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1965 ANNUAL REPORT MONSANTO COMPANY HONS 3 5 2 1 * 9 TOWOLDMON0014312 FINANCIAL HIGHLIGHTS (D o lla ri in M illions, Except Per Shore Figures) Earnings a Share......................................................................... ........ Cash Dividends a Share.............................................................. Stock Dividend............................................................................. Income: Net sales................................................................................ ........ Interest, dividends, etc.......................................................... Costs of Doing Business: Raw materials, fuel, supplies, etc......................................... Wages and salaries to employes.......................................... Depreciation, depletion, etc.................................................. Taxes (income, property, etc.).............................................. Interest expense.................................................................... Minority interests in subsidiaries......................................... Net Income................................................................................... Cash Dividends Paid................................................................... Retained for Future Growth........................................................ ........ Per Cent of Sales: Gross profit............................................................................. Selling and administrative expenses.................................... Research, development, patent, engineering...................... Net income............................................................................. Plant Additions and Replacements............................................ ........ Investment In Affiliated Companies.......................................... Long Term Debt (Exclusive of Current Maturities)................. ........ Shareowners' Equity................................................................... Equity to debt ratio................................................................ Common Shares (In Millions)..................................................... Book Value a Common Share..................................................... ........ Working Capital........................................................................... ........ Current Assets to Current Liabilities Ratio............................... Employes...................................................................................... Shareowners................................................................................ 1965 $ 3.89 1.45 2% 1964 $ 3.72 1.25 2% $1,468.1 16.1 1,484,2 751.4 343.9 133.5 111.4 18.9 2.1 1,361.2 123.0 44.8 $ 78.2 $1,358.7 15.7 1.374.4 681.0 313.6 120.3 127.3 15.5 1.8 1.259.5 114.9 37.6 $ 77.3 29.2% 10.2 4.8 8.4 $ 295.2 1.1 $ 467.5 957.5 2.05 31.6 $ 30.27 $ 350.1 2.31 56,227 93,538 30.8% 9.9 4.9 8.5 $ 218.1 13.3 $ 345.5 871.7 2.52 30.9 $ 28.25 $ 294.1 2.22 52,284 89,833 HONS 352150 TOWOLDMON0014313 1 1 TO THE S H A R E O W N E R S Taking advantage of a vigorous economy and a more favorable U.S. tax climate for domestic opera tions, our company in 1965 achieved another record year and prepared itself for future growth. Advanc ing to new levels were such traditional indicators as sales, net income, per-share earnings and dividends paid to shareowners. Yet, all expectations for the year were not achieved, as reflected in a decline in pretax income. Consolidated sales totaled 51,468,147,000, which represented a year-to-year increase of 8 per cent. Al though pretax income was down 5 per. cent, net in come was up 7 per cent to $122,967,000. Earnings came to $3.89 a share on 31,634,357 shares outstand ing, compared to $3.72 a share on 30,859,927 shares in 1964. In the fourth quarter, the Board of Directors voted to increase the quarterly dividend rate from 35 to 40 cents a share. Tabulations in the adjoining column, which reflect some of our disappointments as well as some of our achievements, indicate how various factors contrib uted to, or limited, the 1965 earnings increase. The effect on earnings of the higher costs of starting up plants, especially some involving new technology, was so appreciable that it is listed separately for the first time. Two other operating factors caused a drag on earnings. The decline in selling prices in some prod uct groups not only continued but intensified. In line with the company's growth, the costs of admin istrative, marketing and technological activities rose in 1965, but the year-to-year increase was less pro nounced than in 1964. Higher sales provided the major stimulus for the year's gains. Abroad, as well as in the United States, most major products were in firmer demand. Sales The year-to-year increase in earnings of 17 cents a share is accounted for as fallows: Earnings a Share Year 1964 earnings............................................. $3.72 Reductions in earnings caused by: Lower selling prices................................ $.37 Higher start-up costs.................... 26 Higher selling, administrative, research, development and other expenses............... 23 .86 Additional earnings resulting from: Higher sales volume...................... $.49 Manufacturing cost savings................ 23 Lower raw material prices.................... 01 .73 Decrease in operating results............................. ,13 3.59 Nonoperating items: Higher investment tax credit on property additions..................................... 26 Lower income taxes, due primarily to difference in tax rate............................. 14 Profit on sale of land....................................07 Higher interest costs.......................... 05 Higher other income charges........ .02 .07 Effect on earnings of shares issued during the year......................... .10 .30 Year 1965 earnings............................................. $3.89 Italic Indicat deduction. italic in t h e text of t h is A n n u e l R e p o r t in d lc e te M o n a n t o tra d e m a rk . HONS 352151 TOWOLDMON0014314 i beyond L'.S. borders amounted to $311 million, compared to sales of $286 million in 1964. Monsanto also benefitted in 1965 from newly instituted manufacturing economies. Such savings, winch alfect earnings so dramatically, are a satis fying reward for the careful planning and hard work that made them possible. Two nonoperating items in the earnings analysis are of special significance. These are lower income taxes and higher tax credit on investments, the latter reflecting the company's high level of capi tal expenditures. Looking beyond the year's gains in sales and earn ings. Monsanto's management views as particularly significant the big investment the company made in its future. Perhaps 1965 is best characterized as a year of record expansion into promising areas, many of them new to the company. Capital outlays for plant and equipment far exceeded those of any prior year. They totaled $295,160,000. which was 35 per cent higher than the previous record expenditures of $218,105.000 in 1964. Investments in affiliates amounted to $1.126,000 in 1965 and $13.340,000 a year earlier. Here are some major projects for which expan sion capital was spent: Using new technology, Monsanto (I) became the world's first large-scale producer of an organic chemi cal (a nylon-yarn intermediate) by an electrolytic process. (2) began commercial production of Ramrod weed killer. (3) established itself as a producer of polyester fibers, (4) opened a plant to provide dye ing and finishing services to the textile industry, (5) completed the first part of a two-phase expansion that will add more than 280 million pounds to annual capacity for acrylonitrile -- a basic raw material lor production of Acrilan acrylic fiber, nylon yarn and certain plastics -- and (6) increased its ammonia capacity by one-third. Other projects completed in 1965 included a nylon-yarn plant in Luxembourg: units for making cyclamate sweeteners, ammonium phosphate, and cold-water solubie fumaric acid for flavoring pro cessed foods ; and expansions involving acrylic fibers, saccharin, bulk aspirin, detergent phosphates, and a number of plastics resins and raw materials. In various phases of construction at year-end were a nylon-yarn plant in Scotland : an enlargement of facilities for producing Acrilan acrylic fiber in Northern Ireland: and, domestically, a major ex pansion of phosphorus capacity. Much of the required capital for this enormous expansion program is being generated internally. The balance has been arranged through outside financing. In February, 1965, a group of U.S. banks agreed to lend the company $100 million. $75 million of which was taken down during the year In addi tion, Monsanto in 1965 formed a subsidiary to help raise capital to finance overseas projects, primarilv in the United Kingdom and continental Europe. In the fourth quarter this new subsidiary, Monsanto International Finance Company, successfully raised $25 million outside the United States through a vile of debentures which give buyers the option of future conversion into Monsanto Company common stock. In keeping with the government's desire to strengthen the U.S. balance-of-payments position, the debentures were offered only to purchasers abroad. Additional funds of $32,776,000 were borrowed by overseas affiliates in their local currencies. Although most of 1965's operational highlights are detailed later in this Annual Report, a few merit mention here. Indicative of a significant trend in our business, the agricultural chemicals group has become our fastest growing product area. In 1960, in terms of sales it was seventh largest of Monsanto's 11 product groups. By 1965, it had become fourth largest. In dications are that the growth trend will continue and that direct sales to farmers will represent an increasingly important market. Growth in plastics was aided by a Monsanto improvement in the plastic interlayer for laminated safety glass. In windshields of 1966-model automo biles it gives motorists increased protection in the event of highway mishap. Also noteworthy is the important role our com pany played in helping detergent makers convert quickly to so-called biodegradable intermediates which minimize detergent-linked foaming that for merly plagued U.S. surface waters. Monsanto supplied HONS 3 5 2 1 5 2 TOWOLDMON0014315 the lirst commercial shipments of these intermediates and is now a leading producer of them. Another significant development in 1965 was our attainment of a basic raw-material position in salt. In March, at the 1965 Annual Meeting. Edgar M. Queenv stepped down as chairman of the Fi nance Committee. Mr.Queeny, the son of Monsanto's founder, and a former president and board chairman, remains on the board and the Finance Committee. Charles Allen Thomas retired from the board chairmanship, a post he had held since I960. He continues as a director and was elected chairman of the Finance Committee. He is also chairman of the Technical Committee. At the same time, the board elected Edward A. O'Neal chairman of the board to succeed Dr. Thomas. Later in the year. Vice President Edward J. Bock was elected a director of Monsanto and a member of the Executive Committee. Mr. Bock had been general manager of the Inorganic Chemicals Division. We wish to conclude this letter by acknowledging our appreciation to Monsanto people all over the world for their contributions to the progress of our company. Sincerely, COMPARATIVE CONSOLIDATED SALES INCOME AND EARNINGS A SH A R E BY Q U A R T E R S 1965 1964 SALES: In Thousands! First quarter. . $ 358.703 $ 324,414 Second quarter 384.309 358.898 Third quarter... 356.547 326.957 Fourth quarter. 368.588 348,409 $1,468,147 $1,358,678 DHlneocrcr'Co4essnsaet 10.6 7.1 9 1 5.8 3.1 INCOME: First quarter..$ 34,194 $ 28,696 19.2 Second quarter 38.791 35.285 9.9 Third quarter... 25,169 23.023 9.3 Fourth quarter. 24,813 27,887 Us) $ 122,967 $ 114.891 7.0 tX > . a . c r i ^ j ^ Chairman of the Board President St. Louis February 21, 1966 The next annual meeting of the shareowners of the company is to be held at 10 a.m. Thursday, March 24, 1966, at the company's General Offices, 800 N. Lindbergh Blvd., St. Louis County, Mo. A formal notice of the meeting, together with a proxy statement and form of proxy, is being mailed to each shareowner. 1965 1964 A1O9d6jiuv5sitdSeadtnodcfkorAs Raportad EARNINGS ASHARE <l>: First quarter.............. Second quarter......... Third quarter............ Fourth quarter.......... $1.08 1.23 .79 .79 $ .91 1.12 .73 .89 $ .93 1.14 .75 .90 $3.89 $3.65 $3.72 SHARES OUTSTANDING DECEMBER 31: 1965............................................... 31.634.357 1964............................................... 30.859.927 (1) Rsh#asrtast*odutfsotrantdhingfiorsnt Othircimqbutr*r3t#1r. of 1965 to rflct th* HONS 352153 TOWOLDMON0014316 1965 OP E R A T I ONA L HI GHLI GHTS Most of Monsanto's activities relate in some way to the manufacture and sale of products. Therefore the year's more significant developments are dis cussed here primarily in terms of products. Informa tion is classified according to Monsanto's 11 product groups and treated on a worldwide basis. CHEM ICAL FIBERS Chemstrand's fibers moved in record volume. Their year-to-year gain in sales amounted to 7 per cent. Industry-wide demand for acrylic, nylon and poly ester fibers is expected to extend its rapid growth through at least the 1960s. Five-year projections in dicate that the industry will have to make major expansions if it is to meet a world demand for the three fibers which is expected to total nine billion pounds a year by 1970. This is 2.5 billion pounds in excess of the installed capacity expected at the end of 1966. Since I960, consumption of acrylic fibers by rug and carpet makers has increased eightfold. And another doubling is expected by I970. Monsanto is participating strongly in this growth. In 1965, the company's sales of Acrilan acrylic fiber to the carpet industry gamed particularly well. Sales also benefitted in I965 as a result of a "Warm Coat'' mer chandising program in behalf of outerwear containing the fiber in pile and fleece forms. Capacity to make Acrilan acrylic fiber was doubled in Decatur, Ala., and was being doubled in Northern Ireland. The popularity and use of nylon, oldest of the man-made noncellulosic fibers, continued to increase. Its total U.S. market is expected to grow about 50 pier cent in the next five years. And overseas markets, particularly in the United Kingdom and W estern Europe, are expected to expand even faster. In 1965. Monsanto's sales of nylon gamed well :n such important markets as tires, industrial fabrics, upholstery, hosiery and texturing applications. Yarns for texturing were in especially strong demand for use in stretch garments, which have been promoted heavily under the company's Actionwear trademark Monsanto's new nylon-yarn plant in Luxembours began producing late in 1965. In Dundonald. Scot land, another nylon-yarn plant is scheduled for completion in 1966. In the United States, new facili ties for making nylon polymers were added in Greenwood, S.C. The Decatur plant in 1965 began producing a key nylon-yarn intermediate by a patented electrochemi cal process discovered and developed by Monsanto The new method, which, for the first time, enables the company to make both nylon yarn and 1crilan acrylic fiber from the same acrylonitrile starting material, will result in manufacturing economies. Sales of spandex stretch yarns increased during the year. Such uses as foundation garments, bras sieres, and hosiery tops represent important uses for the product. The company entered a major market late in the year when production of polyester fibers got under way in Decatur. Addition of polyester to the Chemstrand line signficantly enhances Monsanto's already strong position in the apparel market. Polyester fibers now go mainly into clothing of polyester-cotton blends. The U.S. market for such fabrics, which used about 250 million pounds of polyester in 1965, is expected to more than triple within five years. This growth pattern reflects increasing demand for apparel with crease resistance and wash n' wear qualities. HONS 352154 TOWOLDMON0014317 5 i In Orangeburg, S.C., construction was completed on a new plant which oilers the textile industry dyeing and finishing services on polyester-cotton blends and other textile fabrics. PLASTICS, RESINS AND COATINGS Total demand for Monsanto plastics -- including raw materials, resins and finished products -- was greater than ever. Sales increased 7 per cent as the company's network o f plastics-producing plants in nine countries ran at near capacity. There was continuing emphasis on sophisticated plastics, the specialized performance of which enabled them to extend their markets. For example, Lustran acrylonitrile-butadiene-styrene (ABS) polymers strengthened their position in such end uses as refrigerators, appliance housings, pipe and luggage. A transparent form o f Lustran styrene-acryloni trile (SAN) polymer was introduced for making automobile instrument lenses. And heat-resistant forms of Lustrex polystyrene gained ground in the fast-growing market for plastic packages. Capacity for Lustran was enlarged in Addyston, Ohio. Other expansions involving the same tough plastic occurred in France and the United Kingdom. A new unit to make the product is scheduled for early 1966 start-up in Canada. These expansions increased Monsanto's need for styrene monomer, principal raw material for both Lustran and Lustrex plastics, and new monomer capacity was added in Texas City, Tex. Demand for low-density polyethylene ran ahead o f capacity in the first half of the year. Prices strengthened accordingly. Monsanto's product mix was upgraded, and new sales of polyethylene for insulating wire and cable was one result. C O N S O L ID A T E D SALES BY P R O D U C T ORO UPS PEU CENT IN C R EASE 1965 OVER 1964 1960 7 103 7 93 2 34 32 141 10 33 1 24 2 19 15 32 3 15 5 16 - Chemical Fibers................................................. ........ Plastics, Resins and Coatings........................... ....... Phosphates and Detergents...................................... Agricultural Chemicals....................................... ...... Intermediates and Plasticizers......................... ....... Rubber and Oil Chemicals........................................ Petroleum --Net of purchases................................. Fine Chemicals and Food Ingredients.............. ........ Textile and Paper Chemicals.................................... Heavy Chemicals............................................... ...... Other.................................................................. ........ PER CEN T OF TOTAL 1965 1964 1960 28.6 29.1 23.6 25.1 25.2 21.7 9.6 10.1 12.0 9.0 7.4 6.3 8.9 8.7 11.2 6.1 6.6 8.3 4.7 5.0 6.6 2.9 2.7 3.6 2.4 2.5 3.5 2.0 2.1 2.9 .7 .6 .3 100.0 100.0 100.0 HONS 352155 TOWOLDMON0014318 6 Another 1965 introduction was a polyethylene for high-speed extrusion coating of packaging mater ials. It already has gained wide acceptance in the United States and the United Kingdom. Also in the United Kingdom, the company began marketing a new ethylene-vinyl acetate copolymer, one use of which is in flexible hose for food processing. Monsanto's vinyl plastics, including film, were virtually in a sold-out position. In the United States, a clear form of Vyram rigid polyvinyl chloride was introduced for molded bottles to package a variety of products. A form o f Vyram for making pipe was marketed for the first time in Argentina, Canada and Mexico. And polyvinyl chloride expansions occurred at Monsanto plants in all three countries, as well as in the United States. The company's plastic building products, made mostly of Vyram, bettered their year-earlier sales with panels and residential siding particularly strong. Yet, building products did not move in hoped-for volumes. Sales volume o f the Mexican plant that produces plastic housewares, containers and appliance parts approximated that of the prior year. Also in Mexico, the company started making corrugated vinyl panels. In England, there was an expansion of facilities for fabricating plastic building products. Anticipating a continuing high level of automo bile production and an increasing demand for greater driving safety, Monsanto speeded its development of an improved plastic interlayer for laminated safety glass. The new product, a form of Saflex polyvinyl butyral, materially increased sales and added to driving safety by giving windshields extra strength and resilience. The improved windshields already have become standard among U.S. and Canadian auto makers. At the Chocolate Bayou Plant near Alvin, Tex., a new unit in 1965 began producing phenolic resin adhesives. Successful product introductions included a line of plywood adhesives for hard-to-bond southern pine. Among Monsanto's innovations in plastics pack aging were glass-clear containers made of polyvinyl chloride; a package for mustard featuring easy, one- i i hand dispensing; a vinyl bottle suitable for oily foods; an embossed, translucent cup for cold-drink vending ; a cottage-cheese tub thermoformed from a specially tailored resin ; and a transparent meat tray affording shoppers easy inspection of pre packaged meat and poultry. In 1965, a new plant to produce nestable cups and other containers neared completion in Bridge view, 111. PHOSPHATES AND DETERGENTS The group's sales were 2 per cent higher than in the prior year. Production of phosphorus and its derivatives topped all earlier records. Expansions and process improvements are under way at Monsanto's phosphorus plants in Columbia, Tenn., and Soda Springs, Idaho. At the latter site the world's largest furnace for making elemental phosphorus is being installed. It is scheduled for early 1966 start-up. The soap and detergent industry's good year was reflected in record sales o f Monsanto's detergent ingredients. These include phosphate salts (the socalled detergent builders) and the compounds known as detergent actives. Among the latter are the com pany's alkyl benzenes, one of the biodegradable raw materials to which detergent makers switched in 1965. With the help of Monsanto and other pro ducers, the conversion to biodgradables was com pleted by June, six months ahead of schedule. Also in 1965, Monsanto introduced other new biodegradable actives developed especially for use in controlled-suds detergents. ACL solid, chlorine-bearing chemicals for use in dry bleaches and swimming-pool disinfectants showed a year-to-year sales increase. Phosphorus intermediates, used in oil additives and insect killers, moved in good volume. Installa tion o f additional capacity to make them was com pleted in Monsanto, 111., and is under way in Anniston, Ala. Sales of a new type of phosphate-based leavening agents first marketed to makers of prepared baking HONS 352156 TOWOLDMON0014319 PARENT COMPANY INDt X Of MOUHl Y WAGI U A TtR . Pt-tICI t; Of RAW MA 1 1 RIAl AND ;.l i l ING l*KK;t s HOURLY WAGE RATES PRICES OF RAW MATERIALS SELLINS PRICES 1947- 1949-100 .'20 .'20 210 200 190 190 iro / 160 s ' --- ---- 210 200 90 90 !.'0 :60 150 150 140 110 130 V> no 120 X iu?Un no "" N\ N no 100 ............ 100 90 " .................. 90 ***,, SO ............. 90 Ml !',/ I?) li'r rMI l `(,l 1%,' I'lili :%1 ' mixes in 1963 continued to increase. Their 1965 gain far exceeded that of the market in which they compete. Phos-Chek fire retardant for combating forest fires came into wider use in 1965. New techniques of applying it from ground tankers and fire engines (in addition to regular airplane drops) were tested successfully in A u stra lia, C anada and the United States. AGRICULTURAL CHEMICALS Farm chemicals, which had a 32 per cent sales increase, showed the largest year-to-year gain of all the product groups. Domestic business benefitted from greater food consumption and a healthy farm economy. Active 1965 markets reflected belter use of technology, continuing weed and insect problems and steadily increasing fertilizer usage. Marketing efforts were supported by innovative programs to merchandise Monsanto's agricultural know-how to growers. Farm tours, informational meetings and strategically placed demonstration fields helped illustrate the effectiveness and profit ability of the company's techniques and products. Proven scientific methods -- spectographic analysis of plant tissue, for example -- were used to deter mine the precise nutritional needs of customers' crops Plant-food materials -- including ammonia, ammonium nitrate and related fertilizer products -- sold in record volume through hundreds of outlets. MONS 352157 TOWOLDMONOQ14320 3 M O N S A N T O 'S D IV IS IO N S The company in 1965 had these eight divisions: Agricultural Division. Chemstrand Company Division. Hydrocarbons & Polymers Division (formerly the Hydrocarbons Division), Inorganic Chemicals Division. International Division, Or ganic Chemicals Division, Packaging Division and Plastic Products & Resins Division (formerly the Plastics Division). Production of fertilizer materials was expanded at three U.S. plants. The most significant expansion was a doubling of ammonia capacity in Luling, La., where Monsanto now has the largest computer controlled unit for ammonia production in the United States and the first anywhere to employ a new engineering concept in high-efficiency am monia production. Also in Luling, Monsanto increased ammonium nitrate capacity and started making ammonium phosphate, another widely used plant food. The latter product is being manufactured in a new unit with a capacity of 240,000 tons a year. To the network of Monsanto-owned and inde pendent outlets for farm chemicals were added 45 Monsanto Agricultural Centers. The centers, which numbered 120 at year-end, sell fertilizers, insecti cides and herbicides direct to growers in prime U.S. farm regions. Pesticides made strong sales gains, with overseas markets accounting for about one-third of total business. Looking toward future growth, Monsanto is testing pesticidal formulations on five continents. Sales of Randox weed killer doubled for the third year in a row. Ramrod herbicide, a companion prod uct to Randox, was introduced in the U.S. Corn Belt with outstanding first-year success. There are plans to broaden the distribution of Ramrod in the United States in 1966 and, at the same time, introduce it to Canadian and European growers. Late in 1965, facilities to make Ramrod were completed in Mus catine. Iowa. Production capacity for Roque weed killer was doubled as sales to rice growers gained strongh. U.S. demand for Avadex wild-oat killer was o\ershadowed by large-volume use in Australia. Can ada, Europe and Latin America. Proof that autumn application ol Avadex gives weed control through the next year sparked new interest in the product. Demand for Monsanto's parathions to control insects in cotton, fruit and vegetable crops outpaced supply despite earlier capacity boosts. The company scheduled a 1966 expansion to help ease the situation. A new parathion-formulating plant in Guatemala enabled Monsanto to increase its sales in Cen tral America. Animal-nutrition products moved well. XfH A pro tein supplement for poultry rations showed e sp e cially good improvement. Domestic business got a boost when rising costs of other meats influenced American housewives to serve more chicken. In overseas markets Santoquin antioxidant, which preserves the nutritive values of feeds, was a big gainer. New business included treatment offish meal, an important feed material, to prevent oxidation during long storage. INTERMEDIATES AND PLASTICIZERS Most of the group's products were in firm demand. Total sales increased 10 per cent. Phenol and other intermediates in the group are utilized in manufacturing other chemicals. Monsanto makes intermediates mainly to insure ample, lowcost supplies for its own use. Since the company's capacity exceeds its needs, however, large volumes are also marketed. World demand for intermediates is expected to go on rising for at least the next five years. Monsanto -- a producer in the United States, continental Europe, the United Kingdom and elsewhere -- should benefit. Plasticizers, used mainly to improve the proper ties of plastics, moved in record volume. High levels M0NS 3 5 2 1 5 8 TOWOLDMONO014321 of acmiH in the automotive and building industries, each a major user of plastics, helped spur the gain. So did increasing popularity of embossed vinylasbestos lloor tile, largest outlet for Sanlicizer 160 primary plasticizer. During the next five years more than half the projected growth in plasticizer sales is expected to occur beyond U.S. borders. European demand for Santuizer 160 is already heavy enough to justify a production unit now being built in Antwerp, Belgium. Several plasticizers w'ere added to the Monsanto line in 1965. One is used in tough, yet soft, plastic and rubber compounds for such automotive appli cations as upholstery, trunk liners, side panels and lloor pads. Another is for acrylic lacquers to pro vide durable, transparent coatings for protecting metal structures exposed to weather. Resin materials represent an area of particularly intense competition caused by excess capacity. Despite this problem, sales increased. There were encouraging signs that demand for phthalic anhydride is rapidly catching up to active capacity. The big-volume product -- a key ingredient of paints, industrial finishes and reinforced plastics -- has been in oversupply for years. Functional fluids remained a fast-growing seg ment of the company's business. These products are used as hydraulic fluids, heat-transfer agents, lubricants and -- in electrical equipment -- as in sulators. Each has outstanding fire resistance and thermal stability. Skytlrol fire-resistant hydraulic fluid for aircraft, in 15 years of use. has flown 35 million miles with no failures. Safety-conscious aircraft manufacturers and airlines the world over now accept it as a standard. Monsanto maintained its position by developing new fluids to meet the more severe temperature and pres sure conditions imposed by higher-flying, faster aircraft and by smaller, more powerful hy draulic systems. An extremely active industrial construction mar ket helped increase sales of dielectric fluids to makers of capacitors and transformers. A new, low-priced form of Pyilraul fire-resistant hydraulic fluid was well received in the metalworking industry. A new heattransfer fluid was used successfully in tankcar heating systems to keep pitch, sulfur and other chemicals molten during shipment. And another Monsanto heat-transfer fluid is being checked out as a possible means for making nuclear power stations simpler and less expensive. RUBBER AND OIL C H E M IC A LS The group's total sales were I per cent above year-earlier levels. Long-time growth in the market for synthetic rub ber was thrown off stride by price cuts in natural rubber. Styrene monomer, a principal ingredient of the synthetic product, only approximated us 1964 sales to rubber companies. But butadiene, another synthetic-rubber ingredient, sold at capacity. Sales of additives to speed rubber manufacture and improve the durability of automobile tires increased. More than half the total volume was sold outside the United States, the bulk of that coming from plants in England. Sanioflex antidegradants, which protect tires from cracking caused by oxygen and ozone in ihe air. sold well. One type protects tires in motion : another protects them at rest. Among recent Monsanto developments are a stabi lizer package for synthetic rubber, and special s>stems for core bonding and vulcanization. In the petroleum-additives field, Monsanto is rapidly attaining a position of technological leader ship. This is particularly true in the important engine-oil market, which represents about 60 per cent of the company's total market for oil chemicals. As engines have become more powerful and op erating conditions have grown more stringent. Monsanto has been a pacesetter in developing suit able additives. Such additives effectively counteract the increased engine rust and carburetor deposits caused by equipment put on new automobiles to control air pollution. They also go into high-grade lubricating oils for highway-construction equip- HONS 352159 TOWOLDMON0014322 10 ment, gas-compressor engines and other off-theroad machinery. PETROLEUM PRODUCTS Sales of these products were 2 per cent higher. The refinery in El Dorado, Ajk., operated at capacity, and there were firmer prices on most of its output. Wholesale prices o f gasoline and fuel oil rose early in the year and stayed above their 1964 levels. Retail sales of gasoline gained 8 per cent, partly a result of intensive promotional effort. Sales o f crude oil and natural-gas liquids were slightly above year-earlier levels. There was a 10 per cent increase in sales of natural gas. Significant oil and gas discoveries opened new fields in Louisiana and Oklahoma. Development of existing fields in Oklahoma and New Mexico was highlighted by production from new gas wells with immediate markets. Participation in the completion of 84 producing wells gave Monsanto a net gain of 46.96 wells for the year. FINE CHEMICALS AND FOOD INGREDIENTS The group, which includes some o f the company's earliest products -- among them, saccharin -- and some of its newest, continued to flourish. Its sales climbed 15 per cent. Aspirin sales benefitted when the product was offered in a new form to makers of time-release, pain-and-fever relievers. Monsanto is increasing its domestic aspirin capacity about 50 per cent in three stages to keep pace with mounting world demand. The group's best growth prospects are in the area of food ingredients, where 1965 saw promising progress in new flavor enhancers and nonnu tritive sweeteners. The year's developments included first commer cial production of C W S cold-water soluble fumaric acid for use in dry beverage bases and fruit-juice drinks. The patented product, which imparts tartness, dissolves much faster than normal fumaric and is much less expensive than citric acid, the traditional acidulant for many food products. Also in 1965, saccharin capacity was increased and production of Dietose sodium and calcium cyclamates began. Less sweet than saccharin, the cyclamates are often combined with it in low-calorie food products. Monsanto is now the only basic supplier of all nonnutritive sweeteners. TEXTILE AND PAPER CHEMICALS Sales of chemicals for the manufacture of textiles and papers rose 3 per cent. Customer sales of acrylonitrile, the group's main stay, increased and Monsanto itself consumed great volumes in the manufacture of chemical fibers, principal end use for this raw material. An earlier shortage of acrylonitrile was eased by the completion of the first part of a two-phase installation o f new facilities at Monsanto's Chocolate Bayou Plant near Alvin, Tex. The second phase is to be in operation in mid-1966. The two-part expan sion will add more than 280 million pounds to the company's yearly acrylonitrile capacity. Of the many paper chemicals offered by Monsanto, the most important is Mersize sizing agent, which' improves the water resistance of paper. The product sold well in 1965. Scripset additive to improve the dimensional sta bility and printability of offset printing papers also moved in good volume. Products now under development and being counted on to provide further growth include sur face sizes, coating-pigment binders, alkaline sizes and wet-strength agents. HEAVY CHEMICALS Sales of heavy chemicals were up 5 per cent for the year. HONS 352160 TOWOLDMONO014323 i i i 1 Sales of sulfuric acid, a basic raw material for a broad ranee of industries, increased. Monsanto's four sulfuric units ran at capacity. And the company designed and sold more sulfuric plants for other producers worldwide than in any previous year. The steel industry in 1965 found benefits in using hydrochloric acid in place of sulfuric under certain conditions in the pickling of steel. Because of this development, M onsanto's sales of hydrochloric gained strongly. Caustic potash also moved well. The chemical, of which Monsanto is a major U.S. producer, is used in catalytic reactions and as an important raw mater ial in making soaps and detergents, medicinis, and potash salts for various other uses. Capacity for specialty silica products was expanded to keep up with growing demand. One of the prod ucts, Sanlocel silica aerogel, underwent a quality refinement that made it the most efficient flatting agent available for various types of lacquers and varnishes. Worldwide sales of vanadium catalyst (for sul furic acid manufacture) far exceeded previous records. Brisk demand for lampblack and bone ash helped sales of those products climb to new peaks. OTHER PRODUCTS Silicon was in strong demand. As the yetar pro gressed, its sales increased steadily. Silicon and other semiconductors are essential in the manufacture of electronic devices. In 1965, makers of such devices used more semiconductors than ever in radios, TV receivers, computers and other electronic equipment. RESEARCH, DEVELOPMENT AND ENGINEERING Massive technological effort was rewarded in 1965 by significant innovations in Monsanto's products and processes. Many previously existing product lines were upgraded by the introduction of new models with improved quality and performance. In addition. 43 basic new products were marketed for the first time. Some of these are expected to produce substantial sales volume over the next several years. Others serve mainly to broaden the variety of materials available to Monsanto's customers. In 1965, the company received 368 U.S. patents and 1,486 foreign patents. Expenditures for research, development, patent work and basic engineering amounted to $69.9 mil lion, compared to 566.8 million in 1964. Important forward strides were taken by the Central Research Department into relatively new areas of technology during the year. For example, new fluids were developed as candi dates for the jet-lubricant market. They operate over the incredible tem perature range of 40 degrees below to 445 degrees above zero. The department is developing a new, integrated approach to the design, function, fabrication and chemical properties of heavy-duty plastic products. The goal is to eliminate several conversion opera tions, making possible the one-step production of complex shapes from very simple chemicals. The company's research work in the electron ics field, to which Monsanto supplies silicon and other semiconductors, has produced a number of interesting instruments for use in testing and meas uring. Among their special features are lightness. G R O SS A D D ITIO N S TO PR O PE R TY 1956 1957 1958 1959 1960 1961 1962 1963 1964 1965 AND DEPRECIATION Property A d d itio n s D e p re c ia tio n , O b so le sc e n c e . Am ortization and Depletion ................. ................. ................. ................. ................i ................. .................. ................. ................. ................. (M illions of Dollars) 77.1 42.4 64.8 48.2 58.1 52.9 68.7 56.1 121.3 79.0 153.8 86.9 168.8 97.6 114.5 114.6 218.1 120.3 295.2 133.5 C hem strand and su b sid iarias not included in years prior to 1960. HONS 352161 TOWOLDMON0014324 compactness, high reliability and excellent cost performance. In ihe area of man-made libers, Chemstrand developed a new antistatic acrylic for use in blankets, ll provides freedom from static electricity through at least live home launderings. Because of improvements made in 1965. Acrilan acrylic fiber now offers superior heat stability and dyeing properties, the latter making possible carpets of brighter, more lustrous colors. Intensive research and development effort into the problem of flat-spotting in nvlon-reinforced tires led in 1965 to the formulation of a new nylon tire yarn. Initial test quantities have been rated by some automobile makers as suitable for tires on new cars, a market in which nylon has only small participation. Work on nylon hosiery yarns has resulted in products that give knitters a broader base for a variety of hose with improved styling, fit and textures. Twisloc nylon yarns have been successfully intro duced into raschel fabrics, where their performance is markedly superior in such applications as slips, blouses, dresses and other apparel. And, for use in textured nylon stretch fabrics, Chemstrand has created yarns that offer such new performance advantages as greater recovery power in stretch garments. In August, the engineering departments of all oper ating divisions were consolidated into Monsanto's Central Engineering Department and moved into the new Engineering Center in St. Louis. This move enabled Monsanto to utilize the company's entire engineering resources more efficiently in imple menting its large expansion program. In November, Monsanto received Chemical Engi neering magazine's 1965 Kirkpatrick Chemical Engi neering Achievement Award. The company was so honored for successfully scaling up to commercial reality its patented electrolytic process for making organic chemicals. The process is being used to convert acrylonitrile into an intermediate for making nylon yarn. Wholly owned Monsanto Research Corporation in 1965 continued its successful execution of research programs for government agencies. A number of its projects show promise of profitable application in the civilian marketplace as well as in military or space programs. The research subsidiary's I96S achievements in cluded successful preliminary testing of its hydrazineair fuel cells as silent sources of electric power for military use; new progress in devising a low-cost means for making high-strength fibers from such metals as boron, beryllipm and special alloys; promis ing results in use of the plasma torch to apply in soluble, intractable, temperature-resistant coatings, synthesis of new antimalarial drugs; and additional success with its deicers for aircraft runwavs. Mound Laboratory, which the research subsidiary operates for the Atomic Energy Commission in Miamisburg, Ohio, continued to conduct important research, development and manufacturing activities. Noteworthy in 1965 were Mound's contributions to the commission's programs for the development of new isotopic sources of heat and power for L.S. space efforts. PERSONNEL To accommodate the expanding company's needs for additional manpower, Monsanto hired more technical and professional personnel than in any prior year. Recruiting activities were supplemented by an enlarged grants-in-aid program. At the same time, Monsanto strengthened its liaison with university faculties through joint meetings to explore areas of mutual interest. The scope of the company's management-develop ment program was expanded to include Monsanto's worldwide operations. New methods of improving managerial skills received special emphasis. Courses offered to employes for the first time dealt with such subjects as computer utilization, prob lem solving and decision making. The sales-traimng program was enlarged and significantly improved. HONS 352162 TOWOLDMONOQ14325 13 In 1965. new three-year work contracts were negotiated at nine Monsanto locations. A 30-month contract was signed at another plant. There were no major work stoppages during the year. Despite the occurrence of several fatal accidents, Monsanto's over-all safety record for 1965 was again among the best in the industry. Monsanto employes worldwide numbered 56,227 at year-end. This represented a year-to-year increase of 8 per cent. Among the executive personnel changes that occurred during the year were these: Vice President John R, Eck, who had been gen eral manager of the former Plastics Division, be came general manager o f the Inorganic Chemicals Division. He succeeded Vice President Edward J. Bock, now a director of the company. William H. Bromley succeeded Mr. Eck as gen eral manager of what is now the Plastic Products & Resins Division. Prior to that, Mr. Bromley had been president of Shawinigan Resins Corporation, a former Monsanto subsidiary and now a part of the division Mr. Bromley heads. James D. Mahoney, formerly president of 50 per cent owned Mobay Chemical Company, was appointed general manager of the Organic Chemicals Division. He replaced Robert M. Morris, who resigned from the company. Messrs. Bromley and Mahoney were elected vice presidents of the company in December. Earlier, Irving C. Smith was elected a Monsanto vice president and transferred to St. Louis from Brussels, Belgium, where he had served as managing director of Monsanto Europe S.A. He now heads a staff responsible for formalizing and coordinating corporate profit-improvement efforts. At the time of Mr. Smith's move, Vice President Monte C. Throdahl, general manager of the Inter national Division, moved his headquarters from St. Louis to Brussels and added to his duties those formerly handled by Mr. Smith. S H A R E O W N E R S OF R E C O R D 1965 Number Number ol Share- Ot owners Shares M e n ................................ 3 2 ,0 8 4 4 ,6 1 0 ,8 9 0 W o m e n ................ ........... 2 9 ,2 1 1 3 ,8 7 2 ,3 9 7 Joint A c c o u n t s ............... 18 ,4 3 1 897,004 Charitable In s tit u t io n s .. 488 204,768 Educational In s tit u t io n s . 128 197,391 Esta te s a n d T r u s t s ......... 9 ,7 7 0 1 ,7 2 3 ,3 1 9 Insurance C o m p a n ie s.. 270 1,322,827 Brokers and N o m in e e s .. 1,800 17,853,952 A ll O t h e r s ...................... 1,3 5 6 951,809 T o t a l ..................... 9 3 ,5 3 8 3 1 ,6 3 4 ,3 5 7 1964 Number of Shareowners Number o ( Shires 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 Number ot Share of owners 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 29,963,825 962 Number of Share owners Number of Sharas 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 1961 Number of Shareowners Number ol Shares 28,722 4,723,196 24,565 3,647,262 17,346 852,952 234 125,849 111 154,489 8,191 1,875,843 190 859,916 1,120 9,090,762 1,724 6,693,171 82,203 28,023,440 In 1965, 69 par c a n t of M o nsa n to sh a ra o w n a rt hald fawer than 100 sharas. HONS 352163 TOWOLDMONOQ14326 MONSANTO'S WORLDWIDE INTERESTS Thi\ list of Monsanto's principal equities gives some indication of the scope and diversity of ihe company's international operations. Percent owner ships. in some cases rounded to the nearest whole number, are shown parenthetically. NORTH AMERICA UNITED STATES: Chamstrand R estarch Center Inc. (100% ) conducts research in the field ol textiles. Fabric Services Inc. (100% ) specializes in dyeing and fin ish in g polyester-cotton blends and other fabrics for the textile industry. Filtered Roiin Product* Company (1 00 % ) produces gum naval stores and synthetic resins. Leonard C o n d u c tio n Company (100% ) designs and builds chem ical plants and other types ot plants. M obay C hem ical C om pany (5 0 % ) is a m a|or producer of ureIhane chem icals. M o n sa n to Export Co m p an y (1 0 0 % ) is a tra d e c o rp o ra tio n to handle export sales of M onsanto p rod u cts in the western hem isphere. M onsanto international Elnanca Company (1 0 0 % ) was form ed m 1965 to obtain investm ent funds abroad to help finance overseas expansion. Monsanto Research Corporation (1 00 % ) does research lor governm ent agencies and for M onsanto: produces nuclear sources; operates a governm ent-ow ned laboratory for the A tom ic Energy Com m ission. Polythane Corporation (100% ) m anufactures spandex elas tom eric yarns. Wood Treating Chem icals Co. (100% ) produces wood pre servatives. CANADA: Monsanto Canada Llmltad (1 00 % ) m anufactures chem icals and plastics raw materials. Plax Canada Llmltad (5 0% ) produces pla stic blownware. M EXICO: Monsanto Mexlcana S.A. (1 0 0 % ) produces chem icals, plastics raw m aterials and building products. A m ajor subsidi ary m akes consum er products ol plastic. CENTRAL AND SOUTH AMERICA ARGENTINA: Monsanto Argentina S.A.I.C. (1 00 % ) m anu factures chem icals and plastics raw m aterials. C O LO M BIA: Fabrics d * Hitazas Vanylon S.A. (4 9 % ) p roduces nylon 6 yarns. PA NA M A : Monsanto Oversaaa S.A. (1 0 0 % ) h a n d le s ce rta in inve stm e n ts and licensing outside the U nited States. PUERTO RICO: C hem strand Overseas S.A. (1 0 0 % ) m a rk e ts chem ical libers exported to arees outside Europe and handles certain investm ents outside the U nited States. VENEZUELA: M onsanto Venezuela Inc. (1 0 0 % ) p ro d u c e s oil. E U R O P E AND MIDDLE EAST B E LG IU M : Monsanto Europe S.A. (1 0 0 % ) p ro v id e s m a n a g e m e n t su p e rvisio n ot in v e s tm e n ts and m a rk e tin g a c tiv itie s in Europe and the M iddle East; produces polyvinyl butyral plastic interla ye r for lam ineted safety glass; and wtll begin producing plasticizers in 1966. FRANCE: Socit M o nsa n to .1 0 0 % ) m akes p la stics ' i n m.i tenais and chem icals ISRAEL: Is ra e li C hem ical Fibres L im ite d (6 0 % ) m a nufactures Acrtlan acrylic fib er ITALY: A p p lic a z io n i C him iche Societ Per A zioni .4 0 % ) pm . duces acrylic fiber LUXEM BOURG : M o n s a n to Cie S.A, (1 0 0 % ) m a n u fa c t j'e s nylon 6.6 yarns. SPAIN : A is c o n d o l S.A. (5 0 % ) m akes c o nsu m e r p r o d i.e s it pla stics. Two su b s id ia rie s prod u ce ch e m ica is arid pla sh e s raw m aterials. U NITED K IN G O O M : C h e m s tra n d L im ite d '.0 0 % ) n v ;l ): tu re s Acrilati acrylic fib e r and will start m a kin g nylon n h , u - s in 1966. Lansil Lim ited (1 0 0 % ) p rod u ce s a ceta te Make and ram . -hie tabrics and apparel. Monsanto Chemicals Limited (67% ) m anufactures c-om -eais. plastics and p lastics raw m aterials. M aior subsidiaries pr-j-j., plastics for construction and packaging Polythene Fibres Limited (100% ) m akes spandex , ir - " i 9 subsidiary produces rubber yarns. A S IA A N D A U S T R l 'A AUSTRALIA: Australian Patrochemicat* Limited (55% ) m anufactures plastics raw m aterials. Monsanto Chemicals (Australia) Limited (80% ) makes c h e m i cals and p la stics raw m aterials. A subsidiary produces flu o ro carbons. JAPAN: Mitsubishi Monsanto Chemical Company ( 50% ) u ia 'ij factures chem icals, plastics and plastics raw m aterials Mitsubishi Vonnel Company Limited (38% ) m akes ic iv lir fiber. M o nsa n to 's p a rtic ip a tio n in in te rn a tio n a l com m erce and trade is fu rth e r revealed in th is listin g of com panies engaged r various a ctivitie s on a m ore m odest scale than those listed above. O m itte d e ntire ly are more than 100 sales agenc es re presenting M onsanto in m ost parts ot the world: C hem strand In tern a tio n a l S.A. -- S w itzerla n d Helen Harper Inc. -- U nited States Monoil UK, Inc. -- U nited Kingdom M onsanto C hem icals of India P rivata Lim itad -- I n d i a Monsanto Chile Comerclal e Industrial Limitada -- Chile Monsanto Comerclo a Industria Limitada -- Brazil Monsanto (Dautschland) GmbH -- West Germany Monsanto (El Salvador) S.A. -- El Salvador Monsanto Far East Limitad -- Hong Kong M onsanto (G u atem ala) S.A. -- G ua te m a la Monsanto International Enginearing Company -- U nited Kingdom Monsanto Japan Limited -- Japan M onsanto Oils L td . -- C anada Monsanto Research S.A. -- S w itzerla n d Monsanto (Venezuala) C.A. -- Venezuela Plax A.G. -- S w itzerla n d Sldaplax S.A. -- B e lg iu m HONS TOWOLDMONOQ14327 ACCOUNTANTS' OPINION HASKINS A SELLS CBffTIFliO PUBLIC ACCOUNTANTS BOATMEN S BANK BUILDING S A IN T L O U IS 6 3 10 2 I | i Monsanto Company: We have examined the statement of consolidated financial position of Monsanto Company and its subsidiary companies as of December 31, 1965 and the related statements of consolidated income and paid-in surplus and retained earnings for the year then ended. Our examination was made in accordance with gener ally accepted auditing standards, and accordingly included such tests of the accounting records and such other auditing pro cedures as we considered necessary in the circumstances. In our opinion, the accompanying statement of consolidated financial position and statements of consolidated income and paid-in surplus and retained earnings present fairly the financial position of Monsanto Company and its subsidiaries at December 31, 1965 and the results of their operations for the year then ended, in conformity with generally accepted account ing principles applied on a basis consistent with that of the preceding year. February 7, 1966 MONS 352165 TOWOLDMONOQ14328 MONSANTO COMPANY STA TEM EN T OF C O N S O L ID A T E D FIN A N C IA L P O S IT IO N ASSETS Currant Assets: Cash.................................................................................. Marketable securities, at cost which approximates market Net receivables.................................................................. Inventories......................................................................... 1965 :9b4 (In Thousands) $ 33,124 $ 2 7.768 58,151 5 2.806 267.296 2 3 9 .7 5 3 258,726 617,297 2 14 .91 5 5 3 5 .2 4 2 Inveitmenti and Miscellaneous Assets, at Cost or Less: Investment in and advances to associates................... Miscellaneous investments and receivables................. 23,893 63,496 87,389 2 5 .2 5 0 6 0.6 50 8 5.9 00 Proparty, Plant and Equipment, at Coat................................................. Less accumulated depreciation and depletion, etc.............................. Net property................................................... 1.962.041 925,328 1,036,713 1.6 9 8,25 0 8 22 .26 7 8 75 .98 3 Deterred Charges 42,710 3 7.843 $1,784,109 The i b o v t s ta te m e n t sh o u ld be re e d In conjunction with pag e s 20. 21 a n d 22 of thia report. $ 1 .5 3 4 ,9 6 8 HONS 352166 TOWOLDMON0014329 I and su b sid ia r ie s AT D E C E M B E R 31. 1 9 6 5 A N D 1 9 6 4 LI ABI LI TI ES Current Liabilities: Accounts payable and accruals........................................................... Income taxes....................................................................................... Current portion of long term debt (less $1,000,000debentures in treasury) 1969 .964 fIn Jh o vta n d sl $ 197,567 59,832 $ 154.770 75.870 9,806 267,205 10.500 241,140 Notes, Debentures, etc.--Less Current Portion Above 467,554 345.480 Other Liabilities and Deferred Credits: Deferred income taxes....................... Miscellaneous..................................... Minority Interests in Subsidiary Companies 53,853 9.827 63,680 28,180 46,375 3,436 49.811 26,858 Shareowners' Equity: Common shares--authorized, 35,000,000 shares, par value $2 each: outstanding, 31,634,357 shares in 1965 and 30.859,927 shares in 1964 .......................................................................................... Paid-in surplus..................................................................................... Retained earnings................................................................................ 63,269 524,033 370,188 957,490 $1,784,109 6 1 .7 2 0 4 66 ,03 0 343.929 871,679 $1,534.968 HONS 352167 TOWOLDMON0014330 MONSANTO COMPANY STATEMENT OF C ON S OL ID A TE D INCOME Net Sale*........................................................ ................. Co*t of Good* Sold........................................ ................. 1965 1964 f/n n>ouandsJ $1.468,147 $1.358,678 1,039.598 940.077 'H OC'QJiO $109.469 99.521 Grot* Profit................................................... ................. Let*: Selling and administrative expenses........... ................. Research: development, patent and engineering expenses.............................. ................. 428.549 418.601 149,418 69,969 219.387 134.279 66,796 201.075 9.948 15.139 3.173 18.312 Operating Profit............................................. ................. Income Charges --Net.................................. ................. Income Before Income Taxes........................ ................. 209.162 217.526 6,557 1 202,605 3,457 214.069 .S..64 3.100 II.464 Proviilon for Income Taxes: Current........................................................ ................. Deferred...................................................... ................. 72,160 7,478 79,638 87,198 11,980 99.178 15Mi 4.?n2 I9.54D Net Income.................................................... ................. $ 122,967 $ 114.891 $ 3.076 T ha * h n v s t a t p m a n t s h o u ld b a r a a d in c o n iu n c tio n with p a g a s 20. 21 a n d 22 of th is raport. HONS 352168 TOWOLDMON0014331 AND SUBSIDIARIES STAT EM ENT OF C O N S O L ID A T E D P A I D - I N S U R P L U S AND RETAINED EA R N IN G S Baiane* at Beginning of Year PAID- IN SURPLUS Additions; Excess of approximate market value of common capital stock distributed as a stock dividend over the par value thereof................................... Excess of amounts received over the par value of common capital stock issued under stock option plans......................................................... Balance at End of Year...................................................................................... 1965 I 964 (In ThoutandsJ $ 4 6 6 ,0 3 0 $ 40 6 ,2 4 3 50,213 7 ,7 9 0 $524,033 48 263 _ 11.524 $ 4 6 6 .0 3 0 RETAINED EARNINGS Balance at Beginning of Year Addition -- Net Income for the Year Deductions: Dividends on capital stock of parent company: Cash --$1.45 a share in 1965 and $1.25 a share in 1964................... Stock --2%............................................................................................ One-half of deficit for period from date of acquisition of initial 50 per cent interest to December 31, 1964 of Blume Knitwear, Inc. and subsidi aries, which became wholly-owned subsidiaries in February 1965.... One-half of deficit at December 31, 1963 of Polythane Corporation and subsidiaries. 50 per cent-owned companies, which became whollyowned subsidiaries in May 1964......................................................... Balance at End of Year...................................................................................... Tha abova J ta ta m a n t *h o u ld ba raad m c o n ju n c tio n w ith p a g a t 20. 21 a nd 22 o f th is raport. $343.929 122,967 466.896 $ 31 8 ,0 6 2 I 14.891 4 3 2 .9 5 3 44,809 51,453 96,262 446 3 7 .6 0 6 4 9 .4 7 1 8 7 .0 7 7 96,7 08 $370,188 1 ,9 4 7 __ 8 9 . 0 2 4 $ 34 3 .9 2 9 HONS 352169 TOWOLDMONO014332 20 FINANCIAL REVIEW The accompanying financial statements (pages 16 through 19) consolidate all active domestic and foreign subsidiaries in which Monsanto Company directly or indirectly has more than a 50 per cent interest. The Revenue Act of 1964 provides for a credit against Federal income taxes equal to approximate ly seven per cent of expenditures for machinery and equipment purchased and placed in service during the year. The reductions in income tax provision resulting from this investment credit were $14,199,000 in 1965 and $6,049,000 in 1964. The use of the sum of the years digits method for computing depreciation on most of new assets ac quired since 1954 was continued in 1965. The excess of depreciation provided by this method over straight line depreciation was $19,189,000 in 1965 and $17,252,000 in 1964. For income tax purposes only, the company in 1962 adopted the guideline lives established for machinery and equipment by the United Slates Treasury Department. The additional depreciation taken for tax purposes reduces the current income tax liability. Net income for the year, however, is not affected, since an amount equivalent to the reduction in current taxes payable is charged to income to provide for deferred taxes payable in future years. Charges against income for depreciation, obsoles cence and depletion amounted to $133,485,000, of which $129,644,000 was depreciation and obsoles cence and $3,841,000 depletion. In 1964, such charges were $116,596,000 and $3,672,000. Repair and maintenance charges included in oper ating expenses were $89,956,000 in 1965 and $80,432,000 in 1964. The company has a number of lease agreements covering the use of transportation and other equip ment, certain buildings, and retail outlets, which are generally cancellable without penalty. Fur the most part, the agreements are short term, with a few extending up to 20 years. The annual rental for all leases amounts to approximately $19,908,000 In certain prior years, provisions were made for income taxes payable in future years resulting pri marily from the excess of depreciation and amortiza tion of facilities constructed under Certificates of Necessity for income tax purposes over deprecia tion for accounting purposes. For the years 1965 and 1964, $3,590,000 and $1,821,000 of such taxes be came payable and were charged against the reserve provided in prior years. The company's Federal income tax returns have been examined and closed for all years through 1956. Returns for the years 1957 through 1959 have been examined by the Internal Revenue Service, and returns for the years 1960 and 1961 are presently under examination. Differences of opinion exist between the company and the Service on the tax treatment of certain items of income and expense, principally depletion and foreign-source income. The Internal Revenue Service has proposed an assess ment for the years 1957 through 1959 of approxi mately $8 million and the company is contesting the assessment. The ultimate disposition of the items in question is not presently determinable, but it is believed that adequate provision has been made in the accounts for possible deficiencies. Reserves for doubtful accounts were $5,564,000 in 1965 and $5,446,000 in 1964. Inventories are stated at the lower of cost or mar ket, determined generally on the first-in. first-out basis. Annual rate of turnover was 4.4 in 1965 and 4.6 in 1964. To assist in financing the company's large pro gram of capital expenditures, a credit agreement was entered into in February 1965 under which HONS 352170 TOWOLDMONOQ14333 ihe company may borrow up to $100 million from certain banking institutions during a commitment period expiring August 15. 1966 The loans, which carry interest at the rate of 41j per cent to February 15, 1970. and thereafter to maturity at a 4'r per cent rate, are repayable in installments beginning May 15. 1970 and ending February 15, 1975. Under the credit agreement. $75 million had been borrowed as of December 31. 1965. In November 1965, M onsanto International Finance Company, a wholly-owned subsidiary, sold $25 million of 4 ': per cent Sinking Fund Deben tures Due 1985 to investors outside the United States. The debentures, which are fully guaranteed by M onsanto Com pany, are convertible into Monsanto Common Stock beginning May 1, 1966 at $93 a share, subject to adjustment under cer tain conditions. The long term debt of the company and its sub sidiaries, exclusive of current maturities, totaled $467,554,000 at the end of 1965. as shown in the table on page 22. The company is a defendant in several antitrust actions and in a patent infringement suit. The defense of these cases is generally in early stages of preparation. Company counsel believe that these ac tions can be successfully defended and that, in any event, the results of such litigation will not have any materially adverse effect on the financial position or operations of Monsanto. The company was contingently liable as guarantor of bank loans to 50 per cent-owned companies and others aggregating approximately $8,600,000 at De cember 31. 1965 and $12,300,000 at the end of 1964. In 1965, cash dividends of 35 cents in each of the first three quarters and 40 cents in the fourth quarter were paid on the common shares. Also, 620,138 common shares were distributed on December 23, 1965 in payment of a two per cent stock dividend. The equity in the unaudited 1965 net income of 50 per cent-owned companies was $58,000, com pared with $1,614,000 in 1964. The decline in equity in 1965 was caused by erosion of selling prices on products of Mobay Chemical Company and by adverse economic conditions in Japan. Dividends of $401,000 were received from these companies in 1965 and SI.I 12,000 in 1964. The equity in the un audited net assets of such companies at the end of the year was $26.568.000,which exceeded the carry ing value of $23,893,000 by $2,675,000. The company has four stock option plans in effect: the plans authorized by shareowners in 1951. I960 and 1964 for key employes, and the Third Employes' Stock Plan, authorized by shareowners in 1964 for hourly and salaried employes except participants m the three plans for key employes. The status of (he authorized shares of the three key plans and the changes occurring during the year were : 1951 Plan I9 6 0 Plan 1964 P'an Outstanding l 1 65... . . ,39.284 287.995 409.050 Unoptioned 1 1 65... . -- 2.687 151.950 Optioned during year. .. 3.600 19,120 Exercised during year... .. 14,097 91.535 5,779 Terminated duringyear. - 1,728 9.220 Cancelled during year. . 815 - Outstanding 12 31 65. ..25,717* 202.331* 421.354* Unoptioned 12, 31 65.. - - 144.979* `Adjusted for 1965 two per cent stock dividend. Under the three key plans, 533 options are out standing, at prices, after adjustment for stock divi dends, ranging from $31.14 to $101.04 a share. The following tabulation sets forth information for 1965 on common shares relating to the Third Employes' Stock Plan: Outstanding 1/1 65................................... 286,633 Unoptioned 1. 1.65.. i ...............................363,339 Optioned: January 25 (21-month options) at $81.50 each................................ 12.439 June 23 (15-month options) at $84.00 each................................ 6.992 December 23 (9-month options) at $79.00 each................................ Exercised................................................... 42,881 Terminated................................................ 35.040 Outstanding 12.31 65...............................228.143 Unoptioned 12 31 65................................378.948 Subsequent to December 31, 1965, but prior to January 24, 1966, the expiration date for the De- MONS 352171 TOWOLDMON0014334 uC. cembcr offering, options for an additional 3,108 shares were accepted by employes. The option prices under the Third Employes' Stock Plan are equal to 95 per cent of the fair market value on the dates the options were offered. Payments by the employe over the option period are made by payroll deductions on which the company credits interest at a rate of five per cent. At December 31, 1965, there were 1.401.472 shares of common stock reserved for the above plans, and 268,817 shares reserved for conversion of debentures of a subsidiary company. LONO T IR M D IB T (Ix o lu afv * of C u rre n t M aturiti*) Parent company: 1965 1964 (In Thou**nd) 314% sinking fund debentures, due 1968.......................... $ 6.250 $ 7.500 4V4% 4%% promissory notes, due 1970/1975................. 75,000 -- 2.65% debentures, due 1971 (less $1,000,000 in treasury in 1964).......................................................... 20,000 20,000 3%% sinking fund debentures, due 1972............................ 9,000 9,500 314% promissory notes, due 1972...................................... 33,812 41,012 4V$% notes, due 1976........................................................ 3,520 -- 414% promissory notes, due 1993...................................... 100,000 100,000 314% income debentures, due 2002................................... 91,000 91,000 414% income debentures, due 2008................................... 50,000 50,000 Monsanto International Finance Company: 4 `/2% guaranteed sinking fund debentures, due 1985........ 25,000 -- Shawinigan Resins Corporation: 4^6% debentures, due 1976................................................ -- 3,720 Monsanto Chemicals Limited (English subsidiary): 6% debentures, due 1977/1982.......................................... 7,547 5% debentures, due 1982............................ 8,815 7,769 9,061 Chemstrand Limited (English subsidiary): Bank loans (Vi% over bank rate) due 1969...................... 13,796 -- I Monsanto Cie S.A. (Luxembourgian subsidiary): ! 43A% bank loans due 1967/1971...................................... 10,020 -- I 614% bank loans due 1968................................................ 6,720 -- 414% bank loan due 1969.................................................... 3,000 3,000 Monsanto Europe S. A. (Belgian subsidiary): 6% bank loan due 1967.............................................. ....... -- 600 6.8% bank loan due 1969/1975......................................... 1,554 -- Other subsidiaries.......................................... 2,520 2,318 Total.............................................................................$467,554 $345,480 j i I MONS 352172 TOWOLDMONO014335 J M O N S A N T O C O M P A N Y AND SUBS IOIARI E S S O U R C E A N D D I S P O S 1T 1O N O F F U N D S (In Thousand) \ Source of Fundi: TOTAL Net income................................................... . $ 467,872 Provisions for: Depreciation, depletion, etc..................... . Deterred income taxes............................. . 552,874 43,282 Outside financing: promissory notes................... . 75,000 4'/2% sinking fund debentures................ . 25,000 Foreign subsidiaries................................. . 37,721 4%% promissory notes............................ . Common shares issued under options....... . Other net.................................................. . 99,593 47,304 6J67 1,342,279 1965 $122,967 133,485 7,478 75,000 25,000 32,776 8,099 2,982 407,787 1964 $114,891 120,268 11,980 3,276 12,108 1,571 264,094 1963 $ 82,990 114,606 12,373 1,669 14,532 5,368 220.802 1962 $ 78,368 97.639 11,451 99.593 2.639 2.366 292.056 19 b 1 $ 68,656 86.876 9.926 7,918 157,540 Disposition of Funds: Dividends on common shares.................... . Plant additions and replacements.............. . 174,179 950,418 Investment in affiliated companies............ . 52,316 Retirement of debt....................................... . Increase in working capital(li..................... . 75,071 112,117 Increase decrease in cash and securities. . 21,822 $1,342,279 44,809 295,160 1,126 11,396 44,595 10,701 $407,787 37,606 218,105 13,340 10,418 29,845 45,220 $264,094 34.978 114.502 18,443 13,452 18,042 21,385 $220,802 29,470 168,833 9,597 17.877 14,614 51,665 $292,056 27,316 153.818 9.810 21.928 5.021 *0.353 $157,540 (1) Exclusive of cash and securities. Italic indicate deduction. MOWS 3 5 2 1 7 3 TOWOLDMON0014336 24 MONSANTO COMPANY H I S T O R I C A L S T A T E M E N T OF (In millions) ASSETS Curront Assets: Cash.......................... Marketable securities Net receivables......... Inventories................ Investments, etc 1965 1964 1963 1962 1961 '.O Y E A H S AGO 1955 ^5 YEANS AGO 1940 $ 33.1 58.2 267.3 258.7 617.3 $ 27.8 52.8 239.7 214.9 535.2 $ 40.9 84,7 198.7 191.6 515.9 $ 34.4 67.1 173.9 170.6 446.0 $ 28.9 18.6 152.7 154.5 354.7 $ 45.2 35.3 65.8 92.9 239.2 $ 9.4 6.1 10.3 25.8 87.4 85.9 85.6 84.4 90.5 44.0 1.3 Property: Land.................................................. 27.7 27.4 27.7 25.2 23.4 10.0 2.2 Buildings........................................... 289.7 263.0 237.0 219.3 195.0 81.8 10.6 Machinery and equipment............... 1,529.1 1,295.2 1,148.2 1,054.5 907.0 389.4 37.0 Phosphate deposits.......................... 10.0 9.8 9.6 8.6 8.5 5.6 1.0 Producing oil and gas properties.... 97.9 94.7 89.2 84.8 82.1 60.0 Undeveloped oil and gas leaseholds. 7.6 8.2 9.1 9.6 8.9 10.3 Accumulated depreciation, etc........ 886.5 785.7 707.2 600.9 514.8 184.8 19.1 Accumulated depletion.................... 38.8 36.6 33.3 31.2 29.3 19.6 .1 Net property............................ 1,036.7 876.0 780.3 769.9 680.8 352.7 31.6 Deferred Charges 42.7 37.9 32.4 24.6 16.3 5.1 $1,784.1 $1,535.0 $1,414.2 $1,324.9 $1,142.3 $641.0 .2 $58.9 Unites indicato d o d u ttin n . HONS 352174 TOWOLDMONO014337 AND S U B S ID IA R IE S CON S O L I D A T E D F I N A N C I A L P O S I T I O N (In millions) LI ABI LI TI ES Current Liabilities: Accounts payable and accruals.... . Income taxes.................................. Current portion longterm debt....... 1965 1964 1963 1962 1961 $ 197.6 $ 154.8 $ 122.8 $ 127.0 $ 109.3 59.8 75.8 69.1 42.9 48.8 9.8 10.5 10.2 9.3 9.2 267.2 241.1 202.1 179.2 167.3 1 0 Yt AKij AGO 1965 $ 50.8 34.4 1.8 87.0 2b Y LARS AGO l'M O $ 6.1 3.0 9 .1 Notes, Debentures, etc...................... 467.5 345.5 352.8 360.8 269.2 164.2 Other Liabilities: Deferred income taxes..................... Miscellaneous...................... ............ 53.9 46.4 41.4 33.5 28.1 8.3 9.8 3.4 2.4 3.5 3.4 5.3 2 .9 63.7 49.8 43.8 37.0 31.5 13.6 2 .9 Minority Interests in Subsidiaries.... 28.2 26.9 31.3 30.3 23.1 17.8 2.3 Shareowners' Equity: Preference shares............................ Common shares................................ Paid-in surplus.................................. Retained earnings............................ -- 63.3 524.0 370.2 957.5 $1,784.1 61.7 466.1 343.9 871.7 $1,535.0 -- 59.9 406.2 318.1 784.2 $1,414.2 58.0 360.9 298.7 717.6 $1,324.9 56.0 323.1 272.1 651.2 $1,142.3 42.0 149.2 167.2 358.4 $641.0 1 0 .0 1 2 .4 11.4 1 0 .8 4 4 .6 $ 5 8 .9 HONS 352175 TOWOLDMONOQ14338 i 6 i MONSANTO COMPANY H I S T O R I C A L S T A T E M E N T OF C O N S O L I D A T E D INCOME (In m illhot xc*pt p tr th a n namingt) Nat Salai........................................... Cort o( Qooda Sotd............................ Qroaa ProfH....................................... 10 YEARS 5 YEARS 1965 1964 1963 AGO AGO 1962 1961 1955 1940 $1,468.1 $1,358.7 $1,192.3 $1,063.2 $932.9 $569.5 1,039.6 940.1 849.7 762.2 672.9 400.4 $51.1 34.9 428.5 418.6 342.6 301.0 260.0 169.1 16.2 Un: Salllng, adminlstrativa.................... 149.4 134.3 117.7 100.1 84.7 61.3 Research, devalopmant, patant angineering.............. ...................... 69.9 66.8 58.4 51.6 46.7 17.4 219.3 201.1 176.1 151.7 131.4 78.7 Operati ng ProfH................................ Incorno Chargea -- Nat...................... 209.2 217.5 166.5 149.3 128.6 90.4 6.6 3.4 6.1 8.0 1.5 6.7 Incorno Boforo Incorno Taxo*............ 202.6 214.1 160.4 141.3 127.1 83.7 Providon for Incorno Taxot........ . 79.6 99.2 77.4 62.9 58.4 39.3 Not Incorno........................................ $ 123.0 $ 114.9 $ 83.0 $ 78.4 $ 68.7 $ 44.4 Por Common Sharo Adjustod (or split.................... . Adjusted for spllto and stock dtvf- donds.............................................. $ 3.89 $ 3.72 2.77 $ 2.70 $ 2.45 $ 3.89 $ 3.65 $ 2.66 $ 2.55 $ 2.26 $ 2.09 $ 1.75 4.4 1.4 5.8 10.4 (.1) 10.5 4.7 $ 5.8 $ .48 $ .39 J MONS 352176 TOWOLDMONO014339 AND S U B S I D I A R I E S Il i OTHER DATA (In mihrtM axeepf w#>*rt ifo/kizmd) Plant additions and replacements.... 1965 $295.2 1964 $218.1 1963 $114.5 L962 $168.8 1961 10 YEARS AGO 1955 5 YEARS AGO 1940 $153.8 $ 49.6 $ 7.5 Depreciation, depletion, etc................ $133.5 $120.3 $114.6 $ 97.6 $ 86.9 $ 3 8 .3 $ 3 .4 Dividends a common share*1'............ S1.45 $ 1.25 1.20 $1.03 $1.00 $.92 $.33 Book value a common share(1).......... $30.27 $2825 $26.17 $24.74 $ 23.24 $17.07 $3.09 Common shares*1'.............................. 31.6 30.9 30.0 29.0 28.0 2 1 .0 1 1 .2 Preference shares............................... -- -- - - -- - 100,000 Working capital................................... $350.1 $294.1 $313.8 $266.8 $187.4 $152.2 $16.7 Long term debt (less current matur ities)................................................. $467.5 $345.5 $352.8 $360.8 $269.2 $164.2 ~ Shareowners' equity........................... $957.5 $871.7 $784.2 $717.6 $651.2 358.4 $44.6 Employes*2' ........................................ 56.227 52,284 48,133 45,665 38,621 23,629 7J84 Shareowners............................................... 93,538 89,833 80,608 82,452 82J03 43,616 9,480 (1) Ad|u*ted tor splits. (2 ) In clu d a s M o n sa n to tm p lo ya a in plant oparatad for U.S. G ovarnm ant (1,678 In 1965). j HONS 352177 TOWOLDMONO014340 3 I R K C T O R S ANO O F F I C E R S BOARO Or D IRECTORS Edward A. O 'N eal, Chairman........................... St. Louis Dillon Anderson................................................ Houston E d w a r d J. Bo c k .................................................... St. Louis David R. Calhoun................................................St. Louis John L. Christian................................................. St. Louis F r e d r i c k M. Ea t o n ..................................................... N e w Y ork John L. G il u s ........................................................ St. Louis Herbert Hoover Jr.......................................Los A ngeles Robert K. Mueller.............................................. St.Louis Edgar M. Q ueeny................................................. St.Louis Charles H. Sommer............................................... St.Louis Alan H. Temple.................................................. New York Charles Allen T homas........................................ St.Louts SXICUTIVI COMMITTII C h a r l e s H . So m m e r , Chairman E d w a r d J. Bo c k Jo h n L . G i l u s Jo h n L . C h r is t i a n Robert K. M ueller Ed w a r d A . O 'N eal FINANC COMMITTII C h a r l e s A l l e n T h o m a s . Chairman D illon A nderson Ed w a r d A . O 'N eal D a v id R. C a lh o u n Ed g a r M . Q ueen y F r e d r ic k M . Ea t o n C h a r l e s H . So m m e r H erbert H oover Jr. A l a n H . T emple T n n if ir Agent M o rg an G u a r a n ty T rust Co m pan y op N ew Y ork T he Bo a t m e n 's N a t io n a l B a n k o p St . L o u is Raglatrara T he C hase M a n h a t t a n B a n k ( N a t io n a l A ss o c ia tio n ) St . L o u is U n io n T r u st C o m p a n y LITHO IN U.S.A. OFFICERS EDWARD A. O 'N eal.................... Chairman o f the Board Charles H. Sommer.......................................... President and Chief Executive Otficer Edward J. Bo c k ....................................... I ne President John L. Christian...................................... Vice President John L. G illis............................................. Vice President Robert K. Mltller................................. Vice President H. H a r o l d B i b l e ....................................................vice President W i l l i a m H. B r o m l e y ........................................... Vice p re sid en t Ja m e s E . C r a w f o r d J r .........................................Vice P resident Pa t r ic k J. D o w d ................................................... Vice P resident Jo h n R. Ec k .............................................................. Vice P resident A r t h u r W . L u c a s ............................................ Vice P resident Ja m e s D . M a h o n e y ................................................ Vice P resident Ed w i n J. Pu t z e l l J r ............................................. Vice P resident R o b e r t R. R u m e r .................................................. Vice P resident IRVING C . S M IT H .......................................................Vice P resident T o m K . Sm it h J r ...................................................... Vice P resident M o n t e C . T h r o d a h l ............................................ Vice P resident J. R u s s e l l W i l s o n ..................................................Vice P resident E a r l J. W i p f l e r .......................................................... Controller E d w in J. Pu t z e l l J r ......................................................S e c r e ta ry Pa t r ic k J. D o w d ............................................................. Treasurer L l o y d R . C o l e ................ Ja c k W . M u e lle r . . .. F r a n c is A . St r o b le . . C. W a l t e r T h il l in g . . C h a r l e s E. C a s p a r ! Jr. Jo h n N . E h l e r s ............. R o d n e y H a r r is Jr . . . . C. B r e n t H o l l e r a n . . C. F r a n k l i n Rehfeld. L e w is L . B a s e l e r .......... N o r v e l l G . Jo nes . . . . J. R o b e r t M a t l o c k . . , J. W a l t e r N aber Jr. . . T homas M . Rasmussen Assistant Controller Assistant Controller Assistant Controller Assistant Controller Assistant Secretary . Assistant Secretary . Assistant Secretary .Assistant Secretary . Assistant Secretary Assistant Treasurer . Assistani Treasurer . Assistant Treasurer Assistant Treasurer Assistant Treasurer Ragionai Vlca Proaldanto R oy L. Brandenburger F r a n k lin J. C o r n w e l l M a r s h a ll E. Y o ung Fob. 21. 1966 HONS 3 5 Z 1 7 8 TOWOLDMON0014341 M ONSANTO COMPANY / 8 0 0 N. LIN D B E R G H BLVD.. ST. LOUIS. M ISSO U RI 63166 MONS 3 5 2 1 7 9 TOWOLDMONO014342