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Monsanto 1992 Annual Report DSW 021988 STLCOPCB40n7997 TOWOLDMONOOI5693 MONSANTO 1992 OVERVIEW Sb \ jj| onsanio Company's net income in 1992 was affected by a number of W significant nonrecurring items. As a result, the company had a net loss I \ a 1 of $88 million, or 71 cents per share, on net sales of S7.8 billion. The B w I largest of the charges against earnings was a one-time aftertax charge of $658 million, or $534 per share, to adopt Statement of Financial Accounting Standards No. 106. This rule recognizes the future costs of medical arid other post-retirement bene- The company also took a one-time aftertax charge of $425 million, or $3.44 per share, to implement cost-cutting actions designed to make worldwide operations more focused, productive and cost-effective. Major elements include a realignment of selected research investments; reductions in employment; and a number of consolidations, closings and sales of nonstrategic businesses and facilities. The most significant gain in 1992 came from the sale of Fisher Controls International Inc. The aftertax gain from that sale was $554 million, or $4.49 per share. Although Fisher Controls was part of Monsanto for 23 years, its valve and process controls businesses were no longer a strategic fit for the company. The sale of Fisher Controls allows Monsanto to focus on its four core businesses. The company also realized an aftertax gain of $118 million, or 96 cents per share, from the adoption of Statement of Financial Accounting Standards No. 109, which pertains to income-tax accounting Letter to Shareowners 2 Chairman and Chief Executive Officer Richard J- Mahoney describes the steps the com(rjanJv will take to meet its main objective: to provide superior shareowner value. Review of Operations 9-21 Monsanto's four oper ating units implement strategies that contribute to the corporate objective of increasingvalue for shareowners. Inthis section, each unit defines its key goals, reviews the status of those goals in 1992, and provides anoutlook for meeting those objectives in the future. The Agricultural Group e The Chemical Group 10 The NutraSweet Company 14 Searlt 18 Earle ti, Harbison, )r. 22 Monsanto's former presi dent and chief operating officer retires Sept. 1,1993. This tribute to Earle H. Harbison, Jr. looks back on his almost 26-year career with Monsanto. Financial Section and Corporate Information 23-57 This section provides Monsanto's financial reports and statements; information on officers, advisory directors and the board of directors; and shareowner information. Financial Section 23 Ojjficers and Advisory Directors 55 Board ofDirectors 56 Shareowner Information 57 1993 Mmito Company. Tracimarta and xn~tct mfa of Monsanto ird its sufeaidiaricv an intitiled by itjjjo throughout this pubikaficn. XftA and bftnn'lively or RgLitevdtrWawicitfBjmfiGirmi Food* be. DSW 021989 STLCOPCB4007298 TOWOLDMONOOI5694 OPERATIONAL HIGHLIGHTS (Dollars tn millions, except per share) Net Sales Income (Loss) from Continuing Operations Net Income (Loss) Per Share: Income (Loss) from Continuing Operations Net Income (Loss) Dividends Shareowners' Equity Depredation and Amortization Cash Provided by Operations Research and Development Expenses Return on Shareowners' Equity Percent of Tot?J. Debt to Tots! C?.pit?.lizedon. Shareowners (year-end) Shares Outstanding (year-end, in millions) Employees (year-end) 1992 57,763 5(126) S (86) 1991 $7,936 $ 238 $ 2% S(l.Ol) 5(0.71) $ Z2Q $24.95 $ 765 5 912 $ 651 (2.6)% 36% 60,074 120 33,797 $ 1.87 $ 2.33 $2,045 $29.72 $ 714 $1,180 $ 610 7.6% 38% 60,152 123 39,281 1990 $8,068 $ 486 $ 546 % Change 1992 vs. 1991 (153)% (130)% $ 3.77 $ 4.23 5 1.88 S32.51 $ 704 $1,104 $ 595 13.6% 35% 62,230 126 41,081 (154)% (130)% Sl'o (16)% /7a (23)% 7% (134)% (5)% -- (2)% (14)% THIS IS MONSANTO Monsanto Company makes and markets high-value agricuituiai products, chemical prod ucts, pharmaceuticals and food ingredients. The company's best-known brands include Roundup herbicide. Lasso herbicide, Wear-Dated carpet, Saflex plastic interlayer, Qatan calcium channel blocker, Cytotec ulcer preventive drug and NufraStreef brand sweetener. ABOUT THE COVER Monsanto is paving the way to strategic goala that create superior shareowner value. Mon-Sflrtfo 1592 /innwflf Kfpor: K n, , rtni rinrt U4A77V 1 STLCOPCB4007299 TOWOLDMONOOI5695 LETTER TO SHAREOWNERS hareowners had a rough ride in 1992. In the preceding decade, Monsanto outperformed the market with a total return to shareowners averaging some _ ^ 20 percent per year. But 1992 closed with our stock down 15 percent from i ts January opening. There was a lot of good news during 1992, but there was some bad news as well. The aii-important earnings result was a disappointment. The two previous pages and the financial section of this report describe the net negative effect of several one-time charges and gains for the year. These nonrecurring items include new accounting charges for retiree benefits required of most US.-based companies, charges for cost-cutting actions, asset sales, and other unusual items. Even so, earnings from operations "weren't whst wc projected 3t tl?* st3ft of ttis yee.r vvnen. w.e.s.e.c.o__u_lt _u_u__r___jjtid__n__s_ Pi_u.r.i nm __w___eI_u__u__u1 b__e__v__e__id_1i uujtLiiv^b.: Keep sales and earnings growing for itoHijiup herbicide. We got the sales increase, with worldwide volumes up 16 percent. What would have been a superb year for earnings from Roundup was only "pretty good" because of the cost of fixing a production outage. We simply shouldn't have let that outage happen, given our excel lent manufacturing record. Get new pharmaceutical product approvals to launch major sales growth, Searle received three new drug approvals in the United States and a number of impor tant approvals internationally--a remarkable record. But 1992 also brought U.5. approval for the first generic competition for the sustained-release form of Searle's leading product, Cfllflo calcium channel blocker. We're optimistic about the prospects for Searle's new products, but the competition will hurt Qilart, at least in the short term. Complete the plan to manage the consequences of the U.S. patent expiration Richard J. Mahoney. chairman and chief executive officer (fight), and Robert B. Shapiro, president and chief operating officer 2 Monsanto 7992 Ann util Report DSN 021991 STLCOPCB4007300 TOWOLDMONOOI5696 for NutraSweet brand sweetener in 1992. We've retained most of our business for NutraSweet worldwide, as we had planned. To offset lower prices, we're driving down our cost of doing business, as well as our production costs. In addition, we're moving forward with research and development for Sweetener 2000, a high-intensity sweetener that promises a step change in cost and performance for the sweetener market. Our branded offerings were bolstered with new-product launches, especially NutraSweet Spoonful. This new product in tabletop serving jars is spoonable, like sugar. We expect good growth from products like NutraSweet Spoonful and from increasing sales of NutraSweet in cost- driven sugar-substitution markets worldwide. This business is solid now and has some interesting "wild cards" developing. Capitalize on our superb product positions in The Chemical Group during the expected 1992 economic recovery. We kept our market positions for our high-value chemical products in 1992, but the economy remained weak. Europe, usually an earn ings engine for us, sputtered. Dispose of nonstrategic assets and redeploy the proceeds. Fisher Controls International Inc. was sold for $1,3 billion, with a recorded aftertax gain of $554 million. Other asset sales brought in $177 million. We expect to use half the proceeds from these sales to retire high-price debt and __ . to purchase the Ortho lawn-and-garden business from Chevron Chemical Co. wrij csntinu* to ipp!y to rsducs cur costs and ~' to ensure product quality gains that customers can recognize as value. Ortho's tine will be an excellent addition to our family of home lawn-and-garden products. Sales of our lawn-and-garden products have been increasing significantly in the past few years; the Ortho addition will make us a major player. Share repurchases remain an imporiantuse for excess cash available after normal business requirements have been met. Our board of directors again authorized share repurchases in 1992. . Cut overhead and operating costs in a major way. We expect pretax gains of $200 million annually from cost-cutting actions we announced in November 1992. These savines will be evident beainninv in 1994 once we get through the interim expenses associated with the cuts. Sometimes potential cost gains like these melt away before being realized. We intend to ensure that these savings happen. Continue a reliable dividend policy for shareowners. For the 20th consecu tive year, the dividend was increased. Move major research and development (R&D) programs forward to commer cialization. The recent approvals for Searie products were impressive in number and quality. Bovine somatotropin (BST), a product that offers improved dairy productiv ity, has been an expensive investment in biotechnology. Currently, it's cleared for sale in nine countries. In the European Community, the Committee for Veterinary Medicinal Products has found BST safe and effective, but permission for sale has not yet been granted. In the United States, approval for sale is still pending at the Food and Drug Monsanto 3 992 Annual Report 3 nsuj STLCOPCB4007301 TOWOLDMONOOI5697 Administration. Meanwhile, we've developed commercial and public programs, and we're containing costs prior to the launch of the product. New crop and food products also based on biotechnology are moving well toward commercialization. These include an array of products with attractive consumer and environmental profiles. The highly publicized launch of Simplesse all natural fat substitute has been a "technical" success, with some 30 products containing Simplesse now offered by food com panies worldwide. But making money from Simplesse remains elusive. We intend to resolve that issue in 1993. We have demanding standards for all of our R&D and new-product programs: We either meet them or move on. CREATING VALUE FOR THE FUTURE For 1993 and beyond, the company's objective hasn't changed: to provide superior shareowner value and achieve the principal financial target of a sustainable 20 percent return on shareowners' equity by mid-decade. We have the product mix that We Intend to return Monsanto to the favored position -- or better -- that we had with shareowner* In the late 1980a. can get us there, but to do so we must meet several of the objectives I described earlier: > Take advantage of an economic recovery in the United States and Europe for The Chemical Group. Our market shares are excellent, and our costs are moving lower. However, to meet and sustain corporate financial targets, we need to operate our chemical plants at capacity utilization rates sev eral percentage points higher than our 1992 range. With our restructured chemical product lineup and a reasonable recovery we can do it and demonstrate as well the impressive cost gains we've made. Sustain our continued success with Roundup herbicide. Our strategy to OUR COMMITMENT TO SHAREOWNER VALUE Monsanto is committed to consistently increasing value for shareowners by achieving a superior level of finanda! performance. 'Hie principal financial target is to reach and sus tain a 20 percent return on shareowners' equity, while generating excess cash that can be returned to share owners in dividends and througOh s"h--a--r'e"rTeniirfbases after normal business needs are met. We'd reach these goals by bringing superior value to our customers; by intro ducing new products and forming new alliances; by exiting businesses that cannot meet our targets; by hiring, training and motivating high-quality employees; ar.d by acting responsibly and earning a favored rkht-to-onprate g> r in society. On pages 6-21 of this annual report, we describe the goals of each of our ctuw*n.Uifwc. Tmimu achievement of these goals contributes to Monsanto's overall success in increas ing shareowner value. 4 Monsanto 1992 Annual Report DSN 021993 STLCOPCB4007302 TOWOLDMONOOI5698 preserve this extraordinary franchise looks secure. Volumes continue to grow profitably worldwide because of our pricing and new end-use strategies. There will doubtless be some erosion of share with new generic entries over time, but we're in good shape to prosper in a growing market. Move Searle through the current new-product launch costs and show sales success. We'll have a better appraisal later in 1993, but early signs look promising for Maxaauin, a once-a-day quinolone anti-infective agent launched in the United States in 1992; for Daypra in the United States and Arihroiec in Europe, both for the treatment of the symptoms of arthritis; and for Ambien, a treatment for short-term insomnia. All of these products potentially offer important advances in performance and consumer accep tance, in keeping with the new realities of the pharmaceutical industry. For the long term, we intend to continue to develop innovative alliances that will ensure world-class strength in R&D and marketing. A number of initiatives are under review. We're going to restore shareowner enthusiasm tii at matches our own for this fine unit of the company. Convert biotechnology R&D from an expense to a profit in the coming years. We need no reminders that we've invested heavily in biotechnology. We've got to get it right or bring the costs way down. We're betting on success. Continue to apply unrelenting pressure to reduce our costs and to ensure product quality gains that customers can recognize as value. We made good progress in 1992. There's more to come. We're taking dozens of other steps to reach our financial targets; revving up our cash-generating capabilities, continuing share repurchases, and redeploying our assets, among other important actions -- all while still providing for vibrant growth. We're recognized by the financial community as great "counterpundim" for our impressive defenses of Ljisso and Roundup herbicides, NutraSweet brand sweetener. Safer plastic interlayer, Wear-Dated carpet, and other powerful franchises. I would have included Cakn calcium channel blocker in that group until the 1992 entry of a generic competitor for the sustained-release form. But even with Caian, a free fall isn't a fore gone conclusion in the marketplace. Every great defense needs a sustained offense to produce a winner, and that's what we'll be demonstrating as we develop the franchises of the future. Our overriding objective is to return Monsanto to the favored position -- or better -- that we had with shareowners in the late 1980s. We remain committed to shareowner value. We intend to make it hspperJ Our thanks go to Earle H. Harbison, Jr., chairman of the executive committee of the board ofdirectors and past president and chief operating officer, for his service to this company. A tribute to Earle, who retires on Sept. 1,1993, is on page 22 of this report. The board elected Robert B. Shapiro tofollow Earle as president and chiefoperating officer, and Nicholas L. Reding as vice chairman. We have assembled a value-oriented management team across Monsanto. Richard J. Mahoney Chairman and Chief Executive Officer March 6,1993 Mantdtita 1992 Annual fttporf ns.y 5 STLCOPCB4007303 TOWOLDMONOOI5699  The growth of conservation tillage -- a farming practice that reduces or eliminates plowing -- is generating new sales for Roundup herbicide as farmers substitute Roundup for tilting to control weeds. THE AGRICULTURAL GROUP The Agricultural Group adds value lor Monsanto's shareowners by the strength of some of the world's leading weed control products: Roundup herbicide and other glyphoeate-baeed herbicides, and the family of acetanilide herbicides. The unit Is also creating a new generation of products based on research and devel opment in both agricultural chemistry and biotechnology. In 1992, volumes for Roundup herbicide Increased by 16 percent. Excluding a charge for cost-cutting actions and unexpected costs from damage to a plant that makes a key raw material for Raundupt operating income for the unit would have improved over Income in the previous year. or TTie Agricultural Group, there are two key questions: How long can we extend the growth of Roundup herbicide, and how soon can we turn biotechnology into a viable business? Roundup, the top-selling crop- protection chemical in the world, continues to be a growth product after 19 years on the market because farmers continue to find new ways to use it. Typically, customers respond to price reductions by using Roundup in ways that weren't economical at the previous prices. We' ve encouraged new applications by selectively lower ing prices in markets worldwide. ars:ir:raP rieru^uyy cortunuos to grow sifter 19 years on the market because of new uses. Our experience has been that higher volumes result in tower costs, which lead to increases in revenues and operating income. Also contributing to volume growth for Roundup her bicide is the expanding practice of conservation tillage, i WHERE WE ARE AND WHERE WE WANT TO 8E i goal ,, Generate continuously higher worldwide volumes of Roundup herbicide and other glyphosate-based tien.L'tLJ.uea. S*i32i3 Volumes for Roundup increased 16 per cent in 1992. However, income from Roundup was affected by the costs of damage io a plant that makes a key raw material fur Roundup. The expiration of European OUTLOOK patents creates an opening and operating income for for generic competition; Roundup are forecasted to US. patent protection for continue to grow for several the active ingredient in years because of increasing Roundup remains in place demand. This demand is into the year 2000. caused by three factors: a competitive cost position, strategic reductions in sell ing price, and the rapid spread of conservation tillage practices in fanning. Hendrik A. VarfallMe. vice president of Monsanto and president of The Agricultural Group 6 M&rtSontn 1992 Annual Report DSW 021995 STLCOPCB4007304 TOWOLDMONOOI5700 a farming method that reduces or elimina tes plowing. "We've seen tremendous growth in the use of Roundup for no-tili farming, and the current pricing makes great economic sense for conservation tillage," says Hendrik A. Verfaillie, vice president of Monsanto and pres ident of The Agricultural Group. Encapsulated formulations in the acetanilide family of herbicides are also being used in no-till farming. Based on the same chemistry as Lasso herbi cide, Micm-Tech and Bullet encapsulated herbicides and Partner dry encapsulated herbicide provide the farmer longer weed control. They also offer improved performance over certain other grass herbicides in no-till applications. Sales for the pyridine family of herbicides, which includes Dimension turf herbicide, were outstanding in 1992. Registrations of products from the pyridine family continue worldwide. New broadleaf herbicides for European cereal crops and tor com in the United States are also moving through the approval process. The expanding practice of conservation tillage benefits both Roundup herbicide and the acetanilide family of herbicides. Income from Roundup in 1992 was reduced by the costs of damage to a manufacturing facility that makes a key raw material tor Roundup. The avaiiabilt ty of Roundup to customers wasn't affected, but the supply of raw materials used in the production of Roundup was interrupted. "The incident forced us to operate at lean inventory levels and fast response times -- beyond what many people thought was possible," Verfaillie says. "We'll carry those lessons forward." The second half of the 1990s should bring to market crops with a variety of ben eficial traits developed through biotechnology. For example, crops made tolerant to Roundup herbicide offer a potential source of further growth. Currently, Roundup must be Continued on page 3 A Encapsulated formulations ir the acetanilide family ol herbicides use microscopic aheJs of varying thickness, which release Herbicide over time- This allows the farmer fo appiy the products earlier for longer control at weeds and improved performance in no-till applications. i goal jj Use encapsu lated formulations to maintain the competitive position of our acetanilide family of herbicides. TMgra Volumes and operating income grew in 1992 because of acreage increases, cost-cutting measures, and a strategy shift emphasizing sales of two encapsulated prod ucts, Micro-Tech and Bullet The Arpricuftursi Group Salas (As a percent oftotal Monsanto sales) herbicides, and a dry encapsulated product, Partner herbidde. OUTLOOK A The Agricultural Group's revenues, which account for almost one-quarter of Monsanto's sales, are fueled by some of the leading herbicides In the world. will be subject to continued competitive pressures, although they should benefit from encapsulated and dry encapsulated formulations, and from conservation tillage practices. In 1993, volumes for these products may be affected by reduced U.S. com acreage due to government programs, I goal H Bring new agri cultural chemical products from the laboratory to the marketplace. STATUS pyridine family of herbi cides, including Dimension turf herbicide, were out standing. A herbicide for Continued om page 3 Mon$^n!o 19.92 Annual Report 03k 021996 7 STLCOPCB4007305 TOWOLDMONOOI5701 V Monsanto and University ol Florida scientists announced a biotechnology breakthrough in 1992: the first addition of a gene to wheat. Wheat is a significant crop tor Monsanto to work with because of (he .4.i=i w. n = ival < < ai r%ck, More acres worldwide are planted In wheat than in any othBr grain crop. smv vv.\\Y\ THE AGRICULTURAL GRQ Cj]nilnutd rrn>i "an* 7 used before a crop comes up, because the herbicide kills both weeds and valuable plants. Crops developed through biotechnology to tolerate Roundup will allow farmers to apply Roundup even after a crop has emerged without harming it. Soybeans and canola that are tolerant to Roundup herbicide Distribution channels tor biotechnology prod, ucts will vary by crop, depending on where the value of our technology can best be realized. have been field-tested for the past four years. These tests continued in 1992, along with those of other crops developed through biotechnology, such as insect-resistant cotton, potatoes and com; tomatoes that have summertime flavor year-round; and potatoes that absorb less oil in cooking. Even as our firstproducts of biotechnology enter advanced stages of field testing, new breakthroughs are occurring in the labs. In 1992, Monsanto and University of Florida scientists announced the first addition of a gene to wheat, the initial step toward improv ing this important crop through biotechnology. ,/. On the business side, we made significant advances in 1992 to bring If/ f/ yy these new technoloeies to market. Possible distribution channels include licensing agreements, direct seed sales to farmers, and arrangements with food processors. The choice will vary from crop to crop, depending Dn where the -'value of our technology can best be realized. ''' For example, the value of insect-resistant cotton would be realized by the fanner, who could greatly reduce the use of insecticides. Therefore, we would be properly rewarded by the seed company that sells it to the farmer. In 1992, we completed such a licensing agreement with Delta and Pine Land Co., a cotton seed firm with the dominant market share in the southeastern United States. We also entered into a business Continued tree crops from this family ffn was registered in Spain and South Africa. ftort-icfrafirinc rtf tnvri/4inrt nwvlnrk COlsti^US Ijl th? United States and several other countries. E&nBEO Registrations of the pyridine herbicides U ---- Li------ AL__ atLl/LUU UJllLillUt. fliSU moving toward couiineiciaiization are a broadleaf herbicide for European cereal crops and a broadleaf herbicide for com in the United States. j qqaP this dcCwu ricv products from biotechnology research and development. kbmJ U.S. field trials continued for cotton, pota toes and com resistant to insects; for soybeans ana canola tolerant to Rouridup heibidde; for a potato that Glyphosate Volume Growth ffly potjnl; 19S7 qwfc 100 percent} 250................. 200 - 150.. too.. absorbs less oil when it's cooked; and for a tomato that has summertime flavor year-round. The first adujtion of a gene to wheat was achieved. The first licensing agreement with a major 0 <nj> 0 A. Volumes for Roundup and a:her giyphosaie herbicides have increased steadHy. In pad because of new uses encouraged by selective price reductions. seed producer was signed as a distribution channel for msect-resistant cotton, An agreement to develop, produce and market genet ically modified tomatoes Mowsdnla 1992 Annual Report DSW 021997 STLCOPCB4007306 TOWOLDMONOOI5702 partnership with NTGaigiulo Incone of the largest tomato growers and shippers in Florida. The new agreement, signed in December 1992, will combine Monsanto's expertise in genetically modifying plants with NTGargiulo's capabilities in tomato breeding, production and marketing. But before any new products can be marketed, we must gain regulatory approval for these technologies. In 1992, the U.S. Food and Drug Administration announced a new policy specifying that genetically improved foods are subject to the same regulatory procedures as foods developed through conventional breeding techniques. New growth potential also comes from our Residential Products Division. Products in this division include Roundup herbicide and Greenswetp lawn-care products. Regulatory approvals rllll must be gained before Improved foods and crops can be brought to market. Li 1392, the residential formulation of Kourtaup maintained its double-digit growth. To take greater advantage of an e xpanding home lawn-and-garden mar ket, we signed a letter of intent in January 1993 to acquire Chevron Chemical Co/s Ortho lawn-and-earden business. The combination of Monsanto's !awn-and-garden products with the Ortho line and potential new products would allow us to continue to expand in the residential market and to generate incremental sales growth. Our achievements in 1992 provide positive answers to our two key performance questions: First, Roundup heibidde is forecasted to remain a volume- and revenue-growth business into the middle of the decade. Second, we now have two major advantages that support biotechnology as a viable business in the second half of the decade: the demonstrated soundness of the technology and the availability of distribution channels that will allow us to benefit from the value we add. A Monsanto's rosirtsfitiBl products -- including Roundup Herbicide and Sransweep lawn-care products -- ara wetiposmaneo for increased sates in the growing horns lawn-and-garden market U.S. No-tlll Acreage (Acts m ntiliau} (SouKt. Ccnstnalvn Tilbgc Infarmtti&t Cnter) X).................................................... was signed with a leading tomato grower and ship per in December 1992. OU T LClUK Field trials will continue, distribution channels will be clarified, and product approvals will be sought from appro dj> 4 9 o A The AgricufturaJ Group & seizing the market opportunity CTwtecj try a jTrpre thaFi ICO percent Increase in U.S. no-tiS acreage in the last five years. priate regulatory agencies. The first commercial bio technology products could enter the market in the second half of the 1990s. fapAL B Position our residential products to continue worldwide growth. ^5235 The residential version of Roundup herbi cide continued double digit growth in 199Z In January 1993, we signed a letter of intent to acquire Chevron Chemical Co.'s Ortho lawn-and-garden business. i >u rt ocIk tified significant growth potential in the home lawn-and-garden market. Strong consumer market ing of Roundup, Greensweep lawn-care products, the Ortho products and other potential new products will allow us to expand in the residential market and generate incremental sales growth. Matisi/tta 1992 Annusl Rtport DSW 021998 9 STLCOPCB4007307 TOWOLDMONOOI5703 a Food phosphates enhance the flavor, appearance and texture of processed poultry, meat and seafood. Food phos phate products Have ptayed a major role in the shift of Monsanto's phosphorus-based Kt ifilnAecae /vnmmnHi4v markets to Hpher-value, performance-oriented markets. THE CHEMICAL GROUP The Chemical Group manages a portfolio of chemical businesses that brino high value to our customers, allowing the group to contribute significantly to Monsanto's financial targets. It also selectively develops higher-growth, higherreturn businesses that could offset the potential attrition of earnings from maturing operations. In 1992, operating Income from the group's core businesses was sup pressed by the continuing effect of the weak worldwide economy, especially In the automotive, construction and home furnishings markets. More than half of The Chemical Group's products are sold into these markets, income was also affected by a charge for cost-cutting actions and asset wrtte-downs. 1 uture performance of The Chemical Group depends on our ability to manage its five core businesses for steady growth of sales and operating income. The I five largest businesses are plastics; rubber chemicals; nylon and acrylic fibers; Safiex plastic interlayer; and phosphorus and its derivatives. Together, they account for more than half of The Chemical Group's saies. Assuming a reasonable, sustained economic recovery through mid-decade. i.s expec.ted, t. o grow steadily year to year. We anticipate that by 1996 Given a reasonable, sustained economic recoverv- through mid-decade, each of our largest chemical businesses la expected to grow steadily year to year. their combined operating income will be significantly higher than their 1992 income. Saflex Dlastic interiav/ er for laminated Uelass serves three ma>ior markets; wind- rS-ikUirUtlUrlSf' lUk nArjcv;i*i*r |V^IUI,U1IUU ITsaUriIrW.i'UldU'kUifit!Urled, -ustnv/uI maTu/',kUl^VaV./V'.+LUiiirU'iJl. rrl 1'rintv The short-term outlook in Europe and Japan appears sluggish, but Saflex WHERE WE ARE AND WHERE WE WANT TO BE [ GOAL j'tTcugtiicj.t rL^vU_L U, IjEj iLoSoSni.) ,Mi,At. Monsanto's global leader commissioned new facili ship in key automotive and ties for the production architectural markets for of a superior windshield Saflex plastic interlayer product for the auto LiLruUgh timely uiVesuueiius motive market in facilities and technology. IfMgiilginfl YmirrirLuwio_w_- ESZSE9 Declining cost, state-of-the-art economies in several key capacity in North and markets resulted in below- South America, Europe forecast sales of Saflex. This and Japan, we're strongly resuited in lower capacity positioned to benefit utiii2ation and depressed from a renewal of growth srict3r giv a reasonable economic recovery. Igoal B Expand the performance plastics biiSUieSS by erihariuiig our geographic, market, and specialty product Robert G, Potter. executive vice president of Monsanto and president ol The Chemical Group 10 Monsanto 1$92 Annual Report QStri 021999 STLCOPCB4007308 TOWOLDMONOOI5704 is weil-positioned in major North American markets to benefit from the anticipated recovery. To generate additional growth in this business, we're investing in facilities to meet laminated glass demand worldwide -- most recently in Western Europe, South To generate additional growth tor Saftar plastic Interlayer, we're Investing In facilities to meet laminated glass demand worldwide. America and Japan. We're also moving deeper into strategic segments where we haven't been major participants. In addition, we're continuing our efforts to expand the use of Safiex in architectural markets where the product's advantages in safety, security, sound control and energy efficiency are valued. Our plastics business ranks in the industry's top tier worldwide. Ourproducts-- targeted at the higher-value end of the market -- are used in hot tubs, camper tops, refrigerator interiors, hand tools and garden tools, trim and under-the-hood parts for automobiles, housings for business machines, and parts for medical delivery systems. Typical users of our plastic products axe companies itl the computer, commu nications and automotive industries -- global enterprises that expect consistent product performance as well as superior logistical and technical service. The fastest- growing market for Lushun ABS plastics today is the southern Asia/China region, which will account for more than one-third of world demand for ABS plastics by the onrl rs hhvc AariAa TVs eonro hlnc r*o*.mnn* Heftar ,u.wuo--on f-c*swrtV^-a irtii'if XTArthir^ *n tn build and operate a plant for Lusfran ABS in Thailand. When the plant becomes operational in 1995, we will be the only producer of ABS plastics to have manu facturing sites in all four major global markets. Our nylon and acrylic carpet fibers business serves the U.S. carpet industry, particularly makers of quality residential replacement carpeting. Our carpet fibers Continued cm page 12 The 1993 Oodgo Intrepid by Chrysler Corp. contains Monsanto plastics in highvalue applications on the console, interior dear panel, steering column and instru ment pa. iei. positions, while managing costs to improve near term operating income. OEIZEI Volumes increased in 1992, but margins decreased because of pressure on pricing. In 1992, we formed a joint venture in Thailand that by 1995 should make us the only producer of ABS plastics to have manufacturrne nlants in all four The Chemical Croup Sales major global markets. QSQS333I Slow but steady sales growth is projected, with continuing pressure on pricing as 48% long as global oversupply persists. A. The Chemical Group's solid cote of business fran chises accounts tor almost one-naif of Monsanto's sales. [ GOAL1 Maintain our position in the U.S. carpet market by focusing on sell ing our nylon and acrylic fibers to the residential replacement and commer cial carpet segments, jamlfdi Volumes increased in 1992, but margins narrowed because of price deterioration. QSI333 Slow but steady volume growth is projected. Further cost reductions should help maintain profitability. Pricing will remain a key issue. Cc/itinue.1 on owe 12 Monsanto 1992 /^n.Tifa/ Report GSW 022000 STLCOPCB4007309 TOWOLDMONOOI5705  Thg Mercedes 400SEL features staffer plastic interlayer, the world's leading product tor laminated wind shields. The three major markets for this product are new windshields, replace ment windshiBics, and acrhiifl^i i rsut uses. THE CHEMICAL GROUP Cotifinrifij1 from page II command a Pi referred market s. ha. rp _heratw nf surperior or erfc 1L0U.H.C LI | iLLlIC^ __s_._o__ip_cxi IallnlUl ilfUarot.f-iUi irliur-l,^LmUV^/U'oWcci nwu.1j1 varroTity (at WcuT-Dutcd carpet is our commitment to quality all the way through to the consumer, and it adds value to this business. In 1992, we com pleted a manufacturing project that resulted in added capacity and product improvements. We'll continue to generate growth over the next five years with more advances in quality and with new generations of differentiated products. Rubber chemicals and phosphorus and its deriv Our nylon and acrylic carpel fibers command a preferred market share because of their superior performance for our carpet mill customers. atives are the most mature of our core businesses. We're finding ways to increase their sales and operating income within industries whose growth has leveled off. In rubber chemicals, we've started a major program to determine the commercial viability of new production technology that not only is more efficient but also could lead to a significant reduction in process waste. In phosphorus and derivatives, we ontinued to benefit in 1992 from our decisions to reduce costs and to shift our market focus away from commodity home-laundry detergents and toward a variety of higher-value, higher-margin markets. In 1992, we shipped our last pound of phosphate for heavy-duty home-laundry detergents to US. manufacturers. To supplement future earnings, The Chemical Group is investing in high-technology products with low fixed-capital require ments and high-growth potential. Among these products are Fieciron metallized materials, a line that we bolstered with the acquisition of Devex S.A., a Swiss company that specializes in WHERE We ARE AMD WHERE WE WAMT TO BE I qoai^h Manage our from world leadership position in rubber chemicals, while achieving the returns we experienced in previous years. STATU9 Sales declined in 1992 in an environment of global overcapacity, tire industry consolida tion, and turmoil in the Commonwealth of Independent States. 1992 Sales by Market (Ddterz by mtilmti UOO.............. . M Constructim/ nJJTuShingS Vehicle Personal products AllothEij A Th& Chemical Group makes high-value products sold primarily to the automo tive, construction and home furnishings markets. The government of the Soviet Union had been one of the largest buyers of our rubber chemicals products. OUTLOOK Sales will grow slowly. A new production technology holds promise fot signi ficant improvements in manufacturing efficiency. I goal B Operate the lowest-cost, highestvalue phosphorus and derivatives business in the United States. OZ5i2!l Performance from operations improved in 1992, as we continued our move out of com modity home-laundry detergents into a variety of performance applica tions in food, dental and other high-value market segments. 12 MunpnnfcJ IP92 Annual Report DS'ri 02Z0C1 STLCOPCB4007310 TOWOLDMONOOI5706 metallizing processes, ns aiso acquirea uiamonex me., a wona leaner in high-performance diamond and diamond-like coatings for industrial optical and electronic uses. "We recognize that we're going to have to ramp up our invest ment in our businesses," says Robert G. Potter, executive vice president of Monsanto and president of The Chemical Group. "We'll invest to meet cus tomer needs with four intentions: to make a lower-cost product, to make a higher-quality product, to meet specific demands of strategic segments of a market, and to increase capacity as necessary to take advantage of any market growth opportunity-" In 1992, we also initiated a process that should help us continue to reduce our wave investing to make lower-cost and higher- quality products, to meat specific demands of market segments, and to Increase capacity as needed to take advantage of market opportunities. cost of doing business. The Chemical Group's restruc- ,. , ,,,, tunngs in 1985 and 1991 focused on closing ineffi cient plants and on getting out of businesses that didn't support our strategic objectives. The current initiative is designed to find more efficient ways to deal with inventories, to handle customer orders, to organize p rod uction runs, to use capital and human resources, and to manage all other essential business processes. The management of our core businesses for steady, dependable growth of sales and operating income has three parts. First, we'ii launch initiatives to exploit the distinct opportunities that exist within each business. Second, we'll support those initiatives with increased capital investment. And third, we'll become more competitive by reducing our overall cost of doing business. 4k A Waar-Dmea carpet, mads wtlh nylon and acrylic; fibers Monsanto, is on of tho most respected names in top-quality, high- performance residential carpeting. Residential car peting makes up 65 percent ol the U.S. carpet market. 1992 Salas by Division (Uv percent/ 29% Fibers 1B% Rains W 17% Performance Products 13% Rubber and Proeoa Chemkaii 5%EngiTCvd Product! The Fibers Division contributes the largest sales porceniage in The Chemical Qrftijn followed Resins Plastics, Performance Product? anc Rubber and Process Chemicals. | Sales growth growth potential. should be moderate, EEB393 Flsctrm metal despite continued intense lized materials recorded competition. We expect its first commercial sales to maintain our low-cost in 1992. We acquired the position because of Swiss company Devex S.A. improved manufacturing to complement Flection. We productivity. also acquired Diamonex j goal H Build a portfolio Inc,, a two-year-old com of businesses based on pany that is a world leader hitrh-fprhnnlrwrv rnnrpnt* --o~'----------------oj----------r ~ that have low fixed-capital in high-perfonnar.ee diamond and diamond requirements and high- like coatings for industrial, optical and electronic uses. ISUUS&U Sales for Ffectron, Devex and Diamonex are expected to grow rapidly, with high margins and high returns. These and other high-performance products to follow will f-l~inrorleme-n--t--future' w---m---in--oOf'i n...f..m...a..t.u...r.i.n. Vg products. 4* Mouddnto ] ?S2 Ahhiu/ DSW 022002 STLCOPCB4007311 TOWOLDMONOOI5707 f Or&ngina Light, made by Grangina France, is one ol the European beverages that contain NutraSweet brand sweetener. Europe is the fastest-growing world market for NutraSweet. THE NUTRASWEET COMPANY The NutraSweet Company contributes to shareowner value by generating cash and Income lor Monsanto. The unit makes and markets innovative food ingredi ents that promote healthy lifestyles, such as NutraSweet brand sweetener and Slmplesso all natural fat substitute. In 1992, sales and operating Income were less than in the previous year. This decline was caused by reduced selling pric-es for Nijir7fSwB**t duo to compciftlvs Issdin^j up to was also affected by a charge lor coat-cutting actions and an asset write-down. he NutraSweet Company entered 1992 with two directives: one defensive, _ the other offensive. Defensively, we were concerned about the U.S. customer I base for NutraSweet brand sweetener that fueled our rise from a start-up I operation in 1981 to a company with $879 million in sales in 1992. Those customers would have other supplier options after our US. patent for aspartame expired on Dec. 14,1992. Offensively, we had to identify new sources of sales growth in a post patent environment, recognizing that competitive pricing for our large-volume customers would restrict revenue growth for NutraSweet, our brand name for aspartame. Our defensive concerns have diminished: The Coca-Cola Co. and PepsiCo Inc., our two largest customers, each requested and signed separate agreements stipulating Our two largest customers entered Into separate agreements stipulating The NutraSweot Company as their preferred supplier ot aspartame. The NutraSweet Company as their preferred supplier of aspartame. Other carbonated soft drink companies sought similar assurances of supply. WHERE WE ARE AND WHERE WE WANT TO BE : goal f| Retain and build our market position for NutraSweet brand sweetener with key carbonated soft drink customers, and sustain our competitive advantage in the carbonated soft drink industry. HBBEi Relationships wi th The Coca-Cola Co. and PepsiCo Inc. were solidified in 1992. Both entered into separate agreements stipulating The NutraSweet Company as their preferred supplier of aspartame. We remained the only company with the capacity to meet the requirements of customers who use large amounts of aspartame. We strength ened our position as the low-cost producer of aspartame and maintained our solid leadership in consumer brand loyalty, EEQSS23 Aspartame volumes will continue to grow through mid decade, although at lower post-patent prices. Robert E. Flynn, chairman and chi&t axwcuttv officer of Tbs NutraSweot Company 14 1992 Annual Rfpart DSW 022003 STLCOPCB4007312 TOWOLDMONOOI5708 As of year-end 1992, no other sup plier could produce aspartame in the quantities required by the top-tier users. "No one has yet built an aspar tame plant anywhere in the world that can compete with us," says Robert E. Flynn, chairman and chief executive officer of The NutraSweet Company. "And we have reduced our cost of manu facturing by almost 70 percent over the past decade through process improvements and capital investments." In the race to provide the huge volumes of aspartame required by the carbonated soft drink industry, our competitive advantages are taste, cost, scale, reliability, quality, Manufacturing costs for NutraSweet brand sweetener have been reduced by almost 70 percent during the past decade. safety, customer support, and con sumer brand loyalty. We have several options for growth in the carbonated soft drink market. One is fountain conversion--replacing the current blend of aspartame and saccharin in fountain products with 100 percent aspartame. Another is sugar blending, which substitutes aspartame as a lower-cost option for some of the sugar in nondiet prod ucts. A third is higher-concentration formulations that use more aspartame. We also anticipate sales growth from tabletop sweeteners and food ingredients in the United States and from our European operations. Continuedcn page 16 4 Kraf! Light rV Lively Light is tne lifst saur cream to usa Simplessa all natural fat substiLuie, which helps reduce lat and calories in foods such as dips. ; ggal~B Solidify category leadership for our family of tabletop sweeteners. EU2S53 Our 1992 adver tising campaign for Equal taoietop sweetener, featur ing actress and singer Cher, increased sales and built consumer interest in the tabletop sweetener category. Our successful launch of NutraSuxei Spoonful tabletop sweetener The NutraSwsM Company Sale* {As a percent tf toLil Mottscnfo sdoj 11% A Sales for The NutraSweel Company in 1992 were affected by reduced selling prices for brand sweetener because of competitive pressures prior to the U.S. patent expiration for aspartame. expanded the category by attracting consumers who didn't previously use a tabletop sweetener. d!nSE23 By expanding the market for existing tabletop products and by introducing new ones, we expect to double our penetration of U-S. house holds by 1995. f '~nAL n Retain exist ing food customers for aspartame while develop ing new business through regulatory approval of new ways to use aspar tame in food. 23i2!3 Sales of aspartame for food uses increased in 1992 com pared with 1991 results. In 1992, aspartame was approved in the United States for use as a bulk Continued on piige 16 Monsanto 19$1 Annual Report IS sti rnprRiinnT-Hi TOWOLDMONOOI5709 A The NutraSweet Company has established a market leading position in the United States with Equal tabletop sweetener. Through aggressive marketing and new-product introductions, we Intend to double U.S. consumer use of our tabletop sweeteners. THE NUTRASWEET COMPANY Canlirued from pa$e 15 Tabletop products include our established E^u&l tabletop sweetener aud our new NutruSwici Spoonful tabletop sweetener, Equal leads the tabletop sweetener category in dollar sales, including significant increases in 1992 due to an aggressive advertising .iSfc, campaign featuring actress and singer Cher. -tijS NutraSiueef Spoonful was introduced in 1992, following U.S. Food and Drug Administration approval to market aspartame in bulk form. The bulk formulation allows one teaspoon of NutraSweet Spoonful to contain the same sweetness as one teaspoon of sugar, with one-eighth the calorics. The tar get market for this product is the 40 million to 60 million U.S. consumers who use products containing NutraSweet brand sweetener, but don't use a tabletop sweetener. Our food ingredients business in 1992 consisted primarily of nonbeverage aspartame uses and of Simplesse al! natural fat substitute. Sales of aspartame as a food ingredient increased in 1992. Simplesse is now featured in approximately 30 different product lines worldwide. Twenty-two nations have approved Simplesse for use as a food ingredient. Sales ot NutraSweet brand sweetener In Europe are expected to outperform the total European market for aspartame in the second half of the decade. The product is now being used in reduced-fat cheese, frozen desserts, sour cream, baked goods, butter, margarine, mayonnaise, salad dressings, yogurt, puddings, soups and sauces. Current efforts are aimed at reducing the cost of Simplesse to allow greater pene tration of the food manufacturing industry, which is extremely cost-sensitive. Out European marketing joint venture with Ajmumuto Cu. Inc, increased its sales of aspartame significantly in 1992, despite a heavy import duty. In the second half of the decade, sales of NutraSweet brand sweetener are expected to outperform the total WHERE WE ARE AND WHERE WE WANT TO BE CMrrmusi tabletop sweetener and in rwj<u hot breakfast cereals, in malt beverages containing fruit juice, and in refriger ated, ready-to-serve pud dings and fillings. It was also approved in Canada for baking applications. ouaov- Prices will be lower as a result of post-patent competition. Competition for the busi ness of food manufacturers will also intensify, U.S. approvals are pending for the use of aspartame in baked goods, confections and noncarbonated beverages. I opal B Reduce the cost of Simplesse all natural fat substitute to the point where it will stimulate significant new sales to high-volume food manufacturers. European Aspartame Sales (Percent based on oolnwJ flNufriSuttf All other aspartem? 75.............................................. 0 A Sates of NutrstSweetbrand sweetener have been more than naif of the total estimated in Pijrnno In the last five years. iaewM Kraft Light n' Lively Light sour cream led the new-product launches that featured Simplesse as an ingredient in 1992. We continued to demonstrate in 1992 that Sfmp/fsse works as a good tasting fat replacement. ESSuSSSEl The technical questions have been answered. The remaining question is economic Can 16 Monsanto 1992 Annual Report DSW 022005 STLCOPCB4007314 TOWOLDMONOOI5710 European market for aspartame, which is expanding at 15 percent annually. Our aspartame plant in Graveiines, France, is on schedule for completion and start-up in rnid- Sweeter 2000, our rn.xt-genera.ton hlgh-potency sweetener, otters the , long-term opportunity of competing In the world's overall sweetener market. 1993. The plant is also a joint venture ^ Ajinomoto, a |apanese focd -m dient company and long-time partner of nr "^e NutraSweet Company. T!.,, E.,.TM,--,, Lilt. li-LJL I_i Ul L'^J&tLLL umpiesse were recorcea sn me. we ve demonstrated tnat cumpiesse worses as a rat suo- stitute in the most important European categories of cheese, butter and dairy spreads. On the strength of sales to manufacturers of these products, European sales or Simplesse are expected to grow sienificantlv over the next five vears. generation high-potency sweetener continued during 1992. "Sweetener 2000 is really moving a long," Flynn says, "If we get it approved, well go after she world's sweetener business, not just the diet sweetener business." The pivotal year of 1992 ended with both of our directives accomplished. Our key customer base is intact, and sources of growth have been identified, from the near-term, new-product and new-market opportunities for iVutraSiwef brand sweetener and Simpksse all natural fat substitute, to the long-term possibilities of Sweetener 2000, 4 NutraSwest Spoonful, our newest entry in the tabletop sweetener market, is designed to attract the 40 million to 60 million U.S. consumers who like NutraSweet but don't use a tabletop sweetener. we sell Simplest at a price in 1992 over 1991 results, that is profitable for us and despite a significant import for the food manufacturer, duty. Work continued on without requiring that construction of an aspar finished goods be priced tame plant in France, a at more than the consumer project with our long is willing to rsav? We'll seek W Aj to resolve that issue in 1993. [goal& Stimulate time partner in Europe, Ajinomoto Co. Inc. The plant is on schedule for growth of aspartame and start-up in mid-1993. The 5 implesse in Europe. casaa Aspartame first European sales of Simpksse occurred in 1992. sales in Europe increased i The aspar tame market in Europe will continue its strong growth, and our sales are expected to outpace the market's annual growth rate. Growth for Simpksse will be determined by our ability to produce it at a cost that will allow us to price it favorably for European manufacturers of cheese, butter and dairy spreads. O U.S. Retell Market Share of Tabletop Sweeteners I'Percwi idler short m>xtuim) (Sourer. btisLvn Huiismola1 f-'aird Daw) <a> R .Ml others The NutraSweet Company is increasing its presence in the U.S. retail mariset for tabletop sweeteners. Mtfrtsdnfd 1992 Annual Report 17 n<tu 07 2006 STLCOPCB4007315 TOWOLDMONOQ15711 v Searle continues to expand Its operations In thg seven nations (dockwtse from bottom left; the United States. Canada, the Unled Kingdom, Germany, Italy, Japan and France) that account for almost 30 percent of the world's pharmaceutical sales SE Sssrls csntfibL'tss to Mot^ss^to W**sw h**r' i"n'vnin' M'V (`mu 'k6t mjW phurrnacBUti* vai products that yon^rate revenue and earnings growth. Results in 1992 were towered primarily try new-product launches, charges associated with cost-cutting actions, and lower prices for drugs sold to managed health care groups and through Medicaid. We also had our first generic competition in the United States for the sustained-release form of Caian calcium channel blocker. While pricing pressures may become a long-term concern for the pharmaceutical industry, launch costs and the charge for cost-cutting steps represent near-term Invest ments that will position Searle for Improved growth and profitability. he year 1992 was pivotal for Searle, as we took dramatic steps to shift our | product mix into a higher percentage of drugs with patent protection or (marketing exclusivity. Four new drugs received approvals in various coun tries: M&xflfjvfn, a once-a-day quinolone anti-infective agent; Dnypro, a once-a-day treatment for the symptoms of arthritis; Ambien, a treatment for short-term insomnia; and Artkrotec, a treatment for the symptoms of arthritis. These products were timely additions. The sustained-release form of Calan, our calcium channel blocker and a leading U.S. brand, faced its first generic com Resources are being shifted to support the U.S. launches and growth of three new drugs. petition in 1992. We'U shift the resources that have supported Caian to the U.S. launchtS mu growth 0i v/iuliujUi/i, Duypw arid AtHuiCri, In light of these changes, we face one central question: How quickly can we convert the promise of new products into significant sales and earnings? WHERE WE ARE AND WHERE WE WANT TO BE goal n Increase the introduction of new pharmaceutical products. E2GQS3 Major pharma ceuticals were approved or launched in key markets in 1991 Mflxflfluin quinolone anti-infective agent was launched in the United States and approved in 11 other markets. Daypro, a treatment for the symptoms of arthritis, and Atnbien, a treatment for short-term insomnia, were approved in the United States. Arthrotec, a treatment for the symptoms of arthritis, was approved in Sweden, Fiance and the United Kingdom in 1992, and in Canada in early 1993. These last three products will be launched in 1993. In addition, global intro duction of Cytotsc ulcer preventive drug proceed- Pi ed on schedule, with plans for a 1993 launch in Japan. 1333333 Sales of Maxaquin, Dayprv, Ambien and Arthmtec will allow us to increase the percent age of our income from oiiwtufjH o. oityare, rvi.u. * i chairman and ehtel ftxnfM.jitlvfi IB officer of Q,D. Searle & Co. Y.^ *y * 18 MortSdrtfo 199?. Arcuwfff Rrporf DSW 022007 STLCOPCB4007316 TOWOLDMONOQ15712 We've always planned to introduce major new products with marketing exclu sivity to continue our growth and improve our profitability. Sales of Maxaqutn, Dflypro, Ambien and Arihrotec will allow us to increase the percentage of our income from prod ucts with marketing exclusivity. Patents protect two of the four into the next century. One exception is Dappro, whose marketing exclusivity extends until 1997, but for which we're Our challenge Is to quickly convert the promise of new products into significant sales and earnings growth. seeking an extension. Patent applica tions are also pending for Artkrotec. Although the US. patent for Maxaquin runs through the year 2002, we've applied for an extension of our exclusivity into 2005. "This product has been suc cessfully launched into the fastest-growing segment of the worldwide antibiotic market," says Sheldon G. Gilgore, M.D., chairman and chief executive officer of Searie. "En the United States alone, this market segment was well over $600 million in sales in 1992, twice what it was five years ago. With our once-a-day dosage for all approved indications, we 're on our way toward being one of the major players in this category." Daypro, the first once-a-day treatment in the most proscribed class of arthritis therapies, was approved in the United States in 1992. "Daypro should be an important new product for the U.S. market," Gilgore says. "Research has demonstrated that patients are more likely to take the proper amount of their medication if they have to take it only once a day, AmbizU, a treatr preserves deep sleep with minimal unwanted aftereffects, Continued on pajje 20 In 1993. Searie will launch two new treatments for !he symptoms of artnntis: Daypro in the Unfte<J States, and Arthrotec In the United Kingdom. Sweden and Canada. products with marketing exclusivity. Behind them, the product pipeline includes potential treat ments for diseases such as AIDS, thrombosis, psoriasis, atrial arrhythmia, ulcerative colitis, and Alzheimer's and age-assodated memory impairment rdoAL H Manage the life cycles of existing products as their patents expire, SE3SS The sustainedrelease form of Calan cal cium channel blocker lost marketing exclusivity in the United States in 1989 and faced its first generic competition in 1992. We've prepared for this challenge by strengthening the brand image of Culon and by pursuing a new patented formulation. We'll manage support costs to reduce the Searie Striea tAsapnW-t<]ftoi&l MtfifSJnf&sJlrt) Searie's sales are almost one-tifth ot total Monsanto revenues, but this percent* age is expected to increase over tJma. effect of declining sales op. operating income. Candtrel tabletop sweetener, which has been without patent protection for several years, continued its healthy perfoujiance in Europe on the strength of its brand image. ESBS333 Market share erosion for Colon appears inevitable, but holding the Cor fiMu ed on page lU Monsanto 1992 Annual Report 19 DSfel 0220GS STLCOPCB4007317 TOWOLDMONOOI5713 A Maxaquin qulndone antiinfactive agarn, a once-a-day Ueatment for urinary tract and lower respiratory tract infections, was launched in seven countries in i 992. It is part of the fastest-growing segment of the worldwide antibiotic market. SEARLE C^ntinu^d from jxj^e T9 was approved in the United States and is awaiting approval in Canada. The sleep-aid market has shrunk in recent years because of physicians' and patients' safety concerns over benzodiazepine hypnotics. Because Ambien is from a different class of drugs, it offers a new alternative to a largely dissatisfied market. Arthrotec arthritis treatment offers powerful pain relief with reduced risk of gas troduodenal ulcers through a combination of a leading anti-arthritis medication and our Cytotec ulcer preventive drug. Arthrotec was approved in Sweden, France and the United Kingdom in 1992, and in Canada in early 1993. Approval is pending in several other major European countries. These four new high-potential drugs should reinvigorate our existing product line. The launch costs will affect earnings near-term, but the long-term payback should be substantial. Behind these drugs, the pipeline features new treatments for diseases such as AIDS, thrombosis, psoriasis, atrial arrhythmia, ulcerative Launch costs tor new drugs will affect Immediate earnings, but the long-term payback should be substantial. colitis, and Alzheimer's and age-associated memory impairment. They still must demon strate their safety, efficacy and economic value; some of them will never be commercialized. From their ranks, however, we expect the next generation of profitable Searle products. In addition, we continue to benefit from the contributions of two other solid performers. Cytotec ulcer preventive drug accounted for $124 million in sales in 1992. Launch plans for Cytotec in 1993 are being prepared for Japan, as we work toward com pleting its global introduction. Cimderel, our tabietop sweetener made with NuiraSweet brand sweetener and soid primarily in Europe, delivered $157 million in 1992 sales. It also WHERE WE ARE AND WHERE WE WANT TO BE Continued line on costs should fMjfj? maintain this drug as a significant earnings con tributor throughout the decade. No other major Searle products face generic competition before 1997. Canderel, which prior to 1986. was so. ld onljv in. pharmacies in Europe, will continue its expansion into food stores. Patented Product Sale* (By permit) 20.................. A Soul it) s growing ihtj percentage of its sales that comes from products with patent protection. I opal M Expand our presence in markets outside the united States. STA rus acquired the remaining shares of our U.S. and Italian joint venture with Alfa Schiapparelli Wassemtami. We also acquired majority interest in Sanitas, a medical prod ucts distribution company in the Czech Republic, and Searle Sales by Country (By percent) 48% United Slates i 1 ffUJlC? 6% Germary 6% Urated Kingdom 5% Japan 4% Canada 3% Italy 1T%> All other? A More than 80 percent of Searte's sales in 1992 were in the seven countries that make up the largest share of the worldwide pharmaceuti' cal market. 20 Monsanto 1992 Annual Report DSW 022009 STLCOPCB4007318 TOWOLDMONOQ15714 forms the foundation for an over-the-counter business that we'd like to expand. With an eye toward the over-the-counter market, we entered the Canadian diet food-supplement market in 1992 through the acquisition of Nutri-Bar and Nutri-Diet meal replacements. We continue to expand our presence in Western Europe and Japan, and to seek strategic alliances and other collaborations in emerging markets. Even as we benefit from the sales of our new products, we expect Cflfun calcium channel blocker to remain an earnings contributor. The name Catan conjures a powerful image for physicians and patients that, in many cases, will sustain it as the calcium channel blocker of choice. We're also developing an enhanced formulation based on a unique delivery system that promises significant benefits and the potential for future growth. Currently, we're decreasing administrative and marketing investments behind the brand to reduce the effect of declining sales on operating income. We're expanding the presence of our products in key global markets as well. In 1992, we acquired the remaining shares of our US. and Italian joint ven ture with Alfa Schiapparelli Wassermann. We also acquired a majority interest in Sanitas, a medical products distribution company in the Czech Republic, and we established a joint venture in Taiwan. In the years ahead, the challenge of turning our new-product launches into profitable brands worldwide will require the best efforts of everyone at Searle. It will bolster these efforts by continuing to seek innovative alliances to complement our marketing and research and development "We don't underestimate the magnitude of our task," Gilgore says. "But we're con vinced that in 1992, we took actions that will help us achieve our goals." v V Ambien, a treatment for short-term insomnia, received approval in the United States in 1992. Ambien is the first product in a new class of compounds that offer physicians more options for their patients. estamisnea a joint venture tire emerging markets uf in Taiwan. central ana oasrem Europe We'll and in the Commonwealth continue to expand our of Independent States. presence in the United I aoAL-n Evaluate States, the United Kingdom, opportunities to re-enter France, Germany, Italy, the consumer health care Japan and Canada, which make up almost 80 percent business. EEEQQ The strong of the global pharmaceutical performance of Canderd market. In addition, we're tabletop sweetener pro seeking strategic partners vides the foundation on and other collaborations in which to build an over- nqn rruuuci ujuiiuiwf fn Kay Countries 1993 projected 42) (2) 4H> <3} <& a. Searfe continues to launch naw products in important world markets, averaging mare than two a year for the lort fk,a i.oare- We entered the Canadian diet food-supplement mar ket in 1992 through the acquisition of Nwfri-Bar and Nuiri-Diei meal replacement products. I'MHaiEl We'll continue to look for over-the-counter product opportunities with multi national applications, Monsanto 1992 Annual Report 21 DSW 022010 STLCOPCB4007319 TOWOLDMONOOI5715 Earle H. Harbison, Jr. will retire from Monsanto on Sept. 1, 1933, bringing to an end a distinguished career that spans almost 26 years. From May 1386 to January 1993, he was president and chief operating officer. He haa been a member of the board of directors for seven years, and he is currently chairman of the executive committee of the hoard. enure and titles are only a partial measure of Earle Harbison's gift to the company. Equally at ease with heads of slate and entry-level workers, THarbison has been a strong and persuasive voice for free world trade, a passionate disciple of Monsanto's technologies, a mentor and role model to many aspirins managers, and a true patron and civic leader in the St. Louis community. He will leave Monsanto with a sense of satisfaction and confidence that the plans in place for the company's future are sound. "I firmly believe our people are our greatest asset. When you get the right people together with the right goals, you've got an unbeatable combination," Harbison says. Still, the thought of his pending retirement is bittersweet. "I've enjoyed virtually every day I've spent at Monsanto," he says, "but there comes a time to move on, and that time is at hand. I look forward to the future with the same enthusiasm I felt 26 years ago when I walked into Monsanto." Earle Harbison may be stepping aside, but he won't soon be forgotten. Certainly not by the thousands of Monsanto employees worldwide whose lives he touched over the years. In whatever he chooses to do, it's a sure bet he'll continue to make his mark as a true leader and a gentleman. Earle H. Harbison. Jr,, l.i uxiTi i iSi t, aXourLiijVa committee ol the board of directors 22 iWflrfSflJiltf J?7t Artr.uui nurui 022011 STLCOPCB4007320 TOWOLDMONOQ15716 Unless otherwise indicated by the context. ^Woneanio- mean* Monsanto Company and conscfldated subsidiaries, and me Comoan/" means Monsanto <^vinpajiy.. --wi--iii.jr-- AJ1 dollars ara In millions, except per share data. FINANCIAL SECTION CONTENTS Management Report Audit Committee Report Independent Auditors' Opinion 24 24 25 Statement of Consolidated Income 26 Review of Consolidated Resuits of Operations 27 Operating Unit Segment Data 3-1 ('"wW'lO'Tarihir Hah nn --------Cl--r'1'"''JO Quarterly Data 39 statement of Consolidated Financial Position Review of Changes in Financial Position 40 42 Statement Of Consolidated Shareowners' Equity 43 Statement of Consolidated Cash Flow Review of Cash Flow 44 45 Notea to Financial Statements Significant Accounting Policies Basis of Consolidation Currency Translation Restructuring and Other Actions Principal Acquisitions and Divestitures Depreciation and Amortization Inventory Valuation Income Taxes Short-Term Debt and Credit Arrangements Long-Term Debt Financial Instruments Fair Values Postretiremen! Benefits Employee Savings Plans Stock Option Plans Earnings per Share Capital Stock Cammitmaito and Continggndss fs*r-t-i-p--p- r1e--x--u--c--aan--qt iTt>/_ali-a Segment Information 47 47 47 47 47 45 45 45 49 49 50 50 SO 52 52 52 52 53 53 53 Financial Summary 54 Mofifn*o 2992 Annual Report 23 IMT- I i UOft rUt^*^nVn4i4>o STLCOPCB4007321 TOWOLDMONOOI5717 MANAGEMENT REPORT Monsanto Company management is responsible for the fair presentation and consistency of all financial information included in this Annual Report in accordance with generally accepted accounting principles. Where necessary the information reflects management's best estimates and judgments. Management also is responsible for maintaining a system of internal accounting controls with the objectives of omviHin? reasonable assuranrp that Monsanto's assets I O''"'------ ~ are safeguarded against material loss from unauthorized use or disposition and that authorized transactions are properly recorded to permit the preparation of accurate financial information. Cost/benefit judgments are an important consideration in this regard. The effectiveness of internal controls is maintained by: personnel selection and training; division of irapcnsibuitics; establishment and communication of policies; and ongoing internal review programs and audits. Management believes that Monsanto^ system of internal accounting controls as of December 31,1992, is effective and adequate to accomplish the above described objectives. /P* j j it-. . . y. 't- ,, Richard J. Mahoney Chairman and Chief Executive Officer Francis A. Stroble Senior Vice President and Chief Financial Officer February 26,1993 The Audit Committee is composed of five non employee members of the Board of Directors and met five times during 1992 The Committee reviews and monitors Monsanto^ internal accounting controls, financial reports, accounting practices and the scope and effectiveness of the audits performed by the independent auditors and internal auditors. The Committee also recommends to the full Board of Directors the appointment of Monsantofe principal inde pendent auditors and approves in advance all significant audit and nonaudit services provided by such auditors. As ratified by shareowner vote at the 1992 annual meeting, Deioitte & Touche were appointed as independent auditors to examine, and to express an opinion as to the fair pre sentation of, the consolidated financial statements. This opinion follows. The Audit Committee discusses audit and financial reporting matters with representatives of the Company^ financial management, its internal auditors and Deioitte & Touche. The internal auditors and Deioitte & Touche meet with the Committee, with and without management representatives present, to discuss the results of their examinations, the adequacy of Monsanto^ internal accounting controls and the quality of financial reporting. The Committee encourages the internal auditors and Deioitte & Touche to communicate directly with the Committee. The Audit Committee has reviewed the financial section of this Annual Report. Pursuant to the recommen dation of the Committee, the Board of Directors has approved the financial section. Buck Mickel Chairman, Audit Committee February 26,1993 24 Mortfdrcfo 1992 Annval Report DSW 022013 STLCOPCB4007322 TOWOLDMONOOI5718 INDEPENDENT AUDITORS' OPINION To the Shareowners of Monsanto Company: We have audited the accompanying statement of consolidated financial position of Monsanto Company and Subsidiaries as of December 31,1992 and 1991, and die related statements of consolidated income, shareowners' equity and cash flow for each of the three years in the period ended December 31,1992. These financial statements are the responsibility of the Companyt management. Our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits in accordance with gener ally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement An audit includes examining on a test basis, evidence supporting the amounts and dis closures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, such consolidated financial statements present fairly in all material respects the financial position of Monsanto Company and Subsidiaries at December 31,1992 and 1991, and the results of their operations and their cash flows for each of the three years in the period ended December 31,1992, in conformity with generally accepted accounting principles. As discussed in the Notes to Financial Statements, in 1992 Monsanto changed its methods of accounting for postretirement benefits other than pensions and for income taxes. Delete & Touche St. Louis, Missouri i. -c1L--/iuoi v lOCrt ; ; ' ; } it | ; : Monsanto 2932 Annual Report 25 DSW 022014 STLCOPCB4007323 TOWOLDMONOOI5719 STATEMENT OF CONSOLIDATED INCOME (Dollars in millions, except per shsrs/ nidi Saiei Cost of goods sold Gross Profit Marketing expenses Administrative expenses Technological expenses Amortization of intangible assets Restructuring expense - net Operating Income Interest expense Interest income Other income (expense) - net Income (Loss) from Continuing Operations Before Income Taxes Income taxes Income (Loss) from Continuing Operations Discontinued Operations: Income from Fisher Controls Gain on sale of Fisher Controls Incoms from Discontinued Operations incoma Before Accounting Changes Cumulative Effect of Accounting Changes: Posiretirement Benefits Other Than Pensions Income Taxes Net Income (Loss) Earnings par Share: Income (Loss) from Continuing Operations Discontinued Operations Accounting Changes Net income (Lose) 77* above statement should be retd w conjunction vtith pigss 47 though 53ariftll rqvrt Prevmslyrrpcnted mounts h&c been rdasO^hprTsentrishrContrdsasdsscordinuedopmtions, 1992 $7,763 4,710 3,053 1,115 487 720 237 436 58 (169) 43 (106) (174) (48) (126) 1991 $7,936 4,519 3,417 1,042 530 680 233 457 475 (166) 64 (19) 354 116 238 24 5-54 578 452 (658) lift 3 (55) C_Onj 58 296 $ 296 $(1.01) 4.63 (4.38) $(0.71) $ 1.87 0.46 $ 2.33 1990 $8,068 4,787 3,281 1,113 A~J7HV 661 229 808 (176) 51 33 716 230 486 60 60 546 $ 546 S 3,77 0.46 S 4.23 KEY FINANCIAL STATISTICS Afl s Plrcant nf H** $!< Gross Profit Marketing, Administrative and Technological Expenses Research and Development Expenses Operating Income Income (Loss) from Continuing Operations Net Income (Loss) Effective Income Tax Rate Return on Shareowners' Equity 1992 39% 30 8 1 (2) (1) (28) (2.6) 1991 43% 28 8 6 3 4 33 7.6 1990 41% 28 7 10 6 7 32 13.6 26 Monsanto 1992 Annual Report DSN 022015 STLCOPCB4007324 TOWOLDMONOOI5720 REVIEW OF CONSOLIDATED RESULTS OF OPERATIONS 1992 FINANCIAL RESULTS WERE BELOW $554 million, or $4.49 per share. The financial statements EXPECTATIONS present the results of Fisher Controls as discontinued oper The year 1992 was one of transition for Monsanto. ations. Reported amounts for previous years have been Several nonrecurring actions affected 1992 net income, and reclassified consistent with this presentation. See page 48 performance from continuing operations was a disappoint in the Notes to Financial Statements for further information ment. The US. economy has been slow in rebounding, on Fisher Controls. while the European economy deteriorated. This resuited in In November 1992, the Board of Directors approved significant competitive pressures on The Chemical Group's a series of restructuring actions in operating and staff units selling prices. Pharmaceuticals profitability suffered from designed to make worldwide operations more focused, the high costs associated with the launch of Maxaquin productive and cost-effective. Major elements include reduc quinolone anti-infective agent, the expansion of the U.S. tions in employment, a number of consolidations, closings sales force to support Maraquin and other anticipated new and sales of nonstrategic businesses and facilities, and a product introductions, and lower selling prices. In addition, realignment of selected research investments. These actions as expected, NutraSweet net saies declined as a result of resulted in a one-time aftertax expense of $425 million, or lower selling prices. $3.44 per share, in the fourth quarter of 1992. Bright spots in 1992 were the strong sales volume Other unusual items totaled an aftertax expense growth in Roundup and the acetanilide family of herbicides, of $47 million, or $0.38 per share. These items principally prompted by successful marketing programs and good were costs incurred as a result of damage to a glyphosate weather conditions, the completion of major NutraSweet raw material manufacturing unit in January 1992 and the customer contracts, and the governmental approval of settlement of certain lawsuits related to the Brio Superfund several new Pharmaceutical products. site in the second quarter of 1992. THE YEAR WAS AFFECTED BY NUMEROUS UNUSUAL EVENTS The year 1992 was also significantly affected by numerous unusual events. Monsanto continued its restruc turing program, which primarily affected Pharmaceuticals, moo Ths Fishsr Monsardo implemented new accounting rules related to postretirement benefits and income taxes. Effective January 1,1992, Monsanto adopted Statement of Financial Accounting Standards (SEAS) No. 106, "Employers' Accounting for Postretirement Benefits Other Than Pensions," for its retiree benefit plans. The adoption of this rule resulted in a one-time aftertax expense of $658 million ($1,045 million pretax), or $5.34 per share. The incremental effect of SFAS No. 106 during 1992 decreased operating income by $45 million and income from continuing operations by $29 million, or $0.23 per share. NET LOSS INCURRED FOR THE YEAR These unusual events resulted in Monsanto incur ring a net loss of $88 million, or $0.71 per share, for 1992 The impact of the 1992 and 1991 unusual events is summarized in the following table: Also effective January 1,1992, Monsanto adopted SFAS No. 109, "Accounting for Income Taxes." The adop tion of this rule resulted in a one-time aftertax gain of $118 rrii'iiL u., or $0.98 per share. Excluding the unusual actions and events summa Gain on the sale of Fisher Controls Restructuring and other actions Other unusual items Accounting changes; Postretirement Benefits Other Than Pensions Income Taxes Total Unusual Events Income from Fisher Controls OpeiduOiiS Net Income (loss) 1992 1991 $554 (425) (47) $(332) (687) 118 (487) 24 (332) 58 rized in the table above, 1992 net income would have been $375 million compared with $570 million for the prior year, a decline of 34 percent. Earnings per share in 1992 would have been $3.04, a 32 percent decline from the prior year. NET SALES DECLINED DUE TO LOWER SELLING PRICES Net sales in 1992 declined 2 percent as higher sales volume from continuing businesses did not offset the lack of sales from divested businesses and lower selling prices in all operating units. NutraSweet's average aspartame selling price declined, as expected, as NutraSweet approached the December 1992 expiration of the aspartame-use patent in the United States. Continued poor economic conditions Total impact on Net Income $(463) $(274) in many of The Chemical Group's key markets resulted In October 1992, Monsanto sold Fisher Controls for $1,275 million in cash, realizing an aftertax gain of in significant pressures on chemical selling prices. Sales volume of The Chemical Group did improve modestly over that of the prior year. Monsanto 1^9? Annvai Rtpo*! 27 OSM 022016 STLCOPCB4007325 TOWOLDMONOOI5721 rnmtmi&mummm Net sales of The Agricultural Group benefited from significantly higher sales volumes of Roundup and Lasso its pricing and new end-use strategies, farmers' conversion herbicides, lower manufacturing costs and cost savings to conservation tillage and good weather conditions, on from prior years' restructuring actions. Operating results balance, in many key markets, especially North America. in 1992 for The Chemical Group were hurt by lower selling Glyphosate sales volume increased 16 percent worldwide. prices and 526 million of incremental SFAS No. 106 costs. Lasso herbicide sales volume grew 8 percent. However, These factors were partially offset fcy lower raw material The Agricultural Group's total 1992 net sales were 2 percent costs and higher sales volumes. NutraSweet operating below the prior year, which included 5132 million of sales income was adversely affected by lower selling prices, but associated with the subsequently divested animal feed benefited from cost savings from the 1991 reorganization. ingredients business. Operating income for Pharmaceuticals decreased in 1992, The Chemical Group's net 3ales declined in 1992 primarily because of costs to launch Maxaq uin quinolone because of the lack of sales from divested businesses, lower anti-infective agent in the United States, expansion of the average selling prices worldwide, principally due to the U.S, safes force to support Muntquin and other anticipated worsening economic conditions in Western Europe, Japan new prouuct iourtciies, and lower selling pnecs. and the Commonwealth of Independent States, and the Marketing expenses increased 7 percent in 1992, slow economic recovery in the United States. Sales volume principally from the above-mentioned costs incurred by in the United States gradually improved in 1992 as North Pharmaceuticals. Administrative expenses decreased American automobile production levels and housing starts 8 percent due to cost savings resulting from prior years' increased over the depressed 1991 levels. restructuring programs and lower incentive compensation. NutraSweet's net sales declined 8 percent in The loss in "Other income (expense) -- net" in 1992 due to lower average selling prices, partially offset 1992 was larger than in the previous year, pnnapaily due by slightly higher aspartame sales volume. The 1992 sales to the 1992 write-down of investments to market value and volume increase was due primarily to significantly higher higher currency losses. sales of tabletop sweeteners. Pharmaceuticals net sales in 1992 were slightly below the prior year. Sales of die Calan family of calcium channel blockers declined 10 percent, primarily due to lower selling prices resulting from higher rebates to state Medicaid programs and the continued shift in demand from retail pharmacy to managed health care providers, coupled with the impact of generic competition for the sustained-release form. Sales of Canderel tabletop sweetener, rnadg with NutrsSwegi bnmd sweetener, increased 7 percent In addition. Pharmaceuticals benefited from sales of new products, such as Maxaquin quinolone anti-infective agent Net sales in markets outside the United States represented 41 percent of Monsanto's totai 1992 net sales, which is about the same level as fire prior year. OPERATING RESULTS DECLINE Operating income was $58 million in 1992, a decline of 88 percent compared with 1991. Excluding the 5624 million ofpretax restructuring and unusual charges in 1992 and the $457 million of restructuring charges in 1991, operating income would have decreased about 27 percent in 1992. Operating results in 1992 were hurt by lower selling prices but helped by improved sales volume and mix from certain products, as well as lower raw material costs. Excluding 1992 and 1991 restructuring and unusual charges, operating results declined for all business PRINCIPAL FINANCIAL TARGET REMAINS 20 PERCENT RETURN ON EQUITY lI>fuf-uii-'mi -lr-grrutrttikrVV-*l*i!t^f-i0i MfiJlJ *ial i'arrrak +r\ reach and sustain a 20 percent return on shareowners' equity (ROE). Although the previously discussed 1992 restructuring actions, accounting changes and unusual events resulted in a negative ROE in 1992, these restructur ing actions will make the Company more cost competitive in its world markets. PRODUCT DEVELOPMENT AND COMMERCIALIZATION ARE TOP PRIORITY New product development and commercialization continue to be the most important strategic priority for Monsanto, Research and development expenditures were $651 million in 1992,8 percent of net sales, a level that reflects ma-n--a-eDe-m---e--n t-'s--s-t-r--o-ni Ce7-. lo- neU-te- rm co mmitment to research and development Major investments continue to be the discovery and development of pharmaceutical and agricultural products. Research in existing product technology and new applications also continues across all business units. Monsanto's research program also includes acquisition of new technologies through licensing, The result is that Monsanto has many potential products in the research and development pipeline, several of which should be commercialized over the next few years. segments except The Agricultural Group. The core busi nesses of The Agricultural Group benefited from 28 Msitsunlo 1992 annual Repert fKWUV, 0W7bUin.UAnI STLCOPCB4007326 TOWOLDMONOOI5722 porno YEAR REVIEW In 1992, Monsanto's oloeratin<zJni erfo.r.m.a.n.fe..was reasonably strong considering the depressed economic climate in several of Monsanto's major markets. In October 1990 and June 1991, the Board of Directors approved restructuring steps to strengthen The Agricultural Group, The Chemical Group and the corporate staff for the future. Net income for 1991 declined 46 percent because of the $325 million, $2.54 per share, aftertax restruc turing charge. Earnings per share were 45 percent lower in 1991. Excluding the restructuring charge, net income would have increased 14 percent. Net income in 1991 benefited from lower petrochemical-based raw material costs and improved sales volume and mix from continuing products. Net sales for 1991 were down only slightly from that of the prior year and were the second-best in Monsanto's history. Modest sales volume growth in con tinuing businesses was more than offset by the decrease in sales due to divested businesses. Average selling prices were marginally lower than those in 1990. Net sales for Pharmaceuticals, The Agricultural Group and NutraSweet increased compared with the prior year. Net sales for The Chemical Group declined. Pharmaceuticals net sales growth was led by the Colon family of calcium channel blockers, up 9 percent; Cytotec ulcer preventive drug, up 35 percent; and Camkrel tabletop sweetener, up 11 percent. Net sales for The Agricultural Group grew as weather conditions improved in most key markets. In addition, 1991 strategic price reductions in certain countries for Roundup giyphosate-based herbicide generated higher sales volume. Glyphosate sales volume increased 17 percent worldwide. NutraSweePs sales volume increased 5 percent, while selling prices decreased. The Chemical Group's net sales for 1991 were lower as a result of discontinued, product lines and lower demand caused by the depressed North American automotive industry. the delayed US. economic recovery and a slowdown in the European economy. Operating income declined 41 percent in 1991, as a result of the $457 million pretax resmucturh-g charge. Operating results in 1991 were helped by lower raw material costs and improved sales volume and mix from continuing products. The effect of The Chemical Group's lower manufacturing capacity utilization reduced earnings when compared with 1990, Operating income for The Agricultural Group and Pharmaceuticals increased in 1991, while operating results declined for The Chemical Group and NutraSweet. The Agricultural Group's operating income benefited from higher sales volume, lower manufacturing costs and cost savings from restructuring actions implemented in Late 1990. Operating income for Pharmaceuticals increased in 1991, primarily because of strong volume growth in key products, higher average selling prices and gains from the divestiture of nonstrategic product rights. The profit improvement was partially offset by the December 1990 divestiture of several consumer products to a third party under a prior agreement. The Chemical Group incurred an operating loss compared with operating income in 1990, because of its restructuring expense. Operating results for The Chemical Group were helped by lower petrochemicalbased raw material costs and hurt by the effect of lower sales volume, lower selling prices, and lower manufac turing capacity utilization. NutraSweet operating income benefited from higher sales volume, but was adversely affected bv lower se'linv nrices. Marketing expenses decreased 6 percent in 1991 because of lower advertising and promotional expenses. Administrative expenses increased in 1991, in part because of higher 1991 incentive compensation 'Other income (expense) -- net" in 1991 decreased, principally because the prior year included higher gains Monsanto 2992 Annual Report OSH U^dOiti 29 STLCOPCB4007327 TOWOLDMONOOI5723 REVIEW OF CONSOLIDATED RESULTS OF OPERATIONS I Continued ANALYSIS OF CHANGE IN EARNINGS PER SHARE - BETTER (WORSE) 1992 vs. 1991 1991 vs. 1990 Sales-Related Factors: Selling prices Sales volume and mix $047) 0.66 $(0.35) 0.61 Total Sales-Related Factor* (0,81) . 0.26 Cost-Related Factors: Raw material costs Manufacturing capacity utilization Other manufacturing costs Marketing, administrative and technological expenses Total Cost-Related Factors 0.26 0.15 (0.11) (0.50) (0.20) 1.02 (0.26) 0.03 (0.28) 0.51 Interest expense Interest income Other income (expense) - net Change in income taxes Change in shares outstanding (0.02) (0.10) (0.06) (034) 0.10 0.05 0.07 (0.26) 0.20 0.04 Change in Earnings per Share Before Other Factors (1.43) 0.87 Other Factors: Restructuring and other unusual actions Gain on sale of Fisher Controls Divestitures Accounting change for post- retirement benefits Accounting change for income taxes Aflu* Cdi4nni (1-22) 4.49 iu37) (5.57) 0.96 U.V1i1) (160) (COT) rrm Lnange in tamings per rihare 1(3.04) $(1.90) Selling Price index 1.2................ 1,0 *................... D.d..................... 0.6............... . 0.4............ .............. 0.2..................... .-h y *...... ......... 4Q> O 0sIm y^jnnu jnrlnu nas7iw 1,5............................... 1.2 ........................... 0.3..................... ... Oft............... ............ 0.3............. .............. 0.0.......... "............. ^ ^^ Raw Material Coat index (IM7*L0) 1.0-.--...................... 0.8.......................................... 0.6................. 0.4.......................................... 0.2............................ ... ^^ ' Monsanto 1592 Annuel Report n#cwuw n--??n19 STLCOPCB4007328 TOWOLDMONOOI5724 OPERATING UNIT SEGMENT DATA The Agricultural Group The Chemical Group NurraSweei PhiHIm3CcUuCeils Biotechnology Product Discovery Corporate Total 1992 $1,676 3,705 879 1,503 Net Sales 1991 1990 $1,711 3,740 954 1,531 $1,676 4,035 933 1,424 S7,763 $7,936 $8,068 Operating Income (Loss)a) 1992 1991 1990 $ 245 94 72 (232) $400 (154) 173 170 $327 297 183 93 Research and Development 1992 1991 1990 $149 109 44 276 $140 105 41 259 $151 115 41 228 (62) (59) $ 58 (57) (57) $475 (52) (40) $808 62 11 $651 57 8 $610 52 8 $595 The Agricultural Group The Chemical Group Nutra5weet PhaimaceuticaIs Biotechnology Product Discovery Corporate Fisher Controls Total 1992 $1,678 3,234 934 2,398 Total Assets 1991 . 1990 $1,592 3,162 1,155 2,342 $1,668 3,163 1,296 2,085 41 800 $9,085 51 294 631 $9,227 59 318 647 $9,236 Capital Expenditures 1992 1991 1990 $ 136 290 49 104 $ 93 300 58 96 5134 340 113 112 658 124 S 586 $554 44*7/ 1IX1 Depredation and Amortization 1992 1991 1990 $112 301 234 108 $104 272 233 94 $124 260 218 87 8 9 13 222 f/lW JJ*7t 1I14* rt-rrm (^Operating income was affected by the 1992 and 1991 restructuring and other unusual charges as follows: Income (Expense) 1992 1991 Operating Unit: The Agricultural Group The Chemical Group NutraSweet Pharmaceuticals Corporate $(135) (148) (70) (265) (6) $ 30 (478) (9) Sales between operating units were not significant Certain corporate expenses, primarily those related to the overall management of Monsanto, were not allocated to the operating units or geographic areas. Corporate assets primarily include investments in affiliates and a portion of the cash balance. 1992 Nat Sale* (Pen&ii ty operating tuni) 49% The Chemical Group Total $(624) 5(457} 22% The Agricultural Group Although inflation is relatively low in most of Monsanto's major markets, it continues to affect operating results. To mitigate the effect of inflation, Monsanto has implemented measures to manage working capital, control costs, improve productivity and raise selling prices where government regulations and competitive conditions permit. In addition, it is estimated that the current cost of replacing certain assets is greater than their historical cost presented in the financial statements, Accordingly, the depredation expense reported in the Statement of Consolidated Income would be greater if the expense were stated on a current cost basis. 19% Pharmaceuticals 11%Nutra5weet Tne prinapai factors that accounted for the operat ing units' performance in 1992 and 1991, along with the factors that are expected to affect operating results in the near term, are described on the following pages. Monsanto 1992 Annual Report 31 DSW 022020 STLCOPCB4007329 TOWOLDMONOOI5725 OPERATING UNIT SEGMENT DATA Continued THE AGRICULTURAL GROUP i1n7n7i$ Net Sales: Crop chemicals Animal feed ingredients $1,647 29 m17m71 31351 160 m17n7Un $1308 168 The onncinal farh-ire tor the change in ananhrip income were: Better (Worse) 1992 vs. 1991 1991 vs. 1990 Total Operating Income $1,676 245 $1,711 400 $1,676 Selling prices 327 Sales volume and mix $ (64) 95 $(31) 48 he Agricultural Group is a leading worldwide Raw material and other Tproducer and marketer of herbicides, including manufacturing costs Roundup, Lasso, Bullet, Harness, Micro-Tech, Fur-Go, Restructuring and other charges Avadex and Machete herbicides. More than half of the unGit'slyphosate plant damage costs herbicide net sales are made to markets outside the United Inventory write-down States. Weather conditions in the agricultural markets Divestitures throughout the world affect sales volume. Other 38 56 (93) 30 (42) (30) (30) (38) (29) 8 The Agricultural Group Net Sales 'Dollars m millionsl Change in operating income $(155) $73 Worldwide sales volume of glyphosate herbicide 2.000................................... increased 16 percent, benefiting from the pricing and new end-use strategies, farmers' conversion to conservation l00 ... tillage and good weather conditions, on balance, in many key markets, especially North America. The reductions uxw- in selling prices, principally in the United States on certain glyphosate products, continued to benefit glyphosate sales 500 0- Rest of world Europe United States volume by making the herbicide cost-effective for weed control for a broader range of crop and industrial uses. The operating income effect of the increased glyphosate herbi cide sales volume exceeded the effect of lower selling prices. Profitability on the acetanilide family of herbicides increased The Agricultural Group had a strong operating performance in 1992 excluding the adverse impact on oper ating income from the unusual items discussed below. The Agricultural Group 1992 net sales revenue was 2 percent below the prior year. However, excluding the 1991 sales of the subsequently divested animal feed ingredients business, 1992 net sales for The Agricultural Group would have been 6 percent higher titan the prior year. Operating income in 1992 decreased 39 percent compared with 1991. The decline in 1992 operating income resulted from unusual items occurring in both 1992 and 1991. The unusual items included in 1992 operating income were the $42 million loss associated with damage to a manufacturing site of a raw material for Bsmndup herbicide, $30 million charge for the writedown of certain bovine somatotropin (BST) inventories because of expira tion of the shelf life, and $63 million in restructuring charges and other items, principally related to employment reduc tions. In 1991, operating income benefited from a $30 million gain from restructuring and $30 million in income from the Significantly because of the combination of increased sales volumes and improved cost management. Expenditures for BST, while less than those in the prior year, continued to affect financial results adversely. Total manufacturing capac ity utilization for The Agricultural Group was 64 percent and 61 percent in 1992 and 1991, respectively. In 1991, The Agricultural Group's net sales and operating income increased 2 percent and 22 percent, respectively, as compared with that of 1990. A pretax restructuring gain of $30 million resulted from the 1990 restructuring program and was included in 1991 operating income. Lower raw material and other manufacturing costs. alm"'-`iC'Or w.. i.fVVLil rWnWWcf S3.viri.Sa I IUll4bClvUliITg ifipVriUwsI +LWLIC-t .L--U_U,._.U_1____L__L_H__U_I_.f_c_l actions, also ha ltoed to tmtnrn~v e orneratinou inmnp Worldwide sales volume of glyphosate herbicide increased 17 percent in 1991, benefiting from improved weather conditions in the United States and certain other key country markets. Reductions in selling prices, princi pally in the United States on certain glyphosate products, continued io benefit glyphosate sales volume. subsequently divested animal feed ingredients business. Monsanto 1992 Annual Report DSW QdZOZi STLCOPCB4007330 TOWOLDMONOOI5726 Profitability on the acetanilide family of herbicides increased significantly because of the combination of improved cost management, a new product form and a selling price increase, partially offset by a decrease in sales volume. Market share for these herbicides declined slightly during 1991. Net sales and profitability ofAvadex herbicide decreased in 1991 due primarily to the poor farm economy in C~3rtaHa< AGRICULTURAL GROUP OUTLOOK Fa tents protecting glyphosate herbicide in various countries expired in 1991, while compound per se patent protection for the active ingredient in Roundup herbicide continues in the United States until the year 2000. Management expects that manufacturing process patents that are important to Monsanto's cost position will maintain our competitive position after the expiration Df the other patents. The Agricultural Group has a significant number of new products in the research and develop- merit ninplinp anri that aro ,-t in hkp stages of commercialization. The focus continues to be on a number of chemical and biotechnologyrelated products. BST will have significant value to the dairy industry through the reduction of milk production costs, but BST continues to meet opposition from certain group_s., nosr*ir inas oeen approved in nine countries, trut not yet tn the L rated States. Management believes BST will be approved in the United States. However, if US, approval is not received, a material charge to earnings could result. Monsanto continues to maintain the tech nical capabilities needed to secure regulatory approval and is prepared to expand commercial capabilities to iaunch the product. As mentioned in the Notes to Financial Statements on page 48, Monsanto has signed a letter of intent to purchase the assets, including working capital, of the Ortho Consumer Products Division of Chevron Chemical Co. This business, with annual sales of approx imately S250 million, will complement the residential products business of The Agricultural Group, THE CHEMICAL GROUP 1992 Net Sales; Fibers $1,065 Performance products 619 Plastics 661 Resins 656 Rubber and nrocess chemicals 471 Engineered products 203 Discontinued products 1991 S 974 648 710 683 4S2 145 98 1990 $ 971 668 850 660 53Q 137 219 Total Operating Income (Loss) $3,705 $3,740 $4,035 94 (154) 297 *"^"he Chemical Group produces a wide range of I chemicals, plastics, fibers and. other products listed I in the table above. The unit's principal strengths are nylon carpet fiber, high-performance plastics, Saflex plastic interlayer, phosphorus and derivatives, and rubber chemicals. Th* Chemical Group Nat Sales (Doiltnm rmiiion 5,000 . I4,000-j 3,000 2,000 ..... 1 1,000 .....1 Q ..... 1 1 1 Rest of world Europe United States In 1992, The Chemical Group was impacted by the worsening economic conditions in Western Europe, Japan and the Commonwealth of Independent States (CIS) and by the siow economic recovery in the united States. The Chemical Group's net sales from continuing products for 1992 were 2 percent higher compared with 1991, as a result of a 4 percent increase in sales volume, partially offset by lower selling prices principally in fibers and plastics. The sales volume increase in 1992 was primarily in fibers as U.S. housing starts rebounded from 1991 levels. However, various product sales volumes to Europe, Japan and the CIS declined as a result of weak demand. In 1992, The Chemical Group had operating income of $94 million versus an operating loss of $'*1--5--4---m----i-l-l-i-o--n----i-n the' torior Jvear. However,' there were a number of unusual items affecting the profitability in both years. Specifically, 1992 operating income was adversely Mcnsdnic 1992 Annual Report 33 DS W STLCOPCB4007331 TOWOLDMONOOI5727 j*`E'R ATING; -UNIT' S EG MENT DATA Couthmed affected by $77 million m testniciuruig expenses associated with implementing further cost-cutting actions, $41 million in costs associated with the settlement of certain litigation related to the Brio Superfund site, $30 million in expenses related to a facility asset impairment, and $26 million of incremental SFAS No. 106 costs. In 1991, The Chemical Croup had a 478 million expense associated with the 1991 restructuring program. An analysis of tile change in operating income is provided below: Better (Worse) 1992 vs. 1991 1991 vs. 1990 Selling prices Sales volume and mix Manufacturing rapacity utilization Raw material costs Restructuring charges trVpai Brio litigation settlement Incremental SFAS No. 106 costs Other 5(83) 25 11 46 401 (30) (41) (26) (55) $ (33) (30) (52) 181 (478) (39) Change in operating incume $248 $(451) Lower raw material costs were not sufficient t.o..o.ffs..et the 2 Jne- rr-p- nt- de- c- line in averageje s- ellineOXwire----s- . Capacity utilization, an important factor for The Chemical Group profi lability, was 78 percent in 1992, versus 75 percent in 1991. Fibers net sales in 1992 were 9 percent above those of 1991 despite lower selling prices. This strong performance is primarily due to increased sales to the home replacement carpet market in the United States, higher sales rl.lt|.f /iilrl.'/Wf/JM J XJiTc_ IfliLl-iAor,*i Uir1vrUl ilmilLn^mlUoToViS4-* gXVSVUJ. rUlxUariUrtailnlUrl 1(iU*iIr fiber intermediates. Sales of nylon carpet fiber were 7 percent higher than the prior year. Performance products net sales were below those of the prior year, principally due to the weak U.S. economy. Phosphorus and derivatives results were better in 1992 due to improved market conditions and reduced industry capacity. Plastics net sales in 1992 were lower than those of 1991, primarily because of lower selling prices throughout the world. Sales volume increased in tine United States as North American automobile production levels increased over those in 1991, but were partially offset by lower volumes in Europe, Brazil and Japan. Worldwide sales volume in 1992 of Saflex plastic interlayer, the largest resin product, was essentially flat with 1991. Increased demand for architectural products was offset by lower worldwide demand for automotive products, principally due to the worsening economic conditions in Western Europe and Japan. Rubber chemicals sales volumes were adversely affected by the depressed economies in Europe, as well as the economic disruption in the CIS. However, North American sales volumes increased over those in 1991. The Chemical Group's net sales for 1991 were 7 percent below 1990. This was primarily a result of discon tinued product Lines and lower sales volumes of continuing businesses, a reflection of the lack of a U.S. economic recov ery, the lowest North American automotive production level since 1983, and the slowdown in the European economy. A pretax restructuring charge of S478 million resulted in the 1991 operating loss for The Chemical Group. Excluding this charge, operating income would have improved 9 percent compared with 1990. Operating income benefited from lower rsw costs Rod cost contain ment oA roeVrams but was hurt bJv lo wer Tnam"ifa--r-h--j-r-i-n--pOcapacity utilization. CHEMICAL GROUP OUTLOOK The Chemical Group outlook for 1993 is for improvement, but the degree is difficult to predict, primarily because of the unknown timing of the economic recovery in Western Europe and Japan, coupled with the uncertain pace of the U.S. economic recovery. Maintaining market share for strategic products with good cost positions and continuing cost reduction efforts will be the focus of The Chemical Group. Active management of environmental compliance activities is also a major focus. MiHr.s-in/c Annual Report USW 022023 STLCOPCB4007332 TOWOLDMONOOI5728 NUTRASWEET 1992 1991 1990 Net Sales Operating Income $879 72 S954 173 $933 183 I he NutraSweet Company manufactures and markets NulraSweet brand sw eetener, which is sold world* I wide. Equal tabletop sweetener, which is sold in the United Slates, iVi/traStwet Spoonfui brand tabletop sweetener, and Simplesse all natural fat substitute. Sales of NutraSweet brand sweetener in the European market are made by a 50 percent-owned European joint venture and therefore are not included in NutraSweet net sales and operating income. NutraSweet's share of the European joint venture's earnings are reflected in "Other income (expense) -- net" in the Statement of Consolidated Income. About 90 percent of NutraSweet net sales were in the U.S. market. NutraSweet net sales and operating income in 1992 decreased 8 percent and 58 percent, respectively, compared with the 1991 amounts. Worldwide aspartame sales volumes were slightly higher while average selling prices were lower on planned price decreases. Operating income in 1992 also was reduced by a $46 million inventory write-down discussed below and restructuring actiuns totaling $24 million associated with plant consolidations, PTnnfmrmoTi+iwfji/'+irsnc artiH arf-tryj-je OrlP'mhr? income benefited from lower operating expenses from the 1991 reorganization. An analysis of the change in operating income is provided below: Better (Worse) 1992 vs. 10Q1 1991 vs. ioon utoLie pikes offset by volume) Restructuring charge Inventory adjustment Other, principally lower operating costs in 1992 $ (96) (24) (46) 65 S (3) (7) In 1991, net sales were up 2 percent, while operat ing income decreased 5 percent compared with 1990. The effect of 5 percent higher sales volume was partially offset by the lower selling prices. Operating income was reduced by one-time costs of $10 million associated with various reorganizing actions taken during 1991. NUTRASWEET OUTLOOK ; . 1 The prospects for NutraSweet brand sweetener remain strong worldwide, despite the expiration of the U.S. patent. NutraSweet has built important competitive advantJHyPS inrltirimcrr/YhrAt`>rj; nama ir?t>T*jh'Hr arirl ------- -- -"O"' -- -- -fj- I" 'TMuw ,uV1 "v logo, recognition, (b) proprietary low-cost manufacturing processes, (c) state-of-the-art manufacturing facilities, (d) technical expertise, (e) the reputation as a superior quality, highly reliable supplier, (f) an economical replacement for sugarin certain markets, and (g) the possibility of an internally developed, next-generation high-petency awsEtEnsL Competition'from gsnsric uspS-Tt^ine producers and, others will lower selling prices in the future. These lower prices will adversely affect operating income and cashflow. Operating.income in 1993 and beyond will benefit from lower annual-amortization expense of $173 million because.the aspartame-use patent is now fully amortized, .: : . . . . ilie Uxiileu Siafes will remain the principal market for NtdraSroetf-brand sweetener in 1993, but growth in:international markctswill continue. Accord . inglv, NutraSweet has' Invested in a new manufacturing facility in France, througha European joint venture, The plantis scheduled to-begin production in 1993 . Simplesse, the-company's all natural fat substi- tute, is expected to be more broadly marketed for use in multiple foexi categories. However, Sbnp/essc faces a challengingmarketin which competition continues to intensify. ' Change in operating income $(101) $(10) NutraSweet Inventories are valued using the last-in, first-out (UFO) method. Lower selling prices in post-patent contracts with customers necessitated a lower of cost or market adjustment to the LIFO value of invento ries in the fourth quarter of 1992, concurrent with the patent expiration. MfjnsflJtlt) J992 Annual Report DSW 022024 35 STLCOPCB4007333 TOWOLDMONOOI5729 OPERATING UNIT SEGMENT DATA Continued pharmaceuticals 1992 1991 1990 Net Sales Operating Income (Loss) 51,503 $1,531 (2321 170 $1,424 93 earle is a research-based, worldwide pharma ceutical business concentrating on drugs for I fBAul * ^ W. |-a |-| - ' ^| |--- r_-^, L ^ 1 UlC UCflUllCJU LTi U-UJ f O^-UlQl, K,Qj3LI\JI1LLC3LLLLOi, immi inr^TnflaiTtmafr'irxr ron+ral non;mic crrctom and infectious diseases. Pharmaceuticals Net Sale* (Dolors IK .-MlilkJttSj 2,000............ ..... sales of norstrategic businesses. A pretax restructuring charge of $265 million resulted in a 1992 operating loss for Pharmaceuticals. In addition to the restructuring charges, costs to introduce Maxaquin quinolone anti-infective agent in the United States, the expansion of the U.S. sales force to support Maxaquin and other antidpated new product intro ductions, and lower selling prices negatively affected 1992 results. Operating income in 1991 benefited from the sales of nonstrategic product rights. The prindpal factors for the change in operating income were: Better (Worse) 1992 vs. 1991 1991 vs. 1990 I I 1 q.M..... I...... I,., gfii cn ^ Rest of world fringe United States Selling prices Sales volume and mix Product rights sales Restructuring Marketing, administrative and technological expenses Other Change in operating income $ (30) 39 (49) (265) (89) (8) $(402) $ 25 43 36 (20) (7) $77 Pharmaceuticals net sales declined 2 percent in 1992 when compared with 1991. Net sales of the Calan family of calcium channel blockers for hypertension and angina, sold primarily in the North American market, were $456 million, 10 percent lower than the prior year. This decline was due to lower selling prices and the introduction of generic competition for tire sustained-release form of Calan. Continued growth of Canderel tabletop sweetener (which is marketed by Searle outside tire United States and by NutraSweet in the United States under the brand name E oi uaifl and new rDroduds-<. s- uch as Mamtmi in nlur.n..n..l.m. e---a-n--t-iinfective agent, partially offset the sales decline. Net sales of Canderel were $157 million in 1992, up 7 percent from 1991. Sales of new products were $93 million, led by Maxaqum, which was launched in the United States in mid-1992. Sales volume of Cytotec ulcer preventive drug increased 2 percent in 1992. However, net sales were about the same level as the prior year due to increased sals of the lowci dosage foim. Average selling prices for Pharmaceuticals were moderately lower, resulting from rebates, principally for Calan, to state Medicaid programs and a continued shift in demand from retail pharmacy to managed health care providers in the United States. A significant part of the restructuring approved by the Board of Directors in November 1992 affected Pharmaceuticals. The restructuring steps included reductions in employment, plant dosings and consoli dations, a rationalization of research investments, and Pharmaceuticals investment in research and development (R&D) continues to be significant. R&D expenditures were 18 percent and 17 percent of the unit's net sales in 1992 and 1991, respectively. Although the 1992 restructuring realigned some research investments, the future R&D spending level is expected to continue to be significant. This spending level demonstrates the commit ment to product discovery and development that is aimed at securing sound, long-term financial performance for Pharmaceuticals. Pharmaceuticals net sales increased 8 percent in 1991 when compared with 1990. The improvement reflected continued growth for Cytotec ulcer preventive drug, the Calan family of calcium channel blockers for hypertension and angina, and Canderd tabletop sweetener, as well as higher celling prices. Net sales for Calan, sold primarily in the North American market, were $508 million, 9 percent higher than 1990 sales. Worldwide sales for Cytotec were $123 million, up 35 percent from 1990. Net sales of Canderel outside the United States were S147 million in 1991, up 11 percent from 1990. Net sales for Cabn, Cytotec and other products in the United States were reduced by $30 million for rebates to state Medicaid programs mandated under the 1990 Omnibus Budget Reconciliation Act. Comparisons with 1990 also were affected by tire December 1990 divesti ture of certain of Searie's consumer products outside the United States to a third party, under the terms of a 1985 agreement related to the Company's acquisition of Searle. Monsanto 1992 Annuel Report OSH 022025 STLCOPCB4007334 TOWOLDMONOOI5730 Sales and operating income of these consumer products were $32 million and $30 million, respectively, in 1990. Pharmaceuticals operating income increased S3 percent in 1991 due to higher sales and the sale of certain nonstrategic product rights. PHARMACEUTICALS OUTLOOK CuJim participates in n increasingly compel! +i\rg mcirkot rof cntil^^^pGrtsnsLvs and nuw generic competition. This increased competition is likely to adversely affect the future sales and profits of Qian. Searle is developing a formulation of Cakm with propri etary delayed-release technology that could eventually enhance the product's competitive position. In 1992, Searle launched Maxatjum, the first oncem-day anri-ktfective drug in the quinoione class, in tire United States. Maxaquin also received 1992 regu latory approvals in Italy, France, the United Kingdom, Canada and 7 other countries. Dut/pm, a nonsteroidal anti-inflamnutory drug, and Ambieii, the first of a new class of prescription sleep aids, have been approved by the US. Food and Drug Administration and will be launched m 1993. Ambiert g awaiting regulatory approval in Canada. Cytotcc ulcer preventive drug was approved in. Japan. Cytotec has now been approved in all major markets. Arthmtec, a new product for the treatment, of arthritis, is a combination of Searie's Cytotec and ' diclofenac, the world's best-selling prescription arthritis medication. Arthrotec has been approved in the U.K., France, Canada, Sweden and Portugal: As a result of these approvals, increased launch costs are expected in 1993. .Products currently in various stages of scientific development include potential treatments for abnormal heart rhythms- Alzheimer's disease and nge-assodated memory impairment; psoriasis and ulcerative colitis; thrombosis; acquired immune deficiency syndrome (AIDS), and other viral diseases. BIOTECHNOLOGY PRODUCT DISCOVERY The mission of Biotechnology Product Discovery is to generate a continuous pipeline of proprietary pruduct opportunities and new technologies essential to success in the areas of human health, plant-related agriculture and chemical products. For human health care, Monsanto applies biotechnology to provide target proteins for the development of novel pharmaceutical chemicals. The strategy for plant-related agriculture is to isolate novel genes, the products of which are expressed in genetically transformed plants providing unique agronomic charac teristics. The chemical research programs provide novel high-performance chemicals and unique approaches to manufacturing processes and waste minimization. When product leads and new technologies arc: refined and clarified, they are transferred to the operating units for further development and commercialization. Monsanto Ty<?2 Annual Ki'port 37 UrxOnfti AUO.T.Wn61.W4 STLCOPCB4007335 TOWOLDMONOOI5731 GEOGRAPHIC DATA Net Sales to Unaffiliated Customers 1992 1991 1990 1992 Operating Income (Loss)(1J 1991 1990 1992 Total Assets 1991 1990 United States Europe-Africa Asia-Pacific Canada Latin America Interarea Eliminations Corporate Fisher Controls Total $4,964 1,652 566 290 291 $5,100 1,708 530 305 293 $5,131 1,776 486 341 334 $7,763 $7,936 $8,068 $181 (168) 50 IS 29 7 (59) $440 74 19 13 (381 24 (57) $601 200 36 17 16 (22) (40) $ 58 $475 $808 $5,641 2,046 533 147 242 (324) 800 $9,085 $5,655 2,088 526 129 208 (304) 294 631 59,227 $5,909 1,945 441 11J*3UQ 264 {426) 318 647 59,236 The data above are prepared on an "entity basis" which means that net sales, operating income and assets of a legal entity are assigned to the geographic area where the legal entity is located (for example, a sale from the United States to Latin America is reported as a US. sale). Interarea sales, which are sales between Monsanto locations in different world areas, were made on a market price basis. IVyfrprarraa caloa Kflav/1 muu-fya,yUl UfnUsUmL un- uiuvrc uivic and were: 1992 1991 1990 World area shipped from: United States Europe-Africa Asia-Pacific Canada Latin America Interarea Eliminations $ 683 105 5 33 2 (828) $ 716 80 4 14 2 (816) $ 740 125 1 11 17 (894) Total $-- $_ $- Following is a reconciliation of ex-U.S. operating income and total assets to the net income and net assets of consolidated ex-U.S. subsidiaries. 1992 1991 1990 Operating income Goss) Interest and other income (expense) - net Income taxes $ (71) $ 66 $ 269 (89) 17 (7) 54 nvi r&*n/ Thp rpnor+Arl nwnf"gfaHnrpr mri geographic areas does not include the full profitability generated by sales of Monsanto products imported from other locations, principally from the United States. Direct export sales from the United States to non-U.S. third party customers were $393 million, $473 million and $426 million for 1992-1990, respectively. The 1992 decline was principally in The Agricultural Group due to the lack of sales from the divested animal feed ingredients business. Sales and operating income for the geographic segments do not include the financial results from those joint venture companies in which Monsanto does not have management control. Monsanto's share of the income or loss of these companies is reflected in "Other income {expense) -- net" in the Statement of Consolidated Income, Monsanto's share of the unconsolidated net sales and income or loss of these companies for 1992 follows: Monsanto's Share Net Income Sales (Expense) united States T?-.--.-- A -1 Asia-Pacific Latin America $ 99 37 111 88 $--1 (1) 1 ri)Geographic area operating income was affected by the 1992 and 1991 restructuring and other unusual items as follows: Nst Income (Loss) of Consolidated Ex-U.S. Subsidiaries Total operating assets Total liabilities Net Assets of Consolidated Ex-U.S. Subsidiaries $ (106) $2,968 1416 $ 50 $2,951 1,154 fc-t CM rft 'TrV7 $ 178 $2,788 1,020 r5rir1i ,/OAO United States Europe-Africa Asia-Pacific Canada Latin America Corporate income (txpensei 1992 1991 $(327) (295) 13 wt (1) (6) $(296) (95) (4) wtt\; (ITi \/ (9) Total $(624) $(457) 39 Monsanto 1992 Annual Report DSW Q2ZQZ? STLCOPCB4007336 TOWOLDMONOOI5732 QUARTERLY OATA Net Sales Gross Profit Operating income (Loss) Income (Loss) from Continuing Operations Net Income (Loss) Earnings per Share: Income (Loss) from Continuing Operations Net Income (Loss) Dividends per Share Common Stock Price 1992 1991 1992 1991 1992 1991 1992 1991 1992 1991 1992 1991 i iiai Oiiar+gr $1,973 1,993 853 869 259 267 146 154 (388) 166 Second rXvWiOi^LLuU. $2,045 2234 831 1,018 165 (76) 95 (74) 105 (52) Third Quarter 51580 1518 766 761 119 168 46 107 54 116 Fourth Quarter $1,865 1,891 603 769 (505) 116 (413) 51 141 66 Total Year $7,763 7,936 3,053 3,417 58 475 (126) 238 (88) 296 1992 1991 1992 1991 1992 1991 117 Ul (3.16) 1.31 0.52 0.485 0.78 (058) 056 (0.42) 0.56 052 039 054 0.45 0.91 0.56 052 (355) 0.40 114 0.53 0.56 0.52 (1.01) 1.87 (0.71) 2.33 120 2.045 High Low High Low 7iy. 68VI 5714 5854 71V. (,2% 53 5214 49 Vi 4954 62 Vi 69y. 76 7154 76 46 5614 6414 57 V. 46 Monsanto's net income is historically higher during the first half of the year primarily because of the concentration of generally more profitable sales of The Agricultural Group during that part of the year. The net loss for the first quarter of 1992 included the net aftertax cumulative effect of accounting changes of $540 million, or $4.38 per share and $9 million of net aftertax expenses, principally associated with the damage to a glyphosate herbicide manufacturing unit The effect of retroactively adopting the new accounting rules as of January 1,1992, decreased previously reported first-quarter net income by $549 million, or $4.44 per share. Previously reported second- and third-quarter net income were each reduced by $8 million, or $0.06 per share, ten fee effect of adopting the new accounting rules. The second quarter of 1992 included $26 million of aftertax expense associated with the settlement of certain litigation relating to the Brio Superfund site and $12 million of aftertax expense related to the damaged glyphosate manufacturing unit The fourth quarter of 1992 included pretax expense of $625 million, $425 million aftertax, or $3.44 per share, for the restructuring program and other actions approved by the Board of Directors. The 1992 total pretax expense related to restructuring and other actions was $699 million, $472 million aftertax, or $3.82 per share. The fourth quarter also included an aftertax gain of $554 million, or $4.49 per share, from the sale of Fisher Controls. TKe rtt Irwaa fjv fKg SGCOnd }*TtSI of 1991 included net pretax restructuring expense of $457 million, $325 million aftertax, or $2254 per share- Monarch) 2992 Annual Adporf 39 OSH 022028 STLCOPCB4007337 TOWOLDMONOOI5733 STATEMENT OF CONSOLIDATED FINANCIAL POSITION (Dollars in millions, except per short) AiMtt Current Aaaata; Cash and cash equivalents trade receivables, net of allowances of $33 in 1992 and $36 in 1991 Miscellaneous receivables and prepaid expenses Deferred income tax benefit Inventories Current assets - Fisher Controls Total Currant Aaaata At December 31, 1992 1991 $ 729 1,405 375 595 1,156 4,060 $ 189 1,422 296 249 1,214 341 3,711 Property, Pmfif emu EQuiplTrant: T1-01 LJu Buildings Machinery and equipment Construction in progress Total property, plant and equipment Less accumulated depreciation Nai Property* PSint iiiu ctjuipnidiH Invaatmanta In Afflllataa intangtbla Aaaata, net of accumulated amortization of $383 in 1992 and $1,422 in 1991 Othsr Aaaata Othsr Aaaata - Ftahar Controls TAtaj TV dnor stttma! ihouid it mi bi mjmtm &tk pg* H tonijft S3 cfIU$ npoit Prmwwij reportsi fflnouflij Vt* tan ndw^M to promt JTiVr CMmli opoWta*. 106 1,240 5,939 317 7,602 4,597 3,005 248 1,066 706 $9,085 104 1215 5,772 419 7,510 4219 3,191 248 1224 591 262 S9227 Monsanto 199? Annual Rtpcrt DSw 022029 STLCOPCB4007338 TOWOLDMONOOI5734 {UOitan in maims, except per mart) Liability* and Sharaownara' Equity Currant Llabllltlaa: Accounts payable Wages and benefits Income and other taxes Restructuring reserves LTU7t,CUBll?VUJ CJLM.UCLL.p- Short-term debt Current liabilities - Fisher Controls Total Currant Llabllltlaa Long-Term Dabt Dsfvrfvd irtcOma Taxei Other Llabllltlaa Other Llabllltlaa - Flahar Controls Sharaownara' Equity: Common stock (authorized, 200,000,000 shares, par value $2) Issued, 1 64.994.1 94 shares in 1992 and 1991 Additional contributed capital Treasury stock, at cost (43,929,827 shares in 1992 and 41,466,707 shares in 1991) Reserve for ESOP debt retirement Accumulated currency adjustment Reinvested earnings Total Sharaownara' Equity Total Llabllltlaa and Sharaownara' Equity Tfe above statement fiwld b* read in conjunction vtih ptga 47 tknugft 53 Itonpwt PrmivstyrqvrtcdBmmbhmxbm rtdawifki taproot FifaControl*uiimmtmitid(ftniicn*. At December 31, 1992 1991 $ S25 191 477 377 721 257 2^48 1,423 65 4i^SJA ' 792 $ 530 217 155 186 585 335 167 2,175 1,871 512 J4*2ir83*4* 685 36 329 820 0029) (233) 15 4,103 3,005 $9,085 329 726 (1,797) (250) 187 4,459 3,654 S9.227 Monwtic 19$2 Annual Report ijSfei Vlfet- 41 STLCOPCB4007339 TOWOLDMONOOI5735 REVIEW OF CHANGES IN FINANCIAL POSITION FINANCIAL POSITION REMAINED STRONG Monsanto's financial position remained strong in 1992, as evidenced by Monsanto's ament'K or better debt rating. Financial resources were adequate to support exist ing businesses and to fund new business opportunities. Working capital was Sower at year-end 1992 due orindDaEy to higher restructuring reserves and income tax accruals offset by increased cash and cash equivalent balances, resulting from receipt of the sales proceeds from the Fisher Controls divestiture, and deferred tax benefits principally related to the 1992 restructuring reserves. Inventories and trade receivables at year-end 1992 decreased slightly compared with the prior year-end. T..h...e....a..m. 'n' unt o' f net o1 ro1oertv/'. kolant and eo* uitoment was less than year-end 1991, as $586 million of capital additions were less than the depredation expense and the write-down of property divested or to be divested under the restructuring actions. Intangible assets declined in 1992, due mainly to final amortization of the NutraSweet aspartame patent, which expired in December 1992. ------------/w nanoc J.Q 3t\j-I Unricantn arirtntarl in 1QQ9 ^atpmpnf1 of Financial Accounting Standards (SFAS) No. 106, the accounting rule for postretirement benefits other than pensions, and SFAS No. 109, the new income tax accounting rule. Adoption of SFAS No. 106 resulted in year-end 1992 balances of liabilities for postretirement benefits other than pensions and the related deferred tax benefits exceeding uitj resjpetlu!_v_e__y_c_t_n__-_a_i_u__1_7_7_1__L_*_ui aiiniirmo uy i^.^.t.u.uuiiuntn<utu $370 million. Adoption of SFAS No. 109 resulted primarily in $118 million lower noncuirent deferred tax liabilities. Total deferred tax benefits, both current and noncurrent of $514 million at year-end 1992 are primarily related to operations in the United States, which generally has had a strong earnings history. Long-term debt at year-end 1992 was lower than that of the prior year-end. Monsanto retired $565 million of outstanding debt and incurred $120 million of new debt. Monsanto uses financial markets worldwide for its financing needs and has available various short- and medium-term bank credit facilities, which are discussed in the Notes to Financial Statements (page 50). These credit facilities provide the financing flexibility to take advantage of investment opportunities that may arise and to satisfy future funding requirements. To maintain adequate finan cial flexibility and access to debt markets worldwide, Monsanto management intends to maintain an "A" debt rating. An important factor in establishing that raring is the ratio of total debt bo total capitalization, which was 36 percent in 1992. In October 1991, Monsanto's Board of Directors approved the establishment of an employee stock owner ship plan (ESOP). In January 1992, the ESOP purchased from Monsanto $250 million of common stock that will be used to match employee contributions under the Compare/s existing Savings 3Jid. ltlvcsLsi isn.t plan. mors detailed description of the ESOP is provided in the Notes to the Financial Statements on page 52. Monsanto's commitments and contingencies are described in the Notes to Financial Statements on page 53. The 1992 decline in Shareowners' Equity is due principally to the adoption of SFAS No. 106 and the aftertax cost of the 1992 restructuring program, partiaiiy offset by uiegaiiiuii mcnauci aivwutmc. Monsanto's return on shareowners' equity (ROE) was a negative 2.6 percent in 1992 Excluding the $463 million of aftertax unusual items summarized on page 27, ROE would have been over 10 percent. Monsanto's principal financial target is a sustained ROE of 20 percent or greater. The ROE and other key financial statistics are presented in the table below. KEY FINANCIAL STATISTICS Return on Shr*ownn' Equity (ROE) (Net income divided by average shareowners' equity) Current Ratio (Current assets divided by current liabilities) Trade Receivables - Days Salee Outstanding (Fourth-quarter trade receivables divided by fourth-quarter net sales times 30 days) Inventory Turnover Ratio (Cost of goods sold divided by inventory) ntSTvSt CSVwiM liwwlc lliiulwt ulej LuCwutw LaXS bj' tutial liltcJcjL icjatj Caeh Provided by Operetlona/Total Debt Total Debt/Total Capitalization^ "TolaJ apitdmXm alhtimofihal-lemiiSX, dtbitrul thatoanert' rqvify. 1992 (26)% 1.6 67 4.1 54% 36% 1991 7.6% 1.7 68 3.7 -> 7 $$% 38% 1990 13.6% 1.6 63 4.2 AA *T.T 50% 35% 42 Monsanto t$$2 Annual Report DSW 022031 STLCOPCB4007340 TOWOLDMONOOI5736 STATEMENT OF CONSOLIDATED SHAREOWNERS' EQUITY (Dollars in miliums, except per share) Common Stock: Balance, January 1 Par value of stock issued in two-for-one stock split Balance, December 31 Additional COniriuiitfiu Capital! DDCeUUCeeLLyIwVmC., j-CLI.lU.UtJ 1i. Employee stock plans and ESOP Par value of stock issued in two-for-onE stock split Balance, December 31 Treasury Stock: Balance, January 1 Si\oTc5 (6,732300; 4395,900; and 6,707,900 shares in 1992-1990, respectively) Shares issued under employee stock plans and ESOP (4,269,180; 1345333; and 193,072 shares in 1992-1990, respectively) Balance, December 31 ilBSQrVQ IUf ESOr Balance, January 1 ESOP formation Allocation of ESOP shares oQuioinSfit,' Balance, December 31 Accumulated Currency Adjustment: L^CUaTlLe/ JOllLUUjr t Translation adjustments Income taxes Balance, December 31 Reinvested Eamlnge: Balance, January 1 l\Cl ULUJUIC Mliuarroi'ys Dividends (nst of ESOP tBx b^n^fits) Common stock purchase rights redemption Balance, December 31 The above stntcmmt should be read mamjunctianlDitiip*$(fi7 though S3 ofthis report. 1992 $ 329 5 329 $ 726 94 $ 820 $(1,797) (417) 185 9(24129) $ (250) 17 $ (233) S 187 (172) $ 15 $4^59 (88) (268) $4,103 1991 $ 329 $ 329 S 714 12 $ 726 $(1363) (296) 62 $(1,797) $ (250) S (250) $ 188 (3) 2 $ 187 $4,421 296 (258) $4459 1990 S 164 165 $ 329 $ 877 2 (165) $ 714 4(1 7id) (326) 7 $(1363) S 24 171 (7) $ 188 $ 4,120 546 (242) (3) $4,421 KEY FINANCIAL STATISTICS Stock Price") High Low Year-end Per Share Dividends Shareowners' Equity Average Daily Share Trading Volume (thousands of shares) r,3&td on daily reportei high and kro stoatjrricB. 1992 $ 7114 49'/. 57% 120 24.95 392 1991 $ 76 46 677/a 1045 29,72 359 1990 $ 60Va 38% 48 Vi 1.88 32,51 425 Montanio 3992 Annual Report OSH 022032 43 STLCOPCB4007341 TOWOLDMONOOI5737 STATEMENT OF CONSOLIDATED CASH FLOW (udiars in millions) 1992 1991 Increase (Decrease) In Cash and Cash Equivalents Operating Activities: income (loss) from continuing operations Add income taxes - continuing operations Income (loss) from continuing operations before income taxes Adjustments to reconcile to Cash Provided by Continuing Operations: Income tax payments Items that did not use cash: Depredation and amortization Restructuring expense -net Incremental SFAS No. 106 expenses Other Working capital changes that provided (used) cash: Accounts receivable Inventories Accounts payable and accrued liabilities Other Nonoperating pretax gains from asset disposals Other jhwiQ Cash Provided by Continuing Operations Cash Provided by Discontinued Operations Total Cash Provided by Operations $ (126) (48) (174) (162) 765 436 45 157 21 (30) (107) (125) (6) 28 848 64 912 $ 238 116 354 (201) 714 457 37 (101) (141) (40) 7 (ID 37 1,112 68 1,180 Investing Activities: Property, plant and equipment purchases Acquisition and investment payments Investment and property disposal proceeds Proceeds from sale of Fisher Controls Discontinued operations - other Cash Provided by (Used In) Investing Activities (586) (Z59) 77? 1,275 (30) 577 (554) (225) 324 10 (445) Financing Activities: Net change in short-term financing Long-tefin debt proceeds Long-term debt reductions Treasury stock purchases Dividend payments Common stock issued to ESOP Other financing activities Cash Used In Financing Activities Increase (Decrease) In Cash and Cash Equivalents Cash and Cash Equh/alsnts: Beginning of year End of year (78) 120 (565) (417) (270) 250 11 (949) 540 189 $ 729 (235) 317 (291) (296) (258) 23 (750) (15) 204 $ 189 i Heaime statementshould be read m conjunction viith pages 47 titrougH53 oj'tka report. Prcoinusiu resorted tfmmnifci hose beat reclassified t6 promt Fisher Contrail as iiaomtriaitd ad?refiwif. The effect ofexchange rale changes on cash and cash tpuioaiath tat not materiaL Cash paymentsfor itrimst (net ofamounts capitatixed) torn $176 motion. $l69rmRmttnd $161 mSlkm.foT Ok years 1992-J990, respectmdy. During lS9h Monsanto established nr employee stadt oatanhjp pin fESOPJ. Monsanto wasguarantor of$90 mflUai ofESOP rota end JIM roUion of ESOP debcnPtm at Damper32, ISM. 44 Monsanto 1992 Annual Report 1990 $ 486 230 716 (229) 704 -- (171) (89) 122 60 (86) tAQ\ V*'/ 97S 126 1,104 (711) (194) 100 (46) (351) 77 523 (351) (326) (242) 17 (302) (49) 253 $ 204 n$y 022033 STLCOPCB4007342 TOWOLDMONOOI5738 REVIEW OF CASH FLOW Monsanto's cash flow for the three-year nerind of Long-term debt proceeds in 1992 included 1992-1990 is showr. in the Statement of Consolidated Cash $61 million in ex-U.S. floating-rate notes and $45 million Flow on the preceding page. from the issuance of industrial development bonds. CASH FLOW REMAINED STRONG Cash flow remained strong in 1992, with the cash proceeds from the Fisher Controls divestiture and that provided by operations. However, cash provided by oper ations of $912 million was 23 percent lower than the prior year. This was due to the lower selling prices and higher marketing expenses more than offsetting higher sales volumes and lower raw material costs. Cash from opera tions was generated primarily by The Chemical Group, The Agricultural Group and NutraSweet. As discussed in NutraSweet's operating unit segment data on page 35, future cash flow from Nutra5weet is expected to be lower, due to anticipated lower future selling prices. Monsanto's operations have historically generated sufficient cash to fund existing businesses, growth-related research and investments. Management expects cash provided by operations, supplemented by periodic borrowings, to be adequate to fund future requirements. These proceeds were used essentially to refinance other borrowings. In 1991, long-term debt proceeds included $100 million of 30-year fixed-rate debentures and ' i the issuance of mediumLcng-term debt repayments in 1992 included $145 million in 11% percent debentures, $141 million in 8% percent debentures, $104 million in 8 Vi percent debentures, and $51 million in industrial development bonds. Monsanto continually evaluates risk retention and insurance levels for product liability, property damage and other potential areas of risk. Monsanto devotes significant enurt to maintaining and improving safety and mtemal control programs, which reduce its exposure to certain risks. Based on the cost and availability of insurance and tiie likelihood of a loss, management decides the amount of insurance coverage to purchase from unaffiliated com panies and the appropriate amount of risk to retain. Since 1986, Monsanto's liability insurance has been on the "claims made" policy form, Management believes that the current Cash Provided by Operations <TWlc75 in nriliira) levels of risk retention are consistent with those of other companies in the various industries in which Monsanto 1,200.................................... operates. Monsanto's liquidity, financial position and prof 1,000.................. .......... S00.....................- ... 600........................ itability are not expected to be affected materially by the levels of risk retention which the Company accepts. . MONSANTO MAINTAINS STRONG ENVIRONMENTAL COMMITMENT 400.................... ........... 200................. Monsanto is subject to various laws and govern mental regulations concerning environmental matters, employee safety and employee health. It is anticipated that 0........................ <3E) increasingly stringent requirements will be imposed upon Monsanto and industry in general Monsanto is dedicated to a long-term environmental protection program that Monsanto received $1,275 million of cash from reduces emissions of hazardous materials into the environ the sale of Fisher Controls. A portion of the cash proceeds ment, as well as to the remediation of identified existing was used in 1992 to reduce debt and to purchase Monsanto environmental concerns. In 1988, management committed common stock. Most of the income taxes related to the sale will be paid in the first quarter of 1993. Other invest to a 90 percent reduction in toxic air emissions by the end of 1992, a goal that has been substantially met line cost ment and property disposals in 1992 generated $177 million to accomplish this target did not materially affect operating of cash. The principal proceeds in 1992 and 1991 were results. In fact, some of the target projects towered operat related to the sale of various businesses associated with ing costs and improved operating efficiency. the 1991 restructuring, including in 1991 the animal feed Expenditures in 1992 were approximately ingredients business. $123 million for environmental capital projects and' approx Major uses of cadi torthe period 1992-1990 included imately S264 million for operation and maintenance of capital expenditures, treasury stock purchases and dividends. environmental protection facilities. Monsanto estimates The investment in various 1992 acquisitions and purchase of that during 1993 and 1994 approximately $75 million- an interest in a Japanese pharmaceuticals firm in 1991 were $125 million per year will be spent on additional capital also major uses of cash. Monsanto's 1992 capital expendi projects for environmental protection tures focused on improved technology, capacity expansions Monsanto periodically receives notices from the and environmental projects, and totaled $586 million Environmental Protection Agency (EFA) that it is a poten- MortMnfo 1992 Anrrwai Report 45 DSW 022034 STLCOPCB4007343 TOWOLDMONOOI5739 REVIEW OF CASH FLOW tially responsible party (PRP) under Superfund, Monsanto has been designated by the EPA as a PRP at 88 Superfund sites; however, the EPA has provided notice deleting Monsanto from 2 of these sites. Monsanto has resolved disputes in 22 of these Superfund cases. In addition, partial consent decrees or administrative orders have been entered between Monsanto and the United States in 16 of these cases settling a portion of Monsanto's liability. Of the remaining sites, 6 are matters that involve allegations predi cated on tentative Endings of reuse of drums by others that once contained products sold by Monsanto. These 6 matters have been inactive as to Monsanto for at least 8 years. ity whatsoev'st Monsanto's future Supprfimd rpmpHiatinn expenses will be affected by a number of uncertainties, including the method and extent of remediation, the percentage of material attributable to Monsanto at the sites relative to that attributable to other parties, and the finan cial capabilities of the other PRPs at most sites. Monsanto spent $46 million in 1992 for remedia- Li______ c. t+.___ _________J -- J -jJ____-tt-------------------------------1 null ut uilu <ulu vutex waauc aius* ivhjbi ui these expenditures related to The Chemical Group, and similar or greater amounts can be expected in future years. Monsanto's policy is to accrue these costs in the accounting period in which the responsibility is established and the cost is estimable. At December 31,1992, Monsanto's Statement ofConsolidated Finandai Position included an accrued liability of 5242 million for the remediation of identified waste disposal sites. Because of the uncertainties associated with remediation activities, Monsanto's future expenses to remediate these sites could approximate an additional $300 million. These potential future expenses would be expected to be incurred over the balance of the decade. While the costs and results of remediation of waste disposal sites cannot be predicted with certainty, manage ment believes that, with future developments in remediation technology, Monsanto's liquidity and prof itability in any one year will not be materially affected. COMMON STOCK PURCHASE PROGRAM CONTINUED In April 1992, Monsanto's Board of Directors authorized the purchase of 5 million shares of Monsanto common stock. In October 1992, the Board authorized the purchase of an additional 12 million shares. In 1992 Monsanto purchased 6.7 million shares at a cost of 5417 million. Since June 1987, Monsanto has purchased 43.8 million shares at a cost of $2,170 million Management believes the stock purchase program represents a sound economic investment for Monsanto's shareowners. DIVIDENDS INCREASE FOR THE 20TH CONSECUTIVE YEAR Monsanto has paid dividends on its common shares without interruption or reduction since 1928, and has increased the dividend per share in each of the past 2D years. Dividend payout for 1992 was 30 percent of cash provided by operations. Monsanto's dividend policy reflects a desired long-term payout percentage based on Monsanto's expectations of future growth and profitability levels. In any individual yean additional consideration is given to expected financial position and results, working and fixed capital needs, scheduled debt repayments and economic conditions, including inflation Monsanto's common stock is traded principally on the New York Stock Exchange and is listed cm the exchanges in Tokyo and 7 European dties. The number of shareowners of record as of February 26,1993, was 59,165, and the high and low common stock prices on that date were 5511/: and $5051 45 Montana 1991 Annual Rtpert DSW 022035 STLCOPCB4007344 TOWOLDMONOOI5740 NOTES TO FINANCIAL STATEMENTS SIGNIFICANT ACCOUNTING POLICIES Monsanto's significant accounting policies are itali cized in the following Notes to Financial Statements, The financial statements present the results of Fisher Controls as discontinued operations, Previously reported amounts have been reclassified consistent with this presentation, BASIS OF CONSOLIDATION TTie consolidatedfinancial statements include the Company and its majority-mimed subsidiaries. Intercompany transactions have been dirmnatsJ in consolidation. Other com panies in which Monsanto has a significant ownership interest (generally greater than 20 percent) are included m "investments in Affiliates" in the Statement ofConsolidated Financial Position, and Monsanto's share of these companies income or loss is included in "Other income (expense} -- net" in the Statement ofConsolidated Income. CURRENCY TRANSLATION Mosi ofMonsanto's et-U.S. entities' financial state ments are translated into U.S, dollars using current exchange rates, unrealized currency adjustments in the Statement of Consolidated Financial Position are accumulated in sh-sreotoners' equity. Thefinancial statements ofex-U.S. entities that operate in hyperinfktionary economies, principally Brazil, are translated at either current or historical exchange rates, as appropriate. These currency adjustments are included in net income. Major currencies are the U.S. dollar; British pound sterling, Belgian franc and Japanese yen. Other important currencies include the Brazilian cruzeiro, Canadian dollar, French franc, German mark and Italian lira. Currency restrictions are not expected to have a significant effect on Monsanto's cash flow, liquidity or capital resources. Currency option contracts are purchased to manage currency exposure for anticipated transactions (for example, export sales for the following year). Currency option and forward contracts are used to manage other currency exposures. At December 31,1992 and 1991, Monsanto had currency forward and option contracts to purchase $53 million and $240 million, respectively, and to sell $597 million and $714 million, respectively, of other currencies, principally the British pound sterling, French franc, Japanese yen and German marie Gams and losses on contracts that are designated and effective as hedges are deferred and included in the recorded value of the transaction being hedged. Cains and tosses on other currencyforward and option contracts are included in net income immediately, Monsanto is subject to loss in the event of nonperformance by the counterparties to these contracts. RESTRUCTURING AND OTHER ACTIONS in November 1992, the Board of Directors approved a series of actions designed tD make Monsanto's worldwide operations more focused, productive and cost-effective. Major elements include a realignment of selected research investments, reductions in employment and a number of consolidations, dosings, asset write-downs and sales of nonstrategic businesses and facilities, The pretax expense related to these actions totaled $625 million ($425 million aftertax) and prinapally affected Pharmaceuticals, These actions also include some further fme-tuninz of other operating units and a reduction in corporate staff. Other unusual items, primarily in the first and second quarters of 1992, totaled a pretax expense of $74 million. These items prinapally were costs incurred as a result of damage to a manufacturing unit for a key raw material for Roundup herbidde in January 1992 and the ssttletnsr.t of certain lawsuits related to the Brio Superfund site in the second quarter of 1991 In June 1991, the Board of Directors approved restructuring steps, prinapally to strengthen The Chemical Group for the future. Corporate staff reductions were also approved. In September 1990, the Board of Directors approved a restructuring of The Agricultural Group, The Isvu and iwi actions included the shutdown and consoli dation of various facilities and the sale of certain businesses, induding the animal feed ingredients business, that did not meet Monsanto's long-term strategic direction. The components of the pretax expense related to the restructuring programs and the other unusual items were: 1992 1991 Cost of employee reductions Shutdown and consolidation of various facilities and departments Asset write-downs Glyphosate plant damage costs Brio litigation settlement Other coses Gains on business sales $224 $215 164 188 42 A-4 I1'1lAl 171) 417 64 (239) Total $699 $457 These expenses were recorded in the Statement of Consolidated Income in the following categories: 1992 1991 Cost of goods sold Restructuring expense - net $188 436 $457 Decrease in operating income Other expense 624 457 75 Tctsl decrease in income from continuing operations before income taxes $699 $457 Motttanta 2992 Annual Report 47 DSU 022036 STLCOPCB4007345 TOWOLDMONOOI5741 NOTES TO FINANCIAL STATEMENTS Continued iiUlli l i tiiiiiiiiii [g \ 11 n-1 jl l i* ii in wi * i.-I by $472 million aftertax, or $3.82 per share, and $332 million aftertax, or $2.60 per share, for 1992 and 1991, respectively, from the effect of theserestructurings and unusual items, Product sales of businesses targeted for divestiture in these restructurings were excluded from Monsanto's net sales after Board of Directors' approval. Product sales of these businesses in 1992-1990 included in Monsanto's net safes * t <it- <*> -inrx .. -11 * . .. ... J rh __ ;!! _ _ _, . were }/o muuon, ta? munon anu yiax nuuiun, respectively. PRINCIPAL ACQUISITIONS AND DIVESTITURES In October 1992, Monsanto sold the worldwide business of Fisher Controls, Monsanto received $1,275 million in cash, which resulted in an aftertax gain of $554 million (net of applicable income taxes of $371 million). Financial data for Fisher Controls were: 1992* 1991 1990 Net sales $679 $928 $927 Income before income taxes Income taxes $ 37 13 $ 88 30 $ 94 34 Net income $ 24 $ 58 $ 60 *Fst Da rrine immiSj miad September 30. IS9Z In 1991, Monsanto purchased 12.25 percent of the shares of Hokuriku Seiyaku Co., a Japanese pharma ceuticals firm. The investment is included in "Other Assets." In June 1990, certain assets of a Monsanto joint venture in Japan were sold. Monsanto recognized a pretax gain of $45 million, or an aftertax gain of $31 million, or $024 per share, on the safe of these assets. On January 7,1993, Monsanto signed a letter of intent to purchase the assets, including working capital, of the Ortho Consumer Products Division of Chevron Chemical Co. The transaction is subject, among other condi tions, to a due diligence review of the Ortho business and the signing of a definitive agreement Subject to the timing of the transaction in relation to Monsanto's seasonal work ing capital needs, financing of the acquisition is to be achieved through available cash balances and additional short-term borrowings. Ortho Consumer Products, with rmfilial calpc nf anr^mvimafpltT -V T---- -- il a IpaHintr --r "O US. marketer of lawn and warden products. Property, plant and equipment is recorded at cost. The cost ofplant and equipment is depreciated over weighted average periods of 22 yearsfar buildings and 11 yearsfor machinery and equipment, using the sfraight-lfnemethaf. Intangible assets art recorded at cost less accumulated amortization. The components of intangible assets and their estimated remaining useful lives were: Estimated Remaining Life* 1992 1991 Goodwill Patents Other intangible assets Total 30 S 692 $ 687 7 85 275 15 289 262 $1,066 $1,224 'Weir/itatnwaje. in jnm.et DttemberSl. 1992. Goodwill is the cost ofacquired businesses in excess of thefair value of their identifiable net assets and is amortized over the estimated periods of benefit (5 to 40 years). Patents obtained in a business acquisition are recorded at the present value ofesti matedfuture cashflows resultingfrom patent ownership. The cost ofpatents is amortized over their legal lives. Tne cost cfother intangible assets (principally product rights and trademarks) is amortized over their estimated useful lives. INVENTORY VALUATION Inventories are stated at cost or market, whichever is less. Actual cost is used to value raw materials and supplies. J.t.W.. fUHf H trWhf Wf lt-041- <> *Y_Y* VA__H__ikH+_H t' finish&i goods sad goods in procsss. St&iddTd cost ip.chidss direct labor, raw material and manufacturing overhead based on practical capacity. The cost of certain inventories (55 percent at December 31,1992) is determined by using the last-in,first-out (UFO) method, which generally reflects the effects of inflation or deflation on cost ofgoods sold sooner than other inven tcry cost methods. Tne cost ofother inventories generally is determined ly,y. uawigit.* c,---t ,,.,i ti'rnrrrvv'i'i/ mcinyw. The components of inventories were: 1992 1991 Finished goods Goods in process Raw materials and supplies $ 743 298 426 $ 838 300 384 DEPRECIATION AND AMORTIZATION 1992 1991 Depredation $473 Amortization of intangible assets 237 Obsolescence 55 $453 233 28 1990 $437 229 38 Inventories, at FIFO cost Excess of FIFO over UFO cost 1467 <311) Total $1,156 Inventories at FIFO cost approximate current cost. 1,522 {308) $1,214 Total $765 $714 $704 Monsanto 1992 Annual Report uSW 022037 STLCOPCB4007346 TOWOLDMONOOI5742 INCOME TAXES The components of income (loss) from continuing operations before income taxes were: 1992 1991 1990 United States Outside United States $ (14) (160) $269 85 $454 262 Total 5(174) $354 $716 The components of income tax expense (benefit) charged to continuing operations were: 1992 1991 1990 Current: US, federal U.S. state Outside United States $ 56 24 19 $225 26 56 $102 17 83 99 307 202 Deferred: US. federal U.S,state Outside United States (59) (149) (15) (21) (73) (21) 26 1 1 (147) (191) 28 Total $ (48) $ 116 $230 Factors causing Monsanto's effective tax rate for continuing operations to differ from the US. federal statutory rate were: 1992 1991 1990 U.S. federal statutory rate Benefits attributable to; U.S. export earnings Puerto Rico operations Sale of investments Higher (lower) ex-U.5. rates Nondeductible goodwill Valuation allowances State income taxes Other (34)% (9) (4) -- (12) 3 19 2 7 34% (7) 0) (3) 4 2 1 5 34% (2) (2) -- a) i 2 Effective Income Tax Rate (28)% 33% 32% The income taxes netted against the gain on the sale of Fisher Controls and the cumulative effect of adopt ing Statement of Financial Accounting Standards (SFAS) No. 106 exceeded the 34 percent US. federal statutory rate primarily because of the effect of state income taxes. Monsanto adopted SFAS No. 109, 'Accounting for Income Taxes," effective as of January 1,1992, and recog nized a gain of 118 million, or $0.96 per share. This gain has been reflected in the Statement of Consolidated Income as a cumulative effect of an accounting change. Deferred income tax balances in 1992 reflect the impact of temporary differences between the amounts of assets and liabilities for income tax purposes, compared with the respective amounts for financial statement purposes. Deferred income tax balances at December 31, 1992, were related to: Asset Liability Property Postretirement benefits Restructuring reserves Environmental liabilities Inventory Other Valuation allowances $(301) 392 164 83 71 147 (62) $43 12 2 10 Total $514 $67 Included in the SFAS No. 109 adoption at January 1, 1992, were valuation allowances or $32 million. Under the previous income tax accounting rules, deferred income taxes were provided for significant timing differences in the recognition of revenue and expense for tax and financial statement purposes. The source of these tuning differences and the tax effect of each were: 1991 1990 Depreciation and obsolescence Restructuring State income taxes Other Total 5 (U) (146) (21) (10) $(191) $9 19 1 (1) $28 Income and remiiiance iiaes futue not been recorded on $400 milium ofundistributed earnings ofsubsidiaries, either because any taxes on dividends would be offset substantially byforeign tax credits or because Monsanto intends to indefinitely reinvest those earnings. The estimated U.S. income tax if such earnings were paid as dividends would be approximately $55 million. short-tehm debt and credit ARRANGEMENTS Short-term debt was: 1992 1991 Notes payable to banks Commercial paper Bank overdrafts Current portion of long-term debt $ 70 78 109 $ 75 66 125 69 Total $257 $335 Weighted average interest rates of notes payable at December 31: Banks*" Commercial paper 9.8% 14.2% 4.9% ^Iruii^tkt^^T^dtiXTtmiOWtriawhmjot^'m^icinTesidtsmhi^ibilmstTzits. Monsanto 1992 Annual Report 49 DSW 022038 STLCOPCB4007347 TOWOLDMONOOI5743 Cmtbiu?d Monsanto has aggregate short-term loan facilities of $297 million, under which loans totaling $70 million were outstanding at December 31,1992. Interest on these loans is related to various bank rates. Monsanto's worldwide unused short-term loan facilities were $227 million at December 31,1992. In addition, Monsanto has a 5750 million credit facility, which expires Ln 1996= There were no borrowings under this facility at December 31, 1992 The credit facility is used to support the issuance of commercial paper. Interest on amounts borrowed under this agreement would likely be at money market rates. Covenants under this credit facility restrict maximum borrowings. It is not anticipated that future borrowings wili be limited by these rotficuons* LONG-TERM DEBT Long-term debt (exclusive of current maturities) was; 1992 1991 Industrial development bond obliga- tions, rates in 1992 ranging from 5.60% to 11.50%, due 1994 to 2022 $ 363 Medium-term notes, rates in 1992 ranging from 7.55% to 9.00%, due 1994 to 2005 300 954% notes due 19% 150 8V4% sinking fund debentures due 2000 709% and 8.13% amortizing ESOP notes and debentures due 2000 and 2006, guaranteed by the Company 180 8%% sinking fund debentures due 2008 8/4% debentures due 2009 99 11%% sinking fund debentures due 2015 Oo .Tf t/yq un^iuuin uut OfY?1 inn 231 Total 51,423 $ 371 364 150 104 200 141 99 145 inn 197 $1371 Maturities and sinking fund requirements on long-term debt are $109 million, $102 million, $98 million, $266 million and $73 million for 1993-1997, respectively. Interest rata swap options (interest options) are used to manage interest expense. At December 31,1992 and 1991, Monsanto had sold interest options with an aggregate notional principal amount of $395 million and $351 million, respectively, related to existing debt Two interest options would effectively refinance; at 8H percent, $150 million of 914 percent notes in the period 1993 through 19%. Another interest option would effectively convert $99 million of 3% percent debentures to commercial paper rates m the period 1994 through 2000. Additional interest options would effectively convert $% million of variable rate debt to fixed rates ranging from 85i percent to 954 percent in the period 1993 to 2000. Another interest option would effectively convert $50 million of 709 percent amortizing ESOP notes to a variable rate in the period 1993 to 1996. Premiums from the salt of interest options are amortized over the related debt period. Interest differentials to be paid or rpcei7ed nvs accrued as interest rates ckante over the related debt veriod. FINANCIAL INSTRUMENTS FAIR VALUES The estimated December 31,1992, fair values ofMonsanto's financial instruments were: Recorded Amount JUCWiK Foreign currency forward and option contracts Miscellaneous receivables Investments in securities Liabilities: Currency swaps and interest options Long-term debt $7 31 208 11 VG3 Fair Value $ 21 26 206 26 L496 The recorded amounts of cash trade receivables, discounted receivables, third party guarantees, accounts payable and short-term debt approximate their fair values. Investments m securities are recorded at cost and reduced io tfusrksi 7*7/1* zpkzn a dscl&is is dssassd oiks? than isttspotsp^. Fair values are estimated using quoted market prices, estimates obtained from brokers and other appro priate valuation techniques based on information available as of December 31,1992 The fair value estimates are not necessarily indicative of values Monsanto could realize in the current market POSTHETIHEMENT BENEFITS - PENSIONS Most Monsanto employees are covered by noncon tributory pension plans. The components of pension cost (income) were; 1-992 1991 1990 Service cost for benefits earned during the year $ 65 Interest cost on benefit obligation 272 Assumed return on plan assets* (291) Amortization of unrecognized net gain (41) totai $5 $ 63 259 (269) (33) $20 $ 61 230 (259) (46) S (14) 'Aitud rttefli Oat) on pin mets an J230 nu/ur, J63S rmtlim ml [(&}J niilbn St 1992-1390, rapgrrgriy. so Mcnunto 1992 Annuci Rejjdrt QSh! Q22Q39 STLCOPCB4007348 TOWOLDMONOOI5744 Pension benefits are determined based on the employee's years of sendee and/or compensation level Pension plans are funded in accordance with Monsanto's long"T321g prGjCu.CTiS Gi iHc piaTur finannfll Conditions* considering benefits earned and expected to be earned in the future, anticipated future returns on pension plan assets and income tax and other regulations. Pension cost is determined by using the preceding year-end assumptions. Assumptions used as of December 31 for the principal plans were: 1992 1991 1990 Discount rate Assumed long-term rate of return on plan assets Annual rates of salary increase (for plans that base benefits on final compensation level) 814% 914% 6% 814% 814% 6?5% SM% 814% 6/r/o The funded status of Monsanto's pension plans at year-end was: 1992 1991 Plan Assets at Fair Value $3,751 $3,753 A r+i larra! rconfr Trains rtf nl an Koncfi+ft* Vested Nonvested $2^48 123 $2,732 105 Accumulated benefit obligation 2,971 Effect of projected future salary increases 426 1 1Q7 2,837 384 ftl T)1 Excess of plan assets over projected benefit obligation Less: Unrecognized initial net gain Unrecognized prior service costs Unrecognized subsequent net gain $ 354 $ 532 221 (216) 538 266 (185) 624 common stocks and U.5. government and corporate obli gations, Because the Company's principal pension plans are well funded, contributions to these plans were neither kmmiivu] in LC^Li-LH^U IHJi UiAUC 111 1 fW\ POSTRETIREMEN! BENEFITS - HEALTH CARE AND OTHER Monsanto provides certain health care and life insurance benefits for retired employees. Substantially all of Monsanto's regular, full-time U.S. employees and certain employees in other countries may become eligible for these benefits if they reach retirement age while employed by Monsanto. These postretiremen: benefits are generally determined based on the employee's years of service and/or compensation level and are unfunded. Monsanto adopted Statement of Financial Accounting Stsndsxds (SFAS) No. 106, /rEm.ploysrsr Accounting for Postretirement Benefits Other Than Pensions," effective as of January 1,1992, and recognized an aftertax expense of $658 million ($1,045 million pretax), or $5.34 per share for retiree benefits earned through 1991. The expense was included in the Statement of Consolidated Income as a cumulative effect of an accounting change. ejrranejik'tru_. iinu.u? --mju-iji--ca iu.!_im_j. uic_l__u__s_ll. uj vjuici puaucLuciiLeu.ji, KnnaAtc Ko iivnia/i Kir frKsa /into hKo nmvili'iTr&ac 1*u/'rsrvia eligible for the benefits. Under tiie previous accounting rule, these postretirement benefits were expensed as benefits were paid. The components of the cost of these postretirement benefits, principally health care and life insurance, were: 1992 Service cost for benefits earned during the year Interest cost on benefit obligation $ 26 88 Total $114 The 1991-1990 expense for these postretirement Armiwi Net Pension T.iahilitv $ 189 $ 173 The accrued net pension liability was included in: Postretirement liabilities Less: Other assels $ 232 $ 229 (43) (56) Accrued Net Pension Liability $ 189 $ 173 At December 31,1992, the accrued net pension liability included $101 million for unfunded plans. Projected benefit obligations and plan assets included in the above table for the principal US. plans were approximately $3,040 million and $3,42$ million, respectively, at December 31,1991 Plan assets consist principally of anri 5A3 million rpsrwfttvelv The following assumptions were used for the principal plans in 1992: a discount rate of 8'/i percent and an initial assumed health care cost trend rate of 15 percent declining by 1 percent per year to an ultimate cost rate of 6 percent for years after 2000, A1 percent increase in the assumed health care postretirement health care benefits by $6 million and the accumulated benefit obligation at December 31,1992, by $51 million. Monitnia 1952 Annmtf Report 51 DSU 022040 STLCOPCB4007349 TOWOLDMONOOI5745 NOTES TO FINANCIAL STATEMENTS Continued The status at December 31,1992, of Monsanto's postretiiement health care and life insurance benefit plans and employee disability benefit plans was: 1992 Accumulated Benefit Obligation: Retirees Eligible active employees Other active employees $ 768 103 226 Accrued Liability $1,097 The accrued liability was induded in: Miscellaneous accruals Postrebrement liabilities $ 77 1,020 Accrued Liability $1/97 EMPLOYEE SAVINGS PLANS For some employee savings plans, employee contributions are matched in part by Monsanto. Matching contributions charged to expense for such plans were $33 million, $34 million and $34 million m 1992-1990, respectively: In October 1991, Monsanto established an employee stock ownership plan (ESOP). In December 1991, the ESOP issued $100 million each of 7.09 percent amortizing notes and 8.13 percent amortizing debentures guaranteed by Monsanto, and the ESOP borrowed $50 million from Monsanto, The unpaid balance of E3G? borrowings is included in "Reserve for ESOP debt retire ment" in Shareowners' Equity. The unpaid balance of notes and debentures guaranteed by Monsanto is included in "Long-term Debt" in the Statement of Consolidated Financial Position. In January 1992, die ESOP used the proceeds of the loans to purchase 3.7 million shares of common stock from Monsanto, a portion of which will be allocated each year to employee savings accounts as matching contributions. The proceeds from the issuance of common stock to the ESOP were used primarily for the purchase of an equivalent number of common shares under a treasury stock purchase program. Dividends on tfr.fi commnn stock owned by the ESOP will be used to repay the ESOP borrowings. Total expense for the ESOP was $28 million in 1992, of which $19 million represented interest expense. In 1992, Monsanto's cash contribution to the ESOP was $19 million, and dividends of $8 million were paid cm common shares held by die ESOP. STOCK OPTION PLANS Key officers and employees have been granted Monsanto stock options under the Company's 1974, 1984 and 1988 Management Incentive Plans, the Searle Monsanto Stock Option Plan (Searle Plan) and the NutraSweet/Monsanto Stock Plan (NutraSweet Plan). Information about the status of such stock options is presented below: Exercisable Shares Outstanding Shares Price per Share December 31,1990 3,360,357 7,051,529 S15.69-S61.44 1991: Granted Exercised Expired J,Q60,li L (1,612,380) {189,879) cJUn.JcrtJ. - -i7.*4,-hiJe 15.59- 58.00 43.53- 62.13 December 31,1991 4,125,193 8,877,442 19.33- 7425 1992: Granted Exercised Expired 2,078,533 tAOtt /VM\ (328,176) 51.56- 67,13 13.33- 58.00 34.50- 73.56 December 31,1992 5,140,969 10,142,705 21.31- 74.25 Under the 1988 Management Incentive Plans, the Searle Plan and toe NutraSweet Plan, 6,471,826 shares remain available for grant. T..:__l _ 1 (VU _ j._ _t --; rnur tu iy7if mik*. r . /n i n v ngiLts ^AKr?,! were granted to certain Monsanto officers in tandem with stock options under toe plans, including retroactive grants for unexerdsed options. In 1991, the SAR giants were canceled, and unexerdsed SARs held by current officers were forfeited. EARNINGS PER SHARE Earnings per share were computed using the weighted average number of common shares and common share equivalents outstanding each year (123,443,744; 127,126,216; and 129,107666 in 1992-1990, respectively). Common share equivalents (1,041/196; 1,437,179; and 676,393 in 1992-1990, respectively) consist primarily of common stock issuable udrop. exercise of nnKtaprlin'uo sto-c--k options. Earnings per share assuming full dilution were not significantly different from the primary amounts. CAPITAL STOCK At December 31,1992, there were 16,614,531 common shares reserved for employee stock options. In January 1990, the Company's Board of Directors declared a dividend of one Preferred Stock Purchase Right on each outstanding share of the Company's common stock. If a person or group acquires beneficial ownership of 20 percent or more, or announces a tender offer that would Monsanto 1992 Annutl Report DSW OZZ041 STLCOPCB4007350 TOWOLDMONOOI5746 result in beneficial ownership of 20 percent or more, of the Company's outstanding common stock, the rights become *,h.*!*A1* A *mrn 11 Ji- k*U*. a- ^ACiM^auic cuiu. cau.Lii^iLi mu cjaliuc iL^iiviUCi U^puiU.(cUK? one one-hundredth of a share of a new series of preferred stock for $450. If Monsanto is acquired in a business com bination transaction while the rights are outstanding, each right will entitle its holder to purchase, for $450, common shares of the acquiring company having a market value of S900. In addition, if a person or group acquires beneficial ownership of 20 percent or more of the Company's out standing common stock, each right will entitle its holder (other than such person or members of such group) to purchase, for $450, a number of shares of the Company's common stock having a market value of $900, Furthermore, at any time after a person or group acquires beneficial ownership of 20 percent or more (but less than 50 percent) of the Company's outstanding common stock, the Board of Directors may, at its option, exchange part or all of the rights (other than rights held by the acquiring person or group) for shares of the Company's common stock on a one-for-one basis. At any time prior to the acquisition of s" uch a- 2-(-1 rpptr--p--n--lrn-o--s--i-t--i-o--n-r. t-h---e C---o--m-rn--anJv -ca- n- re--d--e---em eac- h right for 1 cent. The Board of Directors is also authorized to reduce the 20 percent thresholds referred to above to not less than 10 percent. The rights expire in the year 2000. In connection with this dividend declaration, the Board of Directors also authorized the redemption in February 1990 of the then existing Common Stock Purchase Rights then ledempuAJii pflCG of 5 Cdtfc3 pet. tight. COMMITMENTS AND CGNTiNGENCtES Commitments, principally in connection with uncompleted additions to property, were approximately $92 million at December 31,1992. Excluding the ESOP notes and debentures, Monsanto was contingently liable as a guarantor of bank loans and for discounted customers' receivables totaling approximately $245 million and $223 million at December 31,1992 and 1991, respectively. Future minimum payments under noncancellable operat ing leases and unconditional inventory purchases are $172 million; $87 million; $59 million; $38 million; and $74 million for 1993-1997, respectively, and $120 million thereafter. The more significant concentrations in Monsanto's trade receivables at year-end were: 1992 1991 Management does not anticipate incurring fosses on its trade receivables in excess of established allowances. Monsanto is party to a number of lawsuits and claims, which it is vigorously defending. Such matters arise out of the normal course of business and relate to product liability government regulation, including environmental issues, and other issues. Certain of the lawsuits and claims seek damages in very large amounts. While the results of litigation cannot be predicted with certainty, management believes, based upon the advice of Company counsel, that the final outcome of such litigation will not have a material adverse effect on Monsanto's consolidated financial posi tion. Costsfor remediation ofwaste disposal sites are accrued in the accounting period in which the responsibility is established and the cost is estimable. SUPPLEMENTAL DATA Supplemental income statement data were: 1992 1991 1990 Raw material and energy costs Employee compensation UuarsaH-f-e Cunwit income and other taxes Rent expense $2,247 ? mft 393 133 $2,283 $2,441 1 0A7 .580 471 130 130 Technological expenses: Research and development Engineering, commercial development and patent 651 610 595 69 70 66 T_ o--t-a---l T--e--c--h---n--olo'CgTic' al Ex*penses 720 680 661 Interest expense: Total interest cost Less capitalized interest 185 190 205 (16) (24) (29) Net Interest Expense 169 166 176 Currency gains (losses) including Hyniy rfiTttLdtt^1' iTuiTctuiiy gains and losses (39) (10) (45) SEGMENT INFORMATION Certain operating unit segment data and geographic data for 1992-1990 appear on pages 31 and 38 and are integral parts of the accompanying finanriai s_ut_ui.e__m___t_m__ii_s* tm-i__e__p_ ruuapm yiuuuu. uilo uiuuucu lu each operating unit are shown in the operating unit segment data. US-agricultural product distributors European agricultural product distributors Pharmaceutical distributors worldwide Customers in the Commonwealth of Independent States $175 149 315 75 $141 176 332 77 Monsanto 1S92 Annua I Report 53 DSW QZZQ^Z STLCOPCB4007351 TOWOLDMONOOI5747 FINANCIAL SUMMARY (Dollars in millions, except per share) 1992"' 1991TM 1990<3> 1989TM 1958 Net Sales Operating Income As a Percent of Net Sales Income floss) from Continuing Operations As a Percent of Net Sales Income from Discontinued Operations Cumulative Effect of Accounting Changes Net Income (Loss) Return on Shareowners' Equity $ 7,763 58 1% (126) <2)% 578 (350) (88) (2.6)% $ 7,936 475 6% 238 3% 58 296 7.6% $ 8,068 808 10% 486 6% 60 546 13.6% $ 7,829 1,006 13% 627 8% 52 679 17.6% Earnings psr Share Income (Loss) from Continuing Operations Net Income (Loss) $ (1.01) (0.71) $ 1.87 2,33 $ 3.77 4.23 $ 4.63 50i Yoaf-End Financial Position Total Assets Working Capital $ 9,085 1,512 $ 9,227 1,536 $ 9,236 1,323 S 8,604 U26 Property, Plant and Equipment Gross Net TLAJH,"iLCTJ..Uvi Li^LCViI. Shareowners' Equity Current Ratio Percent of Total Debt to Total Capitalization 5 7,602 3.005 1 4*4 * ir'iAJ 3,005 1.6 36% $ 7^510 3,191 t> Y 071 vP ipOV i 3,654 1.7 38% $ 7,226 3,-316 A9* it/WteO 4,089 1.6 35% S 6,578 3,009 S 1,464 3,941 1.7 33% Other Data rrOperty, rlSni anti Equipment rUlCnases Depreciation and AmorfriZation Interest Expense Research and Development Expenses Income Taxes Cash Provided by Operations $ 586 Tt IME 169 651 (48) 912 3 554 lf1 4 i 11 166 610 116 1,180 3 711 704 176 595 230 1,104 $ 578 / er\ OJ7 176 581 327 1,037 Stock Price: High Low Year-end Price/Earnings Ratio on Year-end Stock Price Per Share: Dividends Shareowners' Equity Shareowners fyeaMnd) $ 71% 49% 57% -- $ 76 46 677. 29 $ 60% 38% 48% 11 S 62% 40% 57% 12 $ 2^0 2495 60,074 $ 2.045 29.72 60,152 S 158 3151 622230 S 1.65 29.79 61,942 Shares Outstanding (year-end, in millions) Employees (year-end) 120 33,797 123 39,281 126 41,081 132 42,179 ^iLoufwm ccntrocn^ vpentTQT&tnd nti lo&ftr 1991 htdmia entftcrisib&fvT restrurfunn^ end oOkt stfamtci items ofti72 milium, or $i.S2 per sime. ^Net huomtfdf 2$?! htdadts vt nstcudsTtr.g expense cfi32S fwiDasi, at i23ips?^tstt. wNrf inarmfat 1990 indudts milim, or H143 per sfme, m gems mvltmgfrm dmttitv7W, mduding ihe drwsdtorf ofartakt assets ofa joint venture in Japan. '*'Set incomefor 1989 inawUs a S3e mlm, or $027pet iWc, gm on tntsaUqthc enalgaia busbuss. $ 7,453 919 12% 563 8% 28 591 15.4% $ 3.95 A"Si IIdT $ 8,461 1,117 $ 6,577 2,977 5 1,406 3,800 1.6 34% $ 565 665 164 556 292 1304 $ 46% 36% 40% 10 $ 1.475 27.60 66,066 138 45,635 54 Monsanto 1992 Annual Report STLCOPCB4007352 TOWOLDMONOOI5748 EXECUTIVE & OTHER OFFICERS Chairman and Chief Executive Officer Richard J. Mahoney* Vice Chairman Nicholas L Reding* President and Chief Operating Officer Robert b. Shapiro* Chairman, Executive Committee of the Board of Directors Earle H. Harbiaon, Jr.* Executive Vice President Robert Q. Potter* Senior Vice President and Chief Financial Officer Francla A. Stroble* Senior Vice President, Secretary and General Counsel Richard W. Ouasenberg* Vice Presidents Barry Blitsteln Robert A. Clausen Leonard A. Cohn Grant W. Denison, Jr. A. Nicholas Flllppello, Ph.D. Martin J. Kaiisn nrukmlllptt aimt----u--jm* i--w---i-iT Irlukvn* Jamas H. Nlsbst Richard A. Ovsrton Mlchaal A. Plaits David l_ Sllnsy Hendrik A. Vertalllle* Virginia V. Waldon, M.D.* Vice President and Controller Bruca R. Santa Vice President and Treasurer Juanita H. Htnahaw /V"_'I1nIsflillnMwinsni | sOnIL,4U fIwTAslitnCjl tbtwAGrwVhUtUtiitfCa The NutraSweet Company Robert E. Flynn* Chairman and Qiief Executive Officer, G.D. Searle k Co. Sheldon G. Gltgore, M.D.* ' ixecutwecfifan as defined by the Securities and ibrimgeCmmmitn. Ages and yean ofservice aj^Mardi 1,1991 ADVISORY DIRECTORS Xk 1/nV4nca!nkkfrWi Wuaw1U1 LLte advisory directors in 1981 nqbift u* Potter, joined Monsanto in 1965 to provide counsel from and has held a variety executive officers to the of sales, marketing and board of directors on board administrative positions matters. Currently, seven in Monsanto's chemical executive officers serve as businesses. Currently, he advisory directors. is an executive vice presi Robert E. Flynn, 59, joined Monsanto in 1981 as executive vice president of Fisher Controls Inter nations! Inc.* which was the' n' a*w....i.h..s...i.H...i.a..r/v "n"f Monsanto. In 1990, he was dent of Monsanto and president of The Chemical Group, a Monsanto oper ating unit Potter has been an advisory director for seven years. Francla A. Strobla, 62, named chairman and chief is senior vice president and executive officer of The chief finandal officer of NutraSweet Company, Monsanto. Stroble has been a subsidiary of Monsanto. an advisory director for Flynn was appointed an , J-_:_____ j____i_____ti_ ____ ai_l V L9V4 V UUCWtVl gwmc II years, He has 36 years of cXpcTiSTiCc u*l accounting, Jan. 1,1993. finance, planning, manage Sheldon Q. Gllgoro, M.D., 61, is chairman and chief executive officer of G.D. ment information systems, and controltership assign ments at Monsanto. Searie k Co., a subsidiary Hendrik A- Vartalllla, of Monsanto. He joined 47, is a vice president of Searle in 1986 as president Monsanto and president and chief executive officer, of The Agricultural Group, and was named chairman a Monsanto operating unit. later that year. Gilgore was He was appointed an named an advisory direc- advisory director effective JuTli 1 1993 VerfaiUie joLivsci PhlHp Naadlaman, Ph.D., 54, is vice president of research and development and chief scientist of Monsanto, and president Monsanto in 1976 and has served in marketing and administrative assignments in Brussels, Belgium, and St Louis. of research and develop ment erf G.D. Searie k Co. Virginia V. Wakfcrn, M.O., 57, joined Monsanto in Needieman joined 1989. She is vice president Monsanto in 1989 and of public policy and is has been an advisory responsible for the policy director for two years. analysis, government affairs and corporate communications functions. She has been an advisory director for two years. Mottsonlo 1992 Amtvsl .Srvtijrt 55 DSN 022044 STLCOPCB4007353 TOWOLDMONOOI5749 y 66 BOARD OF DIRECTORS nm_r_w__u, n,. mni_iw_ _ii_w__y!cf--l1,, of St. Louis, is chaiiman and chief executive officer of Monsanto. He joined Monsanto in 1962 and was appointed to his current position in April 1986. He has been a director for 14 years, Mahoney is a member of the board's executive and finance committees. Joan T. 80k, S3, of Westhorough, Massachu setts, iS chairman of TsIpw England Electric System. She has been a Monsanto director for six years. Bok is a member of the board's audit and corporate social responsibility committees. Earla H. Harbiaon, Jr., 64, of St Louis, is chairman of the executive committee of the board of Monsanto. He joined Monsanto in 1967. He was president and chief operating officer from May 1986 to January 1993, and has been a director for seven years. Harbison is also a member of the board's pension and savings funds committee. Rnfthffl 15 rfoairman n Department of Genetics at Harvard Medkal School. He is also senior investi gator for the Howard Hughes Medical Institute. He has been a Monsanto uira_-.or ior uiree years. Leder is a member of the board's pension and savings funds committee Howard M. Love 62, of Pittsburgh, is the rstirsd chief executive officer of National Intergroup Inc. He has been a Monsanto director for 15 years. Love is chairman of the board's executive compensation oitd deveLopment Cumulit- fo!*A,f aMtannA* u3 mii,m"w* nv*f An um finance and nominating committees. Frank A. Mate Jr., 59, of Sloatsburg, New York, is a retired director, senior vice president of finance and planning, and chief financial officer of IBM Corp. He has been a Monsanto director for three years. Metz is a member Robart M. Hayaaat, M.D., 64, of Baltimore, is a con sultant and the president emeritus of The Johns Hopkins Health System. He is the retired president and chief executive officer of The Johns Hopkins Health System and The Johns Hopkins Hospital He has beaa a Monsanto director for four years. HeyBsel is a member of the board's audit,1 nL msinn and savineOs' funds, and executive compensation and devel opment committees. nominating and execu tive compensation and development committees. Buek Mlefcal, 67, of Greenville, South Carolina, is chairman and chief execu tive officer of RSX Holdings Inc He hasbeen a Monsanto director for 18 yens. Micke! is chaiiman of the board's audit and nominating committees, and a member of the executive compensa tion and development committee Montanto 1992 Annual Report rvv* TV* Ws Ol IP t iwuxivcr<tI mtAuaor is chairman of the executive board and chief executive officer of AEGON N.V., an international insurance and financial services company. He was elected a member of Monsanto's board effective Feb. 1,1993. Peters is a member of the board's pension and savings funds committee. t_ BaHjM 56, Of St, Louis, is vice chairman of the board of Monsanto: He joined Monsanto in 1956. He was elected a member of the board and vice chair man effective Jan. 1,1993. Pncr to this pocuuon. Reding was executive vice president of environment, safety, health and manu facturing. He has also served as president of The Agricultural Group, an operating unit of Monsanto. John 8. Rwd, 54, of New York, is chaiiman and chief executive officer of Gticorp and Citibank N.A. d--i-n--p- -etrw for gojyh* j --TM-- Reed is chairman of the board's finance committee William O. Ruckalahaua, 60, of Houston, is chair man and chief executive officer of Browning-Ferns Industries Inc. He is also the former administrator of die U5. Environmental Protection Agency. He has been a Monsanto Hirprhir fnr eight VSSTS. Ruckeishaus is a member of the board's audit and corporate social respon sibility committees. Robert B. Shapiro, 54, v* ji. rwjuia, u_>_p_r_c_s:iju.ta_ul and chief operating officer of Monsanto. Shapiro joined Searle, a subsidiary of Monsanto, in 1979. He became chairman and chief executive officer of The NutraSweet Company, also a Monsanto subsidiary, and then an executive vice president of Monsanto and president of The Agricultural Group, an operating unit of Monsanto. He was named to his cur rent position and elected a member of the board effective Jan. 1,1993. John 8. Slaughter, Ph.O.. jo, u_rMuj.s. Ak n. geles, is presiUCJ.lt. UL ULUUjP--ILtot He is the former director of the National Science Foundation. He has been a Monsanto director for 10 years. Slaughter is a member of the board's audit executive and cor porate soda! responsibility committees. Admiral StanafMd Turner (U.S. Navy, Retired), 69, ou iTniucaiLy tngjj.ua, is a IscttlTu ----r] W^ltsr mUC* i professor at the University of Maryland. He is also the former director of US. Central Intelligence and the GA, and the former John M. Oiin Professor of National Security at the US. Military Academy at West Point He has been a Monsanto director for 12 years. Turner is chairman of the board's corporate social responsibility and pension and savings funds committees. and yan ofservice as of MtrchUm 0Sw 022045 STLCOPCB4007354 TOWOLDMONOOI5750 Dividends Per Share f/n dollars) ^ Monsanto's dividend has Increased 112 percent ifi \\i& iaSi decade. 3.125 1.225 IJW 2.375 1.475 1-450 1.930 2.045 2-200 Dividend Policy The declaration and payment of quarterly dividends is made at the discretion of Monsanto's board of directors. Dividends are reviewed by the board annually. Monsanto has paid dividends on its common shares without inter ruption on a quarterly basis since 1928 and has increased the dividend in each of the past 20 years. Audition*; IniarmSitcri About Monsanto You can receive additional information about Monsanto upon request. Available financial information includes quarterly reports for shareowners; the 1992 Form 10-K, which is filed with the Securities and Exchange Commission; and the Corporate Data Book, which provides a detailed analysis of Monsanto's financial results and Dusinesses. Monsanto also has a strong commitment to the environment, and our progress is explained in our Environmental Annual Review. Please let us know which publication you would Like to receive by writing or calling: Literature Fulfillment Monsanto Company 1723F 800 North Lindbergh Boulevard St Louis, Missouri 63167 U.S.A. (314)694-3155 Dividend Reinvestment Plan Registered shareowners (shareowners whose stock certificates state that they are the holders of shares in Monsanto) who are US. citizens may reinvest their dividends in common shares of Monsanto. To receive an enrollment form, please call or write: Shareholder Services Monsanto Company 800 North Lindbergh Boulevard St. Louis, Missouri 63167 USA (314)694r5392 Duplicate Mailings If you receive duplicate mailings of Monsanto's annual report and would like for us to eliminate the extra copies, please send us your written permission. Duplicate mail ings can occur if shares are held in multiple accounts, are registered under different names, or are registered with slight differences in names and addresses. Please send us the labels from the copies you don't want or the names of the accounts, if you have the account numbers, that's also helpful. Please send this information to: Shareholder Services Monsanto Company S00 North Lindbergh Boulevard St. Louis, Missouri 63167 U.S.A. Annua! The next annual meeting of the shareowners of Monsanto will be held at 1 ;45 p.m,, Friday, April 23,1993, in K Building at the company's world headquarters at 800 North Lindbergh Boulevard, St Louis, Missouri. A formal notice of the meeting, together with a proxy statement, is being mailed to each shareowner. For Additional Information For additional information shareowners can contact Monsanto's investor relations staff: A. Nicholas Filippello, Ph-D. Corporate Vice President, Financial Communications and Chief Economist (314) 6948148 Donna B. Smith Director, Investor Relations (314) 6947867 Stock Symbol -- MTC Stock Exctisnfl?s/SoyffH Amsterdam Frankfurt Brussels Geneva Chicago (options) London New York Paris Tokyo Zurich Transfer Agent and Registrar The First National Bank of Boston Box 644 Boston, Massachusetts 02102-0644 US.A. I Printed with My-btwd ultk. h 10 ptffwrt nMt-cnwinf wtffl. brianlznlo 1992 Annual Report 57 DSfel 022046 STLCOPCB4007355 TOWOLDMONOQ15 Monsanto Company 800 North Lindbergh Boulevard St. Louis, Missouri 63167 U.S.A. OSW 022047 STLCOPCB4007356 TOWOLDMONOOI5752