Document bO03jZ4Xzk8BM9O4rjzRJvoVy

PLAINTIFF'S EXHIBIT MAR 000827 &.<** - ...... " S' LAM'D16836 1966 ANNUAL REPORT MONSANTO COMPANY FINANCIAL HIGHLIGHTS (Dollars in Millions, Except Per Share Figures) Earnings a Share........................................................... Cash Dividends a Share............................................... Stock Dividend............................................................... Income: Net sales................................................................... Interest, dividends, etc........................................... Costs of Doing Business: Raw materials, fuel, supplies, etc........................ Wages and salaries to employes.......................... Depreciation, depletion, etc.................................. Taxes (income, property, etc.).............................. Interest expense..................................................... Minority interests in subsidiaries......................... Net income..................................................................... Cash Dividends Paid..................................................... Retained for Future Growth........................................ Per Cent of Sales: Gross profit............................................................... Selling and administrative expenses................... Research, development, patent, engineering... Net income.............................................................. Plant Additions and Replacements............................ Investment in Affiliated Companies.......................... Long Term Debt (Exclusive of Current Maturities) Shareowners' Equity..................................................... Equity to debt ratio................................................. Common Shares (In Millions)..................................... Book Value a Common Share...................................... Working Capital............................................................. Current Assets to Current Liabilities Ratio.............. Employes......................................................................... Shareowners................................................................... 1966 $ 3.48 1.60 2% 1965 $ 3.89 1.45 2% $1,611.9 26.6 1,638.5 856.8 375.8 152.4 115.1 23.4 2.7 1,526.2 112.3 50.5 $ 61.8 $1,468.1 16.1 1,484.2 751.4 343.9 133.5 111.4 18.9 2.1 1,361.2 123.0 44.8 $ 78.2 26.8% 9.7 4.7 7.0 29.2% 10.2 4.8 8.4 $ 211.0 -- $ 295.2 1.1 $ 480.4 1,021.6 2.13 $ 467.5 957.5 2.05 32.3 31.6 $ 31.62 $ 30.27 $ 377.7 $ 350.1 2.38 2.31 57,647 56,227 95,938 93,538 MAR 000828 LAM016887 1 In 1966, the difficulties of the last six months tended to outweigh the achievements of the first half. Although consolidated sales of $1,611,881,000 ex ceeded their year-earlier level by 10 per cent, net in come declined 9 per cent to $112,306,000. Earnings were $3.48 a share on 32,308,823 shares outstanding, compared to $3.89 a share on 31,634,357 shares in 1965. The adjoining tabulation, which lists the factors that resulted in lower year-to-year earnings, makes it apparent that lower selling prices again caused the heaviest drain on profits. Worldwide price attrition affecting all Monsanto's major product groups was especially severe in man made fibers. Total demand for such fibers did not slacken; it increased. As world supplies increased even faster, however, strong price competition resulted. A second operating factor that reduced earnings was the rising cost of administrative, marketing and technological efforts. Unlike some cost increases, however, this one was planned and within budget. It followed a well-considered decision to commit more dollars to research, engineering, development, patent work, advertising and other activities pivotal to the company's success. Monsanto, like other growth companies, has had to enlarge the scope of such activities constantly to maintain its competitive position. Finally, a smaller earnings reduction was caused by increased costs of raw materials. Higher sales volume, lower start-up costs and new manufacturing economies benefitted earnings materially. Yet, they did not fully offset the total effect of the reductions experienced. Sales advanced abroad as well as domestically. Sales beyond U. S. borders totaled $343 million, compared to sales of $311 million in 1965. Lower start-up costs were due partly to a decline in plant completions. Outlays for plant and equip ment were 29 per cent below their year-earlier level. Capital expenditures amounted to $210,972,000 in The year-to-year decrease in earnings of 41 cents a share is accounted for as follows: Earnings a Share Year 1965 earnings................................................. $3.89 Reductions in earnings caused by: Lower selling prices...................................... $.55 Higher selling, administrative, research, development and other expenses................................................ 42 Higher raw material prices.......................... ,02 .99 Additional earnings resulting from: Higher sales volume............................ $.51 Lower start-up costs...................................18 Manufacturing cost savings............... .17 .86 Decrease in operating results.................................. .13 3.76 Nonoperating items: Increase in taxes due to: Lower investment tax credit.......................... 11 Other items...................................................... 06 Higher interest costs......................................... 06 Lower other income charges............................. 03 Effect on earnings of shares issued during the year.............................................. 08 Sale of investments............................................ 19 Goodwill write-off -- Polythane.................... .19 Decrease............................................................................28 Year 1966 earnings................................................. $3.48 Italics indicate addition. Italics in the text of this Annual Report identify Monsanto's registered trademarks. MAR 000829 LAM016888 2 1966 and $295,160,000 in 1965. Start-up costs would have been still lower had it not been for the company's inability to maintain a satisfactory operating rate at the new phosphorus furnace in Soda Springs, Idaho. As a result, produc tion was insufficient to meet market demand and earnings were thus further reduced. Problems of operating the phosphorus furnace, the world's largest, are expected to be corrected in the first half of 1967. The company's competitive position will thus be greatly enhanced. New efficiencies in product manufacture reduced costs more than $10 million in 1966. Although such reductions become increasingly more difficult to achieve, it is satisfying to note that Monsanto can claim a long record of annual improvement. The year's two most significant nonoperating items were nonrecurring in nature. One was a thirdquarter goodwill write-off, which reduced income by $6,075,000. The other was an offsetting fourthquarter profit of $6,030,000 from sales of two investments. As shareowners were told earlier, the write-off of goodwill was related to the manufacture of spandex elastomeric yarns, which Monsanto decided to discontinue. The investments sold in the fourth quarter were minority interests in acrylic-fiber producers in Italy and Japan. After careful consideration, Monsanto chose to sell for two reasons. First, the company found itself in a competitive conflict with the two firms. Second, in view of such competition, the com pany decided it would be advantageous to withdraw its investment in these two firms and concentrate efforts on the production and marketing of its own Acrilan acrylic fibers. Overseas fiber operations proved disappointing. Soon after Monsanto boosted fiber capacity in the United Kingdom, purchases by the textile industry there dropped suddenly and severely, due mainly to the government's anti-inflationary measures. Con sequently, it was not possible to operate the new units at production levels of satisfactory profitability. That situation still exists. Nor have fiber sales come up to expectations in the Common Market nations of continental Europe. Start-up and marketing difficulties at the company's new nylon plant in Luxembourg further intensified Monsanto's problem. In the fourth quarter, an explosion destroyed the company's polystyrene-production unit in Montreal. Although ample insurance coverage prevented ma terial financial loss, the blast resulted in 11 fatalities and a number of injuries. Because of the human suffering it caused, the accident was regrettably tragic. The production unit at the Montreal plant is to be rebuilt. Resumption of polystyrene manufacture there is scheduled for 1968. Several noteworthy developments of 1966 could lead to new growth opportunities for the company: Monsanto's AstroTurf recreational surface proved outstandingly successful as a playing surface for baseball and football; the company put increased emphasis on the manufacture and marketing of its electronic instruments for testing and measuring; in cooperation with a power company, Monsanto be gan installing a pilot process designed to remove sulfur dioxide, a particularly troublesome air pol lutant, from the waste gases of industrial plants; and a fuel cell which Monsanto developed under government contract proved capable of powering a three-quarter-ton truck. Monsanto's Board of Directors underwent some personnel changes in 1966: James S. Rockefeller, chairman of First National City Bank, New York City, was elected a Monsanto director and a member of the Finance Committee in July. Alan H. Temple retired from the board in Septem ber. He had been a Monsanto director since 1959 and a member of the Finance Committee since 1960. Monte C. Throdahl, a Monsanto vice president, was elected to the board and to the Executive Com mittee in November. He was also given responsibility for maintaining Monsanto's technological leader ship, and he became chairman of the Technical Committee Feb. 1, 1967. Immediately prior to be coming a director, Mr. Throdahl had served as general manager of the International Division. He .MAR 000830 LAM016889 V 3 :1 n o O *. in O was succeeded in that position by Francis E. Reese, who had been assistant general manager of the Hydrocarbons & Polymers Division. In October, two of Monsanto's directors were given broader responsibilities: Vice President John L. Christian was advanced to the newly created office of senior vice president and made responsible for control and coordination of the company's worldwide operational functions. At the same time, Vice President Edward J. Bock was appointed administrator of all central staff functions. In January, 1967, there was an exchange of assign ments between Vice Presidents James D. Mahoney and Tom K.. Smith Jr. Mr. Mahoney became general manager of the Textiles Division; Mr. Smith became general manager of the Organic Chemicals Division. The change, which was made as part of the com pany's long-range organizational planning, adds substantially to the balance of management strength at the operational level. The year 1966 was difficult. In spite of this, or perhaps because of it, Monsanto employes every where performed exceedingly well. We are most appreciative of their efforts. Sincerely, Q~ . Chairman of the Board President St. Louis February 20, 1967 LlC AT EC . /- _E. ' w W : ' . r-. . \ W fc- -- .RN'iU'G . ii \ c L-: A-V r*L TCP s SALES' 1966 1965 On ^housancls) Per Cent increase Decrease First quarter. .$ 407,187 Second quarter 433,149 Third quarter... 378,534 Fourth quarter. 393,011 $1,611,881 $ 358,703 384,309 356,547 368,588 $1,468,147 13.5 12.7 6.2 6.6 9.8 INCOME: First quarter.. $ Second quarter Third quarter... Fourth quarter. $ 36,390 $ 39,402 13,225(1> 23,289(2> 112,306 $ 34,194 38,791 25,169 24,813 122,967 6.4 1.6 47.5 6.1 8.7 1966 1965 Adjusted for 1966 Stock Dividend As Reported EARNINGS A SHARE<3>: First quarter............... Second quarter......... Third quarter............. Fourth quarter........... $1.13 $1.06 1.22 1.20 .41U) .78 ,72<2> .77 $1.08 1.23 .79 .79 $3.48 $3.81 $3.89 The next annual meeting of the shareowners of the company is to be held at 10 a.m. Thursday, March 23, 1967, at the company's General Offices, 800 N. Lindbergh Blvd., St. Louis County, Mo. A formal notice of the meeting, together with a proxy statement and form of proxy, is being mailed to each shareowner. SHARES OUTSTANDING DECEMBER 31: 1966...................................................... 32,308,823 1965...................................................... 31,634,357 (1) After deduction of $6,075,000 for write-off of goodwill, equivalent to 19 cents a share. (2) Includes profit on sale of investments, net of applicable income tax. of $6,030,000, equivalent to 19 cents a share. (3) Restated for the first three quarters of 1966 to reflect the shares outstanding on December 31. MAR 000831 LAW1016890 .- 4 See OPERATIONAL HIGHLIGHTS Most of Monsanto's activities relate in some way to the manufacture and sale of products. Therefore the year's more significant developments are dis cussed here primarily in terms of products and their uses. Information is classified according to Monsanto's 11 product groups and treated on a worldwide basis. CHEMICAL FIEERS Sales of man-made fibers were 6 per cent above their year-earlier level. It was unfortunate that profit margins were squeezed by price erosion and by ex pensive plant start-ups. Total demand for nylon, acrylic and polyester fibers continued to surge upward. But world supplies of the three fibers moved ahead even faster as a num ber of new producers put plants into operation. This imbalance of supply and demand has been most severe abroad. The European nylon market in particular has been disrupted by oversupply and re sultant price-cutting. In the United Kingdom, the problem is especially acute. The anti-inflationary program the government introduced there in July caused reductions in sales for the short term, forcing abrupt production curtailment. The adverse effect of current U.S. overcapacities in chemical fibers is intensified by sharply rising im ports of the fibers and of fabrics and finished goods made from them. Such imports have increased more rapidly than U.S. demand for these products, thus undermining the sales volumes, prices and profits of domestic producers. In 1966, Blue "C" nylon achieved record sales to makers of carpeting, hosiery, tire cord and industrial products. Hosiery sales benefitted from the introduc tion of improved yarns which enable customers to produce more economically. A tire-cord yarn of superior toughness attained commercial status and further enhanced Monsanto's leadership in an im portant, rapidly growing market. A potential new market for nylon was tapped when the company introduced its AstroTurf recreational surfaces. Installed at the Astrodome in Houston, Tex., AstroTurf performed successfully as a regula tion playing surface for professional baseball and collegiate football. By year's end, specifically engi neered AstroTurf surfaces were being tested for play grounds, landscaping, putting greens and tennis courts. Monsanto's new nylon plant in Dundonald, Scot land, is now making commercial-quality product at good yields. At Monsanto's other new nylon plant in Luxembourg, start-up problems were more complex. But that plant also is now turning out quality prod ucts. In the European area, Monsanto's nylon sales rose but did not meet expectations in a fiercely competitive market. Sales of Acrilan acrylic fiber to the apparel market were at record rates. Through joint technical and manufacturing effort, a form of Acrilan for use in sweaters was upgraded to a competitively superior product, which moved in greater volume. Introduc tion of a brighter, better-dyeing Acrilan enabled the company to strengthen its competitive position as a supplier of acrylic fiber to carpet makers. Recent major expansions at Monsanto's Decatur. Ala., plant resulted in a temporary but substantial overcapacity to produce Acrilan acrylics in 1966. This imposed higher unit-production costs, which were offset in part by the institution of new manu facturing economies. Production of Acrilan acrylic MAR 000832 LAM016891 5 fiber in Ashdod, Israel, continued at a high level in 1966 and showed good profitability. First-year sales of Blue "C" polyester were re stricted by a delayed plant start-up and by a domestic market softened by heavy imports of polyester fabrics. High initial manufacturing and marketing costs also helped make the deficit in polyester operations larger than anticipated. Fabric Services, Inc., a dyeing and finishing operation Monsanto launched in 1965 in support of the polyester-market ing program, materially improved its manufacturing techniques by year's end. Production of spandex stretch fibers was discon tinued in the fall. When textured nylon became the fiber of choice for "stretch", the remaining market for spandex did not appear sufficiently attractive to merit Monsanto's further participation. In September, the Chemstrand Division was re designated Monsanto's Textiles Division. The renam ing increases identification of the company with its fibers and, at the same time, adds materially to the efficiency and the effectiveness of Monsanto's world wide promotional activities. Sales surpassed those of the prior year by 9 per cent, straining the company's production capacity in many areas of the world. Lustran acrylonitrile-butadiene-styrene (ABS) polymers -- high-performance materials used in appliances and luggage -- shared significantly in the sales increase. Prices of Lustrex polystyrene were stronger and the product moved well, especially to makers of plastic packages. To meet rising demand for styrene polymers and copolymers, Monsanto increased its capability to make Lustran in Addyston, Ohio; Montreal, Canada; CONSOLIDATED SALES BY PRODUCT GROUPS PER CENT INCREASE 1966 OVER 1965 1961 6 91 9 107 27 153 6 32 14 50 12 42 3 15 9 38 7 47 1 24 ---- Chemical Fibers..................................................... ......... Plastics, Resins and Coatings............................ .......... Products for Agriculture...................................... ......... Phosphates and Detergents............................... ......... Intermediates and Plasticizers........................... ......... Rubber and Oil Chemicals................................... ...... Petroleum -- Net of purchases.......................... ......... Fine Chemicals and Food Ingredients............... ......... Textile and Paper Chemicals.............................. ......... Heavy Chemicals.................................................. ......... Other....................................................................... ......... PER CENT OF TOTAL 1966 1965 1961 27.5 24.9 10.4 9.2 9.2 6.2 4.4 2.9 2.4 28.6 25.1 9.0 9.6 8.9 6.1 4.7 2.9 2.4 25.2 21.0 7.2 12.2 10.7 7.7 6.7 3.6 2.8 1.9 2.0 2.6 1.0 .7 .3 100.0 100.0 100.0 MAR 000833 LAM016892 6 MONSANTO'S DIVISIONS . The company in 1966 had these eight divisions: Agricultural Division, Hydrocarbons & Poly mers Division, Inorganic Chemicals Division, International Division, Organic Chemicals Divi sion, Packaging Division, Plastic Products & Resins Division and Textiles Division (formerly j Chemstrand Division). and Lecheria, Mexico. The company also completed polystyrene expansions in Newport, England; and Monzon, Spain. The Montreal polystyrene unit, destroyed by an October explosion, is to be rebuilt for renewal of operations early in 1968. To insure adequate raw material for these enlarged plants, Monsanto is boosting annual capacity to make styrene monomer by 100 million pounds. The expansion is to be completed in Texas City, Tex., in 1967. Although markets for polyvinyl chloride continued to grow, selling prices again weakened. In response to increasing use of Opalon vinyl paste resin for flooring and fabric-coating, facilities to make the resin were expanded 25 per cent in Springfield, Mass. Demand for polyethylene climbed to peak levels in 1966. In the United States, Monsanto started pro ducing foamable polyethylene for insulating the cables in community-antenna television systems. In the United Kingdom, improved polymers were marketed for the manufacture of bottles and packag ing films. In Fawley, England, work began on an expansion that will add 50 per cent to low-density polyethylene capacity in 1967. Capacity to make high-density polyethylene is being increased in Texas City. Sales of polyvinyl butyral interlayer for laminated safety glass reflected a favorable world level of auto mobile production. The interlayer, in a new form which Monsanto recently pioneered, has further contributed to motorist safety by increasing the strength and resiliency of today's auto windshields. The product is now a standard in U.S. and Canadian vehicles. Many automobiles made overseas also use it. In 1966, Monsanto increased its capacity to make Saflex polyvinyl butyral sheets in Springfield. Sales of Monsanto's polymers based on vinyl acetate virtually matched capacity throughout the year. Worldwide markets for the products -- which go into electrical insulation, adhesives, textiles and coatings -- are increasing steadily. In Springfield, Monsanto boosted capacity to make products for two of the four uses. Expansions under way in Addyston and in Eugene, Ore., will increase Monsanto's formaldehyde capac ity to more than 400 million pounds annually in 1967. The increased output will support the company's resin operations and will provide additional supplies for midwest customers. Among new resins offered to makers of adhesives and surface coatings in 1966 were a polyvinyl butyral, three low-priced melamine formaldehydes, a wood-sealer and wash-coat formulation, and a water-based vehicle that gives one-coat hiding power to flat, interior paints. Sales of finished plastic products showed a marked increase. To add to manufacturing and marketing efficiency, three organizational units were combined in 1966. These were the Gering Plastics Department, the Building Products Department and the FomeCor operation. To makers of mobile homes, Monsanto offered a new board of plastic foam. For use on the farm, the company came out with a new system of storing silage in polyethylene sheeting from which air is withdrawn by vacuum to prevent spoilage. In the field of plastic packages, Monsanto's clear, plastic tray for prepackaged meats was outstandingly successful in 1966. It is now used by more than 500 stores operated by 14 supermarket chains. Ex pansions completed during the year increased Monsanto's capacity to more than 500 million meat trays annually. MAR 000834 LAM016893 PARENT COMPANY 135 INDEX OF HOURLY WAGE RATES, PRICES OF RAW MATERIALS AND SELLING PRICES HOURLY WAGE RATES PRICES OF RAW MATERIALS SELLING PRICES 1957- 1959 = 100 7 135 In the Chicago area, the company started up a package-fabrication plant. Margarine tubs were the first major product there. In 1966, the market for plastic vending cups con tinued to increase, as did Monsanto's participation in it. Monsanto added to its capacity to make the cups, which are used to dispense both hot and cold drinks from coin-operated machines. Sales of plastic bottles improved in 1966. Capacity to produce them was increased substantially as many companies switched to Monsanto's containers for the packaging of hair dressings, headache remedies, foods, household chemicals and a variety of other products. PRODUCTS FOR AGRICULTURE The 27 per cent increase in sales of farm chemicals was the best gain attained by any product group. Monsanto again benefitted from the healthy American agricultural economy. Meanwhile, there were welcome signs that the emphasis of U.S. farm policy was starting to shift from surplus control to increased production. Moves in this direction tend to swell demands for farm chemicals. Sales to growers through Monsanto-owned and independent outlets rose to record levels in 1966. The opening of 27 new Monsanto Agricultural Centers increased the total number of these company- MAR 000835 LAM016894 owned outlets to 147. Besides handling retail sales of agricultural chemicals in prime U.S. farm regions, the centers offer such services as soil-testing, rental of equipment for applying fertilizers, and compre hensive advice on profitable crop production. Plant foods -- including ammonia, ammonium nitrate, and phosphates -- sold in record volume. Ammonia was in short supply all year, a situation caused by heavy demand and by the difficulties some U.S. producers experienced in bringing new plants on stream. Yet, Monsanto's newest ammoniaproducing facility, which began operating in 1965 at Luling, La., ran in excess of design capacity and had a key role in increasing the company's sales of the important product. The current outlook is for ammonia surpluses over the next few years. Monsanto therefore has tem porarily deferred further expansion in this product area. Ability to meet increased demand will come from plant debottleneckings achieved in 1966. Ammonium phosphate fertilizer moved well, par ticularly through retail outlets. To help Monsanto achieve a basic position in this popular plant food, the company obtained additional reserves of phos phate ore in Florida. Sales of crop-protection chemicals gained strongly. Availability of Ramrod weed killer, introduced in 1965 on a limited basis, was extended to 22 states with outstanding success. Early in the year, a new unit to make Ramrod was completed in Muscatine, Iowa. A later expansion there added capacity to turn out Ramrod in granular form at an annual rate of 70 million pounds. Ramrod is cleared for use on corn and seed soy beans, with clearances on additional crops pending. Appropriate field tests are in progress in 25 countries. Sales of Rogue weed killer, which combats grasses that infest rice fields, were strong domestically and in less developed countries where farmers are starting to emulate U.S. rice growers' balanced program of pesticide and fertilizer application to increase yields. Avadex wild-oat killer was in strong demand byproducers of small-grain crops. Usage was especially heavy in the U.S. Red River Valley and in Australia, Canada, Europe and Latin America. Randox her bicide was applied to corn and soybeans in record amounts. Two crop-protection chemicals introduced in 1966 were Wallop pesticide, the first formulated weed and soil-insect killer combination on the market, and Roundup herbicide, which meets the needs of corn growers who farm certain light soils of the Midwest. Both were highly successful in their first year. Cutbacks in U.S. cotton production depressed sales of parathion, a chemical which effectively combats the boll weevil. The problem, regarded as cyclic, is expected to correct itself in 1967. To help expand sales of insect killers in Latin America, Monsanto established a company to for mulate parathion in Nicaragua. Monsanto has similar formulating units in El Salvador and Guatemala. Led by MHA protein supplement for poultry rations and Santoquin antioxidant, animal-nutrition products achieved record sales. Brisk demand for feed-grade urea, a low-priced protein source for cattle, reflected price increases on competitive prod ucts, especially soybeans. In Spain, Monsanto introduced Santophyll feed additive, a new product fed to laying hens to produce eggs with uniformly rich-colored yolks, preferred by the Spanish people. PHOSPHATES AND DETERGENTS There was a year-to-year increase of 6 per cent in the group's total sales. Demand for phosphorus salts, particularly by the soap and detergent industry, was especially heavy. Unfortunately, Monsanto was unable to take full advantage of the 1966 upsurge. Because of the diffi culty the company experienced in operating its big, new furnace in Soda Springs, Idaho, there were insufficient supplies of phosphorus available to meet customers' complete requirements for derivative phosphates. By year's end, headway was being made in resolv ing the problems of operating the giant furnace. In MAR 000836 LAM016895 9 1967, Monsanto should begin to benefit from the unit's output, which will be converted into phos phates at newly expanded company facilities in the United States and Mexico. In 1966, Monsanto again improved its position as a supplier of linear alkylbenzene to detergent makers. The material is a principal ingredient of the biodegradable detergents, which are now standard. A new ACL chlorine-bearing chemical was in troduced. The product, ACL 66, contains more available chlorine than do some earlier introductions. Customers using the new material are able to reduce their costs of formulating dry household bleaches and dishwashing compounds. Sales of Phos-Chek fire retardant for combating forest fires increased markedly in 1966. A variation of the product, trademarked Phos-Chek P/30, was successfully commercialized for use in fire-retardant latex paints. INTERMEDIATES AND PLASTICIZERS The group's total sales advanced 14 per cent as most products were in firm demand. Sales of intermediates for the manufacture of other chemicals exceeded expectations. This resulted in tight supplies of several major products and in selective but small price increases. Plants and processes for many of the company's basic intermediates were enlarged, replaced or im proved. The products involved included several which Monsanto makes primarily for its own use. Plasticizers, used mainly to improve the properties of plastics, moved in greater volume. The gain was accelerated by increased use of polyvinyl chloride plastic in such products as floor coverings and upholstery, which require large amounts of plasticizer in their manufacture. In 1966, Monsanto's new plasticizer plant in Antwerp, Belgium, began producing material of excellent quality to supply growing demands in Europe and elsewhere. Tanker shipments of Santicizer 160 primary plasticizer now move regularly from Antwerp to Hong Kong, Taiwan, South Africa and South America. Domestic manufacture of Santicizer 160 in Bridge port, N.J., was at capacity during the year. Demand for resin materials was brisk. In fact, world shortages were created by surging demand for such principal end products as paints and reinforced plastics made by Monsanto's customers. Anticipating increased requirements for phthalic and maleic anhydride -- two major resin materials -- Monsanto began expanding highly efficient produc tion units or replacing less efficient ones in England and the United States. Despite increased output, supply and demand are expected to remain in fairly close balance. Of Monsanto's total production of resin materials, the company consumes more than half in making plas ticizers, petroleum additives, agricultural chemicals and other products. Sales of synthetic fluids continued strong to a number of large industries, including food processing, metalworking, electrical and aerospace. The international pre-eminence of Skydrol fireresistant hydraulic fluids for aircraft was strengthened by a product refinement that helps prevent the formation of bubbles which can be damaging to today's small but powerful systems. Pydraul fire-resistant hydraulic fluids for industrial use were augmented in 1966 by the commercial addition of two low-priced, special-purpose, nonaqueous fluids. RUBBER AND OIL CHEMICALS The group bettered its 1965 sales by 12 per cent. Rubber chemicals were in brisk demand. Monsanto made new moves to improve not only the products but the services it provides to the growing tire and rubber industry. The company invested substantially in new facili ties. The largest, to be completed in mid-1967, will make Santoflex antidegradants in Antwerp, Belgium. MAR 000837 LAM016896 Other projects were begun or completed in Canada and England. In the United States, capacity to make butadiene for synthetic rubber was expanded as sales of the product increased. Domestic production of isoprene concentrate for polyisoprene rubber is to begin in 1967. Progress was made toward strengthening the company's role as a supplier of petroleum additives to improve the performance of oils and gasolines. A global marketing organization was formed to serve the special needs of the petroleum industry. In 1966, Monsanto reduced the number and types of products it offers formulators of fuels and lubri cants for gasoline and diesel engines. This permits more research emphasis in areas where the company can be of maximum service to customers. Plans were made to establish production facilities in Japan. Elsewhere production costs were reduced by new and improved processes. New product introductions included a combina tion detergent and deicer for gasoline, and a multicomponent system of additive "packages" tailored to the needs of service-station oils as well as com mercial lubricants. Oklahoma and Utah. Participation in the completion of 62 producing wells gave the company a net in crease of 38.23 wells for the year. This group, which includes some of Monsanto's earliest products, expanded its sales 9 per cent. The company's outputs were increased to keep pace with growing demand for several products, notably bulk aspirin, domestic capacity for which was boosted significantly. Facilities to make bulk aspirin also were expanded in England. Santophen 1 germicide, which sold well to formulators of the disinfectant cleaning solutions used traditionally to control many diseases and infections, was shown to be additionally effective against the tubercle bacillus. Monsanto's program to develop specialty food ingredients spawned several promising products and formulations during the year. PETROLEUM PRODUCTS The year-to-year increase in sales of petroleum products amounted to 3 per cent. Demand for refined products was the strongest in recent years. Wholesale and retail prices were firmer. Monsanto's gasolines and lubricants, which became available through 65 additional service stations in 1966, achieved a 3.5 per cent increase in retail sales. Reduced availability of crude oil from nearby fields caused a slight decline in production at the company's El Dorado, Ark., refinery. Sales of crude oil and natural-gas liquids approx imated 1965 levels. Sales ofnatural gas rose 28 per cent. An active 1966 exploration program added to Monsanto's reserves of hydrocarbons. Among new wildcat wells were oil discoveries in Louisiana, TEXTILE AND PAPER CHEMICALS Sales of chemicals for the manufacture of textiles and paper increased 7 per cent. Acrylonitrile sales expanded as the second phase of a new production facility was completed at the Chocolate Bayou Plant near Alvin, Tex. Despite a temporary slump in textile markets, long-range demand for acrylonitrile by producers of chemical fibers and plastics is expected to grow. Part of Monsanto's increased output will be used by the company; the balance will be marketed. High sales were achieved by Mersize sizing agents, which impart water resistance to paper, and by Scripset additives, which improve the dimensional stability and printability of offset printing papers. In 1966, Monsanto developed a unique, alkaline sizing system employing Scripset 520. Significant mar 000838 I.AM016897 11 progress was achieved with a new pigment binder. Field tests indicate the product outperforms the paper-coating vehicles presently available. HEAVY CHEMICALS Sales of heavy chemicals were virtually unchanged. A new, thoroughly modern facility to make sulfuric acid neared completion at Monsanto, 111. The unit was carefully designed to minimize the amount of air-polluting sulfur dioxide in the waste gases. The partly owned salt mine on Cote Blanche Island, La., was completed in 1966. By year's end, its output was at design levels. In 1966, the company expanded its capacity to make Santocel silica aerogel, a flatting agent for lacquer and varnish. Sales of silica chemicals were strong. Sales of lampblack were at record levels. OTHER PRODUCTS Sales of silicon rose sharply. Forms of the product for use by the electronics industry in microcircuits and controlled rectifiers moved especially well. Early in 1966, in St. Charles, Mo., Monsanto increased by 50 per cent its domestic capacity to produce a type of silicon used mainly in solid-state power devices. Another expansion begun there in the fourth quarter will double the company's total domes tic capacity for silicon. Monsanto also manufactures this semiconductor material in Ruabon, Wales. In September, the company established an in strument center in West Caldwell, N.J. Its operations include production of Monsanto's advanced elec tronic testing and measuring devices, including counter/timers, digital voltmeters, pulse generators and signal sources. The new center also provides complete technical service to Monsanto's instrument customers. In 1966, the company began producing new, largesize Brink mist eliminators for use in curbing air pollution. The line was expanded mainly to accom modate the needs of big, new sulfuric-acid plants designed and built by Leonard Construction Com pany, a subsidiary of Monsanto. cl A r\ V !" . D c. V c.l_G r- iYi n. !\ AND EN 3 IN'EE RING Successful introduction of new and improved materials helps demonstrate the effectiveness of Monsanto's technological efforts. In 1966, the com pany achieved commercialization of 54 basic new products. In addition, a great many previously existing products were successfully upgraded. During the year, Monsanto received 567 U.S. patents and 1,480 patents in other countries. Expenditures for research, development, patent work and basic engineering amounted to $76.0 million, compared to $69.9 million in 1965. In 1966, several potential new product lines were brought closer to the marketplace by the company's Central Research Department. One of the most interesting areas being investigated by the depart ment is that dealing with the life sciences. Some of the programs still are highly theoretical; others are nearing commercialization. For example, one pro gram, still in an early stage, involves the develop ment of synthetic growth regulators. Other programs study the possibility of broader use of natural pro teins as food sources, particularly in regions of the world where people face starvation. In another active research area, initial field tests have demonstrated the considerable merits of several heavy-duty plastics. Investigation into processing and fabrication techniques to simplify the manufacture of a number of structural parts is part of the program now under study. In 1966, versatile electronic systems were de veloped for high-speed acquisition and processing of data. Such systems may become useful in a number of diverse fields. Also in 1966, economic, efficient, solid-state, light-emitting diodes and lasers were introduced. Based on Monsanto's extensive semiconductor re search, the products are stimulating intense interest among electronic designers. MAR 000839 LAMO 7 6898 GROSS ADDITIONS TO PROPERTY AND DEPRECIATION Property Additions Depreciation, Obsolescence, Amortization and Depletion (Millions of Dollars) 1957.......................... 1958.......................... 1959.......................... 1960.............................. 1961.............................. 1962.............................. 1963.............................. 64.8 58.1 68.7 121.3 153.8 168.8 114.5 48.2 52.9 56.1 79.0 86.9 97.6 114.6 1964.............................. 1965.............................. 1966.............................. 218.1 295.2 211.0 120.3 133.5 152.4 Wholly owned Monsanto Research Corporation successfully attacked problems relating to national defense, health and space conquest. Profitable ap plications for several of the subsidiary's advanced developments are under study. One such development is a fuel cell which in 1966 powered a demonstration U.S. Army truck. The Army has since ordered 300-watt cells for ultimate use as front-line power sources in Vietnam. In 1966, Monsanto Research Corporation made signi ficant progress with the use of laser energy to produce unique chemical reactions; with the creation of lightweight, super-strong construction materials for aircraft and spacecraft; and with the develop ment of heat sources utilizing radioisotopes. The latter devices are made by the subsidiary at the laboratory it operates for the Atomic Energy Com mission in Miamisburg, Ohio. In its first full year, the Central Engineering Department operated to Monsanto's credit. This consolidation of skills enabled the company to deploy its engineering resources with maximum effectiveness. In 1966, the department successfully used such advanced techniques as computerized methods of design, scheduling and procedure. Highly developed systems of instrumentation and process control include some the department conceived and others it purchased. Also in 1966, Monsanto and Metropolitan Edison Company of Reading, Pa., began building a proto type facility to remove sulfur dioxide from the flue gases of Met-Ed's coal-burning, power-generating station in Portland, Pa. The unit is designed to abate air pollution by sulfur dioxide, a major problem in all highly developed countries. PERSONNEL Monsanto has a continuing need for technical and professional personnel. In 1966, increased com petition for such manpower necessitated innovative recruiting procedures. For example, the company set up two regional recruiting offices to expedite activities involving relations with universities and to simplify the handling of applicants from sources other than universities. Personnel-development efforts concentrated on improving operational efficiency. New programs established during the year included workshops and training courses which emphasize improvement of methods, reduction of costs and continuing in tegrated development of marketing personnel. In 1966, 16 labor contracts were negotiated suc cessfully at Monsanto plants in the United States and Canada. Only two major work stoppages oc curred during the year. A strike in Montreal lasted two months. Another in Addyston, Ohio, lasted seven weeks, ending Jan. 17, 1967. The company continued to put strong emphasis on safety. Domestically, Monsanto's 1966 injury rate was second lowest in the industry. Monsanto re-examines at least once every five years such major employe-benefits programs as retirement plans, life insurance and medical insur ance. The most recent re-examination resulted in an updating of the programs, effective Jan. 1, 1966. The revisions help keep the company competitive in the labor market. A five-year agreement covering mar 000840 LAM016899 13 the plans was entered into with six international unions, thus continuing Monsanto's long-term stabil ity with respect to the cost of fringe benefits. To improve basic-compensation practices, Monsanto reviewed and reclassified all supervisory, technical and administrative positions. Completed in 1966, the reclassification helps insure a high return on the salary dollars the company spends. Cecil H. Underwood, a former governor of West Virginia, was appointed Monsanto's regional vice president in Washington, D.C., to succeed Marshall E. Young, whose retirement was effective Feb. 20, 1967. Mr. Young, a former general manager of Monsanto's International Division, had directed the company's program of civic and governmental affairs since 1964. SHAREOWNERS OF RECORD 1966 Number of Shareowners Number of Shares Men............................ 32,301 4,583,590 Women........................ 29,983 3,837,791 Joint Accounts............. 19,030 952,801 Charitable Institutions.. 508 206,202 Educational Institution. 143 208,153 Estates and Trusts........ 10,429 1,795,397 Insurance Companies.. 267 1,279,902 Brokers and Nominees.. 1,900 18,429,055 All Others................... 1,377 1,015,932 Total.................. 95,938 32,308,823 1965 Number of Shareowners Number of Shares 32,084 4,610,890 29,211 3,872,397 18,431 897,004 488 204,768 128 197,391 9,770 1,723,319 270 1,322,827 1,800 17,853,952 1,356 951,809 93,538 31,634,357 1964 Number of Shareowners Number of Shares 30,446 4,691,800 28,328 3,850,905 17,770 909,442 480 204,432 136 190,164 9,384 1,669,731 236 1,196,581 1,685 16,629,555 1,368 1,517,317 89,833 30,859,927 1963 Number of Shareowners Number or Shares 27,863 4,354,601 24,322 3,603,280 16,881 876,116 395 144,691 127 151,485 8,065 1,395,227 211 1,058,065 1,640 13,397,722 1,104 ,, 4,982,638 80,608 29,963,825 1962 Number of Shareowners Number of Shares 28,545 4,557,252 24,657 3,640,656 17,375 858,686 224 87,445 117 178,808 8,446 1,697,284 201 988,887 1,133 9,856,764 1,754 7,144,365 82,452 29,010,147 In 1966, 69 per cent of Monsanto shareowners held fewer than 100 shares. MAR 000841 LAW1016900 14 ii'.OKSA-NTO'S WORLDWIDE INTERESTS This list of Monsanto's principal equities gives some indication of the scope and diversity of the company's international operations. Per cent owner ships, in some cases rounded to the nearest whole number, are shown parenthetically. UNITED STATES: Chemstrand Research Center, Inc. (100%) conducts research in the field of textiles. Fabric Services, lnc.(100%)dyes and finishes polyester-cotton blends and other fabrics for the textile industry. Filtered Rosin Products Company (100%) produces gum naval stores and synthetic resins. Leonard Construction Company (100%) designs and builds chemical and other types of plants. Mobay Chemical Company (50%) produces urethane chemi cals. Monsanto Export Company (100%) handles export sales of Monsanto products in the western hemisphere. Monsanto International Finance Company (100%) was formed to obtain investment funds abroad to help finance overseas expansion. Monsanto Research Corporation (100%) conducts research for government agencies and for Monsanto; produces nuclear sources; operates a government-owned laboratory for the Atomic Energy Commission. Wood Treating Chemicals Co. (100%) produces wood pre servatives. CANADA: Monsanto Canada Ltd. (100%) manufactures chemi cals and plastics raw materials. Plax Canada Ltd. (50%) produces plastic blownware. MEXICO: Monsanto Mexicana S.A. (1( 0%) produces chemicals, plastics raw materials and building products. Subsidiaries make plastics consumer products. CENTRAL AND SOUTH AMERICA ARGENTINA: Monsanto Argentina S.A.I.C. (100%) manufac tures chemicals and plastics raw materials. COLOMBIA: Fabrica de Hilazas Vanylon S.A. (49%) produces nylon 6 yarns. PANAMA: Monsanto Overseas S.A. (100%) handles certain investments and licensing outside the United States. PUERTO RICO: Chemstrand Overseas S.A. (100%) markets chemical fibers exported to areas outside Europe and handles certain investments outside the United States. VENEZUELA: Monsanto Venezuela, Inc. (100%) produces petroleum. EUROPE AND MIDDLE EAST BELGIUM: Monsanto Europe S.A. (100%) supervises invest ments and marketing activities principally in Europe; produces polyvinyl butyral plastic interlayer for laminated safety glass; produces plasticizers; and will begin producing rubber chemi cals in 1967. FRANCE: Societe Monsanto (100%) makes plastics raw mate rials and chemicals. ISRAEL: Israeli Chemical Fibres Ltd. (60%) manufactures Acrilan acrylic fiber. LUXEMBOURG: Monsanto Cie S.A. (100%) manufactures nylon 6,6 yarns. SPAIN: Aiscondel S.A. (50%) makes consumer products of plastics. Two subsidiaries produce chemicals and plastics raw materials. UNITED KINGDOM: Chemstrand Ltd. (100%) manufactures Acrilan acrylic fiber and nylon 6,6 yarns. Lansil Ltd. (100%) produces acetate flake and yarn, textile fabrics and apparel. Monsanto Chemicals Ltd. (67%) manufactures chemicals, plastics and plastics raw materials. Major subsidiaries produce plastics for construction and packaging. ASIA AND AUSTRALIA AUSTRALIA: Australian Petrochemicals Ltd. (55%) manufac tures plastics raw materials. Monsanto Chemicals (Australia) Ltd. (80%) makes chemicals and plastics raw materials. An associate produces fluorocar bons. JAPAN: Mitsubishi Monsanto Chemical Company (50%) manu factures chemicals, plastics and plastics raw materials. Monsanto's participation in international commerce and trade is further revealed in this listing of companies engaged in vari ous activities on a more modest scale than those listed above. Omitted entirely are more than 100 sales agencies representing Monsanto in most parts of the world. Chemstrand International S.A. -- Switzerland Helen Harper, Inc. -- United States Monoil UK, Inc. -- United Kingdom Monsanto Agricola de Espana S.A. -- Spain Monsanto Agricola de Nicaragua S.A. -- Nicaragua Monsanto Chemicals of India Private Ltd. -- India Monsanto Chile Comercial e Industrial Ltda. -- Chile Monsanto Comercio e Industria Ltda. -- Brazil Monsanto (Deutschland) GmbH -- West Germany Monsanto (El Salvador) S.A. -- El Salvador Monsanto Far East Ltd. -- Hong Kong Monsanto (Guatemala) S.A. -- Guatemala Monsanto Japan Ltd. -- Japan Monsanto (Nicaragua) S.A. -- Nicaragua Monsanto N.V. -- The Netherlands Monsanto Oils Ltd. -- Canada Monsanto Research S.A. -- Switzerland Monsanto (Scandinavia) A.B. -- Sweden Monsanto (Venezuela) C.A. -- Venezuela Plax A.G. -- Switzerland Sidaplax S.A. -- Belgium Sinteticos Slowak S.A. -- Uruguay MSB 000842 LAM016901 > A CC L iO 15 HASKINS & SELLS CERTIFIED PUBLIC ACCOUNTANTS SIS OLIVE STREET SAINT LOUIS 63101 Monsanto Company: We have examined the statement of consolidated financial position of Monsanto Company and its subsidiary companies as of > December 31, 1966 and the related statements of consolidated income, consolidated paid-in surplus and retained earnings and of consolidated source and application of funds for the year then ended. Our examiration was made in accordance with gener ally accepted auditing standards, and accordingly included such tests of the accounting records and such other auditing pro cedures as we considered necessary in the circumstances. In our opinion, the accompanying financial statements (pages 16 through 20) present fairly the financial position of Monsanto Company and its subsidiaries at December 31, 1966 and the results of their operations and source and application of their funds for the year then ended, in conformity with gen erally accepted accounting principles applied on a basis con sistent with that of the preceding year. February 6, 1967 i MAR 000843 LAM016902 16 MONSANTO COMPANY 3 STATEMENT OF CONSOLIDATED FINANCIAL POSITION ASSETS Current Assets: Cash.............................................................................................. Marketable securities, at cost which approximates market Net receivables........................................................................... Inventories.................................................................................. 1966 1965 ffn Thousands) $ 27,697 $ 33,124 45,865 58,151 298,576 267,296 278,450 650,588 258,726 617,297 Investments and Miscellaneous Assets, at Cost or Less: Investment in and advances to associates...................... Miscellaneous investments and receivables................... 23,558 63,453 87,011 23,893 63,496 87,389 Property, Plant and Equipment, at Cost.................... Less accumulated depreciation and depletion, etc, Net property....................................................... 2,138,387 1,050,398 1,087,989 1,962,041 925,328 1,036,713 Deferred Charges 39,508 42,710 $1,865,096 $1,784,109 The above statement should be read in conjunction with pages 21, 22 and 23 of this report. MAR 000844 LAM016903 AND SUBSIDIARIES 17 AT DECEMBER 31, 1966 AND 1965 LIABILITIES Current Liabilities: Accounts payable and accruals.................................................................... Income taxes................................................................................................... Current portion of long term debt (less $1,000,000 debentures in treasury in 1965)..................................................................................................... 1966 1965 .. .. . , On Thousanc/sJ $ 193,669 62,056 $ 197,567 59,832 17,192 272,917 9,806 267,205 Notes, Debentures, etc.--Less Current Portion Above 480,411 467,554 Other Liabilities and Deferred Credits: Deferred income taxes......................... Miscellaneous........................................ 53,261 7,177 60,438 53,853 9,827 63,680 Minority Interests in Subsidiary Companies 29 736 28,180 Shareowners' Equity: Common shares--authorized, 35,000,000 shares, par value $2 each; outstanding, 32,308,823 shares in 1966 and 31,634,357 shares in 1965 ...................................................................................................... 64,618 63,269 Paid-in surplus................................................................................................. 550,842 524,033 Retained earnings # 406,134 \ 1,021,594 $1,865,096 370,188 957,490 $1,784,109 MAR 000845 LAM016904 18 MONSANTO COMPAN STATEMENT OF CONSOLIDATED INCOME Net Sales............................................................................... Cost of Goods Sold.............................................................. Gross Profit.......................................................................... Less: Selling and administrative expenses............................ Research, development, patent and engineering expenses.................................................. Operating Profit................................................................... Income Charges -- Net...................................................... Income Before Income Taxes........................................... Provision for Income Taxes: Current............................................................................... Deferred (credit)................................................................ Income Before Extraordinary Items................................ Extraordinary Items: Write-off of goodwill......................................................... Less -- Gain on sale of investments, less applicable income tax of $2,010,000................ Net Income........................................................................... 1966 1965 (In Thousands) $1,611,881 1,179,709 $1,468,147 1,039,598 432,172 428,549 156,731 75,963 232,694 199,478 10,707 188,771 149,418 69,969 219,387 209,162 6,557 202,605 Increase Decrease $143,734 140,111 3,623 7,313 5,994 13,307 9,684 4,150 13,834 77,012 (592) 76,420 112,351 72,160 7,478 79,638 122,967 4,852 8,070 3,218 10,616 6,075 6,030 45 $ 112,306 $ 122,967 6,075 6,030 45 $ 10,661 The above statement should be read in conjunction with pages 21, 22 and 23 of this report. MAR 000846 LAM016905 ND SUBSIDIARIES 19 S TAT EMENT OF CONSOLIDATED PAID-IN SURPLUS AND RETAINED EARNINGS PAID-IN SURPLUS Balance at Beginning of Year............................................................................... Additions: Excess of approximate market value of common capital stock distributed as a stock dividend over thepar value thereof.......................................... Excess of amounts received over the par value of common capital stock issued under stock optionplans.................................................................. Balance at End of Year........................................................................................... 1966 1965 (In Thousands) $524,033 $466,030 24,586 2,223 $550,842 50,213 7,790 $524,033 RETAINED EARNINGS Balance at Beginning of Year................................................................................ Addition -- Net Income for the Year................................................................... Deductions: Dividends on capital stock of parent company: Cash -- $1.60 a share in 1966 and $1.45 a share in 1965.................... Stock -- 2%........................................................................................................ One-half of deficit for period from date of acquisition of initial 50 per cent interest toDecember 31, 1964 of BlumeKnitwear, Inc.andsubsidi aries, which becamewholly-owned subsidiaries inFebruary1965_____ Balance at End of Year........................................................................................... $370,188 112,306 482,494 $343,929 122,967 466,896 50,507 25,853 76,360 76,360 $406,134 44,809 51,453 96,262 446 96,708 $370,188 The above statement should be read in conjunction with pages 21, 22 and 23 of this report. MAR 000847 LAM016906 20 MONSANTO COMPANY AND SUBSIDIARIES SOURCE AND APPLICATION OF FUNDS ^ (/n Thousands) TOTAL 1966 1965 1964 1963 1962 Source of Funds: From operations: Net income.................................................. $ 511,522 Non-cash charges to income: Depreciation, depletion, etc.................. 618,360 Deferred income taxes........................... 42,690 Goodwill write-off..................................... 6,075 1,178,647 $112,306 152,362 592 6,075 270,151 $122,967 133,485 7,478 263,930 $114,891 120,268 11,980 247,139 $ 82,990 114,606 12,373 209,969 $ 78,368 97,639 11,451 187,458 Outside financing: 4V2%-434% promissory notes................... 4`/2% sinking fund debentures................ Foreign subsidiaries................................... 434% promissory notes.............................. Common shares issued under options.... Other -- net..................................................... 100,000 25,000 42,927 99,593 39,683 5,296 1,491,146 25,000 5,206 2,305 3,745 306,407 75,000 25,000 32,776 8,099 2,982 407,787 3,276 12,108 1,571 264,094 1,669 14,532 5,368 220,802 99,593 2,639 2,366 292,056 Application of Funds: Dividends on common shares..................... Plant additions and replacements.............. Investment in affiliated companies............ Retirement of debt........................................ Increase in working capital'15....................... Increase --decrease in cash and securities 197,370 1,007,572 42,506 63,106 159,774 20,818 50,507 210,972 -- 9,963 52,678 17,713 44,809 295,160 1,126 11,396 44,595 10,701 37,606 218,105 13,340 10,418 29,845 45,220 34,978 114,502 18,443 13,452 18,042 21,385 29,470 168,833 9,597 17,877 14,614 51,665 $1,491,146 $306,407 $407,787 $264,094 $220,802 $292,056 (1) Exclusive of cash and securities and current portion of long term debt. Italics indicate deduction. MAR 000848 LAM016907 P ! ! *' A. ! v C The accompanying financial statements (pages 16 through 20) consolidate all active domestic and foreign subsidiaries in which Monsanto Company directly or indirectly has more than a 50 per cent interest. The extraordinary write-off of goodwill of $6,075,000 shown in the statement of income for 1966 relates to the discontinuance of spandex elasto meric yarn operations. Spandex had been manufac tured by Polythane Corporation, a wholly-owned subsidiary, which was liquidated in December. The gain in 1966 from the sale of investments, net of tax, of $6,030,000 results from the disposal of minority holdings in the capital stocks of Mitsubishi Vonnel Company Ltd. of Japan, and Applicazioni Chimiche Societa per Azioni of Italy. The Revenue Act of 1964 provided for a credit against Federal income taxes equal to approximately seven per cent of expenditures for machinery and equipment purchased and placed in service during the year. The reduction in income tax provision for 1966 resulting from this credit was $10,931,000; the credit for 1965 was $14,199,000. The suspension of the investment credit in October had no material effect on net income for 1966. The impact on earnings for 1967, however, is expected to be more significant. The use of the sum of the years digits method for computing depreciation on most of new assets acquired since 1954 was continued in 1966. The excess of depreciation provided by this method over straight line depreciation was $23,952,000 in 1966 and $19,189,000 in 1965. For income tax purposes only, the company in 1962 adopted the guideline lives established for machinery and equipment by the United States Treasury Department. The addi tional depreciation taken for tax purposes reduces the current income tax liability. The reduction of cur rent taxes payable was $1,386,000 in 1966 and $10,400,000 in 1965. Net income, however, is not affected, since an amount equivalent to the reduction in current taxes payable is charged to income to provide for deferred taxes payable in future years. In certain prior years, provisions were made for income taxes payable in future years resulting from the excess of depreciation and amortization of facilities constructed under Certificates of Necessity for income tax purposes over depreciation for ac counting purposes. For the years 1966 and 1965. $2,001,000 and $2,353,000 of such taxes became payable and were charged against the reserve pro vided in prior years. Charges against income for depreciation, ob solescence and depletion amounted to $152,362,000. of which $148,843,000 was depreciation and ob solescence, and $3,519,000 depletion. In 1965, such charges were $129,644,000 and $3,841,000. The company and its subsidiaries have several pension plans covering substantially all of their employes, including certain employes in foreign countries. The total pension expense for the year 1966 was approximately $25,900,000 which includes, as to certain of the plans, amortization of prior service cost generally over a period of 30 years. It is the policy to fund pension cost accrued. Changes during the year in the actuarial bases in computing pension cost and increased benefits under the pension plans of the company and certain subsidiaries had the effect of reducing net income for the year by approximately $6,000,000. Repair and maintenance charges included in operating expenses were $98,091,000 in 1966 and $89,956,000 in 1965. - The company has a number of lease agreements covering the use of transportation and other equip ment, certain buildings, and retail outlets, which are generally cancellable without penalty. For the most part, the agreements are short term, with a few extending up to 20 years. The annual rental for all leases amounts to approximately $24,817,000. The company's Federal income tax returns ha\e been examined and closed for all years through 1956. Returns for the years 1957 through 1959 ha\c been examined by the Internal Revenue Service, and returns for the years 1960 through 1963 arc MAR 000849 LAM016908 presently under examination. Differences of opinion exist between the company and the Service on the tax treatment of certain items of income and expense, principally depletion and foreign-source income. The Internal Revenue Service has proposed an assess ment for the years 1957 through 1959 of approxi mately $8 million and the company is contesting the assessment. The ultimate disposition of the items in question is not presently determinable, but it is believed that adequate provision has been made in the accounts for possible deficiencies. Allowances for doubtful accounts were $8,236,000 at December 31, 1966 and $5,564,000 at the end of 1965. Inventories are stated at the lower of cost or market, determined generally on the first-in, first-out basis. Annual rate of turnover was 4.4 in both 1966 and 1965. In 1966, the remaining $25 million was borrowed under a credit agreement entered into in 1965 with certain banking institutions. During 1965, $75 million was borrowed under this agreement. The interest rate on the loans is 4J^ per cent to February 15, 1970, and 4% per cent thereafter. The amount borrowed is repayable in installments beginning May 15, 1970 and ending February 15, 1975. The $25 million of 4Vi per cent Sinking Fund Debentures Due 1985 of Monsanto International Finance Company, which are fully guaranteed by Monsanto Company, are convertible into Monsanto Common Stock at $91 a share, subject to adjustment under certain conditions. The long term debt of the company and its sub sidiaries, exclusive of current maturities, totaled $480,411,000 at December 31, 1966, as shown in the table on page 23. The company is a defendant in several lawsuits, including antitrust actions, and it oh its subsidiaries are also defendants in companion patent-infringe ment suits. The defense of these cases is in various stages of preparation. While the results of litigation cannot be predicted with certainty, company counsel believe that the prospects of successfully defending these actions are good and that, in any event, the results of such litigation will not have any materially adverse effect on the financial position or operations of Monsanto. The company and its subsidiaries were contin gently liable as guarantor of bank loans, customer loans, and for customers' receivables discounted aggregating approximately $8,500,000 at December 31, 1966 and $8,600,000 at the end of 1965. In 1966, cash dividends of 40 cents were paid in each quarter on the common shares. Also, 633,506 common shares were distributed on December 23, 1966 in payment of a two per cent stock dividend. The equity in the unaudited 1966 net income of 50 per cent-owned companies was $1,292,000, com pared with a net loss of $23,000 in 1965. Dividends of $234,000 were received from these companies in 1966 and $401,000 in 1965. The equity in the un audited net assets of such companies at December 31, 1966 was $27,394,000, which exceeded the carrying value of the investments therein of $23,558,000 by $3,836,000. The status of the authorized shares of the three stock option plans for key employes and the changes occurring during the year were: 1951 Plan 1960 Plan 1964 Plan Outstanding 1/1/66.........................25,717 202,331 421,354 Unoptioned 1/1/66............................ -- -- 144,979 Optioned during year...................... -- -- 36,600 Exercised during year...................... 4,124 18,292 200 Terminated during year.................. 29 -- 8,626 Outstanding 12/31/66...................21,977* 187,669* 457,631* Unoptioned 12/31/66....................... -- -- 119,824* 'Adjusted for 1966 two per cent stock dividend. Under the three key plans, 525 options are out standing, at prices, after adjustment for stock divi dends, ranging from $32.93 to $99.07 a share. The following tabulation sets forth information for 1966 on common shares relating to the Third Employes' Stock Plan: Outstanding 1/1/66..........................................................228,143 Unoptioned 1/1/66...........................................................378,948 Optioned -- January 24 (9-month options) at $79.00 a share...................................................... 3,108 Exercised............................................................................. 18,344 Terminated...........................................................................212,907 Cancelled.............................................................................. 375,840 MAR 000850 LAM016909 23 The Third Employes' Stock Plan, which became ef fective on June 23,1964 and terminated on September 22, 1966, provided for the grant to eligible hourly and salaried employes of options to purchase a maximum of 650,000 Monsanto common shares. During the life of the plan, employes purchased a total of 61,253 shares, at prices ranging from $75.00 to $84.00 a share. The prices were approximately 95 per cent of the New York Stock Exchange average price on the dates the options were offered. Payments by employes were made by payroll deductions on which the company credited interest at a rate of five per cent. At December 31, 1966, there were 787,101 shares of common stock reserved for stock option plans, and 274,725 shares reserved for conversion of debentures of a subsidiary company. LONG TERM DEBT (Exclusive of Current Maturities) Parent company: 3%% sinking fund debentures, due 1968..................... 4y2% - 434% promissory notes, due 1970/1975.......... 2.65% debentures, due 1971.......................................... 3%% sinking fund debentures, due 1972..................... 314% promissory notes, due 1972.................................. 414% notes, due 1976....................................................... 434% promissory notes, due 1993.................................. 334% income debentures, due 2002.............................. 414% income debentures, due 2008.............................. Monsanto International Finance Company: 414% guaranteed sinking fund debentures, due 1985 Monsanto Chemicals Limited (English subsidiary): 6% debentures, due 1977/1982..................................... 5% debentures, due 1982................................................ Chemstrand Limited (English subsidiary): Bank loans (14% over bank rate) due 1969.................. Monsanto Cie S.A. (Luxembourgian subsidiary): 434% bank loans due 1967/1971................................... 614% bank loans due 1968-1969................................... 414% bank loan due 1969................................................ Monsanto Europe S.A. (Belgian subsidiary): 6.8% bank loan due 1969/1975..................................... Other subsidiaries.................................................................. Total........................................................................... 1966 1965 (In Thousands) -- $100,000 19,000 8,500 27,312 3,320 100,000 91,000 50,000 $ 6,250 75,000 20,000 9,000 33,812 3,520 100,000 91,000 50,000 25,000 25,000 7,318 8,568 7,547 8,815 13,758 13,796 8,016 8,000 3,000 10,020 6,720 3,000 5,440 2,179 1,554 2,520 $480,411 $467,554 ! i 1 MAR 000851 LAM016910 24 MONSANTO COMPANY HISTORICAL STATEMENT OF (In millions) ASSETS Current Assets: Cash....................................................... Marketable securities......................... Net receivables.................................... Inventories............................................ 1966 1965 1964 1963 1962 $ 27.7 $ 33.1 $ 27.8 $ 40.9 $ 34.4 45.9 58.2 52.8 84.7 67.1 298.6 267.3 239.7 198.7 173.9 278.4 258.7 214.9 191.6 170.6 650.6 617.3 535.2 515.9 446.0 10 YEARS AGO 1956 $ 30.2 17.7 75.1 105.0 228.0 25 YEARS AGO 1941 $10.3 2.0 7.4 11.6 31.3 Investments, etc..................................... 87.0 87.4 85.9 85.6 84.4 41.1 1.5 Property: Land...................................................... Buildings............................................... Machinery and equipment................ Phosphate deposits............................ Producing oil and gas properties-- Undeveloped oil and gas leaseholds. Accumulated depreciation, etc......... Accumulated depletion...................... Net property.............................. 32.3 325.5 1,662.6 10.6 100.0 7.4 1,010.4 40.0 1,088.0 27.7 289.7 1,529.1 10.0 97.9 7.6 886.5 38.8 1,036.7 27.4 263.0 1,295.2 9.8 94.7 8.2 785.7 36.6 876.0 27.7 237.0 1,148.2 9.6 89.2 9.1 707.2 33.3 780.3 25.2 219.3 1,054.5 8.6 84.8 9.6 600.9 31.2 769.9 10.7 94.4 422.9 5.9 64.6 15.1 207.6 21.2 384.8 2.3 12.5 42.9 1.0 -- -- 22.2 .1 36.4 Deferred Charges.................................. 39.5 42.7 37.9 32.4 24.6 $1,865.1 $1,784.1 $1,535.0 $1,414.2 $1,324.9 5.5 $659.4 .3 $69.5 Italics indicate deduction. *** 000852 LAW1016911 6 ND SUBSIDIARIES 25 CONSOLIDATED FINANCIAL POSIT O N (In millions) LIABILITIES Current Liabilities: 1966 1965 1964 1963 1962 10 YEARS AGO 1956 Accounts payable and accruals........ Income taxes....................................... Current portion of long term debt... $ 193.7 $ 197.6 $ 154.8 $ 122.8 $ 127.0 62.0 59.8 75.8 69.1 42.9 17.2 9.8 10.5 10.2 9.3 $ 55.2 26.7 1.8 272.9 267.2 241.1 202.1 179.2 83.7 25 YEARS AGO 1941 $ 6.1 3.0 -- 9.1 Notes, Debentures, etc.......................... 480.4 467.5 345.5 352.8 360.8 161.5 -- Other Liabilities and Deferred Credits: Deferred income taxes....................... Miscellaneous...................................... 53.3 7.2 60.5 53.9 9.8 63.7 46.4 3.4 49.8 41.4 2.4 43.8 33.5 3.5 37.0 13.0 4.5 17.5 -- 3.3 3.3 Minority Interests in Subsidiaries.... 29.7 28.2 26.9 31.3 30.3 18.1 2.4 Shareowners' Equity: Preference shares............................... Common shares................................... Paid-in surplus..................................... Retained earnings............................... -- 64.6 .-- 63.3 -- 61.7 -- 59.9 -- 58.0 550.9 406.1 524.0 370.2 466.1 343.9 406.2 318.1 360.9 298.7 1,021.6 957.5 871.7 784.2 717.6 $1,865.1 $1,784.1 $1,535.0 $1,414.2 $1,324.9 -- 42.9 164.2 171.5 378.6 $659.4 17.5 12.4 11.4 13.4 54.7 $69.5 MAR 000853 LAM016912 -26 MONSANTO COMPANY HISTORICAL STATEMENT OF CONSOLIDATED INCOME (In millions except per share earnings) 1966 1965 1964 1963 1962 10 YEARS AGO 1956 25 YEARS AGO 1941 Net Sales................................................. Cost of Goods Sold................................ $1,611.9 $1,468.1 $1,358.7 $1,192.3 $1,063.2 $591.2 1,179.7 1,039.6 940.1 849.7 762.2 431.1 $70.3 46.3 Gross Profit............................................ 432.2 428.5 418.6 342.6 301.0 160.1 24.0 Less: Selling and administrative................ Research, development, patent and engineering...................................... 156.7 76.0 149.4 69.9 134.3 117.7 100.1 60.1 66.8 58.4 51.6 21.0 232.7 219.3 201.1 176.1 151.7 81.1 Operating Profit.................................... Income Charges -- Net........................ 199.5 8.8 209.2 6.6 217.5 3.4 166.5 6.1 149.3 8.0 79.0 4.9 Income Before Income Taxes............. Provision for Income Taxes................ 190.7 78.4 202.6 79.6 214.1 99.2 160.4 77.4 141.3 62.9 74.1 33.2 Net Income............................................. $ 112.3 $ 123.0 $ 114.9 $ 83.0 $ 78.4 $ 40.9 Per Common Share: Adjusted for splits.............................. $ 3.48 $ 3.89 $ 3.72 $ 2.77 $ 2.70 $ 1.90 Adjusted for splits and stock divi dends................................................ $ 3.48 $ 3.81 $ 3.58 $ 2.61 $ 2.50 $ 1.60 4.7 1.6 6.3 17.7 (.1) 17.8 11.1 $ 6.7 $ .54 $ .43 MAR 000854 LAM016913 SUBSIDIARIES 27 OTHER DATA (/n millions except where italicized) Plant additions and replacements___ 1966 1965 $ 211.0 $295.2 1964 $218.1 1963 $114.5 1962 10 YEARS AGO 1956 25 YEARS AGO 1941 $168.8 $ 77.1 $ 8.6 Depreciation, depletion, etc................. $ 152.4 $133.5 $120.3 $114.6 $ 97.6 $ 40.9 $ 3.8 Dividends a common sharea>............. $1.60 $1.45 $1.25 $1.20 $1.05 $1.00 $.33 Book value a common share(1)........... $31.62 $30.27 $28.25 $26.17 $24.74 $17.65 $3.33 Common shares(1)................................. 32.3 31.6 30.9 30.0 29.0 21.4 11.2 Preference shares.................................. -- -- -- -- -- -- 175,000 Working capital...................................... $ 377.7 $350.1 $294.1 $313.8 $266.8 $144.3 $22.2 Long term debt (less current matur ities)...................................................... $ 480.4 $467.5 $345.5 $352.8 $360.8 $161.5 -- Shareowners' equity.............................. $1,021.6 $957.5 $871.7 $784.2 $717.6 $378.6 $54.7 Employes(2>............................................. 57,647 56,227 52J84 48,133 45,665 23,678 8,275 Shareowners........................................... 95,938 93,538 89,833 80,608 82,452 53,018 9,773 (1) Adjusted for splits. (2) Includes Monsanto employes in plant operated for LLS. Government (1,870 in 1966). MAR 000855 LAIVI016914 . -28- DIRECTORS AND OFFICERS board OF DIRECTORS OFFICERS Edward A. O'Neal, Chairman................................... St.Louis Edward A. O'Neal . Dillon Anderson.............................................Houston Charles H. Sommer . Edward J. Bock.......................................................... St.Louis John L. Christian .., David R. Calhoun...................................................... St.Louis Edward J. Bock John L. Christian....................................................... St.Louis John L. Gillis........ Robert K. Mueller . Fredrick M. Eaton................................................ NewYork Monte C. Throdahl John L. Gillis.............................................................. St.Louis .... Chairman of the Board .............................. President and Chief Executive Officer ........ Senior Vice President ........................Vice President ........................Vice President ........................Vice President ........................Vice President Herbert Hoover Jr.................................... Los Angeles H. Harold Bible........................................................VicePresident Robert K. Mueller.................................................... St.LouisWilliam H. Bromley................................................. VicePresident Edgar M. Queeny....................................................... St.LouisJames E. Crawford Jr........ .....................Vice President Patrick J. Dowd....................................................... VicePresident James S. Rockefeller.............................................. NewYorkJohn R. Eck............................................................... VicePresident Charles H. Sommer..................................................... St.Louis Arthur W. Lucas......................................................VicePresident Charles Allen Thomas.............................................. St.Louis James D. Mahoney.................................................... VicePresident Monte C. Throdahl....................................................St.Louis Edwin J. Putzell Jr.................................................. Robert R. Rumer...................................................... VicePresident VicePresident Irving C. Smith......................................................... VicePresident EXECUTIVE COMMITTEE Charles H. Sommer, Chairman Tom K. Smith Jr.........................................................VicePresident J. Russell Wilson......................................................VicePresident Edward J. Bock John L. Christian John L. Gillis Robert K. Mueller Edward A. O'Neal Monte C. Throdahl Earl J. Wipfi.fr...................................................Controller Edwin J. Putzell Jr......................................... Secretary Patrick J. Dowd...............................................Treasurer FINANCE COMMITTEE Charles Allen Thomas. Chairman Dillon Anderson Edward A. O'Neal David R. Calhoun Fredrick M. Eaton Herbert Hoover Jr. Edgar M. Queeny James S. Rockefeller Charles H. Sommer Transfer Agents Morgan Guaranty Trust Company of New York The Boatmen's National Bank of St. Louis Lloyd R. Cole............ Jack W. Mueller Francis A. Stroble ... Walter C. Thilking .. H. Derrell Dickens . John N. Ehlers.......... Rodney Harris Jr. . C. Brent Holleran .. Franklin C. Rehfeld. Lewis L. Baseler....... Norvell G. Jones .... J. Robert Matlock .. Walter J. Naber Jr. . . Thomas M. Rasmussen Assistant Controller Assistant Controller Assistant Controller Assistant Controller .Assistant Secretary . Assistant Secretary . Assistant Secretary . Assistant Secretary .Assistant Secretary .Assistant Treasurer .Assistant Treasurer .Assistant Treasurer .Assistant Treasurer .Assistant Treasurer Registrars The Chase Manhattan Bank (National Association) St. Louis Union Trust Company PRINTED IN U.S.A. Regional Vice Presidents Roy L. Brandenburger Franklin J. Cornwell Cecil H. Underwood Feb. 20, 1967 MAR 000856 LAM016915 MONSANTO COMPANYj800 N. LINDBERGH BLVD.. ST. LOUIS. MISSOURI 63766 MAR 000857 LAM016916