Document VJV40Z2n2JYBn1RLbwg1w94Bp

a>\l.u Report 1987 Monsanto Our success depends upon meeting customer needs through a steady stream of new products. 0714000 TOWOLDMONOOI5432 Tabu of Contents 1S87i A Good Year tor Our Stake Holders--Chairman and CEO Rickard/ Makowey reviews a year with much to be proud of. A Steady Stream ofNew Products, by Earle H. Harbison, Jr. Monsanto uses many approaches to generate new and renewed products. New Mathew Today; Now Waelds Tomorrow, by Nicholas L Reding The Agricultural Company introduces new herbicide products while ready ing biotechnology products far world markets. Mo--sap rkresirsl Company Respoesds so Customer Needs, by Rohm G ftuter The Chemical Company emphasises new products, customer support and regeneration of established products. Global Product, Mariftfin htoamkm at Scufe, by ShriAm G, Giigemc. M-D. Agpeuive licensing, stepped-up R&D and innovative marketing lead to Sevle mrrmin Billie Moras Toward Plant ofthe *90s, by Robert E. Fiyitn Ftshet Controls aims at the computer-integrated plant of the future. NmiaSwaat Eapaads Markets, Announces New Products, by Robert 8. Sbaptro The NutiaSweet Company expands current markets, enten new ones and announces a totally new food technology. Elecatsofai Unfit Rated Tops by Cuwomen, by James E. Sprmggaa Emphasis on quality moves Monsanto Electronic Materials Company to top rankings by customers. Rmarch Swueegy Enema Bow of New Products, by Howard A Scbneidennan. Ph.D. Monsanto R&D is managed to turn outstanding science into commercial success. Inveariag In One Communities end dsc Envwonmcni, hr HaroldJ Corbett Monsanto refines its contributions strategy and focuses on disclosure of inhumanon to strengthen community relations. grMy--H- .O_r_rnt J.lhUU_P Booed of Dieetmea OfBcen i 5 6 8 10 i: i: [4 [4 16 17 42 inside back cover inside back cover Monsanto's Commitments Monsanto Company make and markets high-value chemical and agricultural products, pharma ceuticals, low-calorie metenen, induKTial process equipment, man-made film, plastics and electronic materials. In domf so, we are committed to serving the inrenaB of all our Make holden around the world by: Aiming lor a consistent and superior return on equity (or our shareowners, Meenng the needs of cus tomers with die highest standards of value, quality and service, Providing employees with safe and rewarding wok in an envi ronment where each has an equal opportunity to succeed, and Striving fior a lasting and rewarding partnership with neighbors. On the Cover Monsanto depends upon a steads flow of products, represented hy established leaden like carpet fibers, plastics, hydraulic fluids, low-calorie sweeteners and elec tronic materials: by new herbicides, process controls and phatmaceuncaU: and by fature products emerging from research. fHf--iir Pninnm L9BB mdKMd by itffcei dvohflttMdu pifcdtu* 0714801 OftnATiONAL Highlights NatSeto_______________________ Net Income (Low)________________________ hr Shut: Net Income I Loo) Dividends Shareowners' Equity__________________ Depredation and Aroortuatton_____________ Cash Provided by Opennons_______________ [taemli end Development Expenses_______ Henan on Shareowners' Equity_____________ ftrernt of Total to Total Capitalization Momuicp Culfhan jnd JirmhlMno 198?__________ 1986__________ 1985 *7,619 <6.879 $6,747 * 43* 5 4J3 t (98) *5.61 Z.75 52.65 * 67* * 902 * 597 11% 35% i 5.5S 2.575 48.69 $ 780 $ 960 I 523 12% 35% 5(1.273 2.45 44.38 $ 599 5 535 i 470 (3)% 45 % STRATEGIC CHANGES SINCE 1980 away front co Ifount d total al*sV 1900 I M7 I m Agncuiiuir CoRgmctwft ml Hear Furmshtne 12% 11% 2% I 21% 20% 112% 11% f 11% Cental Lfrupnwit Motor Vhiclttt Food FhaniBCNticals 10% Anonat FnjJuccj rhrmn ill andOiher O714802 TOWOLDMONOOI5434 Rt-'lurJ MiA>int\ Ctmn ami Ciurf Ereoimv OflkVT <njefo). ami Earle H HaHmioi. h.. PrauL-nt ami CM' l M-kto! iJtfi^vr. a an fnrcaiuvrs maJi.' In MrjTuanru Gimpam ami as aif'siJiam.'s 07US03 TOWOLDMONOOI5435 190I< A GOOD YEAR FOR OUR SlAKE HOLDERS It gxxi yeer for Mcxnnco, with much cn be ri--i rear chatty aaovme us m the direcnocn This bon serves as program report an our overall pd roplme Monsanto aatong die handful of great in^Knal enrerpnots in the world -- die bex in what we choose to da -- manned by consistent returns fee f.ir rasnv Kate holders. bi the 1985 and 1966 annual iqxiu letters, 1 discussed proaoes made to our stake holden -- the ihareowitna, gammers, employees and neighbor!. The Msitm of these stake holders are property linked. Wc can an* our shareowners well only when we have tamed our gammers adl, when our people an highly iatawattve and productive and. in our mix of chcmital related buamerraa. when our neighbon and thoee who act for them grant in the right to operate. For our shareowners, we have promised to aim for a laocn an eqrety in the 20 percent range. That emesdmmTefniinfi level has historically brorght fowirnin lupenor market mum Oia restructured bmttammix eat gat ue there by the mid-1990b, and we iaaand to make it happen. The Apnihunl and Chemical Companies, which paaaant about two-thnda of our talea and held of our nek net that wandatd m 1967. But overall, the cotpotaiion't return on equity wat only a little mm dan haMwey to the goal at 11 percent. Fisher, our alicon business, Searle and NunaSweet wen below the hnprdana oqet. ahhotnA our accounting far tin MaoaSwin acqimon resulted in higher cash flow bar lower aftertax earnings, and we are deliberately putting heavy up-front research money into Searle to rccslrrate in development. Ssttmg that aside, howtvti. we have wad on a nutn- btr ofoccaakma that the carpet of 20 percent tenon an musty will be met when the Searie pharmaceuti cals state mover toward rarnmgs at us industry eamfard while the other motor Monaaneo unitt perfarm at the lap of their respective industries. Salta of the family ofCalm cakhim-bfadur products mated |130 million in the year- This tuotig ptfforanocewaa a lamhnark achievement far Sarnie. In order to deliver its contribution to Miawantna goals. Stark needs m delicate that effort wuh ocher prod ucts. Tiro promising products now netting comacrelnKtaA in mafac maaktta ate Cysosec peptic idcer ihug. far which clearance to tell it expected in (he United States, United Kingdom and Japan, and Kerim, a beta blocker. Searle mint also hove newly launches bom among candidate products umh re fameftaadn. a pronustng ann-infaenve; cariwtitiwr. an anticancer agent; and other products in or neating clinical evaluation. Overall, the total corporation is in very good financial shape. CXirdebt to total capttaluacion remains at a very healthy 35 percent. With leadership from our agricultural and chemicals units, cmninp far Monsanto increased by 20 percent over 1986, if we eliminate one-time gains from sales of assets and other lmniecuning items. Thtte-fburtha of the yeartoyear gain came from improved operations and onefourth from translation gains due to the wealcet U S. dollar. Altogether a fine result, considering that the world economy grow by only 2 to 3 percent. Although busureas unit income is the dnving farce to the longer-term pools, we are also addressing the equity pan of the retum-on-equity calculation. We can and anil supplement business unit performance by the ptudent use of cash to buy in shams. Overall we purchased approximately four million shares during 1967 and have authority for another four million in 1966. In addition to share repurchases, we will con tinue to address any underperforming assets as we have in the peer. For the bustneat wits, then, 1967 was a fine year. We generally achieved good results and good process. The elements to teach our 20 percent retum-onequity goal me clear-- but its also dear that theirfull accomplishment remains in the "yet-nxonie" cate gory We ate confident that well attain this goal with doaonmured improvement year to year. Later in this annual repon, we have outlined the tasks ahead and specific pnpm against targets. As with ail companies, two basics -- product quality and COM reduction -- get a heavy calL A thud essential to a corporate mangy weighted as outs is tuwaids R&D is die success of new pnxfaco. There is a great deal CO report on products neanng commercialnanon. Among these ate the Seatie phasmaceutical candi dates mentioned above; in die Agricultural Company, new hertscade products and innovative applicator systems, at well as BST and PST for daily and path productivity improvement-, a variety of new Chemical Company products being developed with customers for 0714604 ) eatly coomercialaaciat: new flowmeter ind pcocessmsmenefieetKin products at Fisher; and Smpjiw natunl fat substitute recently maned by NutraSweet far an entirely new dan of low-fat. reduced-caloric food*. You'll be bearing more about these toon. For our customer stake holders, 1987 was a year of mewed emphasis on giving them what they want, when they want it, and at competitive pricing. As evidence of this, several Monsanto units wete cited by cuttmen far high-quality products and services and product innovation. For eamplc, the Chemical Com pany haa received awmds from General Motors. Ford Motor Company, GE Appliances, Lever Brothers, General Tile and others far excellence in products and performance. Scarlc received a flood of praise for its unique Ament Pnmtae and Cofan For Poocna m Need profnrBs. Cmoasen of Roundup herbicide were rewndcd iridi reduced prices and new, useful product farms, which brought over 15 percent more volume -- a profitable pin far both of us. And agricultural disoibMotS land our cuatomer service at the top of the irekaoy foe the eighth year in a row. We've always considered ourselves cuatomer oriented, but iesaoni from international competition and our cam mtesiaive efforts thcac pest couple of yens have shown that we heve only begun to tap the potential in out product and nwmsncr beat. For our employees, 1967 saw us finally able to direct our full attention to building on their capabilities and personal goals after several years of necrtury, but painful, resouenutng. We have promised to provide safe, meaningful and rewarding work in an envitonment in which each person has an equal opportunity to succeed. We intend to ensure that Monsanto is a great place for out people to invest in their careen. New incentive systems aimed mote directly at business and individual performance are being put into place and see coupled far more cloaely to shareowner rewatih. Stpuficant steps have been taken to let our people get their jobs done with their full capability and with minimum interference- A me spirit of "can do" is becoming obvious throughout the Company. Off employee safety record is good, but not yet at the level we aspire so as a great corporation. The chemi cal industry traditionally is among the safest of aU industries, and Monsanto u neat the top, fan not yet the leader. This is receiving top ptioeiiy horn manage ment and operating units. For out neighbors and the general public, we per formed well throughout 1967. We operated without any significant incidents in our 100-phn plants and facilities worldwide. This is a never-ending goal far a company dial necessarily deals with handout mate rials. Off environmental efforts continued ar a high level -- mote than 1,000 people at a coat of neatly $290 million -- a necessary cost if we arc to enioy the mist of the communities in which wc operate. Other efforts around die world included supporting a 4-H project that provides leadership skills to 350.OCC farm youth, helping an Australian hospital improve the quality of health care in a Monsanto community; Bid a three-decade commitment to fostering scientific undemanding and careen in Kwnce fot students. This letter has summamed the year -- and our goals. There is much to be proud of. That* are more new thingi happening now than we've seen in many yean. We're delivering on our promises. In April 1986, Dr. jean Mayer will retire after 17 years as a member of die Board of Dtrecton, having reached the mandatory retirement age. His sound technical advice, good counsel and active personal interest in all aspects of the Company's new directum will be missed. [V. Mayer has been honored throughout the world for his contributions to humanity He has honored us by his years of service to Monsanto. 0714S0S 4 A Steady stream of New products fcj Emit H. Hartaon, }r., Praia* and CAstfQperanjig Offctr, Monsanto Company Monsanto is becoming increasingly knowledge intensive rather than capital-intensive as we seek to introduce a Heady stream at new products to die mar ket- '1/e me (hat knowledge to develop products that unify basic human needs, among them health, food and shelter. The Company generates a flow of new and renewed products using many approaches. A new use can give new life to an established product. Foe example, Sofia interlayer, used in aunmobile safety glass far 50 yean, today increasingly adds secu rity and safety in architectural uses. Product renewal can come from value added through quality improvements, rod so we continue to inaeaw emphasis on quality in each operanng company New farmuianons and properties can also create renewed products. For instance, by tailoring fatmulations and mixes to meet specific marker needs, Monsanto Agricultural Company has greatly expanded the iam of its herbicides from traditional row crops to forestry management, plantation crops, lawn and gatden cam and mote. licensing u a growing souroe of new products. G.D. Scale Si Co. has one of the most aggimrve licensing programs in the phatmacetuical industry and many of our herbicide lines ate being filled out with licensed products. But moat important far the future, fundnsenml research at Monsanto is generating whole new families of products. Recently, The NunaSweet Company introduced Simpieuc natural fat substitute. When commcfcialded, it will go into new types of lowcholesterol and low-calorie but grest-tastmg products like ice cream, mayonnaise, spreads and dipt- And our heavy investments in biotechnology research am already beginning d generate promising and unprece dented new pharmaceutical and agricultural products. Exciting thinp am happening at Monsanto as we strive to better serve our stake holdas. Read die next few pages and me whatk new. 0714806 NEW MAIXEI9 TODMt NEW WOODS TOMOMOW by NkMm L Rsdiag, President, MonMonto Afncidosral Company Omni 1987, Monsanto Agricul tural Company strengthened its nameur facu in telenet to dunging Brakes. Wt now limn even better K> our ciacowien'needs Dleing eh* apiculninl rvoIucun at the '60 and 70k, we beam i wold leader with series of majorpmpritary pmducs -- Remand Machete, Atadex. low and Jhaaafif hcibicidtt- Rnmiihg. the world's leading hetbicldt, readied record tales in 1987. law, which was raegMtnd bet for by the U.S. Dninmuitntil Prateccion Agrac* continued to be the pranitt herbicide in die United ran Afamc liquid animal-feed But cmditioQi are changing. Although Roseuhf is growing rspvfiy. ainciiltunl markets m general are glowing leu chan 3 percent tat. Succeu today means we men know our cuenxnen even better. Nowbeie hat this ciu&xner focui had tracer impact chan in the introduction of herbicides. For aoall paint and raw empa, we introduced the following herbi cides in 1987: Imuhurar U, Budde. Raqpr and Lariat in the United Straw Stan in Frurce, Sender and fomen in Canada and Tdhremr in Australia. For vine, tree and nut crape, new herbicides bit year included Arund in Fiance, Squadron in Australia and New Zeubnd and Futto in Italy: ludfo herbicide in Central and South America and Spark herbicide in Thailand ate tiled in plantation cropa like benanas. rubber, palm oil and coffee. For induatnal and roidendal uses, are broucht out several new heibicide brands: Accord and Vision for fereatty managemeat in the United Scam and Canada, Trooper liar control dt broodleaf weed!, and Roamdip LAG and Kosmfep ceady-to-ute for residential marietta. For che near future, we have more promissng candidates m our product-development pipe line dun ae any other time in the peer 15 yean. As a wealth of new herbicide and fut^tcsdecaniidam wotk their way thtouch the R&D system, a new commercial development organoxtion sheyy hetdl them to the marketplace in the shortest potaible time. Biotech RAD Proeaiita New Product Ufa RfiiD HUH alio look long term, and our inveatmenti in biotedinology promise whob new families of product!. Bovine somatotropin (BST) should be approved foe sale in 1989. and porcine somatotropin IPST) should follow in a m or so. Both saotesns occur runaally in the animals themselves nj can be teptotfoced throiqh biotechnology Ssvpbmeoiinf a cowk nonnai supply of BST inrtveanatah yield wiApmponiciraalybm bed. Additional PST in hop improver bed efficiency: mcftSMS growth me and pro duces leaner pork. We'tt aim closer to conuncrculmng genetically engineered plans, [hemp 1987. we became the bit company ever n catty a research heid test of a genetically engineered food crop all dia way to harvest. Monmnto icienchcn (lew three types of tomato plants that had been given commer cially beneficial new traits. One group ares made toieianr to Roaafif hctfcacide. to make it pomibie to uae that nonsebettve hctbicide to kdl weeds withtmt damaging the tomato pbns. Plana in the ucond group were engineered to predare a natural pmcein dm it ante m mates such as die traeaso horitwam. In the third poup, plans wese (inn tolmncr to a common viral in yield of more dun 20 petcenr. The seme techniques could lead to adire improved oops, such at oil-seed canola, vsgeubies. cotton and aoybaana by the mid-1990s. In agichamifah. anneal numdon producs and biotechnology resesech, Monsanoo Apscuhural Company intends to stay at the forefront of is mduanp 0714807 6 Responding to different customer weds around die tuorid, Moitsanf Agricultural Company introduced some cud down neu Kerkades dunrif J98" '/t L5 exciting to create new products /or our international markets m Asia-Pacific, Spark, Squadron. Sting and Wallop Herbicides are the jnuts of successful twemafiurad research and cooperation with the bust ness secti* to fa marlief weds and grower expectations- i ihmJt the primary reason far then commeraai success is a gur balance of performance an tjuulin tersus cost.' ' Titiuo- Sam. PH.C1. FurmuJarum R*ah Supervt Karachi, fapar. Research Cel Mortadriru Aqrtculcurai Comp 0714808 TOWOLDMONOOI5440 MONSANTO CHEMICAL Company Responds to Customer Needs by Robert G. Poaer, PrtsAnt, Monusuo Chemical Compaiy Since our inception in 1986, Memento Chemical Company ha focused on delivering value io our customer*. Our strategy and our success n an meeting cuKtanen' needs worldwide. We do that by: developing new product* (hat rnpond to the arnica our cuc providing technical and merketingsippntttohelpoiir cuatomeis succeed, and adding value to regenerate the products that established our liailiiiliip in fibers, planks, resins and chemicals. ^JNewCcnCew Sayyon An Applications Development Center for planks wet dedicated during 1987 in Springfield, Manachineto. There we help customers optimize chair designs and processing techniques. A new Automotive Support Center in Detroit will open in 1988 to enlarge our major pretence in the important auto motive market. NewPmdnete One of our newest specialty planks is Luttran Elite HH ABS resin, created ^ecdkally far ^plications teqtaiing higherheat perfocmance far automotive manufacturer! worldwide. Other s identified needs arc being met by development of additional highperformance Thai engineering thcnnopbatic alloys for autos as well as the power tool, appliance and business machine markets. Rcamcnc crorsltnkers enhance the performance, appearance and application characteristics of paints and other industrial coat ings. The latest innovative resins improve the high-solid coatings increasingly used in automotive finishes. New Plante fct Sanaoprene --d Willilltl filler* Smmprene rubber and Gaolost thaimoplank elastomer continue to grow in volume and the num ber of engineered applications they serve. A new plant in Japan encourages cuMomets there to increase their use id SuuoprcM. which combines the performance of rubber with the processing ease of plastic. As the world leader in rubber processing chemicals, we main tain dose tie with global customer markets. A modem manufacturing plant is under construction in Brazil, and a joint venture has been estab lished in South Korea. We are investing significant capital in our world-scale rubber chemi cal plants in the United States and Europe to improve quality and efficiency. Growth Continues A venerable, established product, Su/lri plastic interlayer is still growing while celebrating its 50th anniversary in 1988. From longtime leadership in laminated winrhhiekh, Strict hat expanded rapidly in architectural and security glass. In 1987, it was installed to protect the U-S. Constitution on dhpby in the National Archives. The world's most advanced stain piureuiuti is a mayor value-addbd improvement to nylon carpet fiber, our fciggcjt-vobime prod uct. Merchandising support also adds value, arid Wem-Dmuf carpet with SramRIocker was featured during 1987 in its largest-ever television adver tising campaign. To build on our world leadership in maleic aihydride, capacity is being increased nearly 90 percent with projects in hnacota, Flor ida, and Newport, Wales. Maleic is a widely used chemical building block that goet into fibetglan, farm chemicals and foods. As die premier supplier of detergent materials, we have expanded rapehiliriei in linear alkylbcnzene, a key cleaning agent. Oir expertise with phos phate compaurefe extendi beyond detergents mto highervalue products for food anl industry Working closely with or ciutumen, we continue to develop new products to meet their needs. The world's Leading airlines recognne the value of Skydrvi fireresistant hydraulic fluid and our sippon system for fluid sampling and analysis. Fluid analysis also adds value to Thrmunoi heattransfer fluid. In all. Monsanto Chemical Company offers more than 1,000 products. Each represents a way to deliver performance for our customers' products. With performance, support and our commitment to be a Total Qual ity supplier, we hope m build a hating partnership with each customer we serve. 0719809 TOWOLDMONOOI5441 TOWOLDMONOOI5442 GlobalProduct Marketing Innovations at Searle by Shridon C- Gilgort, M.D., Cfcamian, Presdmr and CHef Exec utrix Officer, C.D. Searle 9 Co In 1988, G.D. Seerie&Co. celebrates ia 100th birthday During our first ceuury, we have expanded our merited into 119 countries, with major business entities in more than 90. The United States and Canaria account for about 40 percent of our revenue*. The remaining CO pattern ia divided among Europe. Asia and Latin America. We enter our 100th veer after an outstanding 1967. when we were Me to increase sales bp 13 per cent. Supporting doc strong gain was die highly successful intro duction of Colon SR, the first once-a-day calcium-blocker drug (at hypertension in the United State*. Meanwhile, we continued a scries of introductions of CyMec, a drug for treatment of peptic ulcer), in many other countries. We intend m accelerate this momentum in sales and product introductions through a chirrpair strategy: major investments in research, an intensified new licensing program and innovative marketing. MDTaegete lHgh Ctosvth Areae CXrr internal resewch and devel opment effort focuses on fair high-growth stew cariiovascular, imrauno-inflammatory, gaatromrtstmal and cenml nervous system. 10 Last yeat, we spent nearly $200 million on R&D, which is 24 percent of sales -- one of the highest ratios in the pharma, cortical industry. Today; our capabilities for new discoveries art among the industry's most for midable, combining our own aggressive research with that of corporate Monsanto's biotechnol ogy R&D piogram and that of our univenicy and business R&D partners. Aa a result, are now have mote than a dtnen new pharmaceutical candidates in clinical trials. a Vigorous^! irrnwsng To expand our new-product effort further, we have vigorously stepped up our efforts to license compounch developed by others. To cany this out. we have cre ated s clinical development operation dedicated exclusively to licensed products. Staffed by highly experienced professionals, the organization is independent of internal R&D. As an independent licensing department, it is designed to move products through the eval uation and approval process very rapidly Furthermore, the department is international in teach. This allows us to call on medical directors around the world to develop unique intercountry strategies. For example, the woric done in one country to obtain approval and introduction of a new drug can often be used to facilitate approvals in others. Already, one licensed compound promises unusual effectiveness in fighting infections. Innovative Marketing la Basic So Success Effective marketing is a requisite for success in the ethical phar maceutical business. Searle's marketing expertise must be unsurpassed in the 20 countries that account for about 90 percent of the overall pharmaceutical market. Thus, in 1988 we will be strengthening our marketing operations worldwide, especially in Italy, West Germane and Japan -- countries when the company is building die critical mass necessary for success. At the sme rime, we will continue to reinforce these marketing efforts through some innovative, socially responsible initiatives. An example is the Colon For Aments in Need pro gram. which we launched in February 1987- This program makes available $10 million worth of Colon SR to the indi gent. The program not only has won high marks for corporate social responsibility but also has made a positive impact in the marketplace. The Colon Far flaiena bi Need program was followed m Septerr bet by the Searle fiment Promise program. In this inmanve, Searle will refund the foil purchase price of the most recent prescription of any Searle product that foils ro achieve the desired therapeutic outcome. Searle will continue these and other societal programs because they embody our twin commit ments: to develop lifesaving and life-enhancing new products and to become a visible, tangible and human parr of local communities around the world. In short, in Searle's second century, we intend not only to realize a sig nificant return on our research investment but also ro demonsome what a pharmaceutical company can and should be 07US11 Uftsaumg ani fafc-ntenanj phatmou*aah rwdt people around d* wgrid as a twmk of Sesrfei major commopwnc to restock, becnainf pnpm and nmotiw morknnf. "'Owr detdopmem concert- CRsmonfmMi^ddimvi tn tfmp> tjudfcrf of aid cost efifaebuenm. Aneamffett ifrotion efttUmcnc dtf wmitmw both sftfcunc #eea and rruerference cofftffli* pwtiio. Anodicr a memory improvement for patterns widi AWwwr'j disease- Bj/ocusng on ponenttond bietr needs* Wre confident Scorie wdt provide a mod? /Ion* of um^M and snporfant sum producii. But-- fapufl. Smjf Dnvcw. Corpomt Stllini ttaflRinj. GD-SeerWiCd !I 071461.2 TOWOLDMONOOI5444 Fisher movestoward PLANT OF THE VOh bj Robert E. Flynn, Chtmmtm a/4 Chief Executive Officer Fisher Consrob International Inc. Product and strategy develop' mem at Fisher Control is focused on a vision of the advanced manufacturing plant of the 1990a. Dunn, 1987. sue moved cloaer to that goal through farther development and testing of Computer'Integrated Manufacturing (CIM) technology nOVDXMakas minnafafa Intefraced with business infoemarton interns. PROTOX pieces, controb bring all demenn of a pfant into one system. CIM operaton in a central connol loom get a comprehensive view if the entire plant. Benchta are cuaueueri and n^piiai, more efficient management of plant operations, hitter product qual ity due to more precise control of processe*. and reduced com from optimal uae of rosourcea. Dunn, 1987, we installed CIM technology with PHOVOT con trols in five major Monaancn piano. The piano benefit from the sophisticated end efficient control systems, and we are able to use them as operating demontmtioni to show potential By combining CIM with human-resource innovation and an emphasis on total quality, our "Plant of the '90s" concept has resulted in as much as a 50 percent improvement in productivity. UNfWnXCoatralCesimn l<R-- Alia in 1967, we introduced the UMVOX control center. A coin* pact, stand-alone unit that can be mounted right on the factory floors IWrVGX often the same precise and reliable control as PROVQX with which it is com patible. Offering improved price' performance far smaller systems, UNIVQX should open new mar kets in batch and continuous processing. We also acquired EXAC Corpora tion of California, a leading manufacturer of flowmeters for handling difficult fluidi. Among new PROVOX prodiKB introduced in 1987 was the Con figuration Mare software package to help users cut engineering tune raid increase project profitability In addition we introduced several new highly sophisticated rotary control valves and accessory products into key processing industries. In die fun full year of com mercialization of Prim Alpha nitrogen systems, sales exceeded expectations. Developed by Fisher subsidiary Efennea Inc, this technology fee separating nitrogen from air was rapidly accepted as the most advanced available. nuthaSweet Exmnds Markets, announces New Products by Robert B. Shapiro. Okunnort and Chief Executive Officer, The NuouSuwi Company Well over 100 million people around the world regularly enjoy NunoSweet brand swenener in mare than 1.200 product*. Over 300 of these product* were introduced in 1987. reflecting continued growth in consumer demand. To support future growth, wc are following throe strategies: tun, increasing the me of NuroSwett in established markets; second, developing new applications for SurraSwett sweetener, and third, creating new food products. Sweetenei Grows in EKaMUrodMackeo The first strategy was especially successful in 1987. Products sweetened with 100 pctcent NutraSweei brand sweetener are rapidly becoming the worldwide standard of taste in sugar-bee foods and beverages. In out largest end-use market, carbonated soft drinks, consump tion of products sweetened with 100 pctcent NumSuett grew by 16 percent in the United States. The adoption of 100 pctcent NumtSucet formulations was even mote rapid abroad, with major launches of Diet Ptpsi in 0714813 it TOWOLDMONOOI5445 'The overall mission of The \tara5uwc Company is to bring better food choices to consumers. Tixii> we are oGcgmpltihing chat mission by uodatiff together with our NurraSweet customers. Ow job m sales is to Jidp our customers identify new oppcrru- ncaes cn meeting consumer needs, and then to raib* the ast resources utthiri .YutraSueet to bnng those products ca mjrhec. Kaiw fannotn, Ar* $lo Mnpr The NumSweet CompMiv 0714814 TOWOLDMONOOI5446 the United Kingdom and Diet Coke end Diet Sprite in Australia. We will soon expend into another latpe country market. In December 1987. the French gov ernment overturned an 86-year- old prohibition on the uk of interne sweeteners in foods and beverages, opening this impor tant market for NwnuSwect. > Sweetener Find* NtvApplMni Pursuing the second strategy, new applications for NutruSstere bond sweetener, scientists at out new X&D facility in Ms. Prapect, Illinois, continued to make prag ma. One important technolog ical development wit the encap sulation of NumSweet to allow its me in baking- A petition for this use was filed with the U.S. Food and O14 Adnuntstrarton (FDA) late in the year. Cumntly them ate 14 applica tions for new mes of a^artame, the generic name forNiumSwert, m venous scapes of review by the FDA, representing new potribiliries for die future. liwtbUdfa We abo reached a milestone for our third strategy. In January 1968. we announced Simpiesse aH-necunl fat substitute. Cnroaring of mtcioparticulaeed protein from foods such as fresh eggs and milk, Sunphuc will dramatically reduce caionei and cholesterol in different types of products such at ice cream, cheese spreads and mayonnaise. The NumSwtcf Company will be filing petition with die FDA CO rfftnn the GRAS, or "gener ally recognised as afo," status of products made with Sriipkuc. Electronics Unit Rased TOPS BY CUSTOMERS by lama Spmggae, President. McnaanU Electronic Mnteruds Company Doing 1987, we at Monsanto Electronic Materials Company (MEMC) reached a simple but tough goal: attaining top ranking by major customers for product quality and service. We achieved this by taking several important steps. We implemented a worldwide prod uct quality improvement system, broadened the use of statistical process control and instituted a just-in-time delivery program for our products. As a result of these and other efforts, cusromets now list MEMC at the top of then tankings for vendor product quality and service. Our strengthened revenues in 1987 were due in large pert to increased Dtdeia horn cusromets with whom we had demonstrated superior qual ity and service. Fast-changing semiconductor industry technology requires that silicon meet verv precise product specifications. These specs get tighter every year, while service demands also increase. MEMC has devoted yean to assembling a good mix of people, programs and equipment to meet customer needs and to surpass the perfor mance of our competitors. '4 Research Strategy Ensures flow of New products .llAji by Hourod A SJumdsiiuun. HtD, , Sensor Vice Presdenc Resemck and Dnriopsnnu We made extraordinary ssridm m 1987 in discovering and develop ing new product and process opportunities in many areas of the Company's interests. These ranged from fundamental studies in biotechnology, to die intro duction of new herbicides that mala obsolete many traditional products, to the development of new and unexpected uses for existing chemical products. We challenged out scientisii and engineers to inttpate out standing science with a deep undemanding of the Company's business strategy They have met this challenge, aa we managr Monsanto rechnofofy for com mercial success. What principles guide research at Monsanto.' SeatMDSkex-En, Some Lamp-Term First, we are pursuing a produc tive mix of shore-, medium- and long-term psuyeers that match each operating company's objec tives. While Mum mm Chemical Company and The NunaSweet Company focus on a time frame of five yean or less, G.D. Searie Gi Co. and Monsanto Afncultural Company focus on the next decade. Corporate Research and Development, which includes 714B1S Moaumd Jim mcremed JI9D jpnding ard. tightened tts R&D rrxnu The god it more new products m less dme. <53 "We art committed to assuring Monsanto kmtuuu and engi neers in producing die jWst products whose momdacnmr land mm June e nuninud mpacr on At erwmmment, while abo prowUnga significant benefit to our customer*. As on example, we worked undt our dptani oxide group to tderafy and reduce trace impurities in rfu; product jo that toda? u< <ruu die highest qiuriin materui the market " Fred HtJemen. Fti.D.. Mnwnm FeU*, Sricrv *nj EnvuonaMiK*! Health. Manama EnvnaiMiencal Sciences Center Q7I4416 TOWOLDMONOOI5448 Biotechnology Product Discovery, emphasaes both urgent near- and medium-term products and pro cores and those that may be 10 or more yean distant. Brand Product Famttea As* Goal of RAD Second, we are committed to fundamental research that can lead to wholly new product opportunities. Biotechnology is an example. In only a lew yean. Monsanto scientists have propasted from banc studies in genetics and molecular biology to the commercial development of whole families of new proprietety products- Fifteen new product candidates, including drugs, animal protein stimulants and genetically engineered crops, ate tatgeted fee commercialiation in 1989 and beyond. Getting in on the ground floor with a powerful discovery team secured far Monsanto bods lead time and patents. These opportu nities would have been lost without the creation of new knowledge in out labotatones. |w-Wi- -IMy U_Wn_aO--O----f-liO...n- Give Monsanto an Edge Third, we have become a leader in effective collaboration with gnat research universities. Access to the enmmous scientific talent of research universities through out the world commies to help give Monsanto a competitive edge in fields with great commer cial pocantial. Monsanto has successfully mcorporated these principles into the Company's research strategy; a strategy that helps ensure a continuous flow of new, socially significant and profitable props ictaty products today and in the future. INVESTING IN OUR Communities and the Environment by Hamid/ Corbett, Senior Vice President, Envmmmem. Safety and Health in environmental policy and com munity relations, Monsanto has long been an outspoken leader. This leadership is essential; with out it, we will ultimately forfeit our right to do business. Monaaalo Fund Srearegr Refined In 1967, we further refined the strategy of Monsanto Fund. We now focus the Fund's dollats on areas where we can be a catalyst for change and directly help the Company and its communities. For example, our Port Plastics plant in Addyston, Ohio, has undertaken an innovative "Part nership in Education" program with focal schools, gaining public recognition for its efforts in pro moting buinass/education relationships. This Krategv is mirrored in programs of operating units. Monsanto Agricultural Company, for example, has sponsored a scholarship program for young wheat growers, enabling them to attend national wheat association meetings and participate in policy debates and reaming seminars. This program has gained a wide spread reputation in wheatgrower communities. Environmental Focua Sbifa We also shifted the focus of our leadership in environmental issues in 1967 as a result of fed eral legislation enacted in 1986. The Supetfund Amendments and Reaurhnriarion Act passed by the U.S. Congress began to be implemented last year. One part of the law, commonly called Tide III, requires companies to report large amounts of informa tion on hundreds of hazardous materials These data wilt include how much of these materials is stored at each plant site and how much is emitted. Monsanto long ago took the lead in supplying much of this infor mation. hut some of the Title III requirements are new even for us. Therein lies both a test of out leadership and a significant opportunity. The test: There could be confu sion and strong public reaction if this information lacks a proper perspeenve. To help provide that perspective. w< have already undertaken focal community meetings, special communica tions efforts and reviews of plant operations with key focal officials. We are also fully par ticipating in focal emergency planning committees. And in these efforts ties the opportunity: to use Title III to forge even stronger partnerships with our plant communities and our customers. 0714817 14 financial Section omaia MwaOnWSMau it TOWOLDMONOOI5450 I* IsIs Financial section contents Monaamant Retort Audit Commune Retort tndetewdnu Auditon' Otanwi SmtfwwmetfCooeoiidaeedlacoMe Renew of Conwlidiiteri Kendo of Ooeraaoiu OpeJiiuiie Unit Scment Data Gtoenafito Data Ouartrrh Data SwMitac ot CmmoHdaeed Rnaisclal Pbaklofi Renew of Lundity and Catod Retowcei Tun 11 - iifruiniilManil -nil Fin Renew of Cab Flow 18 19 19 20 21 23 27 29 30 31 32 33 Shin ownin'Eqniey _ Nona to Funnel Sweieim Sinificani Accoutubh Adicies Bede of Corooidenon Currency Trundobon Ptmopal Acouiraoni 34 33 35 35 35 35 Rctmcnmnf Dttrr~^wandAjKrr"y*TM Imcraort VduaDon Income Taxes Sftort-Tcrm Debt and Credit AmanjPncfiQ Long-Term Debt _______________ Pension Benefits ______________________ Other FbstrttucmsiU Benefits Stock Option Plans Eflmoip Per Store jfoHi Commitment! and Ccuumtaidc Sawtoneaed Data Sciment Infomaaon 15 J7 J7 M M J* 40 40 41 Unless ottowarndiBW^b? At contort. "Mofm" imn Mokmmd Compinj and MaoUnt4 sHpnduncs. md "dtt Campon" wu Mamme Coupon out? AKdoilm ocnimiPoni. npt par dm* dtta. MANAGEMENT REPORT Monsanto Company management is responsible fix the lair presentation and consistency of all financial data included in this Annual Report. Where necessary, the dan reflea management's ben estimates and judgments. Management also is responsible fee maintaining a system of internal accounting controls with the objectives of providing reasonable assurance that Monsanto's assets are safeguarded against material loss from unauthorized use or disposition and that authorized transactions are properly recorded to permit the preparation of accurate financial data. Cost-benefit judgments are an important consideration in this regard The effectiveness of internal controls is maintained by: (1) personnel selection and training; (2) division of responsibilities; (3) establishment and communication of policies; and (4) ongoing internal review programs and audits. Management believes that Monsanto s system of internal controls is effective and adnpurr to accomplish the above described objectives. Richard J. Mahoney Chairman and Chief Executive Officer Franci* A. Snoble Senior Vice President and Chief Financial Officer February 26, 1988 19 Mprmvhp Conpn? and SiMro 0714*19 AUDITCOMMITTEE RETORT The Audit Cbmmicre* it composed of five noft-empbyee mbat of the Bond of Directors and autt four time* in 1997. It review and monitofs he Canfuir'i inwnal controls. financial lepora. iccounnn* pmeticet and die scope and effectiveness of the audits performed br the independent auditors ad intetnal auditon. The Committee alao recommemh to the fiill Bond of Diiectoct the appointment of the Company's principal independent auditon and appeovet in advance all audit and run-audit services provided by each auditon. Ai landed by dtarcowncr voce at the 1997 Annual Mteritu, Debtere Haskins & Sdla was appointed independent auditon to examine, and express an opinion taw the to petteniarion of. the coneolidated financial imamemi. Thia opinion appean below. The Audit Committee daciutes audit and financial tepoetinp matten with tepteaentatina of the Campmy'i flnaaicial maaiepement, in internal auditon and Dcbirte Haekim 61 Sella. The intetnal auditon and Debtor Haskins & Sella meet with the Committee, with at without menepement representatives pteient, to diacun die tenia of their examinations, die adequacy of Monsanto's mtetnai accounnni controls and the quality of financial repottiiif. The Committee encounpea the innml auditon and Debitte Hadira & Seib to communkse directly with the Committee. The Audit Committee hat reviewed and approved the financial section of this Annual Rcpott. Fiuauani to the recommendation of the Audit Committee, the Bond of Director! has alto approved the financial section Jean Mayer, Ph.D., D.Sc. Chairman, Audit Committee February 26. 1988 iNDBtNDCVr AUDITORS'OHN10N 1b dm Shumownan of Monsanto Company: We have examined the statement of consolidated financial petition of Monmnro Company and Subsidiaries of December 31, 1967 and 1986, and tha related atxtementi of consolidated mcotne, il--nnniii* equity and cadi flow far each of die due* yean in the period ended December 31.1967. Or exammehons were made in acctxdwice with imenUy accepted auditini stan^hrde and, aCjCCXtbnfly, included such testa of die scccxmtmg xcortb mid tuch ocher auditini procedures at we considered necaasaty in the ciicumtmncea. In our opinion, such conaofjdered financial statements present fauty the financial position of Monsanto Company and Subauhatia at December 31,1987 ^ 1986, and die results of chair operation* and their cash flowi for each of tha three yean in the period ended December 31, 1987, in conformity with pencrally accepted accounting principles. These principles were consistcndy applied durmp the period except for the change, with which we concur, in 1986 in the method of deteiminini pension expense as described in the Ihnsian Benefits note to die financial statements. Deloitre Haskins & Sella Saint Louis, Misrouri February 26,1988 0714*20 SUnUENT Of CONSOUDATED INCOME 1ftfci aim mp *r *m NmSeit* Com of food* *oid GmM Maltenm aid adminarrarive capema Tcchnolofical expeme* Amortization of intangible nan Retructunrf expena (income)-- net Oyimifan Into-- (Loa) Inteien acpenw Imereer income Gain from ale of oil aid SB* operation* Other income -- net hfHirflftt) tULmm ifwif Tim --I FifmliiM) IOmn Income axe* larnae (Low) Befare Ejgnofdlnrr Gai Emraordunn Stn from defat tepefront NetUcome (Lorn) Before wiiei iiliwy piin Exnandinar pin After extraordinary pin 1987 97A39 4,755 2A84 1342 819 22S 02) 734 (172) 42 89 673 237 438 * 438 1986 16,879 4,344 Z.535 1.244 596 218 USB) 635 (201) 41 161 636 203 433 1 433 1985 16.747 4,841 1.906 919 548 88 949 (598) (178) 63 392 23 (298) (170) (128) 30 $ (98) $ 54) 8 543 1 5.55 S 5.55 1(1.67) 0.40 1(1.27) Krt Fa.minl^taletir. A>*fbn<ufNii1rfT GftwFiofit Mwbnntaftd A^tuniamivt Enpriri Riewli id Dti ikuwnr Ehhidh Optnun* Inconc 4Lew) Nr Income (,Lo) RMeluafala 1907 m i 7 10 35 11 1906 37% id 8 9 6 32 11 3905 :s% 14 7 |9> Ul i57i 071*821 10 TOWOLDMONOOI5453 Review of Consolidated Results of Operations mt iIf IJTJ1 tnm ires ire* iwi Oftmlaa Iwnaae Irwrhea ticori level Momasuc achieved record operating income in 1967. dm m arrrrefill marketing straregiei, aggressive cowradacnoci action taken in prior yean and the weaker U.S- dollar. Operating income increaaed 16 percent to $734 millun in 1987 from til! million in 1966. Net income wa* $436 million competed with 14)3 milbon in 1966. Earnings pe share far 1967 were 15.63 venus 1966 tamings per share of $5.55. Included in 1986 net income, however, was 185 aadlaan af net pin associated with unusual items iseikan horn the leie. closure, or impairment of facil ities and businesses as well as other unusual income adcapenea. Included in 1967 waa an $18 million pin M imuaual items. Excluding the 1986 and 1987 -1 hems, net income in 1967 increased The Ajncuttunl Ptoducti fewness had solid pins in 1967 mica and operating income, led bp outstand ing weridwide sela growth Roundup hetbicide. Addrekmllyt. Ahnrt animal feed supplement had a record year. peafarnance despire significantly higher costs far taw Baranets compared with 1966, demonstrating the effect of a ittong portfalio of higher value-added prod ucts and Kicmg demand outside the United States. The NmiaSweet Company had strong growth in unit mlm and eetuumcr usage in 1967. Revenues woe up only shghdy horn the prior year due to lower interna tional prices and invenrory adjustment by sosne of ttanofCsimsSIL a sustained reiemecilciiun channel blocker far die treatment of hypertenaion. Seim of the family of Grim products were more dun $130 ntiUiot) in 1987- Operating loess* in 1967 were unchanged horn dre 1986 level The profitability generated by mooted aha me offeet by higher marketing exptstet mmchmd with die hunch of Cokai SR end other products, coupled with continued planned investments in research far the fame. Fisher Controls demonstrated a rematitablr turn around in 1987 in the face of continued weakness in its end-ue markets. Higher salts, along with coat reductions made in late 1966, allowed Fisher Controls to produce operating income of $26 million in 1967 competed with a $66 million lorn in 1986. The Electronic Materials business remained weak in 1967. However, that business use dose to break-even during most of the year -- a significant improvement from the leip operating fare in 1986. Sales Increase LerweK Sine* 1979 Seim were $7,639 million in 1987, an 11 percent increase over 1986 -- the largest annual increase since 1979. Seles over the past several yarn have been rela tively level, aa Monaanro divested itseif of many largevokime but historically low-return businesses Worldwide sales volume in 1967 increased 8 percent. Worldwide relling prices increased 3 percent, due pri marily to die effect of ex-U.S. currency translation. United States export sales to thiid party customers were $887 million in 1967. a 25 percent increase over 1966. This expose sales increase was due in parr to the increased competitiveness of United States produced products in ex-U.S. msikcrs resulting from the weaker U.S. dollar. The gross profit margin increased to 38 percent in 1987 versa 37 percent in the prior year. Excluding the Electronic Materials asset impeirment write-down in 1986, however, grore profit margins would have been level year-ro-yesr. This was due to increased sales of products with higher margins (ftiaimaceuncals and Crop Chemicals), after by lower Chemicals mar gins resulting from a selling price/raw material coat squeere. Overall. Monaanco's raw material costs Marketing and administrative experts tncreaaed 8 percent in 1987, due mainly to the affect of ttmbting stronger ex-U.S. currencies inro weaker U.S. dollars. Excluding the currency tranttation impact. 3 percent in 1987. Technological expanse! rasa 3 percent in 1987. technological expenses, were 7 pcrcenr higher in 1987, as hfonunaos commitment to research and development of new products continued. Approrimaceiy two-thuds of the ament R6xO effort a directed Inward die life sciences -- phremaceutkab and agriculture. The higher 1987 sales level resulted in R&D being 7 pcrcenr of safes in 1987 versus 8 percent in 1986. 0716922 ofreview Consolidated results of Operations (continu'd) Opgnring income improved 16 percent in 1987. Operating income in 1987 included $32 million of reatnicturing income m divestment action proceeded better chan ongmally expected. Operating income in L986 included SI56 million of restructuring income, principally 80m (he mle of certain product liner easo- ciaied with the lam City, Tam, petrochemicals plant, which wee tattered far divestiture under the 1985 icetruciurint program. Operarinf income in 1986 wee abo affected by the $90 million Electronic Materials aetcr impairaenr write-down. Internet expense inclined in 1987 due to lower overage interest rami end lower monthly average debt outstanding. In addition to the unusual gains included in 1986 operating income, there were S88 million of gains included in other income in 1986 horn the ale of produce lines, principally acetic acid. The effective income ax rate in 1987 wa 55 percent, as competed with 32 percenr in 1986. The higher 1967 effective tax rate was dot primarily to dw tax law danger that eliminated investment tax credits in the United Steam and lower capital gains benefits in 1967, partially affect by lower statutory rate*. Return on average shareowners' equity was 11 percent in 1967, as compared with 12 percent in 1986. How ever, 1966 inchaied imuual net gams, principally the gain from the rate of the Texas City plant ($116 milliem after tax. ot $1.46 per share), pattially offset by the loss from die Electronic Materials araet impair ment ($46 million offer tea, or $0.59 per share). Excluding the unueual items in both yean, return on average shareowners' equity in 1987 was 11 percent, versus 10 percent in 1986. The impact of prior yean' inflation is not completely reflected in hietoricel cost financial statesntnts because the cost of an asaet today (current cast) is generally higher than in original (historical) coat. As a result, historical coat depreciation expense included in the income statement is lower than depre ciation expense using the current cost approach, for Monsanto, the use of current com depreciation in 1987 instead of the hiecorical coat depreciation expense would have reduced net income approxi mately $70 millian. Net sales inetcated to $6,879 million in 1986, a 2 percent increase over 1985. However, the coalperison of sale* is affccttd by the inclusion in 1985 of net sales of products ($931 millian) that wen subse quently divested as pen of the restructuring program. Also, the acquired Seette end NutsaSweet businesses were included far only die lam five months of 1965, rerun a fall twelve months in 1986. On a comparable basis, sales volume incremed 3 percent in 1986. World wide selling prices increased I percent, attributable TM6*V to the impact of ex-U.S. currency translation. The gram profit margin improved significantly in 1986 due to the fall-year effect of the falser margin* associ ated with the Seatie and NuttsSweet products, lower raw material coats asid the a--rp-.u cost benefits resulting from the 1965 restructuring program. The gross profit margin was adversely affected in 1986 by the $90 millian obsolescence charge far the Electronic Materials property write-down. Net income in 1966 was also affected by higher marketing and administrative expenses resulting from the fall-year indrawn of Searle's and NunaSweet's heavier marketing expenses, increased emosnanon of intangible assets relating to the acquired Searie and NunaSwett businesses, the effect of the restructuring program on 1986 income end mereared interest expense resulting from increased debt. Net tnconre in 1985 included a gain on the mle of Monsanto's oil and gas operations, amounting to $201 million after tax, or $2.61 per share. Anefyefe of Change as Eansmgt per Shoe ~ Better (Worse) Salts shmSfacnv Selling pnen Sain mine flfeis Tulri Mss Meat* firstis CmIiMIIiiibir U* Runhftl com Ocher maiurfienjnnf con Marketing. nhaaiMPtwn id mcnnokignl mperwei Nonracucnrtf CO9 Including Eecconic Mwnib property wite-dwnl Ibml Cass HetaSed hmsst OtehMi lUttructurinf -- net Acquutnona DhfODMtS IMCMiev Resets OfinaS Income Inierm npenac Inmoi income Gam fun alt of ml and tm upsnootu Other mcMM -- n Chungs mmetarataats Oianes In *a ounrendme -------- btflAurGiu Mm 1986 vis IfM 1985 S1JI 2.12 JJ3 I0-2S 0.69 0-97 ll-TOI (007) (0931 1 28 0.09 10.49) 0.98 (0.981 (1.72) <0. to 114)1) (Oil) 11.14) 047 0.1* OOt I0J7I 028 003 on sang 4-29 0.4+ (0.4> *.25 9-11 ia.it) 10.15) (2.611 0.92 0.15 10.07) 7.22 (0.40) % 6.32 0714823 Owhating Unit Segment Data Nh We, leeeme (Lewi Ml 1966 1985 1997 1986 1965 ApiraliiiniPwAittti dtp Of* AiumI Scincc* OwHC^I Etccoaeic Mwerwh UtrCtnaob NumSint Hi--mmnn ik CWwaiCw BkMdMMbfr Pndup Dtacowry Cawnw tun 127 JIM JS9 74* m B30 9-1,067 86 3.54* IH 64! 711 MS 51.073 79 4.051 117 652 317 262 172 34 VM M.S79 Si. 747 J 34* (41) 490 14 149 (11*> (41) (Ml *714 J 318 US) 613 <1391 <) 142 (119) (41) (381 1635 5 177 (92) <480) (64) 34 58 (139) 16 on (571 X5W Cjy> W npwio m dboMd ona na^hqd amagt ban <4 mwmv40dif HBHi 1997 t 94 47 100 9 16 31 199 1986 5 94 41 iOS 15 21 25 177 43 r 9997 39 6' 5523 HByavanfllw) 1965 5110 32 126 16 20 tl 96 n 24' S4?S n4epiMs1MJnaiIHn| nmcOt, OefChmiceh Aniitot Seamen Q--iicA Befit M--wh MtarCmnb NeeeSmii PhMMaubeafc OtfentOw Bnnrlii il igi Pmtet Ofcrain Own MeeeedW 1917 Uiee 1986 1965 1 *16 221 ijm 234 434 1,724 I.4M J 939 117 2,704 228 60 1,883 1.396 $1,061 174 2,982 102 636 1.862 1.436 7t 2m tt.ITT 50 142 M.20 33 369 M.977 1907 1966 1985 $ 71 21 297 11 u 31 90 6 4 1 KM S 55 33 244 51 38 39 53 6 1 $ 570 5M 31 291 55 53 4 33 85 3 6 5 645 iZI 1997 1966 ms S 82 1 S4 t 99 22 II 21 231 236 248 17 122 )7 34 36 28 206 205 73 79 67 39 59 7 7 42 ) $47 5780 5599 '"* Jh nil n rmnwiim ,e(i iti 'wi'" fnHiminii mu m imf--ml nnireiii.....|^i (r Ojurmnf income hm been effected by the 1985 mnuc new* pnpm end the 1966 Electronic Kemleli met impeireicnt coco, the effecte of which mete: Ayatawl Ptudwcn CrapQuamk Ai--fll Some* "Trnfc FjihirCom^ Cneni "SSfiZSi* hmi;bH) 1997 1986 was $3 30 ] U> $31 $ (4) 9 149 (89) 4 Will) <373 (714) (17) 01 (55) 0) X94*) NetUee (IW.iwmiinCI 0714824 operating Unit Segment Data (continued) CnpCIwnkiia NtfSaia Hrrttchltt and ocher agricultural chetmcsb 1987 1986 1965 11,176 *1.067 71.073 The Crop Chemical* operating unit is a leading world* wiJe producer and marketer of agricultural herbicides, including Roundup. Lasso. Avadtx and Module herbi cides. More than half of Crop Chemicals sales came fromex-U-S. markets in 1987. Crop Chemicals Net Saks lAilUr* in milhufli) Innovative marketing programs helped Crop Chemicals post healthy 1987 increases in sales, up 10 percent, and operating income, up 13 percent. Sales volume of Roundup herbicide increased signifi cantly worldwide, as use of that herbicide to control perennial and annual weeds continued to expand. This growth was stimulated m parr by reduced prices under a marketing strategy, begun in 1965, which opened up new markets. Approximately twothirds of Roundup herbicide sales are in ex-U.S. markets. Sales volume of Auodex herbicide also increased significantlv, sparked bv heavy demand in North America and a large sale to the Soviet Union. The positive cheers i>f translating ex-U.5. operations into U.S. dollars also benefited Crop Chemicals sales and oper ating income- Sajes and operating income of Lasso herbicide. i|J primarily in the United States to control grassy weeds in com and soybean crops, were lower in 1967. Lower planted com acreage, erosion of market share and increased competitive pressure on selling prices were key factors. In December 1987, the United Stares patent for alachlor, the active ingredient of Lasso her bicide. expired. Innovative marketing programs and continuing enhancements of the product and tts method of application am expected to maintain the position of Loiso herbicide as a leader in the agricul tural chemicals market. In 1967, the United States Environmental Protection Agency (EPA) concluded the Special Review of the benefits and potential risks of alachlor. The EPA decision allows continued use of alachlor under cer tain conditions. Lasso herbicide will be classified "restricted use," which means its use is restricted ro certified applicaron, or persons under their supervi sion. The majority of current users of Lasso herbicide 24 tl'iunhi Cimywi dnrf Suindum are already certified. Monsanro's tests confirm that Lasso herbicide poses no unreasonable advene effects to humans or the environment when used according to the label. Crop Chemicals research programs an primarily directed at discovery and development of pesnciifes and genetically engineered plants (that ace resistant to viruses, insects and herbicides), as well as continuing research on new herbicides. In 1966, the Crop Chemicals business overcame an extremely weak United States agncultunl environ ment and posted a solid performance. Net sales were ar virtually the same level in 1966 as compared with 1985, and operating income increased as sales volume growth of Roundup herbicide more than offset declin ing sales volume of Lasso herbicide. Operating income in 1985 was reduced by S1Z1 million of restructuring expense. Research and development expenses declined in 1986 as a result of the refocusing of research efforts under the 1985 restructuring program. Animal Sdwccs Net Sale* Animat pnxkcQ 1987 1966 1995 SII7 166 *T9 The Animal Sciences business focuses on animal nurrition and growth products, including Ahmet animal feed supplement and bovine somatotropin (BST), a naturally occurring protein produced through biotechnology, that research demonstrates enhances the efficiency of milk production. Monsanto also is developing a porcine somatotropin that research demonstrates improves the feed efficiency and growth rate of hogs and results in leaner pork. A 34 percent increase in sales volume of Aimer ani mal feed supplement, coupled with more favorable pricing, led to a 48 pement increase in sales for the Animal Sciences business. The operating loss for 1967 was about the same as in 1966, after excluding the restructuring income. The increase in 1987 rerearch and development expenses, coupled with BST manu facturing starr-up costs, offset the effect of the higher profirs resulting from the increased sales of Ahmet ani mal feed supplement. In 1967. the United Stares Department of Agriculture completed its economic impact study on BST with result* favorable to commercialization. A manufactur ing facility in Europe began production in late 1967. Sales for 1966 increased 9 percent over 1985. as sain volume of Aimut animal feed supplement increased significantly. The year-to-year comparison is affected by sales of discontinued products, which were included in 1985 results. The operating lore in 1966 was lower than 1985 due to increased sales of Ahmet animal feed supplement in 1986 and the effect of the 1965 restructuring program. 0714825 operating Unit Segment Data (continued) UtlMpmArn kfcHnadthbca ft**) jUrnipmAKB 1907 *m MO vso 904 645 1986 1 H6 205 856 639 584 196! 1 550 251 1.090 904 637 gpKokydwvwaii 346 J99 tMN 319 409 U.M 293 446 54,051 Monsanto's worldwide Chemicals unit produces a wide ntlft of chemicals, plastics, titers and other products listed in die table above. The Chemicals igujfl principal strengths am nylon carpet fiber, high* performance plastics, Sqjlex plastic interlayer, deter' genes and phosphates, rubber chemicals and tnaownanti, and maleic anhydride. Chsakrfs Net Srfm ILLS.. U.S. report and e*-US ) ligillnm.il> mill ILLS. HUS. es-U.5. Higher sales volumes and selling prices resulted m Chemicals seles mcieiaiiig 9 percent. Sales of United States exported products increased 13 percent. Sclbri pnccs were favorably affected by the positive rimtlerinn effects of ex-U-5. currency denominated teles, which offset lower domestic seiling prices. Operating income was $450 million, as compared with $613 million in 1986. Operating income in 1986 included $149 million of restructuring income, principally horn the sale of the Texas City; Texas, petrochemicals plant. Restructuring income was $30 million in 1987. Excluding these unueual items, 1987 cpemtiin income declined 9 percent, caused by tignifirnnriy higher taw material coats during 1987. Plant capacity utiliation increased to 80 percent in 1967 versus 77 percent in 1986. Fibers sales were up 1L percent over 1986, but profit ability lagged somewhat due to higher raw material costs. Sales volume of the higher margin nylon prod ucts inaesied in 1967. Wear-Dated Silver end Cold Label aain-tesweent carpet fibers generated strong consumer demand in their first year in the market place. In addition, fibers experienced excellent customer demand and higher idling pskes fee nylon inuimsdiagi, such as adipic acid and nylon polymer chips. Plastics sales were 26 percent ahead of 1986 due prin cipally to strong household durable demaid, partial past through of higher taw material costs and gtuwmg Somoprene thermoplastic rubber sales. Dairies operat ing income, however, was down year-to-year, due to the selling piice/taw material coat squeeze. Lunun ABS thermoplastics, used for refrigerator lining, drainpipe, automotive and other applications, had a wrong performance in 1987. Resin products sales increased 10 percent tkie primar ily to higher selling prices- Suffer plastic interlayer, used in automobile Windshields, was successfully intro duced for new customer uses, particularly in architectural applications. Rubber chemicals and instruments sales were 15 per cent ahead of 1986 due to strong worldwide customer demand. Specially chemicals sales went down slightly reflecting the 1986 divestiture of acetic acid. Thu decrease was partially offset in 1987 by higher maleic anhydride sales volume. Detergents and phosphates sales lagged 1986 by 8 percent due to lower sales vol umes of detergent phosphates, offset somewhat hv increased volumes of surfactants. Engineered products sales were lower, due to the August 1987 divestiture of the polyethylene honle business, which had 1987 sales of approximately $60 million. Research continues on many products- with the single largest effort on unproved carper fibers. Sales in 1986 declined as compared with 1985, due to divested product lines. Sales related to the divested produce lines were $645 million in 1965. For continu ing product lines, sales volumes increased 4 percent in 1986, while selling prices were level. Operating income improved significantly in 1986 from an operating loss in 1985, which resulted from the costs associated with the restructuring program. All major businesses, led by fibers, achieved higher year-co-rear profitability. The weaker U.S. dollar also positively contnbuted to the Chemicals performance in 1986. Electronic Materials NtfSdn 1907 1986 ! <4"i EleuiDniC'gndt uIkoa mareruls SIM 51H The Electronic Materials business produces electromcgrade silicon wafers fix the semiconductor industry and has production facilities in Japan, Malaysia. South Korea, the United Kingdom and the United States. Sales in 1987 increased 20 percent, benefiting from growth in worldwide semiconductor demand and greater penetration in ex-U.S. markets. Operating performance improved substantially, moving from an operating loss of $139 million in 1986 to nearly break even performance in 1987- The operating loss in 198o Slows Cure isyuaiyi u 0714826 Operating unit segment Data (continued) included a 590 million men impeinnenr write-down. Excluding due imnieowring chafe, 1967 profitability impioved $44 million, due principally to hither lela volumes end reduced operating cote. Sales in 1966 wen hitter than 1965, but still weak due to the prolonged downturn of the United States electronics end-user equipment market*, primarily die computer and office equipment segments- Operating losses increased substantially as a tenth of the asset impairment write-down. Fisher Controls Net Mss UalvM, rtfutan, kcgomc piocMi irarnMnuiion. and ifri apwanB umiiw 19*7 1966 [965 174* 5652 Fisher Controls is a leading worldwide producer of industrial valves and regulation, as well as state-of-theart PROVOX electronic process instrumentation, and gas separation systems In addition. UNIVOX control center equipment wee introduced in 1987. Rsher CoandsOpiseshig Inenme (Loss) lifallai m wdlml He (HI 1995 isai 1987 Fisher Controls turned in a much improved operating performance in 1967, due to higher aim volume in 1987 and cost reduction! implemented in 1986. Sales increased 16 petcent due to sales volume and idling price improvements. After a long absence, capital spending by cusumen (especially by the oil and gas, pulp and paper, and chemical induatnei) resulted m higher demand tor Fisher Controls valves in 1987 -- a key Actor in the higher mica volume. In addition, the installation and services businesses, along with the gas separations business, continued to grow. Operating income was $16 million in 1987 versus e $66 million operating lusa in 1986. The 1986 loss resulted princi pally from depressed sales to the chemical and oil and gas industries and from actions taken late in 1986 to reduce future operating costs. Sales in 1986 declined I petcent versus 1985 as a result of poor economic condition* in the oil and gas industry and lower capital spending by customers in the chemical indiatry NuUaSwu.1 Are Seles NhmSwb kw-caione auteur pn^io 1997 722 fw ajweHwmgi period A^M-Qmdn I9B5. 1986 $711 1965' 1317 The NutraSweet Company manufacture mid matkets NutnsSwcer brand low-calorie sweetener, which is sold worldwide. The company also muskets Equal low-cabtie tabletop sweetener throughout the United Scares. The NutraSweet Company sales and operating income were up slightly irom the prior year. Saks volume of NunuSunt sweetener increased 9 percent in 1987 over 1986. Benefiting NutreSweet's performance were the positive effects of continued strong growth in the United Stares of diet carbonated soft drinks, NunaSweerk largest masker, and further manuActuring cost reductions. There positive Acton were offset by the effects of lower worldwide average selling prices, some customer inventory reductions arid higher admin istrative and technological expenses Operating income in 1987 also benefited from improved manufacturing performance. The imtaliation of new process technology at the Augusts. Georgia, aiandacturing facility was completed in 1967. This technology wtU further reduce mamAcnring con. NuttaSweet's operating income was significantly affected by the amortization of intangible alerts, pnmaiily related to the areaname patent. Sales of $711 million in 1986 reflected strong market performance of retail products containing NutraSweet and changes in inventory levels throughout the dambutton chain. Operating income was $14! million, benefiting from lower raw material coats and tnanitArtilting efficiencies Sales and operating income in 1965 were far the August-December period only, following acquisition of this business by Monsanto. NaiAIre FhimacnQcalindura 1987 I9M 820 MM 52e: `JsdliJflSwfijBfltih-iMdSBiBiAifig.OiuiUrlWf G.O. Searie A Co. is a research-based, worldwide pharmaceuticals business concentrating on dregs Ar treatment of cardiovascular, gastrointestinal, amuinomflammatory and central nervous system diseases. In 1987, approximately 50 petcent of Searles sales woe from products for the treatment of cardiovmciilar dis ease. Searie does business throughout the worldincluding a significant presence in nine of the woods 0714627 operating Unit Segment Data (continued) top 12 ph--cmiticals markets. Nearly two-thirds of So>W's ala at in ex-U.S. rnxrkets. fl--mrsnsinli ula inaexsed significintiy, dimbtng 23 paces* tn 1967. TV key factor in die increased eia wa the bunch of Cben SR. the fas once-a-<fay cakfam channel blocker drug marketed in the United State far ute in controlling high blood pres ort- The new fatmulation and a three-year period of United State marketing exclusivity had a major impact set --eth of Coien. Sale of the family of Cant product] eeceedtd J130 million in 1987. The operating lou in 1987 we the same as in 1986. Operating income improvements, including the sue. cessfal launch of Cakm SR, were ofaetby higher planned rematch and development expense and incitaaed marketing expense m promote Colon SR, along with coats aooctated with the launching of Cjrmrc, a synthetic prostaglandin drug far the rrear--t of peptic ulcers, in ex-U.S. marketa. Cytauc a now spproved far marketing in 40 coueimesApplicatmnt are pending in 18 coutlines, including the major makers of the United States, Japan and the United Kingdom. `NuUm seed pnet w seqaum of Soli. Geographic Data UwvdSttBi EufoptoAfaca Coeds LmAnma Asn-Pstdic hw Eliminapcru rngnwH Um tm 1986 SMU 1337 339 293 597 54.63* 1,231 290 283 437 19*5 4,794 1.076 296 220 359 $74)* 56.679 $6,747 The dwa above ate prepared on an "entity basis." which means that sales, operating income and assets of a legal entity are assigned to rive geographic area where the lepl entity is located (e.g.. a sale from the United States to Larin America is repotted a a United States mb). Inter-area sabs between Mraaasiin entities have been excluded from the above Research and development expense m 1987 increased U petcent. At the end of 1987 then wen more than a dozen new pharmaceutical candidates in dirucai trials. Kerfane, a once-a-day cazdiosefactive betablocker, is expected to be spproved far neatment of hypertension in 1988. An atrial peptide, designed to near kidney failure, is in clinical trials. Seech is also developing products obtained through licensing oppor tunities. A licensed quinolone-chas compound sheas promise of being a strong anti-infccrive product. Sales in 1986 wen 10 percent higher than the fall year 1985, including the period prior to acquisition. Sales in 1986 benefited from more favorable ex-U.S. currency translation and increased sales of Cakot and Dtnudtn oral contraceptive. The operating losses in 1986 and 1985 resulted from aggressive research effarts in human health can and, in 1985, rive costs of the lestructioing program. Biotechnology Product Discovery tn addition to research and development relating spe cifically to Monsanto's operating units, the Company conducts basic and applied biotechnological research aimed at discovering new biotechnology-based prod uct opportunities. The focus of this research continues to be the life sciences businesses -- Pharmaceuticals. Crop Chemicals and Animal Sciences. It is coordi nated with the strategic direction of the Ufa sciences businesses, and the research results are farther devel oped and commercialized by chow businesses. The cost of the current biotechnology product develop ment effort directly rebred to Pharmaceuticals, Crop Chemicals and Animal Sciences activities is included as an expense in chow segments. 14*7 9501 III 31 2 m 6 <34> $734 fatSMiiZai 1966 5506 117 26 6 16 l (36) 1635 1985 1(784) 191 3* (3) 9 12 (57) 1(5*) 1907 9*y431 u 11* 235 513 (Ml) 200 5MW Xomi Am* [9*6 1965 56,60* l.an 116 243 365 [3363 242 56.269 57.C7T 1.019 i:c :ji 299 J59V J69 56.377 table, but are shown in the Segment Information note to the financial statements on page 60. The reported operating income far the ex-U.S. geographic areas does not include the fall profitability generated by sales of Monsanto products imported from other locations, principally from the United States 0714826 Geographic Data (continued) UnimdSnee* Sale* Up, Quaker of Inman lanurm Sales by entities in the United States in 1987 increased 5 percent over 1986. Roundup herbicide. Aimer animal feed supplement, Wear-Oastd carpel Abets, Lustrtm ABS thermoplastic] and Coitm SR calcium channel blocker were particularly strong performers in 1987. Direct sales from the United States to ex-U.S. third perry customers sere $408 million. S279 million and $379 million tor 1987. 1986 and 1983, respectively. Operating income in 1987 was positively affected by the sales growth of Roundup herbicide and the improved profitability of Fisher Controls and Electronic Materials, partially offset by lower profit margins in the Chemicals unit. Sales and profitability of Lasso herbicide were lower in 1967 due to tower planted com acreage, erosion of market share and increased competitive pressure on selling prices. Oper ating income in 1986 included $153 million of restructuring income, penally offset by $90 million of expense related to the Electronic Materials asset write down. Operaring income in 1987 included $31 mil lion of rcsmicturing income. Excluding these unusual items, operating income increased 6 percent in 1987. Sales in 1986 declined slightly from 1965. but the comparison is affected by divestitures and the acquisi tion of Searle and NutnSweer. Sale* of continuing businesses increased 1 percent in 1986, on the strength of Chemicals. NultaSweet and Roundup her bicide sales. Operating income was positively affected by the improved profitability of the Chemicals busi nesses. growth of Roundup herbicide, the inclusion of NutraSweet operating results for the full year and the effects of cost reduction measures and lower rear mate rial costs. Sales of Lasso herbicide were depressed because ol extreme weakness in its end-use markets Operating income in 1985 included $963 million net expense related to the 1985 restructuring program. Europe-Africa Benefits From Higher Volume asid Weaker U-S-Dofee Sales bv entities in Europe-Affica improved 15 per cent over 1986. while operaring income increased 55 percent. Sales and operating income benefited in 1987 from die effect of ex-U.S. currency translation, resulting from the continued weakening of the U S. dollar, and increased sales volumes of United States produced products sold in Europe-Africa. The operating income improvement in 1987 was led by a turnaround in Fisher Controls and higher Pharmaceuticals sales. Roundup and Awsdei herbi cides. Sajlre piastre interlayer. Luunn ABS thermoplastic and rubber chemicals also contributed to the excellent sales and operating income. Operat ing income in 1986 included earn reduction program expenses of Fisher Controls. Sale* in 1986 increased 14 percent over 1985. The comparison is affected by divested product lines and by the inclusion of Searle results for the full year 1986. Sales volume gains in Roundup herbscich and certain chemical products benefited the 1986 perfor mance. Operating income in 1985 included profits generated by the chemical intermediates plant at Seal Sands. United Kingdom, which was sold in late 1985. In addition, 1985 operating income included $16 million of net restructuring income. a rsnailian Hsrticide Sale* hmceee Canadian sales and operating income increased 13 percent and 19 percent, respectively, over 1986. The effect of translating stranger Canadian dollardenominated operating results into U.S. dollars helped 1987 sales and operating income. Most busi ness segments improved over 1986, led by strong sale* volumes of RounAsp and Auodex BW herbicides and chemicals. Sales in 1986 were 3 percent lower than in 1985, due to lower sales of Auafex BW herbicide and discontin ued product lines, partially offset by NutraSweet salt* and the inclusion of Searle sales for the full year 1986. Operating income declined 14 percent from 1985. due to the lower sales of Airefer BW and the divested oil and gas operations. These factors arete somewhat offset by the inclusion of Searle s full year opera ting income. Latin American Results Mixed Latin American sales in 1987 increased 4 percent, but operating income declined. Sales volumes of Roundup herbicide, Lustrex polystyrene and rubber chemicals improved in 1987 despite die uncertain economic conditions in major Latin American countries. An unfavorable change in sales mix coupled with the impact of Currency devaluation in Argentina resulted in a year-to-year decline in operating income. The Pharmaceuticals business was hampered by import restrictions in Brazil. Lahn American operating income does not include the equity income from Monsanto's joint venture companies in Latin America. Such equity income is reflected in "Other income--net" in Monsanto's Statement of Consolidated Income. Sales increased 19 percent in 1986 as compared with 1985, due primarily to the inclusion of Searle ales for the full year 1986, and strong performances by Crop Chemicals, Lustres polystyrene, robber chemicals and phosphates. Shipments of Roundup herbicide were par ticularly strong in 1986. 18 0714129 TOWOLDMONOOI5461 Geographic Data (continued) >d< Pirif gtarfM From Strotn MwniaM of Several Products A-Picrfic ala aid operating income improved 37 percent end 206 percent, respectively, over 1966. Seles end profitability of styrene, phenol end Luoei polystyrene were pernculariy strong in Ausrrelia. Fisher Controls end Pharmaceuticals alio had signifi cant ales and operating income improvements. In addition, sales volume of Soloxfap herbicide was higher in all major Asia-hcific countries. Sales and operating income increased in 1966 partially due to the inclusion of Seale apetaring results far the full yea. Sales snd operating income also benefited from higher sales volume of Roundup herbicide and the positive effect of translating e*-U.S. currencydenominated sales into U S. dollars. Quarterly Data NuMu ffisiiPrst NMhKMM IlIRhipwttWR DMdsafa par W-- Caaaanlsaekfwta 1W W Net income for each quarters accept the third quarters wa higher in 1967 chan the comparable 1966 quarter. Net income in the third quarter of 1986 included mv* era! unusual item, principally rattueturini income and litre from met sales, partially offset by the Electronic Materials property write-down. Monsanto's net income it historically higher during the first half IN7 (UMncturaif incomt -- me 1*04 FUscmccurtne mom -- mt Gains (tom oefor wmmkn EkmiK Morals psepra wue-down Cheap m annual efihedvt tax ms Ohu numsiuif tApsiisss 1907 IW mi 1986 1917 1996 1987 1986 I97 1986 Hot l--J Quanar Quanar SIAM 1,745 761 678 136 118 1.76 1.52 *1.025 1.869 001 776 144 146 1,93 1.90 049 0.623 0.70 0.65 7M Qratw 91,901 1.693 604 527 100 144 1J0 1-85 0.70 0.65 Four* Qrav 31444 1.570 434 5 32 44 :j 042 o.:s 0.70 0.65 losal Ism 37439 0.37* 2404 :.m 434 +1J 343 5. n 2,73 1575 H low High Low 67* OP* 99* too* 100* 73 77* 03 57 37 65* 7T4 77 Blw 41- 44* 56* 63* 67% **'+ of the year* This is due to the concentration of the generally more profitable Croc Chemicab sales in the First half of the year. The unusual item increasing (decreasing) earnings per share (after related taxes) in 1987 and 1986 were Raw <s>sed 1W hasp Oum-r Qsswi Qe--r Qnws HQ.04) J0JH (0.) wot 1.04 0.75 (0-59) 10.06) 10-39) 30.13 :.:i 0.08 0. LB Vim 30.24 1.25 0 '1 sQ 54i sQ hfcjiM*>Cjnp--!i id SJmriMHfi 29 0714630 Statement of Consolidated financial Position Ann CmmAmk Cnh, line deposits end ceitifimee of deposit Shon-nrm securities, at con which appraaimafeea market Trade receivables, net of allowances of $38 in 1987 and 536 in 1966 Miscellaneous receivables and prepaid expenses Deterred income rax benefit Inventories 'fcaalCammt Aa*M huMt Aaaeo, net of arrnmulated amoetiation of 5566 in 1987 and 5337 in 1986 lavtMMafe in Afttutt Odaer Aaaea Piupetty, Plasatand Equipmint Land Buildings Machinery and equipment Construenon-tn-progress Total property, plant and equipment Lea accumulated depreciation N* ProperTy, Plant eexl Equipment Teal Aaaaa LiaMBnee and SWeowners' Eqidty CoeiotllaliIBriii Accounts payable Wages Income and other raxes Miscellaneous accruals Short-term debt ~faeel Cnmsst LiaUMes 1 nwq Titaa Debt Deferrad Income Thai OiirliaMrias Shaeeonnati' Equiryi Common stock -- authceiaed. 200,000,000 shares, par value 12; mued, 62,197,097 them in 1987 and 1986 Additional contributed capital Accumulated cumney adjustment Reinvested earnings treasury stock, at coat (8,099,5GC shares in 1967 and 4.536,008 shares in 1986) a--w- i *^1r--e--s--p--a---a--s--n-a me^- hbt WUMliiSaMSkMeaea'EiHly TbflNwfl tjAnUtoMdnct n idi pwi 35 40 of riw * Ac December 31, 1987 1986 $ 180 43 1009 323 M 1,081 3,003 S 206 68 1,037 221 207 1,069 2.808 1,983 240 183 1.144 198 206 112 1,097 3042 279 6,730 3,654 3,076 IM55 102 1.002 4,964 258 6.326 3,413 2,913 $8,269 f 827 148 101 488 839 1,800 1.564 884 606 $ 460 133 157 577 389 1,716 1,630 548 594 64 872 100 3,282 (817) 3,901 SM8S 164 861 (98) 3.058 (204) 3,781 $8,269 0714631 Review of Liquidity and Caftial Resources Morrontoi financial position father stmgthened in 1967,with UB^vovmM in the intense coverage ratio and the book value per share, and a continued some debt to captfakatian ratio. R--srial lurioa Improve Mmpntru deiiie* bo maintain Monsanto's "A" or equivalent debt racing, which management believes aswa arirqnarr financial flexibility and access to the foil range of worldwide debt markets. Management believes that a total debt to total capitalisation ratio of approximately 35 percent is appropriate. Mnp* mem also intends to managr the interest coverage ratio at levels consistent with Monsanto's bond racing objective. The total debt to total capitalntkm ratio was 35 per cent at year-end 1967, the same as the prior year. Tlie interest coverage ratio improved to 4.3 in 1987. compand with 3.2 in 1966 (excluding restruccur- Monsanto has available venous shore- and mediumtens bank credit facilities which era dieemted in the "Short-Term Debt and Credit Arrangements" and "Long-Tens Debt" notes to financial statements (page 37). These bank credit facilities provide finance inf flexibility fee future funding requirements and permit the Company to take advantage of investment opportunities thee may arise. When beneficial, tilnruamn utilises both the United States and CX-U.S. A--maritacs for its financing needs. Morronapb ssara gmcnlly are free from lien and not used to coUatcialisc debt. Working capital vu $1,203 million at year-end 1967, allll million ixicraaae over year-end 1966, as a result of the year-ttfytar sales growth. The cutrent ratio was 1.7 it year-end 1967, compared with 1.6 at year-end 1966, Trade receivables increased die to higher rales volumes during lace 1967. Inventories were level at year-end 1987 venm 1966. with the year-end 1967 in ventory turnover ratio approximating 4 times per year. Intangible assets declined due to amortisation, principally of the NutraSweet aspartame parent. Net propeity, plant and equipment immaml in 1967, as capital expenditures and the translation effect of ex-U.S, currencies exceeded depreciation, retirements and divestitures. In December 1967, the Financial Accounting Standards Board issued Statement No.96, "Account ing for Income Taxes." This new accounting standard, which is effective beginning in 1969, requires chat defend tax assets and liabilities shown on the balance sheet be adjusted to reflect the current estimate of the actual tax asset or liability thet ultimately will be received or paid. If the new accounting rale had been adopted in 1967, the net deferred tax liability would have been reduced by approximately $90 million and the impact on 1967 income tax expense would have been immaterial. Monsanto continually evaluates risk retention and insurance Levels for product liability, psopeny i--y and other potential areas of risk. Monsanto devotes significant effort to maintaining and improving sriety and uubthI control programs, which reduce exposure to certain risks. Based on the core and availability of insurance and the likelihood of a loss occurring, man agement AmriJmm [he amount of insmnee covraage to purchase from unaffiliaaed enmpenies and the approprime amount of risk to retain, lo achieve the optimal felawgg of risk and cost, Monsanto is retaining a greater portion of ire total risk than it had prior to 1966. This risk includes being insured in the liability area on die "claims made" policy basis. Mnpmtm belkves that the current levels of risk retention are appropriate and are consistent with those of ocher companies in the various industries in which Monsanto operates. Key fiameid SMfetica -Trola JCurwm mho 1m* chick UabilMctl irienmr mi rifrhfol fo nwirr lidiihiMil IM7___________l-m SUOI " 1.7 39% i* 0714632 u Statement of consolidated Cash flow laonan (Decseaaa) in Cub and Cub Equivalents OpesMing AcsMrinr Net income {kne) Add income tax expense (benefit) Deduct extraordinary gain Income (km) before income taxes and extraordinary gain Income tax payments Item* which did nor use (provide) cash: Depreciation and amorthation Restructuring expenae (income) Other Working capital changes that provided (used) cash: Accounts receivable inventories Account* payable and accrued liabilities Other Nonoperating gains (tom asset disposals (before tax) UM rnMM Uf UpunHOOB Investing Arthritic*: Property, plant and equipment purchases Acquisition payments for Scarle, net of cash acquired of 1216 Acquisition and investment payments (ocher chan Searic) Investment and property disposal proceeds Cmh Used m bmaWag AcsMsfoa Financing Artivioci: Ncr change in short-term financing Long-term defat proceeds Long-term debt repayments Settle acquisition financing proceeds Shortterm debt repayments (Searie acquisition) Treasury stock purchases Dividend payments Other (financing activities Cash (Used in) Provided by Fwwsscisq Activities Dgcieaaa in Cash mad Cash Equivalents* Thr dfw# ijifmwt iWif I* nud HI CMfwWtm U ArawflA 40 af dm upon. 'Imritalfi oak. ttiv drtnM. nmfrimj afjtpammd dwn miw 1987 Itit 237 673 (229) 679 (32) 37 (172) (22) 13 (19) (26) 902 (305) (59) 75 (689) 150 26 (122) (339) (212) 33 (664) $ (5D 1966 $ 433 203 636 (221) 780 (158) (9) 117 (2) (173) 80 (90) 960 (520) (29) 503 (66) 33 675 (1.139) (348) (199) 5 (933) $ (19) 1965 J (98) (170) (30) (296) (273) 599 969 (39) T (56) _ 61 (392) 535 (665) (2.538) (78) 1.669 (1,792) (108) 415 (555) 2,754 U.I54) (911 (1381 18 1.09[ 5 11661 J2 fc 1--mmn ^iimfum mrf Tdmrtninii 0714833 TOWOLDMONOOI5465 Review of Cash flow Mocuantoi cash flow (or [hr [hnc-ytar period 1967 1985 it ihown in the Statement of Consolidated Cash Flow on the preceding page The format of thii state ment hat been changed from prior years to comply with die recently awed Statement of Financial Accounting Standards No. 95. "Statement of Cadi Flows." Caah Pwwidad hr Opatationa ldoNn m ahUiorfI Operations Provide Signifk nit Caah Inflpwi Historically, one of Monsanto's strong points has been the ability to provide significant caah flow from open* none. The current businesses with the strongest cash milting capabilities arc Chemicals. Crop Chemicals and NutrsSweet. Although operating income improved ngnificancly in 1987, cash provided by operations in 1987 declined due primarily to the incnaatil working costal requiremeno related to die higher operating levels. Cash provided by operations war 5902 million in 1967, as compared with $960 million in 1986. A principal investing activity was the cash used for capital expenditures, which woe 5505 million in 1987, down slightly horn 1986. Monsanto's movement in recent yens from capital-intensive fastnesses to research-bated businesses has reduced the required levy! of new investment in property, plant and equip ment. Them were no individually significant capital expenditures in 1987. Non-operating caah waa pro vided by the sale of businesses and other assets in 1987 end prior years. The principal business divesti tures wen the polyethylene bottle business in 1987; the Texas City, Team, petrochemicals plant in 1986; and the oil and gas operations, the Seal Sands, United Kingdom, chemical intettncdiaics plant, Stark's mnptescnption pharmaceutical! business and the investment in (bade Health Services, Inc. in 1985. Comparisons of annual caah provided bv operations with investment levels ate affected by inflation. Other than the 1985 acquisition of Searle and NutiaSwect. Monsanto's operations have generated sufficient cash to fund investments required to maintain the existing earning base, research programs and gtowth-ielated investments. Management expects that Monsanto's growth in the future will be financed with cash pro vided by operations. Mafor Slock Puichaac Piogiatu Initiated [hiring 1987, under two separate actions, the Company's Board of Directors authorised the Company to purchase up to 8 million shares of Monsanto common stock. As of year-end 1987. the Company had purchased 4.1 million shares for 5359 million. Diiiiilcndc Ineraaee for the 15th Conaecurivc Year The Company has paid dividends on ns common shares without interruption or reduenon since 1928 and has increased the dividend in each of the past 15 yean. Dividend payout (be 1987 was 24 percent of cash provided by operations and 49 percent of net in come. The Company's dividend policy reflects a desired long-term payout percentage baaed on Monsanto's expectation of future growth and profitability levels. In any individial year, additional consideration is given to expected financial position and results, work ing and fixed capital needs, scheduled debt repayments and economic conditions, including inflation. Monsanto's common stock is traded principally an the New York Stock Exchange. The number of shareown ers of record as of February 26, 1988. was 67,882 and the high and low common stock prices on that date wan 587H and $8616. 0 IMS IMS IKU} mcmmtl ThihkIiiw 1447 0714834 Statement of Consolidated Shareowners* Equity HMhnmndhM. os^ipr dM Comm Slocks Balance. Jammy 1 and December 31 Balance. January 1 ' Employee rtoclt plans Balance. Den aihn 31 Accvnaleaed Corrency Adjustment: Balance. January 1 Translation adjustments Income canes Balance, December 31 Balance, jaruarv 1 Net income (loss) Dividends Balance, December 31 Tnmmna Stock m Teeaaueyi Balance, January 1 Shane piechaaed 14,120,100 and 2,032,300 shares in 1987 and 1963, respectively) Issuances under employee stock plans (338,326; 906,336 and 323,827 diates in 1987-1985, respectively) Mmcc* Dicanfair 31 Tfr rimw limrmnr ftulif k md n rnnpmrmn nrt jupi If |IT nf ihi ijTm 1987 * 164 6 861 11 $ 872 1 (98) 197 1 $ 100 *3,058 436 (212) 13,282 t (204) (319) 26 * (517) 1986 S 164 1 854 7 S 861 * (191) 103 (10) * (98) *2,824 433 (199) *3,058 * (244) 40 * (204) 1985 * 164 * 835 (1) t 834 * (319) 131 (3) S (191) *3.110 (98) (188) S2.S24 S (176) (91) 23 * (244) Pl^^a H*i Low Ye*r-tnd PhrStttn Dividends Shimniwi) Equnv Ammo* tMvSfcn Mtai Vafcn* (duumbof dam) 'Itdimdafr njtf--dl^ludlwdijFn, 1987 $ 100* 57 OJ 2.75 1249 372 1986 S 81'4 44V* 76* 2.575 #W 269 1985 5 55 4P-. 4?Va 2.45 44 38 290 34 Mununto QuNpain md Safa^m* 0714835 TOWOLDMONOOI5467 NOTES TO FINANCIAL STATEMENTS Monrento'i Mfnrikiot accounting polkiei are italicized in th* following Now to Financial Statements. TV cmaoUaui fhuncial irnwmcnn Acfadt At Common; mi its ou/ority-atmti nAafariei. Intercompmj nomamom hove been cfcmimtal A consoHdoaon. Oder rampmiei hi ttVdi Mormmin hoi a ngnd*unt ownership Merest (generally pearer that 20 percent) an AdreWm `Tmaancnti m Aflfiaets" in At Statement ofCrmviUmd Fmanatd AetioR, mi Monsanto's short of Atee compared' ntcontc or lau is mdudedm "Other income -- net" m Ac Staennent ofComaUeaed Income. Mott ofMonsanto) tx-US. enema finaodoi statements dee tniiiAitif mu U.5. doSm ujbjf current rschangt rata. Unreufaed currency abutments A At Statement ofConjoMotrd Financial ftjsmon an accumulated in Aorrownen' eout> TV fimdd aaumena of ex-US. endtirx An opcsMe A hyperAfianrinary econowaes, AdndAt Braid, Mexico aid ArgBUtna, an mandated at coder current or fanatical exchange nttes, at appropriate. TVk currency adjustments an mdudad A net income. Major onrencicsare the U.S. dollar. Btirish pound sterling and Bdfmn fane Other ![>"* currencies include the AumnlAn dollar. Brasilian ennado, Canadian dolfar, French fine, Japanese sen, Mexican peao and Wear Genian math. Currency restrictions en not expected to have c ugnrficant effect on Montano's cash Acre, liquidity ce capital recounts Pda rlpal Acquisitions In Amine 1965, Monteruo acquired G.D. Stack & Co. far 12,754 million. The phatnaceutical business of Searie and the farmer health cate division of Monaanco operate aa C.D. Steel* & Co., a Monsanto tubeidlcry TV low-calorie sweetener biamrsi focmarly a pmt d Sack, opteame ae another Monsanto whctdAty, The NucmSweet Company. The acquisition wae accoutred far using the ptachaee method. The artpaeitim included total erects with a fair tnatket value of $4,204 million and liahibbes of $1,450 mil lion. The $604 million excess of the purchase price over the fair value of the itfaiuifiahfa net mitts acquired a being amortized an a Knight-line basts over 40 yean. TV financial mutts of the acquired operations have been included m the Statement of Consolidated Income from Aufust 1985. If the aayiuition had occurred on January 1,1965, the pro farina remits far 1965 would have reflected net sales of 57,150 million and a net iota of $136 million 151-77 par dure). These pro forma results mchefe the acquired operations far die full year 1985, and alto include increased amottizanon of intangible assets. increased interest expense on the acquisition debt and related income tax effects. TV pro forma results reflect lower interest expense that would have resulted fawn reing the net proceeds from certain aim of assets to reduce debt, as if those trensactions had occulted on January 1,1965. TV guns or losses on those asset ales, principally Monsanto's oil and gm business, have been excluded from the pro facma results. TV pro forma teeming results do not purport to present Monsanto's acsol opening remits had the acquisition and the major asset sales referred to above occulted an janumy 1.1985. In October 1985, the Company implemented a restmctixing and reorganization program. TV actions included rise withdrawal from seleered low-return busi nesses and production facilities, the ole of certain assets that no longer had stretagm importance and reductions in die number of employees, I(l 1985 Monsanto provided a $949 million charge to "Resettleluring expense Iincome) -- tier" in die Statement of Cansohdaced Income. Thu charge prin cipally comprised asset writedowns and the cost of employee reduction, partially offset by asset sale gain. The principal 1985 sale wm the Seel Sends. United Kingdom, chemical uicennedares plant at a net after-tax yin of $82 million, or $1.06 per than. The impact on 1985 net income from tV restructur ing and reorganization program wm $542 million (net ofesrinmttd tax benefits of $407 million), or $7.04 per share. 0714836 notes id Financial Statements (continued) Abo in MS, Monsanto ^im oil and gas operations inpin of $201 million (9392 million before an), or $2.61 per share. The pin a shown separately in die Statement of Gonrolidered Income- The 1966 pin included in "Restructuring expense (inconel -- net" nuked from the alee of product Iron that were planned for divestiture under the 1985 restructuring program. The pcincipel sale was those product linn of die Texas City, Texes, petrochemicals plant that were past of the rescructunng program. The iapact on 1986 net income from the restructuring pan an $97 million (Mter related taxes). Of ll.25 per share. The lesnucneinf profrem ns substantially completed by tire and of 1996. Net sain in 1985 of the subseasmdy divested product linn, principally in the fj-mireh segment, were $931 million. 14*7 1966 1981 Ml 1423 1477 AfUBMMtovi cf inmjbk bms 223 216 88 GhtthnnBt 33 139 34 M_____________________ we 1710 $599 ftepitj is teeonhd at cose The cost ofplans and nadpnsiu in shneei iiteiil imi vugfeiil laaup jinasli of6 pare fur HeMfop and 12 yores for imhirwry and iipapriiiiii, sang die sonigfo-lma msshod. Oteobscence in 1986 included a $90 million charge ($96 adllion after tax, or $0.59 per share) to wtite down property plane and equipment values of the Bacoonsc Marenab segment to amounts expected to be recovered from future cash flows. huangUr assets are reemded at cost Its* renorriwdon. The components of intangible assets, and their esnmated remaining useful lives, were n follows: EUnwnswLife' IM7 Oocdml Otiwr InmUv mb < 11,0*7 33 u* 23 2S? UJD Mjmddkmlrll, I9B7- 1966 11.734 633 237 12.144 The cost ofpntno otsrewad w a feuaness aqpesmon a rouiy recorded at dw present voiur of ensnared future crehfbua readtmg/rnm palcni ownership. The cost of pattern n oaumeed over dnr fepd fan. Crnnrhiall is die cost cfaegrovd feiimcsrcs excess of die fair wake of ftsridrerefMbir nos assets. and a amissired over periods of 5 90 yean The cost of taker msangddr assess (prinqpety product rgfus and mdanakt) is amorored Inventory Valuadon Inentones ore staled at cost or mahet, whscfaicr is less. Actual cast is used to value raw irwneriaii and suppiu. standard cost, which appriudmaus actual cost, is used to uahtr /hashed goads and pods m process. Smdexd costs include direct labor. raw material mi mam^jctuiinf over head (rased on pnrcdcai ngwnty The con of52 percent of all inventories is determined using die last-in, fins-ow (LIFO) method, generally ryfbcdngfte effects of irdhaioii or deflation on cast ofgoods said sooner dian other inven tory cost medods. The cost of ocher ntuenforics generally is determined using the fhsi-m, first-out (FIFO) method The components of inventories were as follows: Fintfhtd foodi Good* in pnccn Riw ********* sod miiti InvuMoriB, at FIFO coat Esma of FIFO na UFD vm Iiwiriw mUFDom 1997 * tm 2*1 4*1 Mil 1330) iijmi L966 J 707 225 426 1.356 (IS9> $1,069 Inventories at FIFO cast approximate CUTTCKU COM- l*****TwThe components of income before income taxes were: Tirol U.5, E*-U,5, 1917 Ml 2Sl Ml (966 1983 MM KIWI 174 292 MM The components of income tax expense were: CmwiNi Mm6 Huai Fcdcnl Sow Ex-U.S. Federal Stm Ex-U.S. ima t ai 14 72 lia 39 9 21 69 w (966 S 20 12 98 (20 74 13 (41 63 1203 [96$ S 44 [3 154 211 1336) (2M 1221 (391) 1(170) Deferred taxes result from timing differences in the recognition of revenue end expense for tax and finan cial statement purposes. The source of these timing differences and die tax effect of each were as follows: Dipuiimiiw --i4ai ilia mi Rotnicturinf prafnm Employtibeafapiint IftBCkfiUe^llbng aid davric^sa&c coin Other 'Em! 14X7 1 4* 41 19 111) 1 44 1986 1(61) 161 410) (7) S 93 1481 i 70 lJC7> 132) 199) 114) suan Jt Mnwn iTwnu) mi inMSym 071**3? NOTES TO FINANCIAL STATEMENTS (continued) Factor* cawing Monsanto's effective ox me to diffiet from the United Sam federal statutory rare were: Higher (low) H'U.S. ax nm limamnc and odiar tax credit* Capital gair beneha BhAb tniluiiblt bk United Scaccs capon earning* Puerto Rico opwoow Dtvukntb km -Lf.5. nihsidroro IhhI d pmr ram' fampi Wddla Other ffci*n li i mi iaaat 1*7 40% it> a) (1) HI HI 1 z 35% 1966 16% L (4) (8) 131 (3) 1 2 32% 1985 (>% (12) (9) <3i (2) 9 6 (2) (57)% Investment sox credos were mialirfilr bi 1966 and earlier y*ttn ae a reduction of die United States ftdend mcami tax habity Such creiiiti were recorded as a reducbon of income tax expense m t/le year diey reduced die United State federal income tax liabdiiji Investment tax credits, net of recapture, were SI5 million for 1986 Mid S10 million for 1985. Income and remittance taxes hate not been recorded an S5I0 mtBon of undistriSiited earnings of jubadiins, edher bacons any taxes an dMdcndt woidd be offxt mbssmoiy by/otqgn tax credos <w because Monsanto wends m iTvkfimwii remvest those earnings. Income and tesnittnee taxes an these earnings would be approxi mately S50 million u December 31, 1967. Shnee-Teim Debt xssd Credit Aiingsinim Shot-term debt was: NaeipayaMr Banin Cmmwnvk paper Rm6 oHtMti Current portion of kme-wm debt 1M7 tin IS? 13* IIS SD 1966 Slu) 14 130 138 sm AMgx mm mreMt fd Bank itfait 5438 335 % 7%% toil 372 aw% 7*2% Ctrrain ex-U.S. subsidiaries have aggregate short-term loan facilities of $355 million, under which loans tooling S127 million were outstanding at December 31, 1967. Interest an these loans is related id various ex-U.S. bank rates. Monsanto's worldwide unused short-term loan facilities were 5228 million at December 31, 1987. Lossg-Term Debt Long-term debt (exclusive of current mammies) was Induunal devefefnent bond oMipnoru, weighted avenge interor tan of 7'/i%, due 1969 to 2021 Medium rum nm, weighted awxgt innmtattaf?^%. oe 1969 to 1990 9*i% Eurodollar notes due 1991 I0H% non due 1992 9*%nocre<hrel996 8V;% unking fund debenture* due 2000 SVs% sulking fund dehenturn due 2006 11V% sinking fund defaentra due 2015 Ocher Urol IN? 1966 * Ml 44 101 ISO ISO 127 169 113 336 SUM s :m 1*1 SCI 1*0 IK 127 LE 12? *11 5 UK Maturities and sinking fund requirements on long term debt are 5119 million, 5141 million. 551 million. 5137 million and 5185 million for 1988-1992, respectively: A 5750 million intermediate-term credit facility expires ratably hom 1991 to 1994. There were no borrowings under this facility at December 31. 1987. The credit facility is used to support the issuance ut commercial paper (5157 million outstanding at December 31, 1987). Interest on amounts borrowed under this agreement would likely be at money market rates determined by competitive bidding. Alterna tively. interest may also be at. or at a margin above, the Citibank, N.A. base interest rate, or at a marain above either the races paid on certificates of deposit ,>r the London Interbank Offered Race (LJBOfO Covenants under this credit facility restrict maximum borrowings. It is not anticipated that future borrow ings will be limited by these restrictions. In November 1985, the Company repaid 5168 million principal amount of debentures and notes prior to their scheduled raatunty from 1993 to 2008. Because these debentures and notes were repaid at less than bee value, the Company recorded an excraotdinan net gain of 530 million (559 million before tax), or $0.40 per share. 0714836 NOTES TO FINANCIAL STATEMENTS (continued) Mon MomuntD rmplfiyrei ac covered by noncontrifaumsy ptMion pfans. In 1966 Monmnro adopted Statement of Fmanoxl Accounting Standards No. 87, 'Employers' Accounting far Pennon*" (SFAS No. 87). Information far 1965 hi* not been restated The components of pension cost for 1987 and 1986 ere as follows: 19S7 1986 Sotk* vm for bmfa earned durinf the*er kmmt uk on prepend benefit obiigiriM Atwund mum on pten aeeeo* Aaertobon of imumfced net Bin 8 44 212 (237) (12) 8 (0 202 (209) 171) 2e________________________________ 8 7 8 3) `Ariel mieweeSiume was 1137adluwni (987 and S*5B region ma fbntion con far ill plan* to* $85 million in 1985. IViMkei benefits are determined based on the employ ees yean of sereic* and compensation level. Pension pfans N* landed in accordance with Monsanto's longrange projection* of the plans' financial condition, conssdennp benefits earned and expected to be earned in the future, anticipated fatiue returns an pension pfan aatti and income tax and other retuiicions. In accordance with SFAS No. 87, the excess of the fair value of plan asaets over the projected benefit oUggfion at the (fare of adoption is being amoftried oner the avenge expected future service periods of employees longing gcncnUy from 14 to 18 yean). Also in accordmsce with SFAS No. 67, the fair value of plan assets area used to cakulaie die assusned return on plan asms for 1967 and 1966. These two changes boo peior peacrice were the primary cxuk far the 152 million durum in pension expense in 1986 a* compand to 1965. In 1966, the lover pension expense principally benefited the Crop Cherniak segment (sppsoxisMtefy $7 million) and the Chemicals aegmm (appsoximately $15 million), frnskai expense wa lower in 1987 due principally to the efiiect of favorable investment performance of plan assets in 1966. Assumptions mad for the principal plans were as fallows: 1887 m> 1983 IHsrimamn Assumed leegeaMi rasa qf nmanpmaaa 8H% Sri 8v.Sk Sn 8v:% jy; Aes--li--afoslsn iarnme (for piuu dim bam burins un tunl coropefuation levcll*vy6^_____________________ 6-j The funded status of Monsanto's pension plans at year-end was: Atnntfel pienai sola* <rfplantnului Vemd Nonventd >7 m* 82,114 S', lit Accwnufeced bmriie oUlpnoA 2,278 Z, J11 Effect of aewcad faturr mkn inneams317_______________Ml FWmtsdNaefauM^faa81411 i2,H4 Fissasaafawfei 11,118 31.JI4 taasdsbammssapajaaS bi.itnMmliia 8 801 i 4M SFAS No. 87 422 187 8 174 412 179 iW Projected benefit obligations and plan assets included in die above table far the principal United States plans were approximately $2,407 million and $2,767 million, respectively, at December 31,1967. Flan assets consist principally of common stocks and United Stares government and corporate obligations. Became the Company's pension plan* are well-funded, contributions to die Company's principal plan* were neither required nor made in 1987 and 1966. For some employee savings plans, employee contribu tions am matched in pair by Monsanto. The 1987 1985 expense recosdcd far such plans was $33 million, $35 million and $36 million, respectively: Monsanto provides certain health care and life insur ance benefits far retired employees. Substantially all of Monsanto's regular, fall-rime United Stares employees and certain employees in other countries may become eligible for these benefits if they teach retirement age while employed by Monsanto. At December 31. 1987, approximately 31,200 active employees were eligible upon retirement to participate in these programs. In addition, approximately 17,500 individuals retried from active service were eligible to participate in these programs. These txAer postrenreffleni hmqfas me * funded and ore expensed as bentfia art pad. The 1987-1985 expense recorded far other postretiremen! benefits was $37 million. $26 million and $18 million, respectively. 0714839 184 187 Notes to Financial statements (comnutd) As an attentive to increase shareowner value, key gfflcm and tmplotw an granted Monsanto nock option under trw Company's 1974 and 1964 Manage ment Incentive Plant and die Settle Memento Stock Option Ren (Settle Plan)- Information about die name of auch stack option is practiced bdow. Mg* Shun face EwicinUc OniMnim dw Shan Mr 31. MS 1.703.124 2.971.426 126.16 - 557.59 Gfanctd Eattfcatd Eaml 593.650 46 06- 79.31 (972.6091 26,16- 57.59 (99.3011 36.66 - 69.00 UM 1,295.094 2,484*167 26.16- 79.31 IM7i Gmttd Eancwd aEM- Hj 63*300 *.14 <9KyU) ttelt* 64.00 (3*751) 41*79* 4414 P-- 1JHJM 2J253JJ7 26.16- 94.19 Under the 1964 Management Incentive Plan and dm Settle Plan, 1,947,092 sharer remain available for pant. Stock appreciation rights (SARs) ate authorized to be panted to Monanto officers in tandem vidi nock option under both the Compeny'r 1974 and 1984 Fins, including retroactive pint! for unexeiciaed options. SARs may be eacrciacd m lieu of stock option* included in the table above. At December 31, 1987, SARa related to stock optiona for 714,402 shares seem outstanding, of which 270,800 options were tautliable. During 1987, SARs related to atock option tor 114.200 shares were granted and for 103,370 dune were exercised. Eseninp per there were computed using the weighted ivangt number of common share* and common share equivalents outstanding each year (77,498,732; 77^957.975 end 76,995,625 in 1987-1965, respec tively), Common share equivalents (645,527; 616,178 and 116.247 in 1987-1965, respectively) conaiat pri marily of common stock isaueble upon eaereiae of oumseuilng stock options. Earnings pet share aasuming foU dilution were not significantly different from At December 31,1987, there were 4,472,149 common share* reserved for employee stock options. In Januety 1986, the Company's Boatd of Directors declared a dividend to shareowners consisting of one Common Stock Purchase Right on each outstanding share of the Company's common stock. A right will aim be issued with each there of the Company's com mon stock that becomes outstanding prior id the time the rights become exercisable or expire. If a person or group acquires beneficial ownership of 20 percent or more, or announces a tender offer that would result in beneficial ownership of 30 percent or more, of die Company's outstanding common acock, the tights become exercisable and each right will entitle its holder to purchase one share of the Company's com mon stock for 5150. If Monsanto is acquired in a business combination transaction, each tight will entitle its holder to purchase, for $150, common shares of the acquiring company having a market value of 5300. Alternatively, if a 20 percent holder were to acquire Monsanto by means of a reverse merger in which Monsanto and ire stock survive or were to engage in certain "self-dealing" transactions, each right not owned by the 20 percent holder would entitle its holder to purchase, for $150, common shares of the Company having a market value of $300. The Company can redeem each right far 5 cents at any time prior to its becoming exercisable. The rights expire in 1996. These rights may cause substantial ownership dilution so a person or group who attempts to acquire the Company without approval of the Company's Board of Directors. The rights should not interfere with a biomess combination transaction that has been approved by the Book! of Directors. As of December 31,1987, 74,097.517 rights were outstanding. Commitments, principally in connection with un completed addition to property, were approximately $137 million at December 31, 1987. Monanto was contingently liable as guarantee of bank loans and for discounted customers' receivables tooling approxi mately $111 million at December 31, 1987. Future minimum payments under noncaocellable operating leases and unconditional inventory purchases are $64 million; $62 million; $55 million; $50 million and $47 million for 1988-1992. respectively, and $148 mil lion thereafter. Monanto is a party to a number of lawsuits, which it is rigorously defending, arising in the normal course of busines. Certain of these actions seek damages in very large amoixus. While the results tf litigation cannot be predicted with certainty, management believes, baaed iqion the advice of Company counsel, diet the final outcome of such litigation will not have a material adverse effect on Monsanto's consolidated finaimial position. 6714840 M--Cure) eriTi jeOmn Jfl Notes to Financial Statements <connnd) on a (i3) StpMttWbmfao Certain operating unit segment duo and geographic tea fee 1987-1995 appear on page* 23 and 27, and an integral pans of the accompanying financial stammim- The principal product lines included in each operating unit an shown in the operating unit yiWIF dUfte Saks hetween operating units were not significant, buer-area sales, which ate sales horn one Monsanto location to asnher Monsanto location in a different world area, were made on a market price basis. Net sales in 1965 of product lines divested that were included in the Chemicals segment were $695 million. i 1 I1 Certain corporate expenses, primarily those related to the overall management of Monsanto, wen not allocated to the operating units or geographic areas. Corporate assets principally include certain miscella neous receivables and investments. Inter-area sales by entities in each geographic Intcr-ra Sales (iuiiw Modanto Enema) 19*7 1986 1965 United Sac* Europe*Africa Crab LxinAihBia Aiia-Pxifk Interims EUfniftatkxu UeeMUsid I 614 103 I 13 39 (TV) *- 1 527 82 4 5 26 (644) S- s 529 163 5 t ll (720) S- Following is a reconciliation of ex-U.S. operating income and total assets to Monsanto's equity in the net income and net assets of consolidated ex-U.S. subsidlanes. Osnsliug inrr--> Inane experae Intmt income Other income -- ner Income taxes Ndhraw ofcwofthai orU^HWdWa local operating aaa Tool tiabtlitiee ^4i7^uiww.1rl"ir I9 S 363 mi 1 193) 1966 5 165 (42) 40 (16) 170) 1985 1 231 (26) 36 (21) (701 * LJ8 *2.120 601 S 77 11,757 855 }15J >1.670 847 IU19 I 902 5 623 40 ViNiuitt Cimpvri and Shhiifaimt 0716641 TOWOLDMONOOI5473 FINANCIAL SUMMARY (Dafe*H^*. oo^pvdw) NrTsSm* Knuia Operatng Income (Loa) Inccane (Low) Before Exnaotdinafy Gains Net Income (Lots) As a fVseent of Net Saks As a ftrttni of Avenge Shareowners' Equity Eanafop par Shun Before Extraordinary Gains Net Incone (Lore) WAawh"*1Wlil" Working Capital hoperty. Pbnt and Equipment Gnu Net Long-Term Debt Shaeapwnere' Equity Ciarent Redo fhitcntof'Ibtal Debt to Total Capitalization OfarDM ftopaty, Plane aid Equipment Additions Deprecation and Amortisation liMHttt Expcnw Rasaanb and Development Expene *TWTTBt Ttfftf Cadi horided by C^etioons Suck Plica High Low Yea-end Price/Earnings Ratio an Yea-end Stock Price hr Share Dividends Shareowners' Equity Shareowners (yea-end) Shares Omanding (yea-end. in millions) EarInyen (yea-end) 1987" 1986" 1985" 1984 1983 $7,619 714 416 416 6% 11% *6.879 635 433 433 6% 12% *6,747 (598) (128) (98) (1>% (3>% *6,691 677 439 439 7% 12% 16,299 521 369 402 65 111 $ 141 5.6) * 5.55 5.S5 *(1.67) (1.27) t 5.42 5.42 S 4.48 4.89 $8(4M 1,201 $8,269 1.092 *8.877 899 *6,373 1.395 *6.427 1,535 $6,710 3,076 $1364 1,901 1.7 13% *6.326 2,913 *1,630 3.781 1.6 35% *6.840 3.034 *2.087 3.407 1.4 45% 16,919 3,374 S 824 3.634 2.2 23% *6.639 3.284 * 937 3.667 2.3 245 $ SOS 679 172 SS7 217 902 $100% 97 83 IS $ 520 780 201 523 203 960 t 8lVt 44V 76% 14 * 645 599 178 470 (170) 535 * 55% 40% 47% - * 614 503 LOO 370 268 915 t 53% 40% 44 8 * 560 523 96 290 201 1.040 t 58% 37% 52% tl $ 2.7S 323S 68,032 74 49,734 *2.575 48.69 70.367 78 51.703 * 2.45 44.38 72.081 77 56,103 * 2.25 46.43 71,343 78 50.754 *2.075 44.83 69.787 82 48.835 lUlfc-- f}>NiiaHfvMlidMWriAilSI.J(f|irdiM4MJH pMopribfrom At of AtTeasGi) Ttw, pMtkmipilitiiiiiWH* p*Mi< mJKii^ii^^ptw^M4iww>M^iliiw^iMt ii*uw 11%1--rf UJ wJm ftJL3J pm AtJ fnm jjtfmj *r nfrwwa of SiMMi^hHlAnHifSniiiNii 17, "Emfttjrni' Aaornmagjfar Amb " f&N* hafrr M5pbMb wiwwwft*Mt4Jftf*ilW*f,tf0t*>-*i>i. d*f*ito ufeof of4papn--n ofS20I $* rli.$f Jp IttNg wi jir IW driBi--liT m itw (.! par Am) frw Ar iijtgwoii ofcr-US, baaij/m--di 0714842 Maw Cnqiwj mi StMn 41 TOWOLDMONOOI5474 BOARD Of DIRECTORS St. Lout* Oianrellrr Untvaretty of Mmoun-St. Louie Aar: 41 Mottattm Dutctor late then 11 mm OaMnliin^Jcw A*X Haaaf Pm famriretiu On, Sctadco, he. Rftfnd Dm. Tk Vhtnon School. UnieointY of hetnoyhueua A|c 17 Montana: Ditictor 11 fact CbfMdlUl Snfantitco Donaod ChoMm ood Chief Executive Officet. KKUy CayFfaritk ________ , Hnky HnUm Cam Round ChaMuoftmd Chief Executive Officer, Coaiomr A*: 66 DKHMBBl Director II ycon MoH.Mta.lo. Sc. Louie Flotidanc ond Chef Otmodni Officer, Mnueimc Coayony A*r W Monaeaico Director Z yean ADVISORY DIRECTORS tL. St. Loan Senior Vice Pleudent, Ami c 6 yean I). Caohan St Loan SttdOf Vice Ihtitbnt. Envieetmtant. Safety it Health; Moaeenco Coaaany Am0 Adviecay Director 3 year. Robert G. Naa Sr Louie Vico IVttidoiltMcnoantM Cenpatiy; . hfoaeoaao Chemical A|b 41 Advitorr Director 1 yean HotaM-Lm Qtatmin ind Chief Executive Officer. A|tt 57 ~L(renn Director 10 yean ||ta^lULUe. Pteaidceic, lidb Uiuubbct A^i 68 Hthutt Pjirmir 17 jitn U||M GretaiviBt, South Carolina Channel and Chief Executive Officar, R.S.l. Retired Viet Cholnuen. Fluor Corporation. aid Daniel International CoapoMnon. a rebaaliety of FhairCoipaafion A^: 62 Motuanto Director 13 yean _ _ feek Qhbhi, Qticocp ml Gritmk, N,A. Afr 49 Mochbuid Director 3 yean Seattle Attorney FbbaCoie US. Environmental Protection Afency Aft: 55 Mrawer Director 3 yean jpfcB.5lrerefcmFhuP. COotDaeileloftrtf.frLi VMjrwySlinrrjof Maayland at Colli* fWt (U-S. Navy Rented) ruttun Director, U.S. Cental lnredifencr nd Central InnUiipce Apnef Aft: 64 Momnto Duactor 7 ytan Nkbolaa L ladta| St. | ^ij Executive Vice Preeidetu, Moneanco Company; Prendrnt. Moneanco AmcultureJ Company 53 Adviy Director 4 yeitt St. Louis Senior Vice President. Rereareh & Dewiupinuu; MonrentQ Corepeny Aft; 61 Advisory Director. 6 year* fireriiAlneHi $c. Louie Sauer Vice Pitredeiu and QurffiuiLiul Oftce; Mananin Compuny Afr. 57 Advisory Director 6 ran 0714S43 Committees of the Board lean Mwii RlD., D.Sc.. MMkkel WiBiam D. Reckehhato John E. Slaughter. Ph.D Cflan--n lam AJaiinl Staruheid Turner. < lean Mayer, Ph.D., D.Sc. William D- Ruckckhain John B. Slaughter, Ph.D. John W, Hank* CWum Eark H. Hetbiaon, Jt. Richard J. Mahoney Howard M. Lon. Ctaaai Richard I. Fheke Win W, Hanky Buck Michel DoneldG Canoll, Ph.D.. Chormun C. Raymond Dahl UmW. Hanley Richard L Mahoney JohnS. Read Buck Mkkcl, Chatmum C. Raymond Drill Moaned M- Lon and ierkn Berio Richard I. Fikha, Omnium DbnaldC. CanoU. Ph.D, Earle H. Harbkon, jr Admiral Snmafkhj Tomer Shareowner information The nan mmml meeting of die dmeoamen of Monarnm ~ t will be held at 1:45 p.m., Friday, April 22,1986. m K Building at the < l,yWoi............ . 800 N- Lmmergh Blvd., Sc. Lain. Mkrouri. A (omul nonce of the meeting, toptdto with a peony statement, k being mailed m each rinteownar. KhXlepeet, CocpeiutoDwm Bookand A copy of Maeaamo Company'* 1987 Form KJ-K Repot hied with the Securitiea and Eachanga Crunnierim; 198T Corporate Data Book, which contain* additional infcaemiMi relating m Mocuanto: and [nvenor Newi can ke obtained by weiring UK Invertor Reienons Departmmt Moreemn Company SOON. Lindbergh Blvd. Sc. louk, Menu! 63167 OFFICERS Richard ]. Mahoney PwUinrandCIrt Earle H. Harbkon, Jr. Nicholar L. Reding Rohert L Berra Harold]. Corbett Howard A. Schnnderman. Ph.D. Senior Vice Prealdewr and Chief Franco A. 5treble Senior Vice PreaMont! Richard W. Duerenheig Robert 0. Fbcter Vice I EarIN. Bcasfkld Leonard A. Cohn Stewart D. Dameli S. Allen Heminger. Ph D. Martin J. Kailen Thscnaa H Ladletie Richard A. Overton JameaH. Senper David L. Sliner Vice PmidlM, Lawrence B. Skatoff B. Clare Harm f_____ u u.--l.-- Snick Symbol--MTC Suck EndmmgeaiBrMne* United Stater: New York Chicago lopborul Europe: Brumek Frankfurt Geneva London Pam Zurich The Fint National Bank of Bonon Boa 644 Baton, Mamchiueto 02102 0714844 TOWOLDMONOOI5476 800 Nonh Ltndbei|h Bouievaid Si. Law, Miaouri 63107 0710005 TOWOLDMONOOI5477