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Monsanto Delivering on Commitments 1989 Annual Report 0714876 TOWOLDMONOOI5530 Ttm Jrnwfin af Prarmst. located *i Monsanto's world bndquuun in Si. Louis, Miuouri, ip l5*fao iculpruR made of glassandSofia*plasticinterlayer.* Monsanto product. The name coroe* from i line in nn IMi-centurr hymn: "making the branches oi promise pm*u Sculpted by British-bom mill Edwin Sandy*, the tree image of many branches and a urtifving trunk capture* the spirit of Monsanto - a company whose vahies join in employ ees together in theircontinued effort to deliver on commitments. In his letter to (haiwnm, Chairman and Chief Executive Officer Richard J Mahoney reflects on another year of record financial performance in 1909 and on the enduring values behind the numbenNine values go beyond financial performance to define Monsanto * chancier and set the standards by which Monsanto is measured. MMy -- 'Taking five" adds up to a stellar safety record for the Antwerp. Belgium, plant -- and same unexpected side benefits, fiadnaapf sad Nfighban -- The Everett. Massachusetts, plant gains recognition as an environmentally conscious corporate ciuien by responding to community concerns. HMmNm TM Meeting local needs helps to cane new niches in global markets far Monsanto Agricultural Company's flyphotate* based herbicides. RmmIIb -- Smart marketing of superior products by people determined to get rasuhs leads to Scaric'i success. IgNl OppnrfWiMy -- Intensive seminan within Monsanto Chemical Company make employees sensitive to biases based on rate. sex. age and culture. IftlptoatifmMt -- Empowered employee* totally revamp a manufacturing process to produce the rum* advanced product in one of Fisher Comnils' oldest markets. farting Cestimen -- Monsanto Chemical Company focuses on a growing number of new and improved products that meet -- and even anticipate -- customers' needs. I|ia| fat* M^lf Mag -- Concern far employees and the community, evident in word and in deed, helps soften the blow of a plant closing in Columbia, Tennessee. faltil| fagrfgaain " A careful balance of short* and long term financial performance is (he right mix for Monsanto & shareowner*. Ifcai faktiisfl WkMr -- President and Chief Operating Officer Earle H, Harbiaon. Jr., summarizes Monsanto* guidepoets Atompiei bating of contents is found on page 19. 0714*77 TOWOLDMONOOI5531 TOWOLDMONOOI5532 fOoibrs irt mtihom, txctpi ptr shorn___________ 19<9 1988 1987 Net Saks 1 8.6*1 $ 8.293 * 7,639 Net Income $ *79 S 591 S 436 Per Stun: Net Income Dividend! Shareowners' Equity 8 10.03 330 3938 s 8.27 2.95 55.21 5 5.63 2.75 52.65 Depreciation and Amortization 8 690 8 703 t 679 Cash Provided by Operations 8 1.037 8 1.304 8 902 Research and Development Expenses 8 398 S 575 8 557 Return on Shareowners' Equity 17.6* 15.4* 11.4' Percent of Total Debt to Total Capitalization 33* 34* 35' Shareowners (year-end) 61,961 66,066 68.032 Shares Outstanding (year-end, in miUkms) 66 69 74 Employees (year-end) 42,179 45,635 49.734 07U879 im TOWOLDMONOOI5533 chairman and chief executiw officer 'left), and Earle H. Harbison, Jr., prtsi* deni and chief operating officer. 0714690 TOWOLDMONOOI5534 ^ statcmenl on the cover of this report -- '^R "Delivering on Commitments" -- makes a . strong assertion. Over the past several years, we have stated pubiidy our commit* ment to rewards for chose w ho hold a stake in Monsanto -- importantly, shareowners, customers, employees and neighbors. In 1989. we took a maior step toward the fulfill ment of those promises. For the fourth y ear in a row. we increased earn ings: Net income was up 15 percent over 1988 to 5679 million. Earnings per share increased by jt percent to 510.05. Nonrecurring gains from the sak of assets and other items were about the same in both years. The principal financial goal of the corporation is to reach and sustain a 20 percent return on share* owners equity I ROE). In 1989. we took another positive step toward that goal with ROE of 17.6 per cent. up from 15.4 percent in 1988. We used our strong cash position in 1989 to repur chase 3-3 million shares of stock and to increase quarterly dividends by 13 percent, the 17th year in a row of dividend increases. Monsanto's second consecutive year of record gales and earnings is a direct result of the individual accomplishments of our operating units in increasing the number of product lines contributing to our gains. When you look at the Chemical Company as one unit with 5497 million in operating income, the hrrwfrh of the unit's overall product strength can be obscured. Nylon carpet fibers. Saflex plastic interlayer sad many other value-added performance materials are the major reasons the Chemical Company has prospered and reduced its dependence on cyclical markets. Today, only about one-half of the unit's sales are tied to industrial business cycles, down from threefourths several years ago. This, in turn, has brought Monsanto's aggregate cyclical businesses to less than one-third of total corporate sales. Just as strong mar kets worldwide supported Chemical Company sales in 1989, the unit's increasing global involvement insu lated it from regional economic downturns. After nearly five years of investment since its acquisition. Searie had a positive operating income for the first time at 56 million, led by Cohn SR anti hypertensive drug, now one of the top 15 U S. phar maceuticals in sales. Earnings at Searie now have the potential to grow dramatically with an impressive pipeline of new products. The NucraSweet Company contributed $180 mil lion in earnings, with strong worldwide growth particularly in the carbonated soft drink segment. New uses for .VurraSuw brand sweetener abound Nearly 500 new products sweetened with .YurruSntv/ were introduced in 1989. bringing the total to more chan 3.000. Operating income for the Agricultural Products' Crop Chemicals unit increased more than 9 percent tu 5474 million. Lasso andAvcde.v herbicides ported gains in sales, and Roundup herbicide showed another dramatic increase, with volumes up 25 percent. In the unit's Animal Sciences Division, profits have been affected by competitive pricing pressures and product development programs. Fisher Controls achieved the sales and carmm> surge we have been confident could be demoireu aicd Operating income more than doubled tu je4 million with P/lOUWplus process control sv stems beeurn my an increasingly important contributor Monsanto's sales and earnings arc well bnhmcci.i around the world. All world areas saw growth iti .< >ntinuing businesses, with 41 percent ot our total in markets outside the United States. While chut pucentage is dawn somewhat from 1988's 43 perecnl our global position is actually stronger than at am other time in our history'. Where sales were down it was because of divestitures that moved us further away from commodity products and toward a stronger, higher-value-added product portfolio. In spile of our second consecutive record vear it is important to acknowledge that wearen t there vet Monsanto's long-term goals will be fulfilled onh through the continuing extraordinary efforts of um people and our continuing investment in future products. With our improved cash flow- position, we rein vested $598 million in research and development for new or improved products and 5607 million in capital to reduce costs, expand capacity and improve the environment. Our R8tD expenditures remain high -- 7 percent of sales -- and the results are beginning to Bow. A result with exciting potential is Simpler* all natural fat substitute. In February 1990. this product was affirmed as "generally recognized as sate'1CRA$i by the U.S. Food and Drug Administration < FDA.' toi use in frozen desserts. And The NutraSueet Compam has introduced the first product to be made w ith Sunplesse -- Simple Pleasures frozen dairy dosert Simplest may eventually be used in foods like mayonnaise, salad dressings and yogurt In December 1988. Cytotac. a drug that prevent* gastric ulcers in certain high-risk patients, was approv ed for marketing by the FDA. which called it "the most important [drug] approved this tear [1988]." U.S. sales of Cyiotec reached 539 million m 071A881 3 DiHvtrin on Cowwiltmonti (continued > 1989, contributing to worldwide sales of $60 million. Avi inline medications like Cytottc require more physician education than conventional trmtmni drugs. While the educational process cakes longer, ihe effort should pay off in substantial sales increases in 1990 and beyond. Maxaquin (lomefloxacin), a novel anti-infective drug in the quinolone class, had its first country launch in 1989. We expect approval in several other countries in the next two years. In 1990, Searie will launch Kerione, a once-a-day beta blocker for the treatment of hypertension. In the Agricultural Company, we expect Dimen sion herbicide -- a crabgrass treatment that really works -- to be approved and on the market in 1990. And products in five new classes of chemistry are in early to late development stages in the Agricultural Company, one new product should emerge each year in these new classes of products. The Chemical Company will continue to launch new high-performance products in 1990. If stain resis tance was the carpet trend of the 1980s, durability will set the pace in the 1990s. The Chemical Company is already there with Traffic Control Fiber System, a new performance blend of nylon and acrylic carpet fibers for textured carpets, and with Acriian Plus car pet fibers for fashionable "berbery-style, natural-look carpets. The growing market for Saflex plastic interlayer in laminated architectural glass will be supported by the introduction of Saflex OptiColor System interlayer. This new product offers architects hundreds of new colors to enhance the beauty of their designs. A number of new high-performance Tnax plastic alien s aiv slated to come from the Chemical Company. Also coming arc several specialties products, includ ing the fifth generation of Skydrol fire-resistant h>draulic fluid. Unique, metallized textile materials lor electromagnetic shielding for computers and other high-tcchnology applications are also in the offing. Fisher Controls will introduce new- PftOVOApJus products that will integrate business systems, facili tate system-wide planning and improve engineering productivity and environmental control tools. In 1990, Fisher also will market improved rotary valve seals and the new energy-efficient S.402 gas regulator for homes. While Monsanto's pipeline is full, we can't help but be disappointed by delays in our efforts to bring bovine somatotropin (BST), a product that increases efficiency and improves milk production, to market. This product, which awaits FDA approval, is another in the continuing series of technology improvements for world agriculture. Opponents of new technologies have raised predictable charges against BST as dis ruptive to the supply-and-deinand balance for milk. Nonetheless, upon its regulatory clearance. BST will join earlier technologies that have provided safe, highquality food supplies at a low cost to consumers in developed agricultural sectors worldwide. Looking back on 1989, we see solid performance from today's products and an impressive array of new. important products for future markets. In sum. the strategy is working. But a financial strategy alone isn't enough for Monsanto to achieve its goals. No strategy can be stronger than the basjc values of the companv and its people. The ability to deliver on our promises, to all our stake holders, rests squarely on a set of commitments and values that I believe increasingly characterize Monsanto and its employees. J won't dwell on them here, because we deal with them at length in the next few pages. I'll simply note that as times and conditiuns change, so must strategies adapt to those changes. But our commitments and values w ill endure. And they will always be the bedrock upon which we con struct the future strategies that will keep Monsanto prospering. In April 1990, three of our directors will retire from the board, having reached mandatory retirement age. Raymond Dahl, Richard Fricke and John Hanley w ill be sorely missed in our corporate deliberations. Their collective contribution to our current results has been invaluable. Jack Hanley, with 17 years of combined sen ice as chairman, chief executive officer and board member, was instrumental in setting the current course of the corporation. A chronicle of his Monsanto years is on the inside back cover of this report. In closing. I would like to note that while 1989 w as a good year for a number of companies in the industries in which we participate, it was especially important to us as a demonstration of the duratnlit) of our earnings growth, and we expect to report 1990 as the fifth successive year of income gains. Our people are delivering an commitments Chairman and Chief Executive Officer March 5.1990 4 0714882 -rf1. Aft . -n*** * 4 KxSbei Kts &? v Commitment to Greatness * f ` ,, * ,, 'O ^ j "Money is not the single measure of a company or its managers. Financial performance is the enabler to greatness. To be truly great, a company must merit that title from a varied group of stake holders: its employees, its customers and the communities in which it operates. Only by com mitting ourselves to both financial results and the highest social, ethi cal and moral standards -- those nonfinanciai commitments to greatness -- can Monsanto achieve and maintain such a reputation, -- Rickard J. Mahoney, A Commitment to Greatness A Commitment to Greatness was written and published in 1988 for Monsanto employees. It explores nine nonfinanciai values that describe what Monsanto stands for, what it expects from its people and what people can expect from the company. They aren't nine easy steps to greatness. Nor are they exclusive to Monsanto. But together, they are what Monsanto must embrace if it is to earn the reputation for greatness from its stake holders. In the following pages, employees, customers and neigh bors describe how Monsanto is delivering on its commitments. - sti^a .'*- > /'i** ' ^. fS&Tf" jjT!. 't*oSt..V. .. 4 vV; '.W.{i ?***.'** Jk 07146B3 TOWOLDMONOOI5537 Commitment to Safety `1 meet with every new employee, and my basic message is always the same: Safety comes first." says Achicl Ossacr. manager of Mon santo's Antwerp. Belgium, plant. Evidence of "Pak de 5." the name of the plant's safety pro gram. can be seen everywhere -- on clipboards, bulletin boards, hard hats. "Pak de 5" means 'Take five": five seconds, five minutes, whatever time is needed to think through what you'n about to da. And do it safely. Ossaer says that attitude toward safety goes along with lower costs, improved quality and. ultimately, profits. He might have added employee ingenuity, as evi denced by the w orker-designed mobile trolley for fire protection. Up until last year, weekly safety checks far too often uncov ered twisted fire hoses, missing branch pipes, wrong spare pans and damaged tools in tbe several fixed firefighting cabinets located throughout the plant. It was virtually impossible to keep the equipment in the cabinets shipshape. Various pieces were often removed to be close at hand during any maintenance job that involved "hot work." like welding or spark-generating grinding. Though the condition of the equip ment had not caused a problem, it was unacceptable given the plant 's high standards. "We knew we had a conflict.'1 says Eddy De Belva, leader of the quality circle that solved the prob lem. "Sov for standby protection during hot woric, our team devel oped a completely equipped mobile trolley, ready to go anywhere." Today the firefighting equip ment inside the cabinets is neatly arrayed, easily accessible, ready for its primary job: to do battle with fires involving any of the potentially dangerous raw mate rials used in the plant. As Ossaer says, safety and lower costs go together, the cost of maintaining the fixed fire cabi nets dropped from 517,500 a vear to around 31.000. The cost of four trolleys, fully equipped; 37.000 Jluuttgh a ivlentk' emphasis uw ivorie'/i ai the Anfufrp. Belgium, plant haw achieved one of'the best safety reaUii- |I| Enroll MetV. L'MI.'lflJlAk fighter- a tinder tuntrul a safer* dnli 0714884 gjHiiiKJ'* retbuttons jptopmmn^MLanofts n-jfA rttftbon canwtut :i) iMrws* uvtnmu- 1|trv uT u> ii xtpvmtbU' t-otpi >mditnztii i Everett. Klassa^hitrrj. EmirotinwWQt Supervisor Crrt Q*Pater tests u urer tram the \hsttc Riveras part ot rou tine itUJtTltOniTf i if the riant t treated tNVIRONMf NTAUSf S AT WORK Whwt Monurtro annggrictd * '- f 9M if* indufttnHoadinf 9001 w nidvcf foxic air wri4i<en W 0iXnr by th* and a* 1997. Terry Andai hi?, Bab Oarrati. Strut W#rdwti and 4tdi larbr' wora alraedy -parking heed reword tfict gool tn 1 ?B3. rhu iam or Mantonto A^ieglTursI Company1 Akuicenn*. lo*a, plant bagon ork>ng on a nodwM that gtr* c nr- reeye'i^g tachnalogy re glimingi* met? a* *# ar muttons ertertd m g pimncmcfcing pracau Thd new tretmology, vipK*ro to ga an-'inr lore n*j year ochirwa mast a* m* 93 oarc*-*- tmitron rtducnan oienntd "`~r --0 unit. It il! glo pgy -or 'I*-' tt Idviitg mgr* rhgn 52 5'"' ^1* 1+* first ng ytgrt gt oparotion. Commitment to Environment and Neighbors In 1986. Monsanto's chemical plant in Everett. Massachusetts, was in trouble w ith its neighbors in this Boston suburb. ''When we polled them, one-third of the peo ple considered us a health threat." recalls John Dushney, plant manager. Pollution-abatement initiatives costing millions were already under wav, but the community wanted more action and more information about w hat the plant was doing to clean up past prob lems. The plant was dose to losing ts neighbor-conferred right to Operate. Clearly, everyone agreed, changes were needed. John Ragucd. an Everett city councilor, recalls, "In 1980, Monsanto began a dialogue that today remains totally open and honest. They tell the community as much as they can as often as they can about their actions to improve the site. John Dushney and his staff are involved members of this community In the last several years, com munity support and acceptance of Monsanto have grown. Since 1988. for instance. Dushney has. by invi tation. served on the board of The Boston Harbor Association (TBHAi, the acknowledged "..onscience of the Boston Harbor DanCurll. president ot "TBHA has words of praise for .\Ion>anru response to a commumti s need tu see and understand change* at :he plant. 'What they've done c\vevd> all requirements," Curll saw "Monsanto is a corporate citizen that is as responsible as it can pos sibly be within technical and economic bounds." He adds. "They have an honc-t worldview and a sincere long-term commitment that other indust ral firms should emulate Their investment will pay off." 0714085 71 towoldmonooi 5539 Commitment to Globalization Back in the 1970*, when Monaanto patented and developed Jtaundip it had an astonishingly effective herbicide for an endless number of ^mttfetiom. And it sew this gjyphostw bend product n one with truly global pntmtisl. But merely packaging Jtasaufcp in five-gallon containers wouldn't satisfy the specific needs of vest numbers of customers "We ashed end-users what they wanted in addftkm to the tesuJts that (lypheaaie offers," says David Duncan, director of Monsanto Agricultural Company's greens busings. "Responding to cuetoner needs means going beyond chemicals. With Eiptdiu delivery system, it meant devdopim an entire syston ofequipment and new formulations of giypbotate' Oinmars1 further I from around the globe taught Monsanto much about tailoring products lor local needa. To adapt (iyphoaate to meet the needs of specific users, Monsanto product development specialists have worked in every world agricultural situation -- from French vineyards to develop Acute/ herbicide, to expansive Australian wheat fields to develop Kouiukip CT herbicide for moisture-conservation farming. They studied the weed control needs of Thailand to develop Scour herbicide, which they then packaped in liter containers Cor the convenience of small-plot fanners "Every formulation of giyphosate we sell is targeted to a specific need of farmers," says David Clifford, manager, gtyphosatn international, tor Monsanto Agri cultural Company. 'Monsanto now has dose to 100 brands of gtyphosaw-based products used in more than 100 countries." No other group of products so well illustrates Monsanto's efforts to market globally by thinking locally. kdatliVk TUBS, COUNTimaM EoaMm Europa moy b* apaai^ tq an1 , liitv-- jrl-g rwgn Sr--m-- --w**. Qttm++r? 'Thor* ii o tolwiiOA,' Myt 0w lAbbi dlfotfop of couiibfifflrii tp weft far fO*w of iboir product!, dsHhow HaManroK)!. Thrt'i mmttoadc," As on Mpnpfa, >***<* fi*or -Wb took boH boonv from ftemo. *cM iha ba bourn* 4m Unitod Kinpdiw and 4m ce** fU.S. 0714046 TOWOLDMONOOI5540 Monsanto j line of tfypkasate-based products are tailored to sobt unique local agricultural prob lems around the world. Spark herbtcide war developed for the needs offruit growers and other sma&pfot farmers in Thailand 071466? t I TOWOLDMONOOI5541 Commitment to Results Good science, good marketing and a determination to get results make a powerful combination for a pharmaceutical company like Semite. Searle applied that combina tion to Cytotoc uker-preventive drug. Cytotoc, originally developed for the treatment of ulcers, had become viewed by many as just another me-too acid suppressant. But after extensive new clini cal studies. Searle was able to reposition Cytctec as the first and only medicine that can prevent stomach ulcers caused by chronic use of arthritis medications in high-risk patients. This drive for results was also behind the repositioning of Searles high-blood-pressure medi cine, Colon SR. After years of use for the treatment of angina, Colon was reformulated as a slowrelease, once-a-day medication for the much larger high-bloodpressure market. After this reformulation and repositioning in 1986, Colon SR quickly became a leader In the highly competitive hypertension market. In 1989, U,S. sales exceeded S364 million, and the Colon brand became the 12th most widely sold prescription product in the United States. Searie's total sales in 1989 passed the billion-dollar mark. The company also showed an operat ing profit for the first time since being acquired by Monsanto in 1985. Searle people are gening results. a uctNM to sircciin 5e*fa i ie ttnow ^our fekOftMond on eeliwiid wa wodene* tofar to diet and. Climcd dmehpment of 1i compound* a eorried ovt bjr e a^rioncad deff thor d Mjr ie tfan prodem, therefore, then n^emdi do not compote far mewiM *ilh SeerlrAeetotod ^wga. Sept **tr Geene, deepwidne^ leondos, vad iipPb* oftco% to bridge die k in product flow wfale newfawp-rttororeep ta owr omm Mtodioiinp 10 Sufira o fat lutorttfB thfa it nl nowrd, yet prewdpt th* Mp pnd Mirp rffcrttnfoodfc. Theft Jinplww oMnptwrd fat iM>, product *ot dwwU oppool fa people moImis fa nihoi iho nmoiinf of fnT in Ttwir riion The fin product nodi wdi Sin* riot of penmen fceoet ftoim pfowi commm fa nddpo Ifair PM far creamy dOMOrf$, rongo of faodt " MQyoopoioo. op* chooao and new mere. The mooduden of SiepJv fdeuei lowed thoroOTte U.5. Feed md Drug fat id ofy rocogniiod o* Mh" |GIA$) far um in fawi dmom. Siwplite da hoi boon tloorod far working in aowrel 0714*84 Searie $ dnvt far results helps people like Gladys and QwiUtm Hughes, hen strolling in a park near their sub* urban London home, lead healthier and more active lives, for example. by developing Cytoctc as the only drug that can prt* vn; gastric ulcers often caused by arthritis poin medi cations, Searle removes a signifi cant concern of these patterns. 071**89 TOWOLDMONOOI5543 u$ts minortn high school students tike licit Tibbs to enter icwtc* and math carers through its Horizon inurtalup pntyaiti. Tibbs '.pent {0 nteks df IbodPjroV Ewironmental Health Lab, joipu* of it iiuritirig uifii Dr IVitfieMi Ribtliti in the pathologyerotip. Commitment to Equal Opportunity "Ibii have to be taught To be afraid Of'people whose skiti Is a different shade." So goes the >ong trom the musical South Pacific. Once the lessons are taught, the unlearning does not come easy. But it is being done. For instance. Monsanto Chemical Company otters seminars on "Managing a Diverse Work Force" -- two days of soul-searching and stereotype-debunking exercises. Through these seminars, more than 2.500 employees have become more sensitive to issues of race. sex. age and culture. As a supplement to these semi 13 nars. the Chemical Company conducts 14-day. intensive work shops on the ebb and flow of relationships. Graduates become "inside consultants ' available to anyone having a problem with a co-worker, subordinate or boss. For any given situation, two consultants are paired together as a team ("consulting pair"), often reflecting the racial or gender makeup of the individuals involved. "Consulting pairs don't give the answer,'' says Steve Wil liamson of the Rubber and Process Chemicals Division. "We just get the employees to agree to take steps to address their issues.'' To get work relationships off to a good start, new employe* ju through a "joining up'' prove."*--1:1 which they, their super, isor and .1 pair of facilitators trom the *.ui> suiting-pairs program meet ar1 J talk. They deal immciiiatclv with biases that otherwise might nut surface tor months, if at all. Bill Royal. of the finance and planning group, has assisted at more than two dozen 'iutn*up-Royal says. "Some manager* [.i. in thinking. 'Bov. is this a wa-tv -i time.' But soon they start ralkmy about what it takes to succeed about socializing so people do nut feel excluded, about seeing thv:i employee as someone w ho m.n bring special perspective* 0714690 Commitment to Empowerment first carat here to work ^aiic wc were good with our But our empowerment pro- pam shows that our heads and |g*1witt make the difference ^ our plant is to compete in the 1990s." states Rao Sanampudi. manufacturing engineer and faciiijw for the eight-member High[isdmMBt Work Team at the Ffcjwr Controls plant in IfcKisnry. Texas. The team's first project was vo produce a redesigned service regu lator that maintains a constant downstream pressure of natural ps to homes. The story started when an informal group erf managers and design draftsmen, who named themselves "The Skunkworks/' decided to replace the 30-year-old S.102 regulator, which had been copied by many competitors. Both salespeople and customers were asked (o provide a wish list of fea tures for (he "perfect" regulator. The Skunkworks then began to design a prototype of the 5.402. a new and improved regulator. "Developing the design based upon customers' requirements gave the customers satisfaction and us a surprising degree of suc cess -- and new patents have been and are about to be issued." says Don Rice, engineering manager. The High-Involvement Work Team then took over to guide the new regulator through production. Team members, who previously had worked only single-skill jobs, had to leant every aspect of pro duction. They even redesigned a production line. "We used to feel like robots. Now we've specified the use of robots to manufacture this prod uct," says team member Maxine Travis. "We learned to do every thing required to produce this new product. People all over the plant want to be on a team now " Success begets success. The McKinney plant manufactures hundreds of types of products, dozens of which are now benefit ing from the heads and hearts, as well as hands, of its empowered employees. Working with rusrpmtn, the sales force and technical experts, an eightmember team of empowered workers at the Fisher Con trols plant in McKinney, Texas, made the inAtstry's most advanced house service regula tor a reality. Srawn nidi manufacturing engineer Rao Souampudi are Isabel Benitez (left/and Anita Lemmond fright) ofthe HighInvolvement ltorfc Team. 0714891 A CUSTOMS!'* MilMV hMrlW. PWyw iwy w piw ngfJVhMHMnfrfUdlBilatwa mm SIOO nltei flmm. SWhewjh H -a MAy wted > hath te Unite telof ptea teh to a teteMtelkA "Wi. stood to law 1200,000 ^t|nr^ pinliMimHfi `MuiimmIui ptepto in CmA S*d AlahMNMMrMppvdvyiAp, and dpoAcliw.* Commitment to Serving Customers "When you befin formulating products u a direct response to customers' requests, they quickly lam to ask for 'dream products.' Then it's ourjob to supply them " says John Kilkenny, director of new business development for Monsanto Chemical Company's Plastics Division. An increased focus on serving customers was bask to restructur ing the Chemical Company away from commodities and toward performance materials -- products that id) because of the value they add to customers' products. Two new products for the 14 automotive industry, for instance, satisfy specific customer needs: Lustnin Elite HH, a high-heat plas tic, and Utstnn Elite LGA, a lowgloss plastic for interior trim. The list of such responses to customers' needs since 1986 includes more than 60 new and improved products. The number will grow by more than IS per year into the 1990s. Exemplifying the attitude toward serving customers is Bill Cloutier, marketing technical ser vice principal for Safer plastic interlayer at the Indian Orchard Plant in Massachusetts. "If I'm at a windshield plant, 1 consider mysetf their employee.'' Cloutier says. "1 get a lot of satisfaction from my relationships with my customers- Satisfaction works both waysTom Russell, supply manager at Ford Motor Company's Dearborn. Michigan, windshield plant, loves to see Cloutier walk in the door. "He's so knowledgeable, he antics pates needs we don't even know we have." says Russell. These kinds of alliances are good business for both customer* and Monsanto. They also put Monsanto's global reach as near as a handshake. Q7IAB92 TOWOLDMONOOI5546 Serving customers through n*H prod ucts or new titts of existingproducts is exemplified in the growing number ofapplications far Saflex plastic inter layer, The world's leading product for tnaking automobile glass shatter-resis tant. SaRex is increasingly used in architectural glass, in works ofart, and in designs such as I..M. Pei s glass pyra mids at the entrance to the Louvre in Anns. 0714693 19 TOWOLDMONOOI5547 Commitment to doing the Right Thing In Mawy County, Tennessee, dig nity and stability an synonymous with the local cocnmunity't strong wort ethic. Monsanto's SO years of nintiig and proceniog phospho rus at the Columbia plant provided three generations with good work In 1965, however, as the body of ore neared exhaustion and de mand for phosphates continued to soften, Monsanto announced that the plant would close a year later. The immediate result was an uncer tainty that threatened the qualiiy of Me in this huh, ratting hill country in middle Tennessee, when family and jobs are the two central priorities. 'Monsanto's closure announce ment was like hearing an old friend say goodbye,' remembers BiU Chaffin, president of the Columbia Chamber of Commerce. They could have just pulled up stakes, hut they went out with as much class and concern for Cotumbia as they had operated with for 50 years." The story of furnace operator Jimmy Massey typifies what the wok force of 414 people experi enced during the shutdown. The company did everything it could possibly do to help us all find work," Massey recalls. They opened up what we called the 'unemployment office,' and brought a firm in from Atlanta to teach us how to write nCsumCs and handle ourselves in interviews. They invited other companies hum hereabouts and from other states to come to (he plant to do interviews.* Massey continues, 'Monsanto is family. I know that sounds corny, but you ask anybody. All of us got help from Monsanto, and we got jobs we wanted. We re all fine, but we wish Monsanto would somehow return. ' a i* brought in counselors and recruiters to ensure that rmpio\ces like Irminy Massey, shtmrt here could find new jobs with minimal disruption to their pertonal kies. 0714894 ftlimJbkyo Slock ^tariff Ocio- company ivijiAdity mJoport, not only with tfm fhmnciol tvttfi cu&torrvn, iupplm* ondother busimu portmrs. MAKIMTHICTCll Mmmo hoi rduari ifi nliae* MjMyqrffcal Km jtwnac*, *antaiiwnmrffvtHt4jr4 ** ampwjri Ml*. ba Mtp *wy qr t-- ihaw ow> bird. 1b nwnw 4n prill hiit hwnim nf rti> nmd 4 i SMba pbmK iMfrtoywr ituMiidp*tHhiM*ifarpndiK1*w ttom. AHngtfhv, rf* Md m 0 aid and ! wlatil* aarfwtgi ban IJ Commitment to Serving Shareowners Monsanto mutt serve the dual ndi of Id shareowners. On the one hand, the company must pro vide consistent near-term returns, en the other, steady long-term irowth. Near-term, shareawncis look lorcontinual pirn in remings and dhldends from industry leaders, ejn Monsanto Chief Economist Nicholas Filippello. "We concenIrast on high-value-added products that an or can be market leaders,' he notes. "We support those leadenhip positions through UD, Ueeasing and acquisitions." The result of that focus is * strong earnings base and subtamlal cash fltw* that permit Mtasento to grow its current ^taoesacs. to invest in thedevel- Tment of future products, and to pay steadily increasing dividends to shareowners. Monsanto has accomplished all of that while significantly reducing the debt incurred as a result of the acquisi tion of Searie in 1985. Monsanto's increase in dividend payments has continued during each of the past 17 years. "Our current leadership posi tions should carry us while we focus on product innovation, whether to bolster mature busi nesses or to break new frontiers in biochemistry and nutrition,' Filippello explains. Long-term, therefore, new products top Monsanto's strategic focus. Abandoning its policy in the early 1980s of devoting about 5 percent of sales revenue to research and development. Monsanto has now more than doubled that investment, to about 7 percent of sales today. Recently developed products include Rerfone andbypertenstve drug, Acrifon Plus carpet fibers, SimpUssc all-natural fat substitute and Dimension herbicide, with mare to come. These products promise continued contributions to shareowner value. As Filippello notes, 'Compa nies that can consistently return 20 percent on shareowners' equits enjoy superior market values With a 17.A percent return on equity in 1989 (up from 15.4 per cent in 1988 and 11.4 percent in 1987) and with an eye on the 20 percent goal. Monsanto has its sights firmly on serving the dual needs of shareowners. 0714899 IT The Values of a Winner BrBarieH.HttfeiKn.Jr.. FwUnlud Chief Operating Officer Vahiei -- whether far an individ ual or a corporaou -- are gsbdsposss on the road to achieve ment. A gnat company mat preface anttainahle financial return*, but that cannot be its only objective. It's unlikely that any rrenpany can rucceed overtime without dearly Mated and agreedupon values that reflect firm coenntananti to thoae who have a take In it* action*. We have such value* at Moneanto. and they directly affect eurway of Ufa. They underlay the Heady growth in our tale* and ttoomc for the pan tevera] yean, ttdnding our record financial perfaemnea* in I9M and 19. Ourvalues are bask. Dong the ngfw dwwj ia the foundation of our attire phllaaaphy. We tdl our peo ple. "If you are ever in doubt, do what'* light." We have other important signpoata a* wefi. Nothing can come hahare the aafhty of oarwcefeere, or thefmuenon ofthe environ ment end pur neighbors, whether near or distant. If we don't dehver for ourshereownen as they believe we should. theyH find better thing* to do with their money. As the world change*, other values take on added importance because markets are rapidly becoming more and more global. Today's customers have unprece dented options; mare than ever before, they can go elsewhere. World-class quality no longer rep resents the margin oi victory -- it's merely the entry fee to play the game Thus, becoming more global in our thinking is urgent, focusing on customers' swift, by providing new products and unequakd ser vice. is essential. What can be more important than tapping the full talents of everyone in this company? That means empoaering them to do their jobs, and giving each a rtel opportunity to succeed. And. like doing the right thing, a drive for results must reside at the core of every endeavor we undertake. These are the central values oi ourcompany, and we strive to live by them every day. We believe they are the values ofa winner. \ % & s -w.#' . TOWOLDMONOOI5550 Management Report Audit Committee Report Independent Auditors' Opinion Review afConsoBdated Results ofOperations Operating Unit Segment Data Geographic Data Quarterly Data Review ofChanges in Financial Position Review ofCash Flow laf Significant Accounting Policies Basis ofConsolidation Currency Translation Principal Acquisitions and Divestitures Depredation and Amortization Inventory Valuation Income Taxes Short-Term Debt and Credit Arrangements Long-Term Debt Pension Benefits Other natretbement Benefits Stack Option Plans Earnings par Share Capital Stock Commitmentsand Contingencies Supplemental Data Segment Information 31 31 33 34 33 33 37 33 39 41 41 41 43 43 43 43 43 Unless otherwise indicated by the contest. 'Monsanto' means Monsanto Companyand consohJatad subsidiaries, and "the Company " means Monsanto Company only All dollars an in 071439? Monsanto Company end Subsidiaries 19 3 TOWOLDMONOOI5551 It Mononto Company management it responsible for the fair presentadou end consistency of all financial data included in (hit Annual Report in accordance with generally accepted accounting principles- Where necessary, the data reflect managemenu best estimates and judgments. Management also is responsible for maintaining a system of internal accounting controls with the objectives of providing reasonable assurance that Monsanto's assets ate safeguarded against material loss from unauthorized use or dispoaition and that authorised transactions are properly recorded to permit the preparation of accurate financial data. Coat-benefit judgments are an important consideration in this regard. The effectiveness of internal controls is maintained by: (t) personnel selection and training, (21 division of responsibilities: (3) establishment and comiminkarion of policies: and (4) ongoing internal review programs and audits. Management believes that Monsanto'* system of internal controls as of December 31.1989. is effective and adequate to accomplish the above described objectives. Richajd J. Mahoney Chairman and Chief Executive Officer February 23,1990 Ftancii A. Stable Senior Vice President and Chief Financial Officer Hie Audit Committee is composed of five non employee members of the Board of Directors and met four times in 1989. It reviews and monitors Monsanto's internal controls, financial reports, accounting practices and the scope and effectiveness of the audits performed by the independent auditors and internal auditors. The Committee also recommends to the full Board of Directors the appointment of Monsanto's principal independent auditors and approves in advance all significant audit and non-audit services provided by such auditors. As ratified by shareowner vote at the 1989 Annual Meeting, Deloitte ft Touche (formerly Deloitte Hastins ft Sells) was appointed as independent auditors to examine, and express an opinion as to the fair presentation of, the consolidated financial statements This opinion follows. The Audit Committee discusses audit and financial reporting matters with representatives of the Company's financial management, its internal auditors and Dehritte ft Touche. The internal auditor! and Deloitte ft Touche meet with the Committee, with and without management representatives present, to discins the results oftheir examinations, the adequacy of Monsanto's internal accounting controls and the quality of financial reporting. The Committee encourages the internal auditors and Deloitte ft Touche to communicate directly with the Committee. Hie Audit Committee has reviewed the financial section of this Annual Report. Pursuant to the recommendation of the Committee, the Board of Directors has approved the financial section. Buck Mickei ^ Chairman, Audit Committee February 23.1990 N Monsanto Company and Subsidiaries 0719898 TOWOLDMONOOI5552 fa iht Shareowner* of Monsanto Company: Wc have audited die accompanying statement of jeiitdidalrd financial position of Monsanto Company md Subsidiaries as of December 31.1989 and 1988. end the related statements of consolidated income, ghaieowners' equity and cash flaw for each of the dote yean in the period ended December 31,1989. These financial statements are the responsibility of lie Company's management. Our responsibility is ecspnss an opinion on these financial statements based on our audits. We conducted our audits in accordance with ftntraliy accepted auditing standards. Those pandards require that we plan and perform the audit to obtain reasonable assurance about whether fit financial statements are free of material mtiststsmrnf An audit includes examining, on a lest basis, evidence supporting the amounts and ilisi lilam ii i in the financial statements. An audit also assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, such consolidated financial statements present fairly in all material respects the financial position of Monsanto Company and Subsidiaries at December 31,1989 and 1988. and the results of their operalions and their cash flows for each of the three years in the period ended December 31.1989. in conformity with generally accepted accounting principles. /I* f*r iWi Y Dekritte it Touche Saint Louis, Missouri February 23.1990 07L9B99 Monsanto Compam and Subiriiurii't 11 Net8aiee Cost of goods sold OmiMk Marketing expenses Administrative expense* Technological expenses Amortization of intangible assets Restructuring expense (Income) - net (frond* imao Interest expense iMemt income Other income - no hMMferfovtlKCiwTatN tuct VHnwm 1999 36,681 5,033 3,64* 1,134 316 673 226 1,076 (182) 37 62 1.013 336 $ 679 810.03 Ife ifcw jMMftM should be rmd in conpuirtion wttfi pegts 39 through 44 ofrtis report. 1988 38.293 4.972 3,32! 1,013 474 648 231 955 (174) 46 66 893 302 S 591 3 8.27 1987 37.639 4,755 2.884 918 424 615 225 (32) 734 (172) 42 69 673 237 S 436 5 5.63 Kmf Hmmmkd RncmM Chafe from Prior Year: Net Soles Operating Income N6t Income Earnings per Share Ae a ISwit of Net Sales: Gross Profit Marketing. Administrative and Technological Expenses Research and Development Expenses Operating Income Net Income Eflectito Income Tax Rato RawteRnsseaeriEtolO 1909 3* 13 13 21 42 27 7 12 8 33 17.6 1988 959 30 36 47 40 26 7 12 7 34 15.4 1987 114 16 I 1 38 26 7 to 6 35 114 0 Martftnio Company and Subsidiary! 0714900 TOWOLDMONOOI5554 aewltt of Oprutiom If09- Another Record Year Monsanto continue* to deliver on its commitgeents ss evidenced by the second consecutive year of iscord sales and eaminfs -- and the fourth consecuov* yearof improved financial performance. This exceptional performance resulted from a combination of reasonably active markets and successful commer cial strategies that increased sales volume. Earnings s|so benefited from the success of Monsanto's strategy to concentrate on higher value-added products. In addition to strong income performance, the stock purchase program contributed to the improvement in earnings per share and return on shareowners' equity (ROE). Salsa Demand Waa Strong Across Most Businesses Net sales increased 5 percent in 1989. principally from higher sales volume (up 9 percent for retained businesses), as demand was strong across most busi ness and geographic markets. Roundup herbicide contributed significantly to volume growth (up 25 per cent worldwide) in 1989. Reductions in selling price an most giyphomte products and new formulations continued to make the herbicide cost-effective for weed control far a broad range of crop, industrial and tesidnitiel uees. Sale* of the Calan calcium channel blocker products for hypertension grew approximately 50 pcicent due to the unique once-a-day dosage of Cehn SR. Strong consumer demand forNufruSweet bmnd sweetener resulted in 20 percent worldwide volume growth. Chemical* 1989 net sale* remained strong. Fisher Controls net sale* were level with 1988. but exetudmg divestiture*, sales grew 14 percent on continuing operations Markets outside the United Stales continued to be significant and contributed 41 percent of Monsanto's 1989 net sale*. In compar ingyear-to-year remits, Monsanto's 1988 net sales trhirird 1391 million of sales revenue associated with subsequently divested businesses. Overall setting price increases generated 129 million in sales revenue, in spite of the $131 million advene effect of translation of non-U.S. dollar denominated sales into a generally stronger U.S. dollar. Chemicals, Fisher Controls and Pharma ceuticals selling prices increased, while glyphosate- bated herbicides, MdreSweel brand sweetener and Abim animal feed supplement prices declined. The |kbtl pricing strategy for glyphosate herbicides low ered average selling prices 7 percent, but revenue horn the additional sales volume exceeded the pricing lees Average idling price for NuimSwttt brand rweet- reo1 declined 3 percent due to a combination of price felines and sales mix. Ossality of Product Portfolio Enhanced Operating Income Operating income in 1989 was a record 51.078 million, and 13 percent higher than the prior year. The operating profit margin was 12 percent of net sales, and operating income unproved for the fourth consecutive year. Sales volume and mix was the principal factor for the higher operating income. Higher selling prices and lower taw material costs also contributed to a lesser extent. Monsanto's sales mix was favorable because a larger portion of sales came from higher-margin products (Crop Chemicals. NutraSweet and Pharmaceuticals). Searie achieved a milestone by earning an operating profit in 1989 for the first time since the Pharmaceuticals unit was acquired by Monsanto in 1985. Fisher Controls oper ating income in 1989 waa more than double its 1988 income. Crop Chemicals, Chemicals and NutraSueet had record operating income from continuing busi nesses. but Animal Sciences operating loss was greater than the prior year. Marketing expenses increased 14 percent and were 13 percent of net sales in 1989 versus 12 percent the prim- year. An increase in sales through commission agents, higher promotional expenditures, and costs associated with product introductions were the princi pal reasons for the change. Administrative expenses in 1989 increased 9 per cent due principally to the cost ofvarious employee incentive programs and. to a ksser extent, inflation. Resaarch Expenditures Remained Significant Research expenditures of 7 percent of net sales demonstrate Monsanto's strong commitment to research and development. A major focus continues to be the discovery and development of pharmaceutical and agricultural products. Research in existing prod uct technology and new applications also continues across all business segments. University collaboration and opportunities for licensing remain an integral part of Monsanto's overall research program. Other income was down slightly in 1989. Signifi cantly higher gains in 1989 from divestitures of various businesses were more than offset by higher currency losses and lower miscellaneous income. The principal 1989 divestiture gain resulted from the sale of the analgesics business -- 550 million pre-tax ($36 million, or $0.53 per share after-tax). The impact of nonrecurring items in (989 was about the same as the total of a number of small, nonrecurring items in the prior year. 071*901 Memento Company and Subsidiants 19 TOWOLDMONOOI5555 (continued) Progress continued toward achieving manage ment'* target of a 20 petccm ROE by the early 1990*. On the strength of hitter profitability and aided by the stock purchase program, ROE for 1989 improved in 17.6 percent (16.6 percent excluding the analgesics divestiture gain), versus 1S.4 percent in 1988. The continued success of strategies established in prior years and growth in key worldwide markets pro duced strong sties demand that translated into profit improvements for Monsanto in 1988. The increased sates demand was experienced across all operating units. Markets outside the United States accounted for 43 percent of net sales and contributed heavily to the improved sales performance. New applications and market expansion contributed to robust demand for established agricultural products such as Roundup and lotto herbicides. Ahmtt animal feed supplement had a record sales year, with a substantial increase in volume. Products such as Softer plastic interlayer and Lusttan AfiS thermoplastics experienced vigorous demand, sad sales of stain-resistant carpet fiber for Wmr-Duad carpet continued to grow. The volume growth nfMsntSwKf brand sweetener reflected the continued strength of the U.S. diet carbonated soft drink market and further penetration of international markets. Sales of the Calan pharmaceutical products increased 79 percent. Strang demand supported selling price incresscs for a number of products in 1988, and overall selling prices were favorable despite the reductions in some glyphosate herbicide selling prices. The continued weakness of the U.S. dollar in 1988 gave U.S.-pro duced goods a competitive advantage in certain world area markets, and the translation of sales denomi nated in other currencies into the U.S. dollar was also favorable. Monsanto's strategy to exit from cyclical com modity chemicals businesses in favor of higher valueadded products improved the quality of the product portfolio and resulted in a significant improvement in (Venting income. Additionally, higher selling prices exceeded raw material cost increases. Marketing and administrative expenses increased in I98g primarily because of inflation, higher sales agents commissions from the higher sales volumes, and greater employee incentive compensation associ ated with improved earnings. The higher profit performance, supplemented by the stock purchase program, produced a 15.4 percent ROE. This was a considerable improvement over the U.4 percent ROE attained in 1987. 8 34 tfopuvnla Company and Stibsidiaries Better (Worse) blu slatad Factors: Selling price* Saks volume and mix Total gslss Bslatsil Factors Coas-Btktld Factora: Ran* material costs Other manufacturing cons Marketing, administrative and technological expenses Total Coat-Rahtad Factor* Other Facfcm: Restructuring -- net Divesthum Total Othar Factor* OporoHag lacooae Interest expense Interest income Other income -- net Change in income taxes Change in shares outstanding Chaaga ip Farologi par *kara Sate* VMumu Mbs nats-ioi 1.3 0 9 19*7 Mflkg Mea hidaa (i9*5-/.0) 0.9 I9S7 Bat* Matsrial Cass Max rf9)5 - i.oi 0.9 |9S7 0714902 mkil 1968 vv IW 1907 l*3S 3.94 4Jt I 1.78 2.47 4JJ B.1* (102k (B.78) 0.19 (2.18) am (1.30) aiji 041) (041) 149 (6-M) 9.10 (644) 0.19 53 8 I T* (0.24k (0.24k (0 50k 1.62 (O.oi t 0.03 (0.02) 0.38 0.64 S 2.64 19SS 19*9 I9SS 19*9 I9SS 19*9 TOWOLDMONOOI5556 Agncufrunl Product*: Crap Chrraicali Aiiiiml Sciences Chemicals Electronic Msteruls Fbher Control* NutreSweat phonnoccuikat* teotechnoiogy Product Discovery Corporals MM IMP Net Sates 1900 1987 $I.SSg 199 4,0*9 833 M 1,170 i 1.377 169 3.909 209 040 73* 973 SI.170 127 3.850 185 749 722 820 884*1 58.393 17.639 19*9 Operetta* lam (Lees) 1980 1907 8 474 (43) 497 64 100 * (47) (34) $1,070 3434 (10) 406 11 29 154 (62) (47) (40) 5955 359 (43) 450 (5) 26 145 (119) (43) (36) 8734 19*9 1988 1987 8119 4$ 104 IT 39 210 47 u 5599 8110 43 108 6 19 35 198 47 9 575 t 94 47 108 8 13 31 199 43 9 5557 Total Asset* t(apital Depredation end Areeritaettan 1989 1900 1987 1909 1908 1907 19*9 1988 1987 A^teuhunl Products: Crap Chemicals AniHral Seisms fffntamln H*ui84 Materials tfoWCnutwJg Nutra&MMet tawauboli Bhaartainlngji Product Discowty Corporate M 81.173 31* 3.993 34 1.344 1.814 34 37* jUftl 81.001 260 2.083 227 682 1.484 1.604 67 263 88.461 3 918 221 2.B54 234 654 1.724 1.404 70 206 88.455 $109 300 29 49 71 ft 4 5407 8101 22 329 10 25 36 56 7 4 590 S 71 22 287 11 22 31 50 6 6 8505 8 St 25 247 31 313 79 10 2 549* 5 85 25 235 20 37 209 79 11 2 5703 5 82 11 231 L7 34 20* 73 8 4 5*79 Theahow dale should ta road in conjunction with At Segment Information nou to the financial statamenu on page 44. The countries in which Monsanto operetta have experienced varying degrees at inflation: therefore, the historical coat ofcertain assets is generally lower than current cost. Generally accepted accounting principles require financial statements to be prepared as historical coat. Consequently, the depreciation and arooftizahot] expense reported above is kss than that which would be reported using current cost. The 1968 operating results of the Electronic Materials business, which waa sold in Match 1989. included the 10 months ended October 31. This busi ness waa not reported as a discontinued operation in the Statement of Consolidated Income because the effect wet immaterial. The principal lectors that accounted for the operating units' strong performance in 1989 end 1988. along with the factors that are expected to affect operating results in 1990, are described on the follow- 0714903 Monfdnip Company and Su^idiono 1ft I TOWOLDMONOOI5557 QpwiNlIf UuH hpMtf Data (continued) Crop Chsmkals Set Saks Optminf Income 1*8* I1J3I 474 1968 51.377 434 1987 51.175 339 The Crop Chemicals opefating unit is a leading worldwide producer and marketer of herbicides, inclu ding Roundup, lasso, Far-Go, Avadex and Machete. Regional weather conditions in the agricultural mar kets throughout the world affect Crop Chemicals sales volume, and more than half of Crop Chemicals net sales are to markets outside the United States. Outlook -- Crop ChiTnirelv Roundup and other gjyphosatc herbicides consti tuted the major portion of 1989 Crop Cfwmicals net sales. They will continue to be the dominant products for Crop Chemicals for the near future. Manufactur ing capacity for giyphoaate increased significantly in 1989. The patents protecting glyphosate herbicide have dates expiring between 1991 and 2000. Crap Chemicals has a significant number of new product! in the research and development pipeline. The focus continues to be chi a number of traditional as wdl as biotechnology-related products. Some com mercialization is in the early stages, but it will not materially affect 1990 sales. fdatlwn m mflifHj 12.000 1400 1,200 100 400 0 L\S Europe iSg IM7 lias of World i 14W * L. 1009 Crop Chemicals herbicide sales were strong in mast key markets in 1989, with net sales increasing 13 percent and operating income growing 9 percent. Sales volume of Roundup and other giyphosale herbi cides was up 25 percent in 1989 despite dry weather in northern Europe. This excellent 1989 performance is the fourth consecutive year of volume growth of 25 percent or more. Selling price reductions have made glyphosate herbicides more cost effective to use. and the consequent sales volume increase more than compensated for the lower prices. The expansion of existing markets and the entrance into new markets i were factors in setting e record sales volume for Roundup herbicide. Sales volume for lasso herbicide was strong because of increased plantings of com and sovbeans in the United Stales despite continuing dry conditions in several sectors of the corn belt. In 1988. Crop Chemicals net sales increased IT percent, end operating income improved 21 per cent. Selling price reductions for glyphosate herbi cides facilitated expansion into new markets, while an increase in the (dented acreage of com and soybean crops in the United States contributed to higher net sales of Lasso herbicide. Operating results outside the United States also benefited from the translation of local currencies into the U S. dollar. M .Monsanto Compelrv and Subsidiaries Animal Sckaccc Net Soles Operating Income (Lou) im SIS* (42) 1988 $169 (10) 1987 5127 (43) The Animal Sciences business focuses on enimel nutrition and growth products. The major commercial products are Ahmet animal feed supplement and Sswagum feed antioxidant. Sales volume forAliraet animal feed supplement grew substantially in 1989. but net sales and earnings declined because of price attrition brought about by intense competition. Facility start-up coats for several products also adversely afftcied operating results. Approval by the U.S. Food and Drug Admin istration (FDA) is currently being sought for biotech nology-produced BST. a naturally occurring protein that enhances the efficiency of milk production in dairy cows. Expenditures for BST were higher in 1989 than 1988. The BST expenditures and the continuing research and development costs associated with por cine somatotropin (PSD. a feed efficiency and growth rate enhancer diet results in leaner pork, exceeded the profit generated by Animal Sciences product sales in 1989. The BST-mfeled assets an a significant part of Animal Sciences total assets. In 1988, Animal Sciences had record sales, pri marily because of a substantial increase in the sales volume of Ahmet animal feed supplement. Profit from product sales was not sufficient to generate operating income for the segment because of the high level of research and development costs associated with BST and PST Outlook -- Animal Sciences The market for Ahmet animal feed supplement is expected to grow 4 to 5 percent peryear, but pricing will continue to be a question for 1990 as competition 0714904 TOWOLDMONOOI5558 Unit Data (continued) rta(di interne. An Ahmtt production capacity miaiainn mad up in late 1989, increased the pro,kKtieo capacity forAhmtt 25 percent, positioning Animal Sciences to participate in the expected nisiket growth. BST is not expected to be approved in the United Sums before late 1990. This product is also being inlawed for approval by the European Economic Community. BST is believed to have significent value to dw dairy industry through the reduction of milk production coats, but it continues to meet opposition from factions that ate opposed to products utilizing Uottthnoiogy. Animal Sciences is positioned to take idvsnuge of BST'i commercial potential immediately open approval by the various regulatory bodies. The pod to maintain that state of readiness will continue to affect profitability adversely in 1990. 1989 tat Sain: Eagtasend products Mm anil, fan $ 4*2 134 964 tanka BU UnkipoducB 512 Rubber end pmrfia chemicals gpstiahiaa 817 459 Total Opmtiag Income 497 1988 3 *65 109 962 887 509 588 469 $3.9(9 1987 $ 457 100 950 804 490 518 439 $3.(58 450 The Chemicals unit produces a wide range of sifiwU plMtict. fibers ***** Atlwr products fisted in dK table Above, The unit's principal strengths are nylm carpet fibers high-performance plastics. Sstfez plastic interlayer, detergent ingredients, phosphates, rubber chemicals and maleic anhydride. Chemicals recorded another solid year in 1989, with net sates and operating income up 2 percent. Sates volume and selling prices were strong far almost all businesses, although some slackening of demand in the automotive markets in the United States and Canada did occur late in the year. Most raw material costs peaked in the first quarter, then generally decreased throughout the remainder of the year. Raw material costs far the full year 1989 were slightly lower than 1988. Capacity utilization, an important factor for Chemicals profitability, was 82 percent, ver sus 83 percent in 1988. Operating profit margin was unchanged at 12 percent of net sates. Sales volume for Lustrum ABS thermoplastics, Vydynr nylon and high-performance alloys and Mends remained strong in 1989. Plastics profitability bene fited as raw material costs declined year to year. Market demand softened somewhat in the United States and Canada late in the year due to the slow down in automotive markets. Safkx plastic interlayer sates benefited from con tinued advances in quality, technological innovations, and a worldwide motor vehicle market that was rea sonably strong during the first three quarters of the year. Market and technology programs, which focused on the architectural business, have helped sustain above average growth rates and market shares. Archi tectural products have become a larger share of the Sofia business, helping to offset some of the cyclical ity of the automotive markets. A major Belgian capacity expansion was completed with additional expansions under way in Brazil and Belgium. Sates volume in 1989 for fibers products increased somewhat from 1988. Stain-resistant carpet fibers for Mfeor-iteted brand carpet continued to generate strong customer acceptance and demand. Selling price increases essentially recovered increases in overall raw material costs. Selling price improvement occurred for acrylic products. Rubber and process chemicals products set rec* ords for sates volume in 1989. The rubber chemicals market is principally the replacement tire segment of the industry, where high demand has *****< pric ing auid profitability. Maleic anhydride, a process chemical, remained sold out for moat of 1989 and additional capacity started up late in 1989. 0 1N7 199$ 1949 117.5, m Europe flBMCirfWorid 0719905 Monsanto Compwty and Stiidiarie 22 8 QpgfgMaa IMt iMNMNt BalS (continued) Manufacturing difficulties and start-up coats had Fisher Controls an unfavorable effect on the detergents and phosphate mobs to 19*9, Demand was also soft tar pbosphate- 1W9 19fti 1967 baaad detergent ingredients, as state and local govern ments continued to consider and enact phosphate bus. Specialties products tales performance was mixed. In 19U, net sales in the Chemicals business over all tncraaaid 3 percent over 1987. Excluding i subsequently divested. 1988 net sales Increased 9 percent. All continuing product lines Net Sales: Final control systems Instrumentation Other Total Operating Income $486 20ft 20ft $852 64 $40* 196 240 S840 29 $344 172 231 $749 26 enjoyed strong demand, particularly in the interna tional markets. U.S. export sales increased 22 percent and sales of ex-U.S. manufactured products increased 16 percent for the eontinuing product lines in 1988. OmaU, operating income in 1988 was up 8 percent, ae higher 1988 sales volume and selling prices gener Fisher Controls is a leading worldwide producer erf process control equipment, which includes indus trial valves and regulators, PROVQXelectronic process instrumentation and Permta gas separation systems. ated solid income gains. Higher plant capacity tttiUxackm (83 percent versus 80 percent in 1987) also cotitiibuiad to the Improved operating income. In addition, the translation of financial results denomi tdaBan t* mUbomi i 1.000 nated In ocher currencies into U-S- dollars had a positive effect on 1988 sales and operating income. Operating income in 1987 included $30 million in income hocn the actions instituted under the 1985 restructuring program. tinlwt - rhsmdrsle The Chemicals unit will be challenged to improve profitability in 1990 because of an anticipated slow down in tbe U.S. economy, particularly the automotive market. But modest growth is anticipated in most ocher markets, and volume gams are expected from new production capacity for certain products. In addi tion, continued volume growth is expected in stainresistani carpet fibers. Resolution of detergents and phosphates manufacturing problems experienced through much of 1989 and elimination of start-up con in the detergents and phosphates and specialties product areas should provide volume and profit growth opportunities. 0 19(7 U.S. Europe lUrl ol Wcrid IMS 1909 lusher Controls operating income more than doubled in 1969. Principal factors were strong selling prices and higher demand, especially for final control systems and PBOVOX electronic process instrumen tation. These benefits were reduced by higher raw material costs. Comparisons to 1988 are affected by net sales of $96 million and operating kiss of $6 mil lion in 1988 for subsequently divested businesses. Excluding divestitures, sales grew 14 percent on con tinuing operations, with significant strength in the chemical, pulp and paper markets. In 1988, net sales increased 12 percent on the strength of customer demand and improved selling prices. In addition, (his unit benefited from the favor able currency effect of a weaker U.S. dollar. Operating income increased 12 percent in 1988 despite raw material cost increases for specialty meal castings and electronic components and adverse inventory adjustments in part of the European operations. 86 Monsanto Company and Subsidiary 0716906 TOWOLDMONOOI5560 Data (continued) Fuller Controls business is dependent primarily upon worldwide capital expenditures in the chemical, oil and pi, and pulp and paper industries. Sophisti cated control valve* and control systems may take months to produce. As a result, booked orders ter production is a key indicator ter future business performance. Booked orders and profit margins on thoee orders remained strong at year-end 1989, particularly in markets outside the United Stales. His torically. Fisher Controls performance has lagged behind the capital spending in its customers'markets by about nine months. NutraSweet 3bl Safes Operating Income 1999 saao ISO I9M 1736 154 1987 1722 145 The NutraSweet Company manufactures and markets AfurraSwerr brand sweetener, which is sold worldwide. The company also markets Equal hv/cakrie tabletop sweetener throughout the United Sates. On the strength of the best operating performance in its history, NuttaSweet net sales in 1989 wen up II percent and operating income up 17 percent. Fac tors fovoraMy affecting the year-to-year increase m np*raring income inrlnrirrf a 20 percent increase in vofome lad by strong demand from diet carbonated soft kink markets, usd continued decreases in pro duction costs. These factors were somewhat offset by 3 percent Lower worldwide average idling prices and 27 percent higher marketing expenses, partially attriblaaUe to prelaunch costs terSimpiassa all-natural fat substitute. NutmSweet assets derlinrri in 1989 primar ily because of the amortization of the sspartamc patent. In 1988, operating income increased 6 percent compaied to 1987, principally because of production ant reductions and 10 percent higher sales volume hrATwrsSwtar brand sweetener The increased sales volume was attributable to the growth of the diet car bonated soft drink markets worldwide. While sales vefoane was higher, net sales increased only 2 percent because of lower worldwide average selling prices. Openriag expenses increased as a result of higher naekedag costs and expanded technological expenses Mnnsied with Simpitssa. Outlook - NutraSweet The demand for low-calorie products worldwide is projected to continue to grow. However, the United States will continue to be the principal market ter Aiunjaen brand sweetener in 1990. Several projects to expand production capacity are underconstruc tion. including facilities in the United States and Brazil. NutraSweet's aspartame use patents have already expired in most countries and will expire in the United States in 1992. Competition horn both generic aspartame and other sweeteners will likely lower sell ing prices over time. However, consumer trends bode well for the future growth of low-calorie products con taining aspartame, and the franchise value of the AfairaSweef brand of aspartame is increasing. Simpltsse all-natural fat substitute was affirmed as "generally recognized aa sate" (GRAS) lor use in frozen desserts by the U.S. Food and Drug Admin istration in February 1990. The use of Simpitssa is already permitted by regulatory authorities in certain countries, including the United Kingdom and West Germany. SimpUsst will begin generating revenue in 1990 a* initial products using the fat substitute art launched, but will not have a material impact on 1990 sales. Pharmaceuticals Net Saks Operating Income (Low) MW *1.178 * 1988 *973 162) 1987 5820 r 119) Searie is a research-based, worldwide pharmaceu tical business concentrating on drugs for the treatment of cardiovascular, gastrointestinal, inuniuwinfUmmatory. infective and central nervous system disease*. fdoBan at ndOumg) 51.250 1,000 750 500 250 | U0.S. Europe Rr*t ofWorl1d907 i 4 a fl _fl 1988 [<M9 0719907 Monsanto Company and Subsidiaries It TOWOLDMONOOI5561 (continued) In 19*9, Pharmaceuticals exceeded 11 billion in net Saks end recorded it* first veer of operating prof itability since the acquisition of Searie in 198! Sales grew 21 percent, driven by an approximate 50 percent inmate in lain for the Cairn cajemm channel hlochir product! for hypertension. Galon tales were 1394 million in 1989. Cvrouc ulcer preventive drug, the only drug approved far the prevention of gaetiic uiem cauied by many common arthritic medications, was bunched in the United States. Net sake far Cytottc gttvt to S60 million in 1989 venue f13 million in 1988. The marketing and technological expenses eaaociatrd with the launch and product development litgated the profit contribution hum Cyfoter. Is addition to the U S. market. Pharmaceuticals has significant presence in most other major pharma ceutical markets throughout the world. Sales volume Intream were achieved in various markets in Europe and Canada. Net sales in 1989 included fall-yeer remits of the Italian pharmaceuticals company fanned in September 19M Another major step toward a monger presence in Europe was achieved with the acquisition of a Weit German pharmaceuti cals company in October 19S9. Improved participation in the Japanese pharmaceuticals market continues to be an important focus far Searie. Japan is the only major market where Searie has not yet established a significant presence. Outside the United States, Searie efls fifnaJ fawcafarie tabletop sweetener, also mar keted as Gendaet, which accounted far $112 million in asks in 1989, up 33 percent from 1988. Financial results continue to reflect significant investment in research and development (UD). Phar maceuticals RAO expenditures were 19 percent of net sales in 1919. This spending level demonstrates the commitment to product discovery that is aimed at securing a sound long-term financial performance for Pharmaceuticals In 1988, Pharmaceuticals had a sales growth of 19 percent, driven by the Colon calcium channel blocker products, which had a T9 percent increase in net sales in North America Pharmaceuticals sales grew 13 per cent outside the United States and several strategically important uiergcis. joint ventures and restructurings were completed to strengthen presence in the key world markets of West Germany. Italy and the United Kingdom. The operating loss in 1988 was reduced by 48 percent from 1987. Cytottc ulcer preventive drug is expected to begin contributing to profitability in 1990 as volume grows. Cytouc is anticipated to be bunched in additional countries during the year. The Colon products ere expected to continue with strong sales Because pat ent protection in the United States has expired, this product could be subject to generic competition in 1990 Ktrkme, a new beta blocker for the treatment o< high blood pressure, received U.S. regulatory approval in 1989 and will be launched commercially in 1990. Several products are pocitioaed in the pipeline for commercialization in the neat few years. These include misoprostol/didofanac, an antiarthritii drug: topical spironolactone for the treatment of acne: Maxaquin. the first once-a-day anti-infective drug in the quinofane class: and Zolpidem, the first of a new class of sleeping eid. Products currently in various stages of scientific development include products to reduce the rejection of transplented organs, to treat Alzheimer's disease and schizophrenia, to treat AIDS (acquired immune deficiency syndrome) and other viral rtiiretrt. and to treat abnormal heart rhythms. A collaborative discovery program with Washington University in St. Louis continues: it encompasses almost 40 research projects. The collaboration with Oxford University in the United Kingdom is pursuing a newly emerging technology related to the role of body sugars in biological processes, which could hold the key to unlocking the mechanisms of many diseases. Biotechnology Product Discovery The mission of Biotechnology Product Discovery is to generate product ranriirfatrs and new technology in the area of human health, animal nutrition, plantrelated agriculture and chemical products. The bio technology capabilities developed over the past several yean have been integrated with enhanced research expertise to maximile the application of biotechnol ogy for the discovery of protein and chemical (non protein) products. This research is coordinated with the strategic direction of the Crop Chemicals, Animal Sciences and Pharmaceuticals businesses. When product leads and new technologies are refined and clarified, they are transferred to these operating units for farther development and commercialization. Sfoisanra Compam and Subsidiaries 0714908 Untied States Europe-Africa CiMtli Laos America Atta-Pacifk iMCrtit* EliminHiffli1 Corporate Ml 19*9 $5,590 iaoo 430 113 544 I9U 15,219 1.101 377 304 592 1937 34.883 1.537 329 293 397 39481 33.293 57,639 1999 $ 721 282 SO 23 60 (4) (541 $1,078 1988 3838 245 37 27 74 (26) 440) J935 1987 3501 tai 31 2 49 6 (36) 5734 1989 38.189 1.657 150 254 3 (290) 276 $8,404 1988 $6,240 1,447 [49 242 475 055) 263 38.441 [987 34.431 t.256 116 235 50 (352) 286 J8.455 The data above ere prepared oo an "entity basis.' which means that net sales, operating income and assets of a Legal entity art assigned to the geographic men where the legal entity is located (e.g,, a sale from the United States to Latin America is reported as a United States sale). Interanea sales between Monsanto entities have been excluded from the above table; they are shown in the Segment Information note to the financial statements on page 44. The reported operating income for the ex-U.S. geographic nee does not include the full profitability generated by sake of Monsanto products imported from other locations, principally from the United States. Operating income for the geographic segments goes not include the equity income Emm Monsanto's iota* venture companies, the largest of which are in Latin America and Asia-Pacific Such equity income is reflected in "Other income -- net* tn the Statement of ConeoUdaiad Income. Monsanto's share of these unconsolidated sales in 1989 was $216 million for Larin America and $28 i million for Asia-Pacific. Monsanto's net income included equity im-m. of IS million in Latin America and $9 million in Aria PariBe. Inked States Sales and Profit Increased Net sales by entities in the United States increased 7 percent in 19W on the strength of sales volume growth by Crop Chemicals herbicides. AfafroSueer brand sweetener and, within PharnisrcHticali. the Caisn urtihypenenaive drugs and first-year sales of CytoMc ulcer preventive drug in the United Stales, fhemitili and Filter Controls products also bad * sobd year in net sales and operating income Monsamo's U.5, operating income grew by 1} per TM. primarily because of the sales growth from btfbar margin products. Direct export sales from the Vnasd States to noo-U-S third party customers were **A7 miBion, $502 million and $408 million for 198919*7. respectively. In 1988, net sales increased 7 percent and profit grew 27 percent, with improvement experienced across all business segments. Crop Chemicals herbi cides. AHmei animal bed supplement, and certain Chemicals and Pharmaceuticals products, primarily Colon SR calcium channel blocker, generated the most pronounced improvement. U.S. expan sales vol ume. especially for Crop Chemicals and Chemicals, expanded during 1988 because of worldwide economic conditions and competitive pricing. Europe-Africa Had Record Profit Net sales in 1989 were level with 1988. principally because of Fisher Controls and Electronic Materials divestitures, which had 1988 net sales of $138 million. In addition, translation of European denominated currency sales into a strengthened U S- dollar adversely affected 1989 net sales. Herbicides, rubber chemicals and Safkx plastic interlayer had higher sales volumes. Dry weather in northern Europe caused some moderation of the growth of ftyphosate herbicides in the second half of the year, but volume still increased 30 percent year to year. Pharmaceuti cals sales grew because of increasing market penetration for Candtni tabletop sweetener and the full-year sales of the Italian company formed in late 1988. Fisher Controls continuing businesses had significant increases in 1989 sales. Operating income for 1989 was a record, up 15 percent. European profitability benefited from higher sales of Pharmaceuticals, Chemicals and con tinuing Fisher Controls products. Operating income was adversely affected by an increase in Animal Sciences BST costs. The expansion of SafUi piastic interlayer extrusion capacity and start of construction of anew Rutvor resin plant, both in Belgium, along with the acquisition of a West German pharmaceuti cals company, were highlights for the increasing investment in Europe. 0714909 Monsanto Company and Subsidiaries SI {continued) in 1968. net sales increased 17 percent, and operating income was up 35 percent. Selling price reductions, expension of differentiated product), and innovative marketing programs produced a significant gain in sales volume and profit for glyphosate herbi cides. Lustran ABS thermoplastics, Sofia plastic interlayer, rubber chemicals and pharmaceutical products also had improved sales volumes and profits due to strong market demand. Canada Growth Continued Sales increased 14 percent, while operating income improved 35 percent in 1969. Strong overall demand, broader applications for glyphosate herbi cides and increases in the planted acreage for cereal grain produced higher Crop Chemicals sales and income. Strong Canadian capital investment and exports from Canada contributed to growth in sales volume for Fisher Controls. Chemicals sales and operating income were stable, with growth in new products and applications countering the effect of weaker housing end automotive markets. Pharmaceu ticals also experienced tales growth forCytota: ulcer preventive drug end Isoptin (sold as Colon SR in the United States). In 1986. net sake increased 15 percent, and oper ating income increased 19 percent. Glyphosate and 4voder BW herbicides continued to be the principal products contributing to Canada's financial results. Pharmaceuticals had record sales, and Fisher Controls sales and operating income improved. Translation of a stronger Canadian dollar into the U.S. dollar was favorable fur reporting financial results. Latin America Results Were Mixed Latin American sales increased SI 1 million, while operating income declined S4 million. Glyphosate herbicides sales increased 28 percent in 1989 led by growth in Brazil. Chemicals operating income was down year to year, as volume growth in Brazil did not compensate for the depressed economic dimate in Argentina. Government-controlled selling price Increases weir not adequate to recover the high inflation rates on costa throughout Latin America. Profitability of Pharmaceuticals declined. Modest sales of NutroSwttt brand sweetener were made in Brazil and Mexico during the year Capital spading continued, with construction of new production facili ties in Brazil for Sofia plastic interlayer, rubber chemical raw materials and NumS-wta brand sweetener. In 1988, net sales Increased 4 percent over 1987 in Latin America, and operating income grew signifi cantly. Increases in glyphosate and Lasso herttitidc sales volumes contributed to the sales and profit improvement. Sales volumes for rubber chemicals were higher in 1988 than in 1987. Asia-Pacific Continuing Businesses Prospered While 1989 net sales and operating income in Asia-Pacific declined 8 percent and 19 percent, respec tively, results from continuing operations actually improved in 1989. The growth in the continuing busi nesses was not adequate to replace the 5101 million in sales and $23 million in operating income in 1988 from subsequently divested nonstratcgic businesses. Overall economic conditions were generally robust in the major Asian countries, with the exception of the People's Republic of China. Glyphosate herbicides sales increased 22 percent. Extraordinarily rapid volume growth for glyphosate products occurred in several countries, particularly in Australia. Fisher Controls net sales grew 19 percent. On a continuing product basis, Chemicals net sales were up 15 percent across a diverse group of products. In 1988. economic growth was very strong in AsiaPacific, as operating income increased 51 percent despite a slight decline in net sales caused by the sale of the Australian commodity chemicals and plastics businesses early in 1988. The profit improvement in 1988 was generated principally from Crop Chemicals. The Chemicals businesses, led by plastics and special ties, also had solid financial performance. The Electronic Materials business, sold in 1989, contrib uted significantly to the positive 1988 results. M .Monsanto Company and Subsidiaries 0714910 MdSiks Gnu Pnifil Operating Income Net Income Earnings per Share Dividends per Share Common Stock Price IMP 1988 1989 1988 1989 1988 1989 1988 1989 1988 1989 1988 1989 1988 High Low High Low First Quarter $2,265 2.127 979 890 364 329 222 2t0 3.24 2.86 0.75 0.70 95V* 80Vi 89% 74 Second Quarter 52,348 2.263 1,051 977 397 365 241 220 3.54 3.04 0.85 0.75 111 93% 89 % 75'/! Third Quarter $2,061 2,022 845 764 216 187 126 116 1.88 1.67 0.85 0.75 124V* 105 92% 73% Fourth Quarter $2,007 1.881 771 690 101 74 90 45 1.37 0.70 0.85 0.75 122 108V* 83% 75 Total Year $8,681 8.293 3.646 3,32! 1.078 955 679 591 10.03 8.27 3.30 2.9? 124'* 80`i 92'73' : Net sales and net income for each quarter of 1999 were higher chan the comparable 1988 quarter. Monsanto's net income is historically higher during the first half of the year attributable primarily to a concentration of the generally more profitable Crop Chemicals sales in the first half of the year [n addh tion, NutraSweet sales fluctuate from quarter to quarter. The only significant unusual item affecting quar terly net income was the fourth quarter 1989 gain of $36 million on the sale of the analgesics business. 07149LI VJonsanfo Company and Sufaiduntirt U TOWOLDMONOOI5565 1 1 ITT*-- m irnOkm, actfK ptr timrt) Ml CMM Cash, time deposits end certificates of deposit Short-Icrm securities. at ant which approximates market Trade recehrabia.net of allowances of 323 in 1989 and $28 in 1988 Miscellaneous receivables and prepaid expenses Defend income tax benefit Inventories Total Caim Asaeta tatangMe Aaeeta, net of accumulated amortization of S1.029tn 1989 and J798 in 1988 tavMtwats fat Aflttam Offer Amu rupMtj nnnt nni1 y-r^---* Land Machinery and equipment Cortamacbon-m-profress Total property, plam and equipment Lcaa accumulated depreciation m mpBiji Vnlmsa**m__p* Total Aaeeta At December 31, nn 1988 $ 1M ss 1JM 295 194 1,197 LMI S 203 18 1,234 284 188 1.170 3,097 1,682 204 197 1,790 205 223 105 1,100 5,370 342 6,937 3,764 3.173 1U04 111 1,122 5.388 305 6.926 3.780 3.146 38.461 Accounts payable Wafes Income and other taxes Miscellaneous accruals Short-term debt Total Current Liabffities Lof Term Debt Deferred Income Taxes OdHrUMWH Common stock -- authorized, 200,000,000 shares, par value 32; issued, 82.197,097 shares in 1989 and 1988 Additional contributed capital Accumulated currency adjustment Reinvested earnings Treasury stock, at coat (16,050,656 shares in 1989 and 13.364.917 shares in 1988) Total Shareowaan' Equity fatal l hWhlee and SWani--eta- Eqtdty The abovt statement should fr* read in conjunction with pages J9 though 4* ofthis report. i M Monsanto Company arid Subsidiaries 3 814 123 126 384 SOS 1,922 1,471 621 649 164 877 24 4,120 (1444) 3.941 *8,604 0714912 S 545 208 124 547 556 1,980 1.408 588 685 164 874 52 3.662 (952) 3.800 38.461 TOWOLDMONOOI5566 Monsanto's financial position remained strong jg ]9t9. Financial resources were readily available g> support exiatinf businesses and to fund new busi- maa opportunities Working capital at year-end 1989 was $ 1,326 mil- teo. 1209 million higher than year-end 1988. The higher 1989 year-end working capital principally (faulted from higher trade receivables and lower (hort-Kfm debt. Trade receivables at year-end 1989 imjasird STS million, primarily because of the higher isles level during the last quarter of 1989. Inventories ^ year-end increased $27 million from 1988. with a turnover ratio approximating 4 times per year. Intangible assets declined due to amortization, principally of The NutraSweet Company's aspartame patent, which had a recorded value of $5 IB million si year-end 1989. Intangible assets acquired during 1989, primarily in the Pharmaceuticals business, totaled S120 million. Net property, plant and equip ment increased slightly in 1989, as $60? million of capital additions exceeded depreciation and (he effect of divested hnvinrssei. The increase in other assets in 1999 resulted primarily from miscellaneous long term investments. As mentioned in the notes to financial statements on pngs 40, Monsanto has not yet adopted Statement of Financial Accounting Standards No 96. the new income tax accounting standard, which must be adopted by 1992. Total short- and long-term debt at year-end 1989 was about the same level as the prior year-end. Pro ceeds of $261 million from 1989 long-term debt financings ware used to retire existing short- and lung-lei ill defat. In order to maintain adequate finan cial flexibility and access to debt markets worldwide. Monsanto management intends to maintain an "A" debt rating in the United States. An important factor in establishing that rating is the interest coverage ratio, which improved to 5.9 in 1989 from 5.5 in 1988. Monsanto's current debt rating is 'A ' or better. Monsanto uses international financial markets for its financing needs and has available various shortand medium-term bank credit facilities, which are dis cussed in the notes to financial statements (page 411. These credit facilities provide the financing flexibility to take advantage of investment opportunities that may arise and to satisfy future funding requirements. Monsanto's commitments and contingencies are described in the notes to financial statements an page 43. Monsanto continually evaluates risk retention and insurance levels for product liability, property damage and other potential areas of risk. Monsanto devotes significant effort to maintaining and improving safely and internal control programs, which reduce its expo sure to certain risks. Bared on the cost and availability of insurance and the likelihood of a loss, management decides the amount of insurance coverage to purchase from unaffiliated companies and the appropriate amount of risk to retain. This risk includes liability insurance on the "claims made" policy basis. Manage ment believes that the current levels of risk retention are appropriate and are consistent with those of other companies in the various industries in which Monsanto operates. Monsanto's liquidity, financial position and profitability are not expected to be affected materially by the current levels of risk retention. Monsanto's principal financial target is a sus tained return on shareowners' equity (ROE) of 20 percent or greater. The ROE and other key financial statistics are presented in the table below iMn EpIljr^KOi) (Net income divided by mni fhimwnefs equity> ltalk|CipW(CuimtHd>kiciimu liabilities) CttVWi ladDtCurmtt mmHdivided by cuctooc liabilities! Caeb PVevidid by OptrvHnu Total Debs Ideal WtflW CepmUnriaa- 17.6% 11,32* 1.7 9.9 52% 55% Tom/ atpuahzaitcm 13 the turn atshort-cemt debt. bag-term debt and shareowners'equity. 15.4% SUIT t.6 5.5 66% 34% |0S L1 4si 2$y \* 4' iV 0714913 Monsanto Company and Subsidiaries us fDollars fit mdhonsl fnrr--a (ninmi) h Cash and C--h Equhtltnu Operating MMtin: Net income Add income ux expense Income before income (axes Adjustments 10 reconcile to Cash Provided by Operations: Income tax payments hems that did not use (provide) cash: Depreciation and amortization Restructuring income -- net Other Worinng capital changes that provided (used) cash: Accounts receivable Inventories Accounts payable and accrued liabilities Other Nonoperating per-lax gains horn asset disposals Cash Provided by Operations Imaatti* Activities: Property, pism and equipment purchases Acquisition and investment payments Investment and property disposal proceeds Cssh Used in lupasting Activities Ft--urim Activities: Net change in shon-icrm financing Long-term debt proceeds Long-term debt reductions Treasure stock purchases Dividend pavments Other financing activities Cash Used in FI--ing Activities Itarr--c (Decrease) in Cash and Cash Equivalents Caah and Cash Equivalents*: Beginning of year End of year 1989 S 679 336 1,013 (294) 690 (27) (131) (> (40) (17) (61) 1,037 (607) (211) 307 (311) (SO) 261 (196) (333) (221) 47 (494) 32 221 S 233 1988 J 591 302 893 (235) 703 14 (46) (136) 86 67 142) 1.304 (590) (100) 121 (569) 53 21 (167) (457) (211) 24 (737) (2) 223 S 221 Hit abo\t statement should be read m conjunction with pages 39 through 44 ofthis report. The effect ofexchange rate changes on cash and cash equivalents hs not material Cash payments for interest fnat ofamounts capitalized) am H71 m3Son, S167 miUton and H67 mflhort for the years 1989-1987, respectively, Includes cash, time deposits, certificates ofdeposit and short-term securities. 1987 S 436 237 673 (229) 679 (32) 37 (172) (22) 13 (19) (26) 902 (505) (59) 75 (489) 150 26 (122) (339) (212) 33 (464) (51) 274 5 223 m m Monsanto Company and 0714914 Monsanto ! cash Sow for the three-year period of affect operating results in any given year. 1909-1967 is shown in the Statement of Consolidated Expenditures in 1989 were approximately Cash Flow on the precedinj page. Cash from operations in 1989 was generated prin $80 million for environmental capital projects and approximately $225 million for operation and main cipally by the Chemicals unit, with Crop Chemicals tenance of environmental protection facilities. and The NutraSwcct Company also contributing sig Monsanto is negotiating with various government nificantly. Cash provided by operations was strong, agencies concerning Superfund cleanup sites and is a totaling $ 1,037 million, but declined 20 percent from defendant in various suits related to a waste disposal 1988. because of the increased working capital needed site in which the plaintiffs make claims for large to finance sales growth. Monsanto's operations have amounts of actual and punitive damages. Monsanto generated sufficient cash to fund existing businesses, spent $27 million in 1989 for remediation of waste growth-related research and investments. Manage disposal sites. Most of these expenditures relate to the ment expects cash provided by operations, supple Chemicals segment, and similar or greater amounts mented by periodic borrowings, to be adequate to can be expected in future years. Monsanto's policy fund its future requirements. Investment and property disposals in 1989 gener is to accrue these casts in the accounting period in which the responsibility is established and the cost is ated 8307 million of cash. The principal proceeds in estimable. Monsanto's liquidity, financial position and 1989 were related to the divestitures of the Electronic profitability are not expected to be affected material!- Mail i ill i and the analgesics businesses and. in 1988, by the cleanup costs fix' Superfund and other waste to the sale of the Australian commodity chemicals and disposal sites, or the outcome of litigation with pjudd butifldin. other parties. Major uses of cash included capital expenditures, stock purchases, dividends end acquisitions. Monsanto stock -- A Sound Investment The principal acquisitions were a West German pharmaceuticals company in 1989 and the formation of an Italian pharmaceuticals company in 1988. Monaanio't 1989 capital expenditures focused on improved technology and capacity expansions and totaled $607 million, up slightly versus the prior year. The more significant expenditures were for expansion of production capacity for gtyphoute herbicides, Atimt animal feed supplement. Safltx plastic interlayer and the NutraSwcct business Long ttrm debt proceeds in 1989 included In December 1989. Monsanto's Board of Directors authorized the purchase of an additional 5 million shares of Monsanto common slock. By year-end 1989. Monsanto had purchased all of the 13 million shares authorized in 1987 and 1988. at a cost of SI, 131 mil lion. Management believes the stock purchase program represents a sound economic investment for Monsanto's shareowners. Stock purchases favorably affect earnings per share and aid in the achievement of management's 20 percent return on equity target. $99 million in 20-year. 87<i percent debentures and $50 million from the issuance of medium-term notes. These proceeds enabled Monsanto to refinance short term commercial paper borrowings to obtain a more balanced mix of short- and long-term debt. Monsanto is subject to various laws and govern mental regulations concerning employee health, product safety and environmental matters. Monsanto anticipates that increasingly stringent requirements will be imposed upon Monsanto and the entire chemi cal industry. Monsanto is dedicated to a long-term environmental protaction program that reduces emis sions of hazardous materials into the environment, as well as to the remediation of identified existing envi ronmental concerns. In 1988, management committed to a 90 percent reduction in hazardous air emissions by (ha end of 1992, a goal that will requite the devel opment and installation of new technology. Reduction of 17 percent was accomplished through 1988. Com pilation of data for 1989 is not complete! however, blither reduction has been achieved. The coat to Dividends Increase for the 17th Consecutive Year Monsanto has paid dividends on its common shares without interruption or reduction since 1923. and has increased the dividend in each of the past 17 years. Dividend payout for 1989 was 21 percent of cash provided by operations and 33 percent of net income. Monsanto's dividend policy reflects a desired long-term payout percentage based on Monsanto's expectations of future growth and profitability levels. In any individual year, additional consideration is given to expected financial position and results, working and fixed capital needs, scheduled debt repayments, and economic conditions, including inflation. Monsanto's common stock is traded principally on (he New York Stock Exchange and is listed on the exchanges of Tokyo and seven European cities. The number of shareowners of record as of February 23. 1990. was 61,723. and the high and low common stock prices on that date were $lll1Aand $108'/:. accomplish this target is not expected to materially 0714915 Monsanto Company and Subsidiaries 3T MCmnMMAi '*'*"*** 19*9_______ 1999 1997 ; Jammy I and December 31 I 1M S 164 S 164 Balance. January t Cmptoyrc stock plana I$ 974 $ 972 $ 961 3____________ ___________ n $ *77 $ 974 $ 972 Translation adjustments t 32 (17) (11) $ 24 $ 100 (53) 5 $ 52 $ (99) 197 1 s too Balance, January I Net income Dfvidmdi $ 3,662 679 (321) $ 4,120 $3292 591 (211) $3,662 $3,038 436 (212) $3,282 fahnet. January 1 Shan* ptnrhaarri (3374.400; 5,605,300 and 4,120,100 shares in 1909-1987, respectively) Sham issued under employee stock plans (599,661; 339,963 and 558,528 sham in 1999-1997, respectively) $ (932) (335) 43 Balance. December 31 1(1.344) Pf ihw mriinmf sMouUbr rmj in conftmtsnrt with pfB 39 thrvufk 44 ofthis npert. $ (517) (457) 22 $ (932) $ (204) (339) 26 $(517) 1 1 1 Stock Price* High Low Year-end Per Share Dividends Shareowner?' Equity *mm Daily Share Trading Volume (thousands of shares) *Ba*a4on4Mmialtsrfhial> and low smelt prices. 1999 $ 124% 90% 115% 3JO 59.59 213 1988 $ 92% 73% 81% 2.95 5521 323 1987 $ 100V 57 83 2,75 52.65 372 Monsanto Campon? attf Subsidiaries 0714*16 o') significant accounting policies an tadfctnd in the fottowtng Nous to Financial --sis ot Consolidation 71m consolidated financial statements include the Company end its mofonty-owned subsidiaries. /lasrcoiiipaiiji transactions have 6mm ehmimted in consnfidarsni. Other companies in winch Monsanto has a significant ownership interest (generally greaterlimn 2D percent) an inchidtd in "Investments in Afiiiiates" in dmSummnttfCbnsofidatcd Finandal flasition, and Mrsnanms sham ofthese companies' income or Ion is furlndsrf in "Other income -net" m the Statement of Ctibcj Translation Meet ofMonsanto's ei-t/.i entities'financial state ments ora miulateJinio U.S. dollars using currant eschongt rotas. Unrmhtad currency adjustments in the Statement ofConsolidated Financial Position on accumuletedin theteowneri equity. The financial statements ofex-ll-S. antitias that operate in hyperinfletionary aconomiat, including Brezi Mevirn and Argentina. art treruletedet eithercurrent or historicaleschongt rates. Major currencies ere the U S. dollar, British pound eseriing and Belgian franc. Other important nrrrmnrUn tan-hut* >K IVTili.n ranmB.fi dolar. French franc. Italian lira, Japanese yen, Uerioe peso and West German mark. Currency rettrtetione are not expected to have a significant effect on Monsanto's cash Sow, liquidity or Principal VrprieitWine and Dlnasiiluias In October 1989. Searie acquired Heumann PharmaGmbH * Co., a Wen German pharmaceuti cals Hem. The acquUdsa was accounted for using tllprlmaiiil haii(llilmiMiwMlliii $93 mdbon as a tssuh of this acquisition. Heumann's tenths of optimums from October are inrhairri in the Statement of Consolidated Income for 1989. During November 1909, Monsanto sold its analge sics fawfeMS (with net tales of $70 milUan far the bat tOmontfaeof 1999 and $75 million for the full-year 1988). A pee-tas pan at 156 millioii ($36 million after tax |ain and $0.53 per ehare) was recognized oo the sale of this business In March 1989, Monsanto sold its Electronic Materials business. Searle's Italian pharmaceuticals subsidiary was merged with another Italian pharmaceuticals company in September 1988. The acquisition was accounted for using the purchase method. This transaction increased intangible assets J50 million. Monsanto's Australian commodify chemicals ami plastics businesses (with net sales of $60 million for the first quarter of 1988 and $164 million for the fullyear 1987) were sold in March 1988. The pro forma operating results of the acquired businesses snd the income efiect of the divested busi nesses (other than the analgesics business) were not material. Depreciation and Amortization tm 1988 1987 Depreciation feat 5435 5421 Amortisation of intangible asuits 22* 231 225 Obsolescence 2* 37 33 Total sew 5703 1*79 Property. plant and equipment is recorded or cost. The cost ofplant and tquipmem ts depreciated over weighted average periods of 23 yean for buddings and 12 years for machinery and equipment, using the straight-line method. Intangible assets art recorded at cast less accumu- laud amortisation. The components of intangible assets, and their estimated remaining useful lives, were as follows: Bsritwasarl Remaining Life* 19* I9H Patents Goodwill Otter intangible *tt 4 34 21 S *79 787 2** 5 364 653 273 Total iim 51.790 'tWRfhiediMreet. in years, at December31.1919. Founts obtained in a business acquisition are re corded at thepresent value ofestimated futtoe cash flows resulting from patent ownership The cast ofpatents is amortized over their legal bias. Goodwill is the cost of acquired businesses in sxcess ofthe fairvalue oftheir identifiable not assets and is amortized over the esti matedperiods ofbenefit IS to 40 years). The cast of other intangible assets (principally pro&tct rights and trademarks) is amortized over theirestimated useful fives. 071+917 Monsanto Company and 5ubstdwriei > lamatory Valuation /inimorwi ant naudacostor market, whkhrvtr u kn. /mtuei CM is uW to vetm raw materials ondsup- cost, which approximates actual cost, a used to value finishedgoods and goods in process. Standard cost inchtdes direct tabor, raw materialand noudoctuhnt overhead baud on practical capacity. The cost ofSi percent ofall inventories is determined using dm lost-in, first-out (LIFO) method, gtneruHV reflecting dm offsets ofinflation ordeflation oh cost of goodj soldsooner than other inventory cost methods. Tht cost ofother inventories generally it determined using the first-in, first-out (FIFO) method. The components of inventories war as follows: ftatshed goods Good* in proem Raw lllillllslr end Hippies tanneries, at FIFO cost Cssasa of FIFO eaer UFO cost BMSl INF 1988 * 123 314 8*6 $ 662 333 343 13*1 1,540 (346) (370) II.J9T 31.170 Inventories at FIFO coat approximate current cost. The components oi income before income taxes wet: U.S. CX-U3. Tatol 196* f 376 443 suns 1988 $481 412 $893 1987 $422 251 $673 The components of income tax expense were: Ctartnt: Federal State Ea-U.S. Deferred Federal Owe Ex-US- fed 1M 1988 1987 SIM 1 141 296 $111 18 139 268 $ 82 14 72 168 24 1 * 51 833* 31 1 2 34 $302 39 9 21 69 $237 Deferred taws result from timing difference in the recognition ofrevenue and expense far tax and financial statement purposes. The source of thee timing differences and the tax effect oi each were as follows: Depreciation and obtalatcence Stcstructuring program Employee benefit plans Other Total 19*9 $25 14 10 (13) $3* 1988 $ 28 31 (12) (131 3 34 1987 $ 46 43 15 (35) S 69 Factors causing Monsanto's effective tax rate to differ from the United States federal statutory rate were: f 1 i Federal statutory rate Lowere*U,S- tax rues Capital guns benefits Benefits attributable tot United States upon eaninfs Puerto Rico operations Other 1909 3--4% - (2) (2) 3 55% 1988 3_4% - (2) (1) 3 54% 1987 40% (1J (2) (2) (2) 2 35% Income end remittance tares have not been recorded on 1552 million ofundistributed earnings ofsubsidiar ies, either because any taxes on dividends would be offset substantially by foreign rax credits or because Monsanto intends to indefinitely reinvest those earnings. Various ex-U S. subsidiaries have tax kiss carryforwards for which no tax benefits have been recorded. These carryforwards totaled 530 million at December 31.1989, a portion of which has an unlim ited carryforward period. The Financial Accounting Standards Board has issued Statement oi Financial Accounting Standards No. 96 "Accounting for Income Taxes." This statement changes the method of calculating deferred income taxes and must be adopted in or before 1992 Monsanto has not yet adopted this standard which will have no effect on cash Sow and, under existing tax laws, is not expected to have a material effect on Monsanto's financial position, liquidity or future results of operations Memento Company end Subsidiaries 0719918 (continued) Sbart-Tem Debt and Credit Amusement* Short-term debt mi: Norn payable: Btnb Commercial paper Bank overdrafts Current portion of long-term debt Mat 1989 $145 181 134 44 $808 im t 79 228 121 128 $554 A $750 million intermediate-term credit facility expires ratably from 1991 to 1994 There were no bor rowings under this facility at December 31.1989 Die credit facility is used to support the '*"-- of com mercial paper ($182 million outstanding at December 31,1989). Interest on amounts borrowed under this agreement would likely be at money market rates Covenants under this credit facility restrict maxi mum borrowings. It is not anticipated that future borrowings will be limited by these restrictions Maximum amount of notes payable and bank overdrafts outstanding at any month-end Avenge notes payable and bank (jwnfcifa ouwtndir>| Wiiglmd average iitumt rate during theyear Tifrlghml wnp interest rate at December 31 $887 $588 423 4U 9.944 9.9% 9.7% 7.9% Monsanto has aggregate short-term loan facilities cf $404 million under which loans totaling $145 mil lion ware outstanding at December 31,1989. Interest on these loans is related to various bank rates. Monsanto'! worldwide unused short-term loan facilities were $259 million at December 31,1989. Most Monsanto employees are covered by non contributory pension plans. The components of pension cost (income) were as follows: 1909 1988 1987 Service con for benefits earned during the year Interest cos on projected benefit fddiptiop mum on plea assets* Amortization of unrrcngniird net gain Total 8 43 217 (281) (48) 8 (1) J 65 223 (246) (38) $4 64 Z1Z 1237) r32) $7 Actual rwnm on plan assets was S651 aulKon in 1989. 1340 mttimt in 1988mud IM7 ndton in M7. LearTara* Debt Long-term debt (exclusive of current maturities) was: 1989 tndun rialdsyajopmeni bond obligations. weighted awragt interest mce of 7'444. due 1991 to 2021 S 244 9*. Eurodollar notes due 1991 59 MM44 notes due 1992 150 9*44 notes due 1994 188 SW% sinking fund ihhemim due 2000 127 8*91 Sinking fund iMunnim due 2008 in 8%% debentures due 2009 99 11 %% linking fund debentures due 2015 214 Other 238 1988 S 256 101 150 ISO 127 169 214 241 Pension benefits are determined based on the employee's yean of service and compensation level. Pension plans are funded in accordance with Monsanto's long-range projections of the plans finan cial conditions, considering benefits earned and expected to be earned in the future, anticipated future returns on pension plan assets and income tax and other regulations. The excess of the fair value of plan assets over the projected benefit obligation as of January 1 1984 far each plan is being amortiied over the average expected future service period of employees (ranging generally from 14 to 18 yean). The fair value of plan assets was used to calculate the assumed return on plsn assets. Ml IM71 $1,408 Maturities snd sinking fund requirements on long-tiim debt ate $44 million. $89 million. $193 million, $30 million and $43 million for 1990 1994, respectively. 0719919 Monsanto Company and Substdtarvs 41 I Aaiumpcona used ter (he principal plans in 19897 wan m follows: Discount rite Humeri long-tam tat* of return nn phn i--m Annual rasa of salary increase {for pkm that baaa banafita on final rempeneaiien law!) h'h The funded status of Monsanto's pension plans at year-end was: 1989 Manama* at value $3*647 Actuarial present value of plan bnrfa: Vetted Nattaattad AW 122 (tmimulaied bmflt obligation 2.421 EBect of projected future salary increases 347 ~ ||--------- --g - $2,768 Enema ofplan Haas over p^Baa oenem ooapwi) $ Lem: Unrecognized net g*ul at January 1.1916 341 Sutaaqum unracoflaiaad qh puii Ml AamndpamlynllffiBq $ 123 1988 33.169 $2202 110 2.312 328 $2,640 3 529 386 302 $ 199 Pwijtcud benefit obligations and plan aunt included in (be above table fur the principal United SMn plant were approximately $2,544 million and $3,273 million, respectively, at December 31.1989. Plan atteti consist principally of common stocks and United Stems government and corporate obligations. Because the Company's pension plans are wellfunded. contributions to the Company* principal plans were neither required nor made in 1989-1987. For some employee savings plans, employee con tributions are matched in part by Monsanto. The 1989-1987 expense rmnedrd for such plant was $32 million. 134 million and $33 million, respectively. Other Poetretirement Benefits Monsanto provides certain health care and life ineurance benefits for retired employees. Substan tially aB of Monsanto's regular, full-tinie United Sates employees and certain employees in other countries may become eligible for these benefits if they reach retirement age while employed by Monsanto At December 31,1989, approximately 26JOB active employees were eligible upon retiiement to par ticipate in these programs. In addition, approximately 17,300 individuals retired bom active service were ehgibie to participate in these programs. These other postrttxrtmenl benefits are not funded and art expensed 4s benefits art paid. The 1989-1987 expense recorded for other postretirement benefits wes $39 million. $38 million and $37 million, respectively. Stock Option Plane Key officers and employees have been granted Monsanto stock options under the Company's 1974, 1984 and 1988 Mimgi mi m Incentive Plans and the Scarie Monsanto Stock Option Man (Searle Plan). Information about the status of such stock options is presented below Shares Exercisable Outstanding pa Share December 31.1987 1.203209 2.525.057 526.16 -194,19 1988: Granted Exercised Expired 1.226.582 75.88 ' 8944 (370.451) 26.14- 7931 (67.833) 45.63 - 94 19 December JJ, 1988 1219,795 1999: Granted Expired 3213255 26-16- 94 19 619,621 81.19-11226 (666364) 26.16- 96.19 (49393) 3136 - 9619 DecenriwrJI, 1989 1215,734 3362399 2616-12236 Under the 1988 Management Incentive Plans and the Searle Plan. 3.269.251 shares remain available for grant. Stock appreciation rights (SARs) have been autho rized to be granted to certain Monsanto officers in tandem with stock options under the Flans, including retroactive grants for unexcrcised options. SARs may be exercised in lieu of stack options included in the table above. At December 31.1989. SARs related to stock options for t,157.127 shares were outstanding, of which 368.286 options were exercisable. During 1989. SARs related to stock options for 192.758 shares were granted and for 164.349 shares were exercised. 141 Monsanto Company end Subsidiaries 0714920 (continued) Earnings per Share Earnings per (hate were computed using the weighted avenge number of common sham and common than equivalents outstanding each year (67.744.0S2: 7I.SOt.322 and 77,496,732 in 1989-1967, respectively). Common share equivalents (S36.777; 344.966 and 643.527 in 1989-1987, respectively) con sist primarily of common stock issuable upon exercise of outstanding stock options. Earnings per share asawminf hill dilution were not significantly different hum the primary amounts. Capital Stock At December 31.1989. there wen 6,471.630 com mon shares reserved for employee stock options. In January 1990. the Company's Board of Directors declared a dividend of one Preferred Stock Purchase Right on each outstanding share of the Company's common stock. If a person or group acquires beneficial ownership of 20 percent or more, or announces a lenderoiler that would result in beacfkcisl ownenhrp of 20 percent or more, of the Company's outstanding common stock, the rights heroine esercisabie and each right will entitle its holder to purchase one one-hundredth of a share of a new series of ptefeiied stock (or 3430. If Monsanto is sequirsd in a huiinesf combination transaction while (he rights are outstanding, each right will entitle its holder so purchase, for 8450, common shares of the acquiring company having a market value of S900. In addition if a person or group acquires beneficial ownership of 20 percent or mare of the Company's outstandingcommon slock, each right will entitle its holder (other than such person or members of such group) to purchase, for $450, s number ofshares of the Company's common stock having a market value of $900. Furthermore, at any time aftera person or group acquires beneficial ownership of 20 percent or mote (but less than 30 percent) of die Company's out standing common slock, the Board of Directors may. at its option, exchange part or all of the rights (other than rights held by the acquiring person or group) (or shares of the Company's common stock on a one^orone basis. At any time prior to the acquisition ofsuch a 20 percent position, the Company can redeem each right for 1 cem. The Board of Directors is aim autho rized to reduce the 20 percent thresholds referred to above to not less than 10 percent. The rights expire in the year 2000. In connection with this dividend decLaraIran, the Board of Directors also authorized the redemption In February 1990 of the Company's existing Common Stock Purchase Rights at their redemption price of 5 cents per right. Commitments and Contingencies Commitments, principally in counaction w ith uncompleted additions to property, were approxi mately {214 million at December 31.1989. Monsanto was contingently liable as guarantor of bank loans and for discounted customers' receivables totaling approximately 194 million at December 31, 1989. Future minimum payments under noncancrllabie operating leases and unconditional inventory pur chases are $128 million; $146 million; $139 million: $123 million and $46 million for 1990-1994, respec tively. and $221 million thereafter. Monsanto is a party to a number of lawsuits, which it is rigorously defending, arising in the normal course ofbusiness. Certain of these actions seek damages in very large amounts. While the results of litigation cannot he predicted with certainty, manage ment believes, based upon the advice of Company counsel, that the final outcome of such litigation will not have a material adverse effect on Monsanto's consolidated financial positron. 0714921 Mohumo Company and Suhsidiorias 46 q Supplemiatel Data Supplemental income statement data were at follows: m* Raw mturiil and energy cons $1M> Employe* compensation and benefits UU Current income and other taxes M3 Mem expense 119 Techncdofkai expenses: Research and development 599 ia $2,587 2.022 527 115 575 1987 $2,383 1,955 398 108 557 development and patent 74 73 58 Told Mduudoftcal nptseu 873 648 6t5 Interest expense: Total interest cost Lew ftfiTiHifff interest Nee Mere* aipenea 20* 193 188 1231 (19) (16) 183 174 172 Equity in affiliates' income (lea*) 1 (5) 7 Currency pains (kisses) including equity in affiliates' currency pin* and losses (Ml (20) (id Segment Information Certain operating unit segment data and geo graphic data for 1989-1997 appear on pages 25 and 31 and are integral parts of the accompanying financial statements. The principal product lines included in each operating unit are shown in the operating unit segment data. Sales between operating units were not signifi cant. Inter-area sales, which are sales between Monsanto locations in different world areas, were made on a market price basis. Certain corporate expenses, pnmanly thoae related to the overall management of Monsanto, were not allocated to the operating units or geographic areas. Corporate assets principally include certain misreBeneous receivables andinwestments. Inter-area sales by entities in each geographic area were: World area shipped bom: United States Eurqpt-Africa Canada Latin America Asia-Pacific Inter-area Eliminations Total Inter-area Sales (Between Monsanto Entities) 1908 1988 1987 S 817 $ 855 188 167 11 13 u 22 11 39 <1,8941 (1.096) 5 624 103 8 12 35 (782) $ -5 - J - Following is a reconciliation of ex-U.S. operating income and total assets to the net income and net assets of consolidated ex-US. subsidiaries. Operating income Interest expense Interest income Other income - net Income taxes Met Income of rnnenMriW air Til csdwhHwks Total operating assets Total liabilities 198* 1988 $ 419 (98) 87 18 (151) $ 383 (54) 45 38 1141) 1987 S 263 (52) 38 2 (93) S 394 $2,449 983 S 271 52.316 1.040 5 158 2.120 801 aoc-US. snHdlaiies SI.SM $1276 $1319 Momenta Company and Subsidiaries 071*922 fDpiftt pi miibonS, txctpt ptrshort) 19*9"' 1999 I98711' 1986'*' 1985' Net Site* Operating Income (Lott) At Percent of Met Saks Income (Loss) Before Extraordinary Gain Net Income (Lott) At Percent of Net Sales Return on Shareowners' Equity $8,681 1.07S 12% <79 679 S% 17.6% Eanringe per 9hert afore Extraordinary Cain Nat Income (Loss) 110.03 10.03 Year-end Flnanrial Poaiftofi Total Asaets Working Capital $8,604 1,326 19.293 955 12% 591 591 7% 15.4% 1 8.27 8.27 18.461 1,117 17.639 734 10% 436 436 6% 11.4% 1 5.63 5.63 18.455 1.203 16.879 635 9% 433 433 6% 12.0% $ 5.55 5.55 18.269 1.092 56.747 <598) 197*1 (128) (98) (IF! 12.8 PI 1(1.67) (1.27) 58.877 899 Property. Plant and Equipment: Grow Net 16,937 3,173 16,926 3,146 16.730 3.076 16.326 2.913 56.840 3.034 Long-Term Debt Shareowners' Equity 11,471 3.961 11,408 3.800 11.564 3,901 11.630 3,781 52.087 3.407 Current Ratio 1.7 Percent of Total Debt to Total Capitalization 33% Other Dais Pluparty. Plant and Equipment Purchases 1 607 Oapndatioa and Amonuatioa 690 [Merest Expense 1S2 Rssssrch and Development Expenses SN Income Taxes 336 Cash Provided by Operations 1.037 1.6 34% 1 590 703 174 575 302 1.304 1.7 35% 1 505 679 172 557 237 902 1.6 35% $ 520 780 201 523 203 960 14 45*6 S 645 599 178 470 (170) 535 Slock Price: High Lew Year-end Prtce/Farningi Ratio on Year-end Stock Price ft24V* 80% 11934 12 1 92% 73% 81% 10 $100% 57 83 15 1 81% 44V. 76% 14 5 55% 40% 47% _ Per Shore: Dividends Shareowners' Equity 1 3-30 59-58 $ 2.95 55.21 1 2.75 52.65 12.575 48.69 J 2.45 44 33 Shareowners (year-end) 61,942 66,066 69.032 70.367 72.081 Shan* Outstanding (year-end. in millions) 66 69 74 78 77 Employees (year-end) 62,179 45.635 49,734 51.703 56.103 Jte iacnw for W9 indudss a 136 miihon (S0.53 per short) gam on the sale ofthe analgesics business. 1,1 Stt incoma for 1987 includes nat restructuring income of US nbUuai (S0.24 parshort). Nat mctmrn for 19S6 includes tSS million <11.10 parshml ofnattains, principally from the salt oftht Texas City. Teres. petrochemicals plant and rttand assets, pamath offset bf the Bactnmic Materials asset impairment writt-down. In addition, nat income was increased 125 mitten (SO.32 pershort) from adopting the nquorments ofStatement cfFinancial Accounting Saandmds No. ST, *Employers' Accountingfor Ptnseotu.'` Net loss for I9S5 includes nat rtstructuringtxptnstof1542 million (STM par shaft), the pun from tht salt ofthe od and pas igmigtiem of1201 milSon IS2.SI per share) and on extraordinary pun of 130 mUhon ISO40 par short) frism repayment ofdebt 0714923 Monsanto Company and Subsidiaries 41 Richard J. Mahoney Richard W. Dueaenherg CmapVka Fueldial Robert G Potter Nicholas L. Reding States'VkePreMdaacs Hm4d J. Corbett Howard A. Schneiderroan, Ph.D, Francis A. Stroble Barry Blitstein Earl N. Biaefield Leonard A Cohn A.Nicholas Filippdlo, Ph.D. S. AUen Heininger, PhD. Martin J. Kallen Thomas H Lafterre Michael E. Miller Philip Needleman. PhD. Richard A. Overton Jama H Senger David L. Sliney Virfinia V. Weldon, MD. Lawrence B. Skaioff Vice Prselilial and CnH a<rr B.Clare Harris Vice President and Treasurer Juanita H. Hinshaw St. Louis Senior Vice President. Environment, Safety and Health. Monsanto Company Apr 62 Advisory Director: 5 years Robert G. Potter St. Louis Group Vice President, Monsanto Company; President. Monsanto Chemical Company Ape: 50 Advisory Amador; 4 yon St. Louis Executive Vice President. Monsanto Company; President, Monsanto Agricultural Company Ape; 53 Advisory Dirtctor: 9 years Howiil A li lim hloi maiii Til n St. Louis Senior Vies President. Research and Development, Monsanto Company Ape: 63 Advisory Dirtctor- 8 ytttrs St. Louis Senior Vice President and Chief Financial Officer. Monsanto Company Age: 59 Aivitory Dirtctor: 8 years Meruann Company and Subsidiarits 071*92* T1-*--*' *-*-- j Sl Uua Chairman and Chief Emcutive Age: 56 Monsanto Director 11 ytars Marpnariie ton Burnt. FhJ), St Louis Chancellor. Univctsiiy of kitaouri-St Louis A*.: 47 Monsanto Dinetor: 2 ytars JMiT.hk Wsstborough, Masawrhusetts Chairman, New England Electric System A^:60 Monsanto Dinetor: 3 ytars DanaidC. CarroR PUI. OK of Prussia, Pennsylvania Chatman, Schulro, Inc.; faibad Dean. ThaWhanoa School, University of Pennsytvania Agr5 Monsanto Dinetor: 15 yaars Retired Chairman and Chief Executive Officer, Crown ZeSerinch Corporation Age: 6* Monsanto Director: 12 years Richard 1. Fricks Montpelier, Vermont Retired Chatoman and Chief Executive Officer, National Life Insurance Company Age: 67 Monsanto Director: 15 ytars Pehn City, Florida Owfamn, Hanley Haxddeo Canter Retired Chairman and Chief Executive Officer. Monsanto Compeny Age: 61 Monsanto Dinetor: 17 ytars Earla H-HmWsoo, Jr. St. Louis President and Chief Operating Officer, Monsanto Company Age; 61 Monsanto Director: 4 ytars Robert M- HsyeseL JUJ>. Bait!more President and Chief Executive Officer, The Johns Hopkins Health System and The Johns Hopkins Hospital Age: 61 Monsanto Director; 1 year PhRip Latter, MJX Boston Chairman. Department of Genetics, Harvard Medical School; Senior Investigator, Howard Hughes Institute Age: SS Monsanto Director: less than 1 year Howard M. Love Pittsburgh ^ rhjff EMfinyf Officer, National InMtgnmp, Inc. Age: 59 Monsanto Dinetor: 12 ytars Frank A. Metz, Jr. Armonk. New York Senior Vice President, Finance and Planning, sod Chief Financial Officer. International Business Machines Corporation Age: 56 Monsanto Director: less than 1 year Greenville, South Carolina Chairman and Chief Executive Officer, R.SJ. Cotp.; Retired Vice Chairman, Fluor Carp.; Retired Chairmen, Daniel International Carp., a Fluor subsidiary Age: 64 Monsanto Director: 15years JohnS. Rood New York Chairman, Citicorp and Citibank. N.A. Age: 51 Monsanto Director: 5 years Houston Chairman and Chief Executive Officer. Browning-Ferns Industries. Inc.; Farmer Administrator. US. Environmental Protection Agency Age: 57 Monsanto Director 5 yean John B. Slaughter, Ph-D. Lae Angeles Former Director. National Science Foundation Age: 56 Monsanto Director: 1 ytars (US. Navy. Retired) West Point. New York Olin Professor of NabonaJ Security, VS. Military Academy at West Point: Lecturer and Writer Former Director, U S. Central Intelligence and Central Intelligence Agency Age: 66 Monsanto Director: 9 years 0714925 Monsanto Company end Subsidiaries 47 SSvV MW-W3 Qirinwii JdenT.Bcfc Robert M HeysseL M D WIIBmi P. Ruckehhaus John B. Slaughter, PHJ). Admiral Stansfkld Turner, Chairman JaenT.Bnk WtfUein P. Rnckclthaus John B. Slaughter, PhD. John W. Hanley, Chairman Marguerite Ron Barnett, Ph.D. Earle H. Harhison. Jr. Richard J. Mahoney Buck Michel, Chairman C Raymond Dahl Howard M. Low Howard M. Low, Chairman Richard I. Fricke John W. Hanley Buck Mickel Richard I. Fricke, Chairman Donald C. Carroll, PhD Earle H. Harbison, Jr. Admiral Stanafield Turner Donald C. Carroll. Ph.D,, Chairman Marguerite Rou Barnett, PhD. C. Raymond Dahl John W. Hanley Richard J. Mahoney John S. Reed The next annual meeting of the shareowners of Monsanto Company will be held at 1:45 pjn., Friday, April 27.1990. in K Building at the Company's World Headquarters, 800 N. Lindbergh Bhfd.. St. Louis. Minourt. A formal notice of the meeting, together withe pray statement, i being mailed to each shareowner. 10-K Report, A copy of Monsanto Company's 1989 Form 10-K Report filed with the Securities and Exchange Commission; 1989 Corporate Data Book, which contains additional information relating to Monsanto; and Investor News can be obtained by writing to: Investor grlHoos Department Monsanto Company 800 N. Lindbergh BM. St. Louis, Missouri 03167 Stock Symbol - MTC Amsterdam Brussels Chicago (options) Frankfurt Geneva London New York Paris Tokyo Zurich The First National Bank of Boston Box 644 Boston. Massachusetts 02102 Mcnsarvo Company and Subsidiaries 0714926 -e* John W. Hanley will retire from Monsanto's Board of Directors on April 27,1990. after serving the company and its stake holders with distinction for more than 17 yean. Hanley, elected president and chief executive officer in Novem ber 1972, led an era of dramatic change at Monsanto. Hanley expended Monsanto's commitment to scientific research by establishing new relationships with leading academic institu tions, and he advanced the company1* entry into the promis ing field af biotechnology. One of the world's premier biotechnology research laboratories woo con structed near Si. Louis under Hanley's leadership. In addition, Hanley let up major new internal management systems and implemented develop ment program for managers to provide for llie long-term leader ship of the company. When Hanley joined Monsanto, the company's annual net sales wets {2 2 billion By 1984, when he stepped down as chief executive officer, net sales had reached $0.3 billion. During his tenure, the market value of Monsanto's stock rum 119 percent. Hanley's dedication to profes sional management, product excellence end scientific innova tion, and his concern for corporate citizenship and industrial respon- MonsantD preserves to this day Now. st the mandatory retire ment age of 68. he steps down His many contributions helped put Monsanto on course to becoming one of the world's leading corpora tions. For this, we extend our deep-felt thanks to Jack Hanley. m... *- r * % >^ '- "t --Wm -vl ^ ,v tJViVA.V1 - L>' Li* 0719927 TOWOLDMONOOI5581 MO North Lindbergh Boulevard St. Louis, Missouri 63167 0714928 TOWOLDMONOOI5582