000. The company has four stock option plans in effect: the plans authorized by shareowners in 1951, 1960 and 1964 for key employes, and the Third Employes' Stock Plan, authorized by shareowners in 1964 for hourly and salaried employes except participants in the three plans for key employes. The status of the authorized shares of the three key plans and the changes occurring during the year were: 1951 Plan 1960 Plan 1964 Plan Outstanding 1 1/65... ..39,284 287,995 409,050 Unoptioned 1/1/65___ -- 2,687 151,950 Optioned during year.. -- 3,600 19,120 Exercised during year.. ..14,097 91,535 5,779 Terminated duringyear. Cancelled during year.. -- -- 1,728 815 9,220 -- Outstanding 12/31/65 ..25,717* 202,331* 421,354 Unoptioned 12/31/65. -- -- 144,979 `Adjusted for 1965 two per cent stock dividend. Under the three key plans, 533 options are out standing, at prices, after adjustment for stock divi dends, ranging from $31.14 to $101.04 a share. The following tabulation sets forth information for 1965 on common shares relating to the Third Employes' Stock Plan: Outstanding 1/1/65....................................... 286,633 Unoptioned 1/1/65........................................ 363,339 Optioned: January 25 (21-month options) at $81.50 each..................................... 12,439 June 23 (15-month options) at $84.00 each..................................... 6,992 December 23 (9-month options) at $79.00 each.................................... -- Exercised......................................................... 42,881 Terminated...................................................... 35,040 Outstanding 12/31/65...................................228,143 Unoptioned 12/31/65....................................378,948 Subsequent to December 31, 1965, but prior to January 24, 1966, the expiration date for the De- MAR 000818 LAM016877 cember offering, options for an additional 3,108 shares were accepted by employes. The option prices under the Third Employes' Stock Plan are equal to 95 per cent of the fair market value on the dates the options were offered. Payments by the employe over the option period are made by payroll deductions on which the company credits interest at a rate of five per cent. At December 31,1965, there were 1,401,472 shares of common stock reserved for the above plans, and 268,817 shares reserved for conversion of debentures of a subsidiary company. LONG TERM DEBT (Exclusive of Current Maturities) Parent company: 314% sinking fund debentures, due 1968................... 414% - 4%% promissory notes, due 1970/1975........ 2.65% debentures, due 1971 (less $1,000,000 in treasury in 1964)....................................................... 35/s% sinking fund debentures, due 1972................... 3i/2% promissory notes, due 1972................................. 41/2% notes, due 1976...................................................... 4%% promissory notes, due 1993................................. 3%% income debentures, due 2002............................. 4%% income debentures, due 2008............................. Monsanto International Finance Company: 41/2% guaranteed sinking fund debentures, due 1985 Shawinigan Resins Corporation: 41/2% debentures, due 1976........................................... Monsanto Chemicals Limited (English subsidiary): 6% debentures, due 1977/1982................................... 5% debentures, due 1982............................................... Chemstrand Limited (English subsidiary): Bank loans 0/2% over bank rate) due 1969............... Monsanto Cie S.A. (Luxembourgian subsidiary): 4%% bank loans due 1967/1971.................................. 614% bank loans due 1968........................................... 414% bank loan due 1969............................................... Monsanto Europe S. A. (Belgian subsidiary): 6% bank loan due 1967.................................................. 6.8% bank loan due 1969/1975................................... Other subsidiaries................................................................ Total.......................................................................... 1965 1964 (In Thousands) $ 6,250 $ 7,500 75,000 -- 20,000 9,000 33,812 3,520 100,000 91,000 50,000 20,000 9,500 41,012 -- 100,000 91,000 50,000 25,000 -- -- 3,720 7,547 8,815 7,769 9,061 13,796 -- 10,020 6,720 3,000 -- 3,000 _ 1,554 2,520 600 -- 2,318 $467,554 $345,480 I mar 000819 LAMOI878 MONSANTO COMPANY AND SUBSIDIARI E S SOURCE AND DISPOSITION OF FUNDS (In Thousands) Source of Funds: TOTAL Net income....................................................... . $ 467,872 Provisions for: Depreciation, depletion, etc....................... Deferred income taxes................................ 552,874 43,282 Outside financing: 4y2%-43/4% promissory notes.................... 4VS>% sinking fund debentures.................. Foreign subsidiaries.................................... 43A% promissory notes............................... Common shares issued under options........ Other -- net...................................................... 75,000 25,000 37,721 99,593 47,304 6,367 1,342,279 1965 $122,967 133,485 7,478 75,000 25,000 32,776 8,099 2,982 407,787 1964 $114,891 120,268 11,980 3,276 12,108 1,571 264,094 1963 $ 82,990 114,606 12,373 1,669 14,532 5,368 220,802 1962 $ 78,368 97,639 11,451 99,593 2,639 2,366 292,056 1961 $ 68,656 86,876 9,926 7,918 157,540 Disposition of Funds: Dividends on common shares....................... 174,179 Plant additions and replacements............... 950,418 Investment in affiliated companies............. . 52,316 Retirement of debt........................................... Increase in working capital(1)......................... Increase -- decrease in cash and securities.. 75,071 112,117 21,822 $1,342,279 44,809 295,160 1,126 11,396 44,595 10,701 $407,787 37,606 218,105 13,340 10,418 29,845 45,220 $264,094 34,978 114,502 18,443 13,452 18,042 21,385 $220,802 29,470 168,833 9,597 17,877 14,614 51,665 $292,056 27,316 153,818 9,810 21,928 5,021 60,353 $157,540 (X) Exclusive of cash and securities. Italics indicate deduction. mar 000820 LAA/1016879 24 MONSANTO COMP A" HISTORICAL STATEMENT OF (In millions) ASSETS Current Assets: Cash............................................ Marketable securities.............. ......... Net receivables......................... ......... Inventories................................. ......... Investments, etc.......................... ......... 1965 1964 1963 1962 1961 10 YEARS AGO 1955 25 YEARS AGO 1940 58.2 267.3 258.7 617.3 $ 27.8 52.8 239.7 214.9 535.2 $ 40.9 84.7 198.7 191.6 515.9 $ 34.4 67.1 173.9 170.6 446.0 $ 28.9 18.6 152.7 154.5 354.7 $ 45.2 35.3 65.8 92.9 239.2 $ 9.4 -- 6.1 10.3 25.8 87.4 85.9 85.6 84.4 90.5 44.0 1.3 Property: Land...................................................... Buildings............................................... Machinery and equipment................ Phosphate deposits............................ Producing oil and gas properties___ Undeveloped oil and gas leaseholds. Accumulated depreciation, etc......... Accumulated depletion...................... Net property.............................. 27.7 289.7 1,529.1 10.0 97.9 7.6 886.5 38.8 1,036.7 27.4 263.0 1,295.2 9.8 94.7 8.2 785.7 36.6 876.0 27.7 237.0 1,148.2 9.6 89.2 9.1 707.2 33.3 780.3 25.2 219.3 1,054.5 8.6 84.8 9.6 600.9 31.2 769.9 23.4 195.0 907.0 8.5 82.1 8.9 514.8 29.3 680.8 10.0 81.8 389.4 5.6 60.0 10.3 184.8 19.6 352.7 2.2 10.6 37.0 1.0 -- -- 19.1 .1 31.6 Deferred Charges................................... 42.7 37.9 32.4 24.6 16.3 $1,784.1 $1,535.0 $1,414.2 $1,324.9 $1,142.3 5.1 $641.0 .2 $58.9 Italics indicate deduction. MAR 000821 LAM016880 SUBSIDIARIES 25 CONSOLIDATED FINANCIAL POSITION (In millions) LIABILITIES Current Liabilities: Accounts payable and accruals........ Income taxes....................................... Current portion long term debt......... 1965 1964 1963 1962 1961 10 YEARS AGO 1955 25 YEARS AGO 1940 $ 197.6 $ 59.8 9.8 267.2 154.8 75.8 10.5 $ 241.1 122.8 $ 69.1 10.2 202.1 127.0 $ 42.9 9.3 179.2 109.3 48.8 9.2 167.3 $ 50.8 34.4 1.8 87.0 $ 6.1 3.0 -- 9.1 Notes, Debentures, etc.......................... 467.5 345.5 352.8 360.8 269.2 164.2 -- Other Liabilities: Deferred income taxes....................... Miscellaneous...................................... 53.9 9.8 63.7 46.4 3.4 49.8 41.4 2.4 43.8 33.5 3.5 37.0 28.1 3.4 31.5 8.3 5.3 13.6 -- 2.9 2.9 Minority Interests in Subsidiaries.... 28.2 26.9 31.3 30.3 23.1 17.8 2.3 Shareowners' Equity: Preference shares............................... Common shares.................................. Paid-in surplus..................................... Retained earnings............................... -- 63.3 524.0 370.2 61.7 466.1 343.9 -- 59.9 406.2 318.1 -- 58.0 360.9 298.7 -- 56.0 323.1 272.1 957.5 871.7 784.2 717.6 651.2 $1,784.1 $1,535.0 $1,414.2 $1,324.9 $1,142.3 -- 42.0 149.2 167.2 358.4 $641.0 10.0 12.4 11.4 10.8 44.6 $58.9 MAR 000822 LAM016881 26 MONSANTO COMP HISTORICAL STATEMENT OF CONSOLIDATED INCOME (In millions except per share earnings) 1965 1964 1963 1962 1961 10 YEARS AGO 1955 25 YEARS AGO 1940 Net Sales................................................ Cost of Goods Sold................................ $1,468.1 $1,358.7 $1,192.3 $1,063.2 $932.9 1,039.6 940.1 849.7 762.2 672.9 $569.5 400.4 $51.1 34.9 Gross Profit............................................ 428.5 418.6 342.6 301.0 260.0 169.1 16.2 Less: Selling, administrative....................... Research, development, patent, en gineering.......................................... 149.4 69.9 134.3 66.8 117.7 58.4 100.1 84.7 51.6 46.7 61.3 17.4 219.3 201.1 176.1 151.7 131.4 78.7 Operating Profit.................................... Income Charges -- Net........................ 209.2 6.6 217.5 3.4 166.5 6.1 149.3 8.0 128.6 1.5 90.4 6.7 Income Before Income Taxes............. Provision for Income Taxes................ 202.6 79.6 214.1 99.2 160.4 77.4 141.3 62.9 127.1 58.4 83.7 39.3 Net Income............................................. $ 123.0 $ 114.9 $ 83.0 $ 78.4 $ 68.7 $ 44.4 4.4 1.4 5.8 10.4 (1) 10.5 4.7 $ 5.8 Per Common Share: Adjusted for splits.............................. $ 3.89 $ 3.72 $ 2.77 $ 2.70 $ 2.45 $ 2.09 Adjusted for splits and stock divi dends................................................ $ 3.89 $ 3.65 $ 2.66 $ 2.55 $ 2.26 $ 1.75 $ .48 $ .39 MAR 000823 LAM016882 SUBSIDIARIES 27 OTHER DATA f In millions except where italicized) Plant additions and replacements___ 1965 $295.2 1964 $218.1 1963 $114.5 1962 1961 10 YEARS AGO 1955 25 YEARS AGO 1940 $168.8 $153.8 $ 49.6 $ 7.5 Depreciation, depletion, etc................. $133.5 $120.3 $114.6 $ 97.6 $ 86.9 $ 38.3 $ 3.4 Dividends a common share............. $1.45 $1.25 $1.20 $1.05 $1.00 $.92 $.33 Book value a common share........... Common shares(1)................................. $30.27 $28.25 31.6 30.9 $26.17 30.0 $24.74 $23.24 $17.07 29.0 28.0 21.0 $3.09 11.2 Preference shares.................................. Working capital...................................... -- -- -- -- -- -- 100,000 $350.1 $294.1 $313.8 $266.8 $187.4 $152.2 $16.7 Long term debt (less current matur ities)...................................................... Shareowners' equity.............................. $467.5 $345.5 $352.8 $360.8 $269.2 $164.2 $957.5 $871.7 $784.2 $717.6 $651.2 358.4 -- $44.6 Employes............................................. Shareowners........................................... 56,227 52,284 93,538 89,833 48,133 80,608 45,665 38,621 23,629 82,452 82^203 43,616 7,284 9,480 (1) Adjusted tor splits. (2) Includes Monsanto employes in plant operated for U.S. Government {1,678 in 1965). MAR 000824 LAM016883 28 DIRECTORS AND OFFICERS BOARD OF DIRECTORS OFFICERS Edward A. O'Neal, Chairman................................... St.Louis Edward A. O'Neal.................... Chairman of the Board Dillon Anderson.............................................Houston Charles H. Sommer.......................................... President and Chief Executive Officer Edward J. Bock.......................................................... St.Louis Edward J. Bock........................................ Vice President David R. Calhoun...................................................... St.Louis John L. Christian..................................... Vice President John L. Christian....................................................... St.Louis John L. Gillis............................................Vice President Robert K. Mueller.................................. Vice President Fredrick M. Eaton.................................................NewYork John L. Gillis.............................................................. St.Louis H. Harold Bible........................................................VicePresident Herbert Hoover Jr.................................... Los Angeles William H. Bromley................................................. VicePresident Robert K. Mueller.................................................... St.Louis James E. Crawford Jr............................................... VicePresident Edgar M. Queeny....................................................... St.Louis Patrick John R. J. Dowd....................................... Vice President Eck............................................................... VicePresident Charles H. Sommer..................................................... St.Louis Arthur W. Lucas..................................... Vice President Alan H. Temple........................................................NewYork James D. Mahoney.................................... Vice President Charles Allen Thomas...............................................St.Louis Edwin J. Putzell Jr.................................................. Robert R. Rumer...................................................... VicePresident VicePresident Irving C. Smith......................................... Vice President EXECUTIVE COMMITTEE Charles H. Sommer, Chairman Tom K. Smith Jr.........................................Vice President Monte C. Throdahl................................. Vice President J. Russell Wilson..................................... Vice President Edward J. Bock John L. Gillis John L. Christian Robert K. Mueller Edward A. O'Neal Earl J. Wipfler............................................... Controller Edwin J. Putzell Jr......................................... Secretary Patrick J. Dowd.............................................. Treasurer FINANCE COMMITTEE Charles Allen Thomas. Chairman Dillon Anderson Edward A. O'Neal David R. Calhoun Edgar M. Queeny Fredrick M. Eaton Charles H. Sommer Herbert Hoover Jr. Alan H. Temple Transfer Agents Morgan Guaranty Trust Company of New York The Boatmen's National Bank of St. Louis Registrars The Chase Manhattan Bank (National Association) St. Louis Union Trust Company LITHO IN U.S.A. Lloyd R. Cole............ Jack W. Mueller Francis A. Stroble ... Walter C. Thilking .. Charles E. Caspari Jr. John N. Ehlers.......... Rodney Harris Jr. .. . C. Brent Holleran . .. Franklin C. Rehfeld . Lewis L. Baseler........ Norvell G. Jones .... J. Robert Matlock . .. Walter J. Naber Jr. .. Thomas M. Rasmussen. Assistant Controller Assistant Controller Assistant Controller Assistant Controller .Assistant Secretary .Assistant Secretary . Assistant Secretary .Assistant Secretary . Assistant Secretary .Assistant Treasurer .Assistant Treasurer .Assistant Treasurer Assistant Treasurer Assistant Treasurer Regional Vice Presidents Roy L. Brandenburger Franklin J. Cornwell Marshall E. Young Feb. 21, 1966 000825 LAM016884 MONSANTO COMPANY j 800 N. LINDBERGH BLVD., ST. LOUIS, MISSOURI 63166 MAR 000826 LAM016885