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Monsanto Becoming the best in what we do is a promise being kept Annual Report 1984 DSW 021570 STLCOPCB4006879 Operational Highlights Mnwftn fwyiat amd .SdbiMi--iia 1 \Dollars m millions, except per share) Net Sales Net Income Per Common Share: Net Income Dividends Shareowners' Equity Depreciation, Depletion and Obsolescence Funds Provided from Operations Property, Plant and Equipment Additions Research and Development Expenses Percent of Long-Term Debt to Total Capitalization 1984 $6,691 $ 439 $ 5.42 2.25 46.43 $ 491 $1,008 $ 614 $ 370 18% 1983 S6.299 S 402 S 4.89 2.075 44.83 S 517 S 948 $ 560 $ 290 20% 1982 S6.325 S 352 S 4.39 1.975 42.99 S 439 S 880 S 673 S 264 Per share amounts for all years reflect the 1984 two-for-one stock split. Net income in 1983 and 1982 includes extraordinary income items of S33 million and S23 million, respectively. Sales to Major Markets $6,691 Worldwide Sales $6,691 Agriculture $1J63 20% Unfed States $4,498 67% Construction and Home Furnishings $1,251 19% Capital Equipment S875 13<1 Europe-Africa $968 World Economic Activity Source: International Monetary Fund inflation-adjusted statistics using gross national product'gross domestic product data(1980 = 100). 80 Europe LWnciNietuGKerinmgadnoym. .Frla:anci\e 103.6 DSW 021571 STLCOPCB4006880 Monsanto at a Glance At Monsanto Company, more than 50,000 employees throughout the world are skilled in researching, manufacturing, and marketing more than 1,000 products, including chemical and agricultural products, man-made fibers, electronic materials, health care, process controls, fabricated products, and oil and gas. Monsanto has investments in 164 manufacturing plants, offshore oil and gas exploration sites, laboratories, and technical centers in 27 countries, and conducts business in more than 100 countries. Table of Contents Letter To Our Shareowners 2 Introduction 7 Life Sciences 8 Chemical Sciences 14 Engineered Materials and Products Growth 20 26 Financial Report Contents 32 Shareowner Information Officers 55 55 Board Of Directors 56 Monsanto trademarks in the Annual Report are identified by italics. Pharmaceuticals and Personal Products $863 13% P Motor Vehicles $607 W 9% Apparel $495 7% P Chemicals and Hydrocarbons $485 7% P Other Markets $752 12% P Total $6,691 100% $6,691 100% DSW 021572 STLCOPCB4006881 Letter To Our Shareowners: On the cover of this year s Annual Report: "Becoming The Best In What We Do Is A Promise Being Kept " Strong words -- a serious commitment. Much of what we did in 1984 moved us well in that direction. Some things did not. On balance, the results were decidedly positive. The U.S. economy provided a tremendous lift -- particularly in the fust half -- but that gain was taken away, and then some, at the bottom line by the effects of the persistently strong U.S. dollar. But being best means consistently managing our way through the vagaries of these forces and continuing to do everything possible to set our business structures and contingency plans in place to avoid simply "coping." To a degree, we have reduced the cyclicality of our Company and are making steady moves to dampen these swings. This improvement must continue. It's one of the reasons we're building toward diversity with a three-part company of life sciences, chemical sciences and engineered products. Some of the highlights: Overall financial results were a real plus. Earnings from operations increased 30 percent over 1983; net income -- at $439 million -- was up significantly and return on shareowners' equity continued to improve. Now, a return on shareowners' equity of 12 percent -- about the middle of the pack in the chemical industry -- can hardly be characterized as "best," but it's moving up steadily. We know where we want to be on this important indicator and are putting the pieces in place to get there. Despite the battering our exports took from the strong dollar, our earnings from outside the U.S. -- exports plus local manufacturing -- increased by 74 percent over 1983 and accounted for 31 percent of corporate operating income. By comparison, U.S. earnings rose 14 percent. As with cyclicality, we are moving and must continue to move to dampen the effects of these inevitable currency cycles by balanced, worldwide product siting. In the meantime, a number of competitors' products have been imported into some of our traditional U.S. markets despite having fundamentally Net Sales (In Millions) S6.574 $6,948 S7.000 Net Income (In Millions) $445 $149 $439 $5<X> 400 300 :oo 80 81 82 83 84 DSW 0215 73 STLCOPCB4006882 inferior cost positions. Even a moderate softening of the dollar would set that playing field level again. The chemicals, plastics and fibers businesses of Monsanto turned in operating income of $321 million -- a 51 percent increase over 1983. It's nice to have the results to back up our repeated claims of the past few years that these are important assets -- perhaps even undervalued in the financial market's analysis of Monsanto. We have made a strong commitment to our customers and employees to renew these core businesses of Monsanto. 1984 demonstrated how valuable these businesses are despite the heavy media attention given to our biological efforts. Silicon wafers went into the black in 1984 as promised. It's been a long time coming. We intend to keep this momentum going and to have silicon be a major income contributor for the Corporation. year and a nine percent product usage increase. The volume of Roundup was lower than we had hoped for primarily because of poor weather at the important use time. We don't intend to continue to blame "weather." We've taken major steps to widen the use conditions for Roundup so we can master "adverse weather." New mixtures and application methods are also extending its markets. Sales increases for Roundup are expected for 1985. Fisher's earnings were only fair. We put a lot of money in 1984 into PRoVOX control room instrumentation and acquisitions designed to broaden Fisher's offerings. Nearly $100 million of PRoVOX systems were sold this year -- just five years after its introduction -- with prospects for multiples of that in the coming years. We've demonstrated we can sell the system. The job in 1985 is to begin to turn the extraordinary sales increases into high profits. We think we will. Agricultural products income increased by 10 percent, while absorbing $107 million of R&D, $29 million higher than 1983. After 15 years on the market, Lasso herbicide continued to demonstrate its farmer appeal and importance to American agriculture through strong volume movement. Roundup herbicide turned in a six percent sales volume increase for the calendar During the year we maintained our fine balance sheet -- a strong cash position and low debt. This is an asset with powerful potential as we look at future growth options. We also initiated a program to buy back up to six million of our shares, which we believe are currently undervalued in the marketplace. 3 DSW 021574 STLCOPCB4006883 Vvfe've been discussing the highlights the top players in biotechnology in the world -- -- the events -- of 1984. To understand their Monsanto -- appears to suffer only a market relevance to the assertion on the cover about "cost" for this research. Our goal is to turn "a promise being kept," it is important to these costs into products as quickly as is set out the agenda for the years ahead -- the feasible, for the benefit of mankind and for critical things that must happen. Call them continuing market value to our shareowners. ` ` Corporate Imperatives. ' ' Exciting developments are under way, and we'll be reporting regularly on them. We're planning We must: on highly profitable biotechnology products -- and sooner than many think. Protect The Earnings Potential Of The CompanyTwo Most Important Franchises: Lasso And Roundup Herbicides We have the necessary development and commercial structures in place for the agricultural aspects of biotechnology. We have In the case of Lasso, a series of stated on several occasions our desire to acquire improved products is expected to preserve its a pharmaceutical structure to carry out that market position when patents on Lasso expire important element of the strategy. If we cannot later in the 1980s. They are now in advanced find a suitable acquisition in a reasonable period stages of the regulatory process. We believe the of time, we intend to make alternative new product strategy is right. As usual, the best affiliations in order to achieve the goal. of results will only come from flawless execution. We control our own destiny on much of it; some Nurture Chemicals/Plastics/Fibers of it, like regulatory timing, we don't. So far, We've been putting a lot of resources overall, we're close to where we'd like to be on into improving our customer marketing, carrying out our strategy for Lasso. trimming manufacturing costs, refurbishing The Environmental Protection Agency our plants and expanding R&D in these core has called for a regulatory review of Lasso businesses of Monsanto. It's paying off both in as it has done with a number of agricultural current earnings and in the largest array of new chemicals. We believe the review will confirm products we've seen in these areas in 20 years. the safety and benefits of the product which 15 years of farmer use have demonstrated. Continue To Fix Low-Return Businesses Roundup, too, has its non-market issues. For We still have several low-return busi the past two years we have been fighting off nesses even after getting out of some poor return attempts by others to claim for themselves some businesses, with sales of about $2 billion, over of the benefits of this pioneering discovery by the past few years. While the drain is now a Monsanto scientists. Monsanto has won the triclde, being best means getting even the preliminary patent battles in the U.K., West ' below-average parts of Monsanto contributing Germany and New Zealand -- a trend which we at least our cost of capital employed in these fully expect to continue for the main issue: the businesses. We're not there yet, but we have U.S. patent cases. In the marketplace, we're every reason to believe we can get the job done. taking major steps to broaden use of Roundup beyond its current range of applications. There's Profitably Grow Silicon And Fisher's still a lot of growth left in Roundup. PRoVOX Instrumentation Systems There are enormous opportunities for Turn Biotechnology Into Businesses In growth in earnings in these businesses over the Agriculture, Nutrition And Health Care next several years. Fundamental market demand Interestingly, several of the biotech is good -- so turning these sales into solid nology start-up companies have produced earnings is entirely up to us. We're very significant financial market value while one of optimistic. DSW 021575 STLCOPCB4006884 a Every Day, Earn The Right To Operate That right comes from our customers and -- especially for chemicals -- from the general public. We have put increasing emphasis on customers -- listening far better to their needs for new products or better performing versions of what they already buy, and then doing something about it. Much of industry has come back to its proper external focus after too long i time looking inward at its own strategies. We are no exception. In the public arena we have taken steps to respond to concerns about chemicals and to take a leadership role. We have pledged to apply our cleanup standards of today to the waste materials disposed of yesterday and we're about that task. We've also pledged to let our neighbors around our plants know what we're making, the characteristics of those products and what our safety practices are. We will continue to seek ways to assure the public that Monsanto produces safe, useful products. a Ensure An Unfettered Action Orientation Throughout Monsanto The results outlined in this letter were not accomplished by a corporation -- they were accomplished by the collective efforts of our people. This is why we did so well in 1984 -- and it's critically important that we remain a company of movement in the years ahead. Plans are essential, but we'll continue to need fresh 5 Richard J. Mahoney (left), President and Chief Executive Officer, with Dr. Louis Fernandez, Chairman of the Board. DSW 021576 STLCOPCB4006885 ideas and people who are willing to act on them, taking some risks in the process. Vte have those people today. Our job is to maintain an environment that will unleash their energies and imagination -- and let them get their job done. Continue SteadyAnd Reliable Return On Shareowners9 Equity Growth Monsanto answers to many publics. We've mentioned our customers, neighbors and the general public. We add, importantly, to that list, our owners -- whether employees, retirees, private individuals or institutions. When it comes to return on shareowners' equity -- our most important financial measure -- these various groups often have differing interests. They share the common goal of wishing to see a strong, stable company with a good total return. The time horizons, however, as with most com panies' shareowners, are often quite different -- we have shareowners interested in long-term appreciation willing to sacrifice short-term gains, as well as a large group of shareowners whose interest is a quicker profit. The range of views in the financial community is illustrated by those who find current value in our positioning for the future -- as well as others who have adopted a "wait and see" attitude. Management's job, along with the Board of Directors, is to balance all of these interests. For example, biotechnology R&D may well deliver products in this decade -- but this and other areas of research are expensive, and selfsustaining profits probably can't be expected until the 1990s. Current earnings could be rapidly accelerated if we cut back our total R&D from present levels to just that percent which our industry averages. Wfe could also cut many of our longer term marketing, manufacturing and environmental programs as well -- but we intend to be a leader and aim to preserve our future by steadily improving that future's earnings prospects. At the same time, we are mindful that the 1990s won't be here for five years and we must perform financially in the interim. Wfe've learned that we can do both by seizing every opportunity from today's businesses and acceler ating near-term new products -- while picking and funding the future programs with the same demanding dedication to value. Our intention is to become "the best in what we do" -- to make Monsanto a company which will be considered automatically whenever people talk about great business enterprises. This is the philosophy we operated by in 1984 and plan to continue in 1985 and beyond. Richard J. Mahoney ' President and Chief Executive Officer 0Dr. Louis Fernandez Chairman of the Board March 5, 1985 DSW 021577 STLCOPCB4006886 Introduction record levels. These research programs support the Company^ strategies by developing products that build on the legacy of established technical knowledge while creating new products from new sciences. Facilities opened for increased research into herbicides, animal nutrition, Monsanto reported near-record earnings silicon, instruments for the rubber industry and in 1984. That result is partial measurement for process valves and equipment. Dedication of a judging the Company's success in meeting its Life Sciences Research Center near St. Louis pledge for renewal, growth and excellence. highlights the Company's commitment to More important, progress was reflected in a biotechnology. stronger mix of businesses, continued financial Monsanto announced its new corporate strength, more efficient operations and strategy and direction two years ago. It pledged rejuvenated research and development. to increase shareowner value while building a Sales for 1984 came from well- company with major interests in three broad established businesses like herbicides, detergent business areas: materials, nylon carpet fibers, industrial Life Sciences, where rapidly chemicals and plastics, and from emerging developing understanding of new sciences products like silicon wafers, gas separations creates the potential for new products for equipment, process control instruments and agriculture, animal nutrition and human health. specialty polymer materials. This evolution These efforts are supported by extensive toward high value products bom of sophisticated research in biotechnology, where Monsanto is research and technology is under way across recognized as an industry leader. the Company. Chemical Sciences, where Monsanto's International businesses continued to 84 years of experience and established strengths grow in importance to the Company, and that lead to new, high value fibers, plastics and emphasis will continue. chemicals. Emphasis in this area is on During the year, Monsanto retained one innovation, technology, customer service of the strongest balance sheets in the chemical and efficiency. industry, giving the Company the financial Engineered Materials and Products, strength, stability and borrowing power needed where engineering, applications technology, to accomplish its goals through internal growth high quality and specialized skills provide and acquisitions. customers with finished goods and equipment Cost reduction programs and process for a wide range of industries. Monsanto improvements, plus utilization rates averaging expects rapid growth from these businesses. six percentage points higher than 1983, resulted This report outlines Monsanto's in more efficient and profitable plant operations. progress. It shows a Company meeting This intense focus on asset management its pledge to employees, customers and continues. shareowners to be the best in what it does. In addition, the Company continued to strengthen previously troubled segments of its plastics, fibers and chemicals businesses through new product introductions, creative marketing and solid management More work is under way to bolster remaining businesses that do not meet Monsanto^ standards for profitability. Research and development accelerated during the year, with expenditures reaching 7 DSW 021578 STLCOPCB4006887 Life Sciences Monsanto's interests in life sciences include agriculture, animal nutrition and human health. Within these areas there is a wide range of activity based on the Company^ growing understanding of biological sciences, plant sciences and nutrition. Monsanto is developing new herbicides, plant growth regulators, agricultural seeds and nutrition products and is expanding its efforts in human health care. V' A Chateau Meuraault vineyard In the Burgundy raglcn of franca provide* the watting for a meeting between a local agricultural products representative and a grower to discuse Ricochet herbicide, a new glyphoaate mixture. DSW 021579 STLCOPCB4006888 DSL-J 021580 STLCOPCB4006889 One of the growing number of uses for Roundup herbicide, a premier product, is in pasture renovation projects in fields such as this one in the Netherlands. Agricultural Products 1984 to control weeds in French vineyards. Sales of agricultural products increased Another European development, Sling in 1984 as U.S. farmers substantially increased herbicide, offers grain farmers in the United planted acreage compared with 1983 when a Kingdom better control of annual weeds prior 10 short-teim government program severely to planting. reduced plantings. Herbicide sales rebounded Sales of Rodeo herbicide, approved and remained the profit stalwart for Monsanto. by the U.S. Environmental Protection Agency Roundup herbicide, a premier product (EPA) for use in aquatic sites, increased around the world, increased sales volume in 40 percent during 1984, with additional rapid 1984 by six percent despite unusual weather growth expected in 1985. conditions in important markets. These Lasso herbicide, primarily used to increased sales came in traditional markets control grassy weeds in com and soybeans, for control of perennial weeds, and from new, retained its market leadership during 1984. specialized uses in agriculture and industry. It is used by some 300,000 farmers in the These new uses involve the active ingredient United States. in Roundup or combinations of that active ingredient with other products that broaden markets and reduce costs. For example, Richochet herbicide, developed in Europe, was introduced during Lasso Micro-Tech herbicide is encapsulated in a tiny polymer shell from which it is released after application, allowing farmers improved storage, handling and performance in reduced tillage. DSW 021581 STLCOPCB4006890 Lasso Micro-Tech herbicide will be available to soybean growers in the United States in 1985. Through proprietary technology, Monsanto encapsulates the herbicide in a tiny polymer shell from which it is released after application. This formulation offers farmers excellent weed control, consistent results in conservation tillage systems and improved storage and handling. During 1984, registration of Lasso with EPA was reviewed as part of a federal program for all pesticides registered prior to 1978. Laboratory tests showed that test animals fed high levels of alachlor, the active ingredient in Lxisso, daily during the greater part of their lives developed tumors. While there is no evidence that alachlor produces tumors in humans, EPA announced changes in November in authorized uses and handling methods for Lasso. These changes will have a very small impact on markets for the herbicide. Additionally, in January 1985, EPA began a Special Review of Lasso. During the review, EPA will examine all health, safety and benefits data on Lasso, seek public comments and make a decision about the product's registration. That process is expected to take a year or more. The Company is convinced that Lasso is safe when used according to label directions and that the Special Review will result in the product's continued registration. A review process for Lasso also is under way in Canada, which is a small market for the product. Monsanto will enter a new market in 1985 with the introduction of Limit turf regulator. This product restricts the growth rate of grasses in the northern United States and will be available for non-residential sites including office parks, shopping centers, cemeteries, parks and golf courses. Slower growth rates reduce the number of mowings and allow turf managers to redeploy scarce labor. Monsanto aggressively asserts its worldwide patent rights. For example, with litigation on Roundup the Company made substantial progress in 1984 in legal actions in the United States, the United Kingdom, West Germany and New Zealand. In 1985 Monsanto will begin commercial production of Limit turf regulator that slows the growth of cool-season grasses, thus reducing the need for frequent mowings. Nutrition Chemicals During 1984 Monsanto became a leading supplier of synthetic methionine supplementation in the U.S. poultry industry with its Alimet liquid feed supplement. Methionine is an amino acid essential for growth. A new plant for Alimet at Chocolate Bayou, Texas, began full scale manufacturing during the year on time and within budget. Prices for the product, however, were adversely affected by lower cost imports into the United States from Western Europe. Alimet and MHA DSW 021582 STLCOPCB4006891 Quantum hard red winter wheats from HybriTech Seed International, Inc., are hybrids which increase yields over current varieties. 12 feed supplements are the basis for Monsanto's nutrition chemicals businesses. Food phosphates, made in a wide variety of special forms for the food processing industry, remained solidly profitable during 1984 despite strong competition from imports into the U.S. During the year, Monsanto began construction of a new research facility for animal sciences on a 700-acre farm near St. Louis. Plant Science HybriTech Seed International, Inc., a Monsanto subsidiary, combines the strengths of traditional seed companies with the promise of new scientific breakthroughs using biotechnology. Built from two acquisitions, HybriTech currently focuses on the hybrid wheat and soybean seed markets. During 1984, the subsidiary introduced four proprietary hybrid hard red winter wheats under the Quantum trademark which exhibit increased yields over current varieties. Increased production is scheduled for 1985 to meet increasing demand. Four new proprietary lines of soybean seeds were sold under the Hartz Seed Company name during i-984, with outstanding results. Hartz Seed was purchased in 1982 and has well established seed businesses. This year, HybriTech announced that it will form a joint venture with The Cooperative de Pau, a leading French agricultural cooperative, to develop and market new wheat and barley seeds for the Western European market. While new seed products to date have resulted from traditional breeding techniques, Monsanto's long-term strategy is to integrate these traditional efforts with new biotechnology DStni 021583 STLCOPCB4006892 methods to develop seeds with greater yields, special quality traits, or with resistance to insects, disease and other environmental factors. Health Care During 1984, Monsanto continued to build the strengths necessary for a global pharmaceutical business. The Company purchased Continental Pharma, S.A., a Belgian pharmaceutical company with markets in Europe and Asia. Its leading product is suloctidil, used to enhance peripheral and cerebral blood circulation. This acquisition not only provided established distribution and licensing skills, but also research and development programs which mesh well with Monsanto's United States efforts. Additional research is available to the Company through arrangements with Washington University, Oxford University and others. Monsanto will expand in the pharmaceutical industry through internal development programs, acquisitions and joint ventures, where appropriate. Biotechnology is an important element in this effort as new techniques are developed to produce human health care products. The Company has assembled a notable staff of pharmaceutical professionals to implement this strategy. At the laboratories of Continental Pharma in Belgium, researchers are investigating enzymes that might play a role in the development of such inflammatory diseases as arthritis. The acquisition of Continental Pharma gave Monsanto access to new health care research activities. osw 021584 STLCOPCB4006893 Chemical Sciences Monsanto's basic chemical businesses reported strong sales and earnings during 1984, spurred by sharply unproved economies during the first six months in major markets such as the housing and automotive industries. The Company was in position to benefit from the economic recovery because of strategies focusing on businesses in which Monsanto has technological, marketing or cost advantages. Fibers and intermediates, industrial chemicals and polymer products are at the core of Monsanto. They provide substantial cash needed to fund the Company's growth and will remain a central element in the future as they move to develop additional products with higher value for customers. Continued cost reduction programs and strong customer service are additional strategic elements for these 14 businesses. The novel credit program for Wear-Dated carpet, backed by Monsanto, allows a family to charge Its carpet purchases at competitive rates while the retailer benefits from the easier, larger sales the credit program makes possible. DSW 021586 STLCOPCB4006895 The variety of Monsanto's new specialty acrylic fibers allows innovative concepts in color and fabric construction. Fibers and Intermediates special properties and cost advantages, such as Strong sales during 1984 sustained a producer-dyed fiber, for the textile industry. In dramatic business turnaround for the fibers and addition, new processes are being implemented intermediates business. Mills introduced more at the Decatur plant which will yield a family of carpets made from Monsanto nylon staple acrylic products with improved aesthetic products in 1984 than those from any other properties and abrasion resistance and which fiber manufacturer. will double machine productivity. Marketing focused on customer needs Cost reduction programs across the was the catalyst behind this success. During the chemical intermediates businesses helped year, Monsanto continued support for its carpet increase earnings from the sales of both fibers program, in which the Company tests and and intermediates. For example, manufacturing guarantees Wear-Dated carpet made with Ultron efficiencies combined with improved export nylon fiber. In addition, buyers of Wear-Dated prices to provide significantly higher margins carpet were given maintenance information kits for acrylonitrile, an intermediate used to make and access to company experts through an fibers and plastics. "800" telephone number for advice on stain Industrial Chemicals removal. Sales increased across most product Late in 1984, Monsanto introduced a lines in industrial chemicals during 1984, but novel credit program for Wear-Dated carpet. earnings were affected by soft prices toward Carpet retailers have embraced the program, year-end, imports and the strong U.S. dollar. recognizing the benefits it offers their customers The Company made substantial progress toward and its potential to increase sales. future growth through new capacity, process Apparel fiber businesses fared less improvements, international investment and well during the year, primarily due to intense new product development. competition from imports into the U.S. of both Construction projects underway during fiber and finished goods. In response, Monsanto the year will double capacity for diphenyl oxide is developing high value acrylic products with used in heat transfer fluids, surfactants and fire DSW 021587 STLCOPCB4006896 retardants for plastics. Completion of these projects in 1985 will lengthen Monsanto's lead in these businesses. Process improvements at the Texas City, Texas, acetic acid plant expanded capacity by 75 million pounds, or 20 percent, lowering costs and helping the Company meet competition from imports. Acetic acid is used in textile operations and in making vinyl acetate resins and agricultural products. Additional technical improvements at the Pensacola, Florida, maleic anhydride plant highlighted a flawless first year of operation at the 130-million-pound facility. More potential capacity is available at the plant as demand for maleic anhydride increases in the plastics and chemicals businesses. Other maleic anhydride plants in the United States, United Kingdom and Canada demonstrate Monsanto's leadership in maleic technology and production. Outside the United States, the Company moved to strengthen its profitable phosphate business through a new joint venture with Brazilian and Belgian companies to produce purified wet phosphoric acid, a phosphate feedstock. A new plant using the latest technology will be built in Brazil to supply Monsanto's phosphate plants there and to sell in 17 Phosphates for food ingredients and the laundry detergent industry are bagged for shipment to customers. DSW 021588 STLCOPCB4006897 The unique combination of properties ofSantoprene thermoplastic rubber makes it applicable to a wide variety of products ranging from home appliances such as electric hair curlers to under-the-hood automotive parts. other South American markets. Food grade and Polymer Products technical grade phosphates are used in many Renewed strength in traditional markets, food and industrial products. and success with new, high value products, Research and development spending has resulted in an outstanding year for polymer increased by approximately 100 percent in the products' businesses. Sales in the automotive, 18 past two years as the search for new products construction and home appliance industries intensifies. A new phosphate fiber has the led these businesses, with new products in performance properties needed to replace electronics, telecommunications and custom asbestos in automotive brakes and gaskets, molding providing added momentum. vinyl flooring, and other advanced composite Samoprene thermoplastic rubber, a products. This patented fiber is now undergoing product that combines the properties of rubber extensive product safety and customer tests. with the manufacturing and cost efficiencies of In addition, customers are testing several high plastic, continued its rapid growth during the performance products for use in laundry year. Designers and engineers are finding new detergents. uses for Samoprene in applications where rubber was the traditional manufacturing material, particularly in the automotive, appliance and construction markets. Samoprene is a high value product in a traditional market which is receiving the necessary funding to spur additional growth. Monsanto's high productivity Vydyne nylon resins find growing use in electrical and electronic connoctors. DSW 021589 STLCOPCB4006898 Construction of two new manufacturing facilities has been announced, and sales, technical support and product development efforts are being increased. Lustran ABS and SAN thermoplastics, a versatile family of plastics with a broad range of applications, took full advantage of the upsurge in sales in the automotive and home appliance industries during 1984 and recorded improved sales and earnings. In addition, new higher value grades of Lustran were developed for strong, lightweight moldings for home computers, telecommunications equipment find other specialized markets. Cadon engineering thermoplastics, a line of styrene-maleic anhydride based terpolymers, gained further acceptance in multiple automotive applications requiring higher heat performance, and continued to grow in a variety of appliance applications. Sq/fex plastic interlayer for laminated automotive and architectural glass remained the industry leader in stronger markets. I'or example, European auto manufacturers continue to convert to windshields laminated with Saflex, adding important new sales. Rapid growth of the uses of Saflex in architectural glass is extending Monsanto's industry leadership worldwide. Monsanto's rubber chemicals business again was the industry leader in worldwide sales in 1984. Monsanto is an international leader in developing innovative products which add performance and longevity to tires and industrial rubber products and cost efficiencies to manufacturing operations. 19 Monsanto, a leader in rubber chemicals and instruments, developed the moving die rheometer to test the properties of rubber compounds. DSW 021590 STLCOPCB4006899 Engineered Materials And Products Technological leadership and growth potential characterize the many businesses in Engineered Materials and Products. They include engineered products, Fisher Controls International, Inc., electronic materials and Monsanto Oil Company. Together, they represent skills in engineering, fabrication, manufacturing and marketing, backed by research and development. Monsanto strongthenod its position as a loading silicon supplier by introducing MOS Epi wafers for sophisticated electronic devices where high quality is essential. DSW 021591 STLCOPCB4006900 STLCOPCB4006901 Engineered Products Prism separators, a Monsanto 22 technology that uses hollow fibers to recover valuable gases, nearly doubled sales in 1984 compared with 1983. Developments in the hollow fiber technology now allow customers to separate hydrogen from waste gas streams, recover A Monsanto technician checks the hollow fibers used to recover or generate valuable gases in Prism separators. The introduction of another application and the penetration of new carbon dioxide in enhanced oil recovery, collect methane from landfill gas for use as fuel and geographic markets contributed to a near separate nitrogen from air to blanket flammable doubling of sales in 1984. materials aboard ships. New systems using Prism separators expanded the product line for small-scale, specialty separations. Markets for systems are opening outside the United States, including sales to the Peoples Republic of China, the Soviet Union, Korea, Japan and Norway. Also during the year, Monsanto received United States regulatory clearance for its Cycle-Safe soft drink bottle. Potential markets are being studied. Monsanto also introduced Cloud Nine energy-saving greenhouse film during 1984, Plastic bottles capable of being filled offering customers the potential to save as much with hot liquids were tested by consumers in as 20 percent or more on heating fuel costs. 1984. These containers offer producers of fruit Two advanced forms of AstroTurf stadium juices and processed foods a lightweight, surface -- the retractable "magic carpet" and unbreakable alternative to glass jars and bottles the permeable drain through system -- found and metal cans for products that must be growing acceptance during 1984. packaged while hot. This licensed technology A new drainage system for highways, builds on Monsanto's existing strengths in airports and other sites is under development. manufacturing and marketing plastic bottles. Hydraway drain acts as a water collector and DSW 021593 STLCOPCB4006902 conductor under paved surfaces, providing faster draining, less potential for damage and reduced maintenance costs. Monsanto Hnviro-Chem Systems, Inc., completed its first two projects using Company technology for cogencrating electricity from sulfuric acid plant excess steam. This, coupled with strengths in other markets, resulted in an overall improvement in income. The Ecopac PRoVOX instrumentation systems have demonstrated strong international growth. In the control room ol a new facility in Sluiskil, Netherlands, the Installation manager and a Fisher engineer review operational procedures for the plant's PR6VOX system for monitoring and controlling production processes. dewatering system, which uses positive and negative electrical charges to speed up the settling of clay in phosphate mine ponds, was tested in 1984. Additional applications for this technology are being investigated. Fisher Controls International, Inc. Led by the continuing growth of PROVOX instrumentation systems, and improved control valve markets, Fisher increased sales in 1984 as capital spending began to rebound in most key markets. Fisher is a worldwide leader in the development of control valves, measurement instrumentation and process controls. Sales in all product categories improved in North America, Latin America, and Asia-Pacific, but European sales lagged as capital spending there remained depressed. Control valves, the heart of Fisher's business, advanced substantially during the year. During the past two years, Fisher has introduced an impressive array of new valves and accessories. These new units reflect the continuing Fisher emphasis on new product development and substantially surpass the 23 DSH 021594 STLCOPCB4006903 A technician at Advanced Micro Devices, Inc., a customer in Austin, Texas, inspects devices that have been etched onto Monsanto's new six-inch silicon wafer. 24 number of new products brought to the market by competitors. Fisher continues to have the most advanced technology in the valve industry, particularly for valves used in corrosive or other severe environments. Fisher further advanced its valve position in early 1985 by acquiring Posi-Seal International, Inc., a company which manufactures high performance rotary valves. Fisher's new electronic instrumentation research facility in Austin, Texas, was dedicated in 1984. This investment puts the company in position to accelerate the development of innovative measurement instrumentation and process control systems for existing and new plants around the world. In addition, Fisher purchased quartz technology rights during the year which will add substantial strength to measurement instrumentation product development. PROVOX instrumentation is an all-digital control system for monitoring and controlling production processes in a wide range of industries. PRoVOX offers secure, efficient and flexible control and has been accepted rapidly by customers since its market introduction in 1980. During 1984, Fisher announced plans to accelerate the growth of PROVOX instrumentation and set a goal of tripling the si: s of this business during the next four years. During this time, the Company will invest more than $100 million in research, development and fixed capital and will more than double staff infrastructure in sales, product development, manufacturing and project management and field service. Electronic Materials Monsanto's electronic materials business recorded a profit in 1984, meeting a major Company goal. Past investments in research, DSW 021595 STLCOPCB4006904 manufacturing and quality control positioned the business for the turnaround. Sales of silicon wafers increased 84 percent compared with 1983. Monsanto strengthened its position as the leading silicon supplier by introducing MOS Epi wafers for sophisticated electronic devices where extremely high quality is essential. Using Monsanto technology, an ultra-pure layer of silicon is grown on the polished surface of a specially engineered silicon substrate. Initial sales of MOS Epi wafers have been encouraging, and the Company has announced an expansion program to increase production capacity. Increased demand for wafers resulted in more efficient use of manufacturing facilities, and cost reduction programs provided significant savings. Quality control programs at every location resulted in greater customer acceptance of shipped products. Manufacturers of semiconductor devices recognize the reliability and quality of Monsanto wafers and, with increasing frequency, are choosing Monsanto silicon. In order to strengthen its position in worldwide markets, the Company began construction of new manufacturing and research facilities in the United Kingdom, a new manufacturing facility in Korea and announced plans for a manufacturing and research investment in Japan. All three facilities will be completed in 1986 and will make Monsanto a local supplier of silicon in these world areas. Monsanto Oil Company Monsanto Oil Company met its income goal for 1984 by offsetting declining sales with lower exploration expenses. The company made substantial progress during the year in evaluating promising projects with potential for future income growth. Continued emphasis on utilization of current and emerging exploration and production concepts and technologies has allowed Monsanto Oil Company to perform competitively in discovering and developing new reserves. Annual reserve additions have exceeded production for the ninth consecutive year. The company's strategy balances cash flow from current production in Canada, the Gulf of Mexico and 14 states in the United States with expenditures for new exploration and development opportunities. A portion of the funds generated from current onshore production will be used to develop several attractive prospects in the Gulf of Mexico and the North Sea. The company is committed to the development of South Pass Block 75 and is moving toward development of Green Canyon Block 18, both located in the Gulf of Mexico, and Block 15/2la of the United Kingdom sector of the North Sea. Monsanto 's participation in these projects varies from 24 percent to 38 percent of the total interests. These potential developments are expected to contribute substantial income in the future. 25 Monsanto Company's offshore lease acreage in the Gulf of Mexico includes interests in more than 30 blocks. DSU 021596 STLCOPCB4006905 Growth Programs under way in Monsanto's business groups, engineering departments, product development projects and laboratories are the Company's future in action. This work to refine strategies, improve processes, move products to market and delve into new science will continue the Company's momentum to extend existing businesses and construct new ones for future growth. Existing businesses are reviewed continually against Company benchmarks for profitability and return on capital. Plans are developed to improve businesses that fall short. Where that is impractical, the Company will act quickly to make corrections. Internationally, new markets are being opened for today's products and for those of the future, through investment abroad and through 26 exports. Acquisitions also are a major option for the future. These purchases can be used to extend product lines to complement internal growth. In health care, the Company Is alert to possible major acquisitions -- or significant associations with other companies -- to build its pharmaceutical interests. Venture capital investments in the United States, Europe, Southeast Asia and Japan can provide earnings now, but also can identify new technologies with commercial promise. During 1984, for example, Monsanto invested in a start-up company that will market a Monsanto-pioneered technology for growing mammalian cells used in biotechnology research and in producing pharmaceutical products. The electron microscope reveals the shape of phosphate fiber which makes this new developmental product valuable In reinforced composite materials. DSW 021598 STLCOPCB4006907 Research and Development Research and development remain the kev dements for creating the products and processes for the future. Spending on science at Monsanto has more than doubled during the past five years, totaling some $370 million in ! 984 ref lecting the Company's move to more research intensive businesses. In engineering and process improvements. Monsanto works to improve quality and reduce costs. Success in developing new catalysts foi chemical operations and in understanding new uses for electrochemistry are recognized Monsanto strengths. Technology also contributes to improved safety. A Monsanto system based on acoustic emissions detects cracks and potential failures in chemical storage tanks. This technology reduces animal nutrition and human health care. the potential for injury from leaks, and is Existing programs in biotechnology are licensed for sale to other companies. moving forward. Research is on schedule for Monsanto was built on an in-depth methionyl bovine somatotropin, a genetically knowledge of how to manipulate molecules engineered analog of a natural protein that that result in useful products. New science has is intended to increase efficiency and reduce broadened the types of molecules with which costs in milk production. Engineering work on 28 (he Company works and the methods by which manufacturing processes is under way. Also in that research is conducted. Historical strengths agriculture, Monsanto in 1984 began discussions in polymer, fibers, agricultural and industrial with the U.S. EFA regarding approval to field chemistry are now complemented by work in test genetically engineered soil bacteria which molecular biology, membrane separations and produce a naturally occurring iasecticide. biotechnology. Products from this new technology hold In October, Monsanto dedicated its new valuable potential for aiding food and fiber I ,ife Sciences Research Center near St. Louis. It is the single largest research investment in the Company's history and underscores an enlarged production worldwide. In yet another agricultural area, the Company is using biotechnology to accelerate traditional breeding commitment to biological sciences for agriculture, methods to develop new, superior crop seeds. Pilot scale development of MBS (methionyl bovine somatotropin) -- an experimental protein hormone which stimulates milk production in dairy eo*vs -- Is under way. Monsanto plans to bring MBS, likely the Company's first biotechnology product, to the marketplace In the late 1980s. DSW 021599 STLCOPCB4006908 With 250 laboratories, During 1984, almost a third of total 26 state-of-the-art sales and income was generated in markets greenhouses, and 123 outside of the United States. Monsanto's computer controlled international position is expected to strengthen growth chambers, the new Life Sciences Research Center gives Monsanto scientists one of the most modern industrial centers in the world for research in the emerging science of biotechnology. in the future as world markets, especially those in Asia-Pacific, grow faster than those in the United States and other world areas. Monsanto conducts business in more than 100 countries and has 164 plants, laboratories and facilities in 27 countries. The Company's assets outside the United States are approximately $1.5 billion....one-fourth of Monsanto's worldwide total. Increasingly, Monsanto operates worldwide businesses. For example, in 1984, the Company announced plans for added silicon production in Europe, Japan and Korea, a new in health care, biotechnology is used to production plant for Roundup herbicides in investigate new therapies for human diseases. Brazil and technology improvements for making Collaborative research agreements with renowned polystyrene in Argentina. Also the Company is universities bring together academic and industry finalizing a joint venture for producing wet scientists. At Washington University in St. Louis, phosphoric acid in Brazil. scientists are examining atrial peptides, natural hormones in heart muscle that may help control blood pressure. These collaborative efforts are supported by a major research thrust within Monsanto. In traditional businesses, Monsanto's legacy of chemical knowledge is being extended to produce new products. For example, a new laundry detergent material is being developed which has improved environmental properties. New nylon staple fiber under development will offer carpet buyers products with superior performance. Sophisticated use of chemistry, electron beams and ultraviolet light may result in advanced polymers and polymeric films. New markets for existing products are another priority. An eight-inch silicon wafer, offering customers substantial cost savings, is being introduced. New grades of Sunioprene thermoplastic rubber broaden markets in construction and autos. Monsanto International Monsanto has been an international manufacturer for more than six decades, from its first European investment in 1920. to announcements in 1984 of new facilities in Asia-Pacific, latin America and hurope. The now 55 million Fisher Electronics Technology Center in Austin, Texas, permits the company to accelerate development of measurement instrumentation and process control systems. DSW 021600 STLCOPCB4006909 Monsanto also is increasing international business by introducing products more rapidly abroad. During 1984, this strategy included introducing PR6VOX process control equipment, Santoprene thermoplastic rubber, Prism separators and silicon. Both international strategies -- more investment and faster commercialization -- are important factors in Monsanto's effort to assume a substantial role in the expanding economy of the Far East. Success in Japan will be enhanced not only by the Company's silicon investment there, but also by the Kawachi Research Station for agriculture, dedicated in 1984. In addition, a joint venture in Japan, Mitsubishi Monsanto Chemical, continues to provide Monsanto with opportunities for growth in existing and new businesses. Sales to the Peoples Republic of China, an important part of which are agricultural chemicals, are growing. Monsanto's relationship with China began in the 1920s as a marketer of saccharin. In Europe, currently the largest international market for Monsanto, much of the growth will come from business opportunities such as agricultural chemicals, rubber chemicals, Saflex interlayer. Prism separators, detergent chemicals, and PRoVOX process control equipment. Special attention is also being given to expanding sales in the Soviet Union and elsewhere in Eastern Europe. Agricultural chemicals, rubber chemicals and Prism separators are leading products for Monsanto in these markets. Corporate Citizenship Corporate citizenship at Monsanto is a commitment to conduct its worldwide businesses in an ethical, socially responsible way. That means making beneficial products, demanding safe manufacturing, dealing with environmental problems, conserving natural resources, providing equal opportunity in hiring and advancement and responding to public concerns. During 1984, Monsanto joined with other chemical companies that manufactured Agent Orange, a defoliant used in the Vietnam War, to settle injury claims by armed forces veterans who alleged damaged health from exposure to the material. The Company remains convinced that medical evidence doesn't support Through committee work, company-sponsored conferences, reports and publications, Monsanto's DIALOGUE project provides a forum for policy debate aimed at the health of U.S. agriculture. DSW 021601 STLCOPCB4006910 SAoring his knowledge with a high school science class, a Monsanto onglnoer typifies thousands of Monsanto employees who take part In some type of voluntarism in their communities. the allegations of serious illness, but determined that it was advisable to settle the case and thereby eased the controversy and anguish surrounding the legal and medical issues. Also during the year, Monsanto incurred nearly $20 million expense as part of a five-year voluntary program to survey and clean up hazardous waste sites that the Company formerly used. In another effort, the Company participated in forming Clean Sites, Inc., a cooperative venture between industry and environmental groups to speed the cleaning up of other hazardous waste sites. In a related activity, the Company supported legislation in the U.S. Congress to reauthorize a program which taxes industry to pay for still other cleanup activities. Monsanto's intention is to reduce the legal wrangling and blame-fixing surrounding hazardous waste sites and get about the job of cleaning them up. Late in 1984, a group of Monsanto senior executives were named to a special task force to review all the Company safety policies and procedures worldwide. Monsanto has extensive safety requirements at all its plants, and tepjorted the safest year in its history, but increased public concern about chemical safety prompted the Company to confirm the adequacy of its procedures. Recommendations from the task force will be put in place quickly. In corporate philanthropy, Monsanto approached its goal of providing two percent of pretax income to worthwhile community agencies and programs. Donations from the Company and from Monsanto Fund totaled more than $10 million. In addition, the Company actively supports employees who participate in community affairs. As part of its citizenship policy, Monsanto also becomes involved in other public dialogues on important issues. For example, the Company supports clear, effective regulation lor biotechnology which not only will allow important research to continue, but also reassure the public that it is being done safely. Also, Monsanto is working to implement agricultural policies which will build stable and profitable farming opierations. And, the Company supports the rigorous protection of patents, trademarks and other intellectual property around the world. Strong property rights spur research and innovation. 31 DSH 021602 STLCOPCB4006911 Financial Report Contents Management Report 33 Independent Auditors' Opinion 34 33 Consolidated Results of Operations 35 Operating Unit Segment Data 36 World Area Segment Data 38 Quarterly Data 40 Inflation-Adjusted Data 40 Research and Development 43 44 Statement of Consolidated Financial Position Review of Liquidity and Capital Resources 45 46 Statement of Changes in Consolidated Financial Position Review of Sources and Uses of Funds 47 48 Statement of Consolidated Shareowners' Equity 49 Notes to Financial Statements Significant Accounting Policies 49 Basis of Consolidation 49 Principal Acquisitions andDivestitures 49 Depreciation 49 Supplemental Data 49 Currency Translation 50 Inventory Valuation 50 Oil and Gas Activities 50 Income Taxes 50 Earnings per Share 51 Pension Plans 51 Short-Term Debt and Credit Arrangements 51 Long-Term Debt 51 Commitments and Contingencies 52 Capital Stock 52 Stock Option Plans 52 Segment Information 54 Financial Summary 52 Unless otherwise indicated by the context. ' Monsanto" means Monsanto Company and consolidated subsidiaries and "the Company" means Monsanto Company only. All dollars are in millions, except per share data. Net Sales t In Millions) SUM S' Mi DSW 021603 STLCOPCB4006912 Management Report Monsanto Company management is responsible for the fair presentation and consistency of all financial data included in this Annual Report. Where necessary, the data reflect management estimates. Management is also responsible for maintaining a system of internal accounting control to provide reasonable assurance that assets are safeguarded against material loss from unauthorized use or disposition and that authorized transactions are properly recorded to permit the preparation of accurate financial data. Cost-benefit judgments are an important consideration in this regard. The effectiveness of internal controls is maintained by: (1) personnel selection and training; (2) division of responsibilities; (3) establishment and communication of policies; and (4) ongoing internal review programs and audits. As ratified by shareowner vote at the 1984 Annual Meeting, Deloitte Haskins & Sells was appointed to examine, and express an opinion as to the fair presentation of, the consolidated financial statements. This opinion appears below. Monsanto's Audit Committee, consisting of five non-employee directors, meets with Controllership, Internal Audit and Deloitte Haskins & Sells personnel to review internal controls, financial reporting and accounting practices. Deloitte Haskins & Sells and internal auditors meet with the Committee, with and without management present, to discuss their examinations, the adequacy of internal controls and the quality of financial reporting. Richard J. Mahoney President and Chief Executive Officer Francis A. Stroble Senior Vice President and Chief Financial Officer February 22, 1985 .13 Independent Auditors' Opinion To the Shareowners of Monsanto Company: We have examined the statement of consolidated financial position of Monsanto Company and Subsidiaries as of December 31, 1984 and 1983 and the related statements of consolidated income, shareowners' equity and changes in financial position for each of the three years in the period ended December 31, 1984. Our examinations were made in accordance with generally accepted auditing standards and, accoiriingly, included such tests of the accounting records and such other auditing procedures as we considered necessary in the circumstances. In our opinion, such consolidated financial statements present fairly the financial position of Monsanto Company and Subsidiaries at December 31, 1984 and 1983, and the results of their operations and changes in their financial position for each of the three years in the period ended December 31, 1984, in conformity with generally accepted accounting principles applied on a consistent basis. &J^4dL. / Saint Louis, Missouri February 22, 1985 DSW 021604 STLCOPCB4006913 Statement of Consolidated Income (Dollars in millions, except per share) Net Sales Cost of goods sold Gross Profit Marketing and administrative expenses Technological expenses Operating Income Interest expense Interest income Other income -- net Income Before Income Taxes and Extraordinary Items Income taxes Income Before Extraordinary Items Extraordinary Items: Tax benefits from utilization of ex-U.S. loss carryforwards Gain from exchange of debt for common shares Net Income Muitvin(<> C iMiipuin tind Subsidiaries 1 1984 $6,691 4,846 1,845 722 446 1,168 677 (100) 92 38 30 707 268 439 $ 439 1983 $6,299 4,738 1,561 681 359 1,040 521 (96) 73 72 49 570 201 369 33 $ 402 1982 S6.325 4,826 1,499 691 329 1,020 479 (82) 63 41 22 501 172 329 23 $ 352 34 Earnings per Share: Before extraordinary items Extraordinary items After extraordinary items $ 5.42 $ 5.42 $ 4.48 0.41 $ 4.89 The above statement should be read in conjunction with pages 49 through 53 of this report. $ 4.10 0.29 $ 4.39 Kvy 1 iiiaiicial Slalisiiis 'I Net Saks as a Percent of Tbtal Asset! Net Income u a Percent of Net Saks Percent Return on Avenge Shareowners' Equity After extraordinary items Percent Return on Average Capital Employed* After extraordinary items 1984 105% 7% 12% 10% 1983 98% 6% 11% 10% 1982 104% 6% 10% 9% Capital employed is the sum of short-term debt, long-term debt and shareowners' equity. The beginning of the year and the end of the year capital employed are averaged and divided into net income after adding back the aftertax effect of interest costs. DSW 021605 STLCOPCB4006914 Consolidated Results of Operations Net Income Benefits From Stronger Economy Net income for 1984 was $439 million, a 9 percent increase over 1983 net income of $402 million. Earnings per share for 1984 were $5.42, compared to $4.89 for the prior year, an increase of 11-percent. Monsanto had a powerful start in the first half of 1984, spurred in part by the most rapid economic expansion in the United States since the early 1950s and excellent sales of agricultural products. As the year progressed, however, market conditions weakened because of the economic slowdown in several industrial sectors and the persistent strength of the U.S. dollar, which brought increased international competition and lessened income from translation of ex-U.S. earnings into U.S. dollars. Higher Volume Increases Sales Sales for 1984 increased 6 percent over the previous year. Sales volume improved 5 percent, net of divestitures, and 1984 selling prices increased 1 percent. Most operating segments had higher 1984 sales volume. The gross profit margin improved to 28 percent of sales versus 25 percent for the prior year. Over the past few years, Monsanto's comprehensive programs of asset management and cost reduction positioned Monsanto to take advantage of the economic uptiim through improved operating efficiency. Manufacturing facilities operated at approximately 75 percent of facility utilization. Raw material costs declined 2 percent. Substantial Increase in Research and Development Technological expenses in 1984 increased 24 percent over the prior year, as Monsanto's intensive research and development programs expanded. In 1984, R&D expenses increased to a record level and were 6 percent of sales, compared with 5 and 4 percent in 1983 and 1982, respectively. The 1984 increase was concentrated in expenditures directed toward emerging technologies. "Other income -- net" declined in 1984 mainly from reduced foreign currency gains, primarily in hyperinflationary countries. The. 1984 effective tax rate was higher than 1983 because of increased taxable income and higher state income tax rates. Retum on shareowners' equity improved to 12 percent for 1984, up from 11 percent in 1983. Sales for 1983 were essentially level with 1982, as a 1 percent sales volume increase, net of divestitures, was offset by lower selling prices. The 1983 volume improvement resulted from the strengthened United States economic climate. The United States government's Payment-in-Kind (PIK) program adversely affected sales of agricultural herbicide products during the first half of 1983. Partially offsetting the 1983 overall volume improvement were the effects of the continuing depressed capital goods market, divested businesses and lower United States export sales as the U.S. dollar continued to be strong against other major currencies. Net income for 1983 was 14 percent above 1982's level. Higher sales volume with related improvement in plant facility utilization, along with lower manufacturing costs, increased 1983 results. Extraordinary tax benefits from prior years' ex-U.S. operating loss carryforwards increased 1983 net income by $33 million. In 1982, net income benefited from a $23 million extraordinary gain on the exchange of outstanding debt for common shares. Also, in 1982, net income increased $43 million from non-replacement of lower cost inventories under the LIFO (last-in, i first-out) inventory method. ' Analysis of Change in Earnings per Share -- Better (Worse) 1984 vs. 1983 vs. 1983 1982 Selling prices Sales volume and mix Raw material prices Other manufacturing coats Divestitures Marketing and administrative expenses Tkchnological expenses $0.56 1.07 0.29 0.41 (0.10) (0.32) (0.68) S(0.62) 1.11 0.11 0.08 (0.10) 0.08 (0.24) Operating income 1.23 0.42 Interest expense Interest income Other income -- net Effective tax rate Extraordinary items Shares outstanding Change in earnings per share (0.03) 0.15 (0.27) (0.23) (0.41) 0.09 $0.53 (0.12) 0.09 0.18 (0.05) 0.12 (0.14) S 0.50 DSW 021606 STLCOPCB4006915 Operatint; I n it Segment Data Agricultural Products Biological Sciences Fibers and Intermediates Industrial Chemicals Polymer Products Electronic Materials and Fabricated Products Fisher Controls Oil and Gas Corporate items and eliminations Ibtal consolidated 1984 $1,256 168 1,194 937 1,877 Net Sales 1983 1982 SI.167 152 1,170 856 1,830 $1,165 146 1,257 810 1,786 519 355 357 537 528 203 241 216 $6,691 $6,299 $6,325 CA oo 00 1984 $438 (95) 79 90 152 5 35 27 (54) $677 Operating Income (Loss) 1983 1982 $400 (54) 55 88 70 S44I (35) (21) 101 13 (66) 37 41 (50) S521 (64) 52 37 (45) $479 1984 $107 66 45 35 41 25 19 32* $370 Research and Development 1983 1982 $ 78 41 41 22 40 $ 65 33 39 18 44 24 23 10 14 34* S290 28* $264 Corporate R&D expenses are allocated on a weighted average basis of investment to operating units in determining operating income (loss). Capital Depreciation and Ibtal Assets Expenditures Obsolescence 1984 1983 1982 1984 1983 1982 1984 1983 1982 Agricultural Products Biological Sciences Fibers and Intermediates Industrial Chemicals Polymer Products Electronic Materials and Fabricated Products Fisher Controls Oil and Gas Nonoperating assets $1,215 339 992 892 1,179 $1,214 225 1,071 810 1,163 $1,049 141 1,150 777 1,135 437 406 433 515 487 418 578 543 549 226 508 425 $ 67 75 83 90 85 74 25 107 8 $104 84 79 61 64 37 27 101 3 S 89 42 90 162 72 57 27 130 4 $ 76 29 97 74 88 41 15 69 2 $ 70 21 115 75 96 37 16 85 2 $ 57 18 135 56 74 30 13 55 1 Ibtal consolidated $6373 $6,427 $6,077 $614 $560 $673 $491 $517 $439 The above data should be read in conjunction with the ''Segment Information" note to the financial statements on page 32. For 1984, the Company has realigned its financial reporting of Operating Unit Segments to better reflect the future direction of the Company's operations. Nutrition chemicals, health care and the corporate biological research effort have been combined to form a new segment, Biological Sciences. Corporate biological research and health care were previously included in corporate staff expense and allocated to Operating Unit Segments. Biological research directly related to Agricultural Products is included as an expense of that segment. The Oil and Gas operations are also presented as a separate segment. Agricultural Products Net Sala 1984 1983 1982 Herbicide* and other agricultural chemicals $1,256 $1,167 $1,165 Sales and operating income in 1984 increased 8 and 10 percent, respectively. Sales volume of Roundup herbicide increased 6 percent, a slightly less than expected rate due to abnormal weather conditions in parts of the United States and Europe. Sales volume of Lasso herbicide also increased 6 percent year to year. The higher operating income from sales more than offset the increased research and new product development expenditures. In November 1984, the United States Environmental Protection Agency (EPA) announced that it will conduct a Special Review to determine whether Lasso herbicide may cause an unreasonable adverse effect on humans or the environment. Pending the results of the review, Monsanto and the EPA agreed to modifications in the use of Lasso, which do not significantly affect the majority of uses for Lasso. Monsanto's tests conclude that Lasso poses no unreasonable adverse effects to humans or the environment, and the Company believes that the EPA review will reach a similar conclusion. The Company expects no significant effect on operating results from this review. DSW 021607 STLCOPCB4006916 Sales in 1983 increased slightly from 1982, while operating income declined as a result of the 1983 PIK program. Biological Sciences Net Sales 1984 1983 1982 Human health care and nutrition products $168 S152 $146 Sales in 1984 increased, reflecting the acquisition of Continental Pharma in May 1984. Sales volume of Alimet, an animal feed supplement, continued to grow, but selling prices remained depressed, largely because of the effects of the strong U.S. dollar and competition from ex-U.S. manufacturers. Operating losses, which have increased over the three-year period, are a result of significant biological research expenditures in both human health care and animal nutrition, along with facility start-up costs and expanded marketing efforts. Sales increased slightly in 1983 versus 1982. Fibers and Intermediates Net Sales 1984 1983 1982 Man-made fibers Textile intermediates $880 314 $824 346 $880 377 Sales in 1984 increased 2 percent, net of the 1983 nitrogen products divestiture. Operating income increased 44 percent over the prior year, reflecting the continued strong demand and improved pricing for nylon carpet fibers and chemical intermediates. Demand slowed and prices slipped, however, in the last quarter of 1984. Sales volume of branded nylon carpet fibers was particularly strong in 1984. Higher plant facility utilization also contributed to the higher earnings levels. Partially offsetting these improvements were higher costs of natural gas and the loss of income from the nitrogen products business. Sales in 1983 were lower than 1982 due to divested businesses and lower selling prices, offset somewhat by higher sales volume. Operating income in 1983 increased over 1982 due to higher sales volume, lower costs and the elimination of 1982 divested business losses. The operating loss in 1982 included $35 million in obsolescence charges relating to divestitures, partially offset by a $20 million benefit from non-replacement of lower cost LIFO inventories. Industrial Chemicals Net Saka 1984 1983 1982 Detergent and fine chemicals Specialty chemicals $628 309 $587 269 $552 258 Sales in 1984 increased 9 percent due to higher volumes for most products. Operating income was about the same in 1984 as compared with 1983. Improved efficiencies from higher plant facility utilization and reduced raw materials costs were offset by increased other manufacturing costs and research and development expenditures. Sales in 1983 were 6 percent higher than 1982, the principal increase being in detergent materials. Operating income declined in 1983 due to nonrecurring gains recognized in 1982, including a $27 million favorable impact of non replacement of lower cost LIFO inventories. Polymer Products Net Sales 1984 1983 1982 Plastics Resin products Rubber chemicals and instruments $874 693 310 S809 742 279' $775 742 269 A stronger worldwide economy pushed 1984 sales volume higher, especially sales to the automotive and housing industries. This increase more than offset the lost sales from divested and shutdown businesses. Operating income more than doubled in 1984, principally from sales volume gains in higher margin products and from improved plant facility utilization and elimination of 1983 divested business losses. Sales in 1983 increased slightly over the preceding year due to higher volume offset by lower selling prices and business divestments. Operating income improved in 1983 from better manufacturing performance, offset in part by net charges of $24 million relating to various divestments and shutdowns of facilities. Operating income in 1982 included a $35 million favorable impact from non-replacement of lower cost LIFO inventories. Electronic Materials and Fabricated Products Net Sales 1984 1983 1982 Electronic-grade silicon wafers and engineered products $519 $355 $357 Sales in 1984 increased 46 percent, largely due to higher volume and prices of silicon wafers and fabricated products, coupled with increased construction project activity in Monsanto EnviroChem Systems, Inc. The year 1984 was a turning point for electronic materials, with silicon wafer sales increasing 84 percent. These factors, together with higher electronic materials plant facility utilization and lower raw materials costs, resulted in a $71 million profit improvement over 1983. 37 OSW Q21608 STLCOPCB4006917 Sales in 1983 were level with the prior year, with volume gains in electronic materials and fabricated products offset by decreased construction project activity in Enviro-Chem. Operating losses in 1983 were essentially the same as the prior year. Fisher Controls Net Sales 1984 1983 1982 Valves, regulators and electronic process controls 5537 S528 S588 Sales and operating income in 1984 were virtually the same as 1983. Improved operations in North and Latin America were offset by a one time acquisition-related technological expense and by continuing weak European performance, due to the adverse impact of the strong U.S. dollar and the depressed capital goods market. In 1983, sales were lower than the previous year as price increases did not offset lower volume. Operating income in 1983 was 29 percent lower than the preceding year, reflecting the depressed worldwide capital goods market. Oil and Gas Net Sales 1984 1983 1982 Oil and gas 5203 5241 5216 Reduced oil and gas volumes resulted in lower 1984 sales and operating income. Also affecting the year to year operating income comparison are lower exploration and production expenses in 1984. Sales and operating income were higher in 1983 as compared to 1982 due primarily to higher oil and gas volumes. Exploration efforts in 1984 were concentrated principally in the United States and United Kingdom North Sea, and current production was carried out primarily in the United States and Canada. Total spending for exploration amounted to $71 million, $55 million and $46 million for 1984, 1983 and 1982, respectively. Net Quantities of Developed and Undeveloped Proved Reserves 1984 Oil' Beginning of year Extensions and discoveries Production Other changes -- net 42 9 (4) (1) End of year 46 1983 38 7 (4) 1 42 1982 34 5 (4) 3 38 Natural Gas1 Beginning of year Extensions and discoveries Production Other changes -- net 587 19 (34) 6 End of year 578 607 28 (44) (4) 587 599 46 (38) 607 Combined -- Oil Equivalent1 End of year 142 140 139 'Stated in millions of barrels. `Stated in billions of cubic feet. `Stated in millions of barrels (approximately six thousand cubic feet of gas equals one barrel of oil). Estimated future net cash flows data related to proved reserves follow. Future selling prices and costs were determined by using the actual 1984 year-end levels, with a 10 percent interest rate used for discounting. Standardized Measure of Discounted Future Net Cash Flows 1984 1983 1982 Future cash inflows Future production and development costs Future income tax expenses 53,068 730 992 53,222 761 1,047 $3,491 736 1.190 Future net cash flows Annual discount for estimated timing of cash flows 1,346 888 1,414 926 1.565 1,113 Standardized measure of discounted future net cash flows 5 458 5 488 S 452 World \rc:i Segment Dtila United States Europe-Africa Canada Latin America Asia-Pacific Unallocated corporate items Affiliates' equity (income) loss included in individual world areas Total consolidated 1984 $4,498 968 292 360 573 $6,691 1983 54,243 943 274 305 534 Net Sales 1982 $4,086 1,092 244 353 550 $6,299 $6,325 1984 5518 93 61 22 55 (54) Operating Income (Loss) 1983 1982 S453 44 51 11 27 (50) 5441 33 29 (9) 19 (45) (18) $677 (15) S521 11 $479 DSW 021609 STLCOPCB4006918 As required by generally accepted accounting principles, world area segment data (page 52) in the Notes to Financial Statements are prepared on an "entity basis." This means sales and income of the legal entity are assigned to the area where the entity is located (e.g., a sale from the U.S. to Brazil is reported as a U.S. sale). However, Monsanto normally views its results on an "area basis" wherein sales and income are assigned to the customer location (e.g., a sale from U.S. to Brazil is reported as a Brazilian sale). The table on the preceding page summarizes Monsanto's "area basis" results. United States Approximately two-thirds of Monsanto's worldwide sales are to customers in the United States. Sales for 1984 were up 6 percent, net of divestitures. The stronger economic environment benefited most product lines, especially housing and automotive-related businesses. In addition, silicon wafer sales to the semiconductor industry increased substantially. Agricultural products sales benefited from the United States government's discontinuation of the 1983 PIK program which resulted in volume growth in Lasso and related products. Operating income in 1984 increased 14 percent. Sales volume improved along with better plant facility utilization. However, the strong U.S. dollar resulted in greater import competition from ex-U.S. competitors, which in turn adversely affected selected products selling prices and profits. In addition, the Company incurred higher technological expense in support of the numerous growth programs. For 1983, sales increased 4 percent from 1982 due to the stronger economy partially offset by the 1983 PIK program. Operating income in 1983 increased 3 percent due to lower raw material costs and better plant facility utilization. Europe-Africa Sales in 1984 increased 3 percent over the preceding year as the European economic environment improved. Operating income more than doubled, benefiting from strong acrylonitrile and nylon intermediate profits. This increase in sales and operating income was accomplished despite the adverse effects of the strong U.S. dollar on the competitiveness of United States exports as well as the adverse translation effect on ex-U.S. currency denominated sales and income. Sales of Roundup herbicide increased in spite of abnormal weather conditions. Sales in 1983 decreased 14 percent as compared to 1982, reflecting the divestiture of the acrylic fibers business, reduced agricultural products sales due to drought and adverse economic conditions. Operating income for 1983 improved over 1982, however, due principally to the elimination of losses of the discontinued acrylic fibers business. Canada Sales in 1984 increased 7 percent, while operating income improved S10 million. Monsanto benefited from good detergent products and crop chemicals sales. In addition, sales to the automotive industry grew. Sales and operating income increased in 1983, as compared to 1982. Latin America Sales in 1984 increased 18 percent and operating income doubled to $22 million. Results in Brazil improved, where agricultural products sales continued to grow. In addition, Monsanto's Mexican equity affiliate experienced higher profitability. Sales in 1983 decreased from the prior year, as Brazil suffered from recessioninduced conditions. Operating income in 1983 improved as higher earnings of a Mexican equity affiliate more than offset lower Brazilian results. Asia-Pacific This world area showed strong year to year sales and operating income gains, led by agricultural products sales volume growth throughout the area, higher United States exports of other products and improved operating income in Australia. These accomplishments were achieved despite the adverse effects of the strong U.S. dollar on the competitiveness of United States exports as well as the adverse translation effect on ex-U.S. currency denominated sales and income. Sales declined slightly in 1983 principally due to depressed United States exports resulting from the strong U.S. dollar. Operating income in 1983 was up 42 percent over 1982, due to improved results in Australia and increased earnings from a Japanese equity affiliate. A reconciliation of 1984 area basis sales and operating income to ex-U.S. entity basis sales and operating income (reflected in the Notes to Financial Statements) follows: Ex-U.S. entities U.S. exports Ex-U.S. affiliates' equity income Less: Inter-area eliminations Ex-U.S. entities' operating income on sales to U.S. Ex-U.S. area basis U.S. area basis Affiliates' equity income included in ex-U.S. areas Unallocated corporate expenses Total consolidated Net Sales $2,032 950 (789) Operating Income $252 25' 18 2,193 4,498 (64) 231 518 $6,691 (18) (54) $677 'Net of allocated costs. 39 DSW 021610 STLCOPCB4006919 Quarterly Data Net Sales Gross Profit 1984 1983 1984 1983 First Quarter $1,732 1,483 526 370 Second Quarter $1,801 1.612 534 417 Third Quarter $1,599 1,553 410 378 Fourth Quarter $1,559 1.651 375 396 Total Year $6,691 6,299 1,845 1,561 Income Before Extraordinary Items 1984 175 145 1983 99 105 78 99 Net Income 1984 175 145 78 1983 101 114 115 41 439 66 369 41 439 72 402 Earnings per Share Before Extraordinary Items After Extraordinary Items 1984 2.13 1.77 0.97 0.55 5.42 1983 1.21 1.27 1.21 0.79 4.48 1984 2.13 1.77 0.97 0.55 5.42 1983 1.24 1.38 1.40 0.87 4.89 Agricultural products sales are traditionally concentrated in the first half of the year and are generally more profitable than sales of other segments. Sales and profit improvement in the first half of 1984 resulted from the favorable agricultural products environment and continued improvement in worldwide economic conditions. However, the United States economy moderated somewhat during the last half of 1984 and the strengthening of the U.S. dollar increased import and price competition. There were no major nonrecurring or unusual items in 1984. The 1983 items increasing (decreasing) earnings per share were as follows: 40 1983 Extraordinary tax benefits from loss carryforwards Change in accounting estimate of annual effective tax rate Net losses from facilities shut down or sold Tbtal First Quarter $0.03 (0.06) $(0.03) Second Quarter $0.11 (0.09) (0.07) $(0.05) Third Quarter $0.19 0.15 (0.02) $0.32 Fourth Quarter $0.08 (0.14) $(0.06) Tbtal Year $0.41 (0.23) $0.18 Inflation- \djusted Data Historical Year Ended December 31,1984 Cost Current Cost Net sales Cost of goods sold, excluding depreciation Depreciation expense All other expenses -- net Income taxes $6,691 4,397 449 1,138 268 $6,691 4,400 5*7 1,138 268 Net Income $ 439 $ 298 Current cost amounts shown above attempt to measure the effect of inflation on cost of goods sold and depreciation. Other historical amounts, including income taxes, are not adjusted for inflation to arrive at current cost net income. All current cost amounts are stated in average 1984 dollars using the U.S. Consumer Price Index (the "translate-restate" method). Ini laliiin- \il juslcil Income (In Millions) __________g2S_______ s*!_______ S30Q Curreat Coct Income (BAerfoerretfEe u1r9a*4uvDliouUryl)iens DSW 021611 STLCOPCB4006920 The 1984 increase in current cost of inventories and property, plant and equipment was $204 million. At December 31, 1984, the current cost of inventory and property, plant and equipment (net of accumulated depreciation) was SI ,271 million and $4,051 million stated in yearend 1984 dollars. The current cost of inventories was estimated using the FIFO (first-in, first-out) Selected Financial Data inventory method. Cost of goods sold on a current cost basis was approximated using the LIFO method, or similar techniques. The current cost of property, plant and equipment was estimated generally by using construction and equipment indexes. Current cost accumulated depreciation and related expenses were estimated using the same overall method and lives as used on a historical cost basis. 1984 1983 1982 1981 1980 Historical cost, as reported': Net sales Income -- Before extraordinary items -- Per share Total assets Long-term debt Dividends per common share $6,691 439 5.42 6,373 824 2.25 $6,299 369 4.48 6,427 937 2.075 $6,325 329 4.10 6,077 1,003 1.975 $6,948 445 5.75 6,069 1,110 1.875 $6,574 149 2.05 5,7% 1,371 1.775 Current cost (average 1984 dollars): Net sales Income (loss) -- Before extraordinary items -- Per share Purchasing power gain on monetary items Increase in specific prices of inventory and property over (under) increase caused by general inflation Aggregate foreign currency adjustment, net of taxes Net assets $6,691 298 3.68 32 1 (143) 4,677 $6,567 279 3.39 30 (234) (103) 4,853 $6,807 102 1.28 36 (235) (177) 5,038 $7,935 263 3.39 112 (13) 5,573 $8,288 (1!) (0.15) 170 (324) 5,124 Other data (average 1984 dollars): Dividends per common share Year-end common stock price $ 2.26 43.39 S 2.17 53.94 $ 2.13 40.57 $ 2.16 38.75 $ 2.26 41.32 Average consumer price index 311.1 298.4 289.1 272.4 246.8 'In 1982, the requirements of Statement of Financial Accounting Standards No. 52, "Foreign Currency TVanslation," were adopted. Comparisons of investment levels are providing sufficient funds for growth-oriented (including capital expenditures, and research and investments. As discussed below, a comparison other growth-oriented investments) are distorted of Monsanto's inflation-adjusted funds provided by inflation. Inflation-adjusted data may be useful from operations and funds used for investment in evaluating whether total investment levels, in expenditures indicates that the Company has "real dollars," have increased. In addition, such generated sufficient cash to fund a significant data may be useful in evaluating, on a broad portion of those growth-related investments. financial basis, whether current profitability levels Total Investment 1984 1983 1982 1981 1980 Capital expenditures Investments R&D expenditures $ 614 94 370 $ 560 208 290 $ 673 11 264 $ 668 2 233 $ 781 64 208 Total (historical cost) $1,078 $1,058 $ 948 $ 903 $1,053 Tbtal (average 1984 dollars) $1,078 $1,103 $1,020 $1,031 $1,327 Total Investment Remains High, But Components Have Changed Monsanto's "total investment" level -- capital expenditures, investments (acquisitions. venture capital, etc.), and research and development expenditures -- remains high, but the underlying components of investment have changed. In recent years, expenditures for research 41 OSH 021612 STLCOPCB4006921 and development and investments have increased while traditional capital expenditures have moderated. This trend is consistent with the strategy shift from certain commodity and capital intensive businesses to selected high technology, specialty products with a higher value added component. This "total investment" includes expenditures to: (1) maintain the existing earnings base, and (2) increase future income levels. Monsanto considers its current cost depreciation and estimated "maintenance" research and development costs for existing businesses to approximate the amount of investment needed to maintain existing earnings levels. The remaining investment may be considered as new growth investment. Investment Analysis 1984 1983 1982 1981 1980 Investment to maintain existing earnings base New growth investment $ 694 384 $ 673 430 $ 693 327 $ 713 318 $ 691 636 Total (average 1984 dollars) $1,078 $1,103 $1,020 $1,031 $1,327 I)ism*!i<n:ir> ( :ish I Iim (Average 1984 Dollars -- In Millions) ____________________________________________ 5600 SSI* Discretionary Cash Flow Is Sufficient to Fund Significant Portion of Growth-Related Investments In recent years, Monsanto has generated sufficient discretionary cash flow to fund all or a significant portion of the growth-oriented investments. "Discretionary cash flow" is defined as cash flow from operations (after working capital changes), before research and development expenditures, less dividends, debt repayments and investment to maintain the existing earnings base. Discretionary Cash Flow 1984 1983 1982 1981 1980 Historical cost $309 $489 $245 $171 $206 Average 1984 dollars $309 $510 $264 $195 $260 Discretionary cadi flow a* a percent of new growth investment (average 1984 dollars) 80% 119% 81% 61% 41% Monsanto's cost reduction and asset management programs, coupled with the pruning of unprofitable businesses, nave been significant cash flow contributors. Proceeds from the sale of assets have also contributed funds for growth. In addition, Monsanto's strong financial position provides substantial unused debt and equity capacity for funding future investment requirements. Company Has Demonstrated Ability to Fund Future Growth Management believes that Monsanto has demonstrated its ability to generate sufficient earnings and cash flow to provide for real future growth beyond that required to maintain its existing earnings base, including inflation-adjusted replacement capital requirements. DSW 02X613 STLCOPCB4006922 Research and Development K& I) I- XIK'IIM'N (In Millions) $500 0_________________________________________S37 directed toward these emerging technologies. In addition, substantial research efforts continue in traditional areas of strength, such as agricultural chemistry, catalysis, polymer science, industrial chemicals, chemical engineering systems and applications research. l`M<4 K \ !) II' Business \rea (Percent of Total Expenses) 50% R&D Efforts Expand to Support New Business Direction Research and development expenses are costs aimed at developing new, or improving existing, products and processes. Monsanto's strategy not only is to develop new markets from emerging technologies, but also to take advantage of traditional market opportunities with new products and processes while maintaining advantages in existing markets. The growth in research and development expense is evidence of Monsanto's commitment to the strategy of developing new markets from emerging technologies. In 1984, R&D expenses increased to a record level and were 6 percent of sales, compared to 5 and 4 percent in 1983 and 1982, respectively. Monsanto has intensive and growing R&D programs in biotechnology, plant biology, animal nutrition, human health care, molecular technology and electronic materials. The Company's efforts in plant biology, animal nutrition and human health care are supplemented through research agreements with several leading universities and other research institutions. For 1984, 40 percent of the R&D expenditures were During 1984, Monsanto opened its new $150 million Life Sciences Research Center in St. Louis County, Missouri. The new Center will eventually employ approximately 1,200 people and will concentrate on biotechnology and life sciences research, focusing on three major areas: agriculture, animal nutrition and human health care. DSW 021614 STLCOPCB4006923 Statement of Consolidated Financial Position (Dollars in millions, except per share) Assets Current Assets: Cash, time deposits and certificates of deposit Short-term securities, at cost which approximates market Trade receivables, net of allowances of $49 in 1984 and $44 in 1983 Miscellaneous receivables and prepaid expenses Inventories Investments and Other Assets: Investments in affiliates Other assets Property, Plant and Equipment, at Cost: Land Buildings Machinery and equipment Mineral rights and oil and gas properties Construction-in-progress Less accumulated depreciation Total Assets Mimsunto ( ompam ami Suhstriiarii's At December 31 1984 1983 $ 149 310 1,078 221 839 2,597 $ 164 493 1,115 205 778 2,755 119 113 283 275 402 388 81 732 5,094 765 247 6,919 3,545 3,374 $6,373 74 667 4,938 716 244 6,639 3,355 3,284 $6,427 Liabilities and Shareowners' Equity Current Liabilities: Accounts payable Wages and commissions Income and other taxes Miscellaneous accruals Short-term debt Long-Term Debt Deferred Credits and Other Liabilities: Deferred income taxes Other liabilities Shareowners' Equity: Common stock -- authorized, 200,000,000 shares, par value $2; issued, 82,197,097 shares in 1984 and 40,977,448 shares in 1983 Additional contributed capital Accumulated currency adjustment Reinvested earnings Less treasury stock, at cost (3,916,071 shares in 1984 and 56,152 shares in 1983) Tbtal Liabilities and Shareowners' Equity The above statement should be read in conjunction with pages 49 through 53 of this report. $ 497 110 69 249 277 1,202 824 661 52 713 164 855 (319) 3,110 3,810 176 3,634 $6,373 $ 500 108 104 255 253 1,220 937 558 45 603 82 936 (200) 2,853 3,671 4 3,667 $6,427 DSN 021615 STLCOPCB4006924 Koicn of Liquidity and Capital Resources Monsanto Maintains Strong Financial Position Monsanto maintained its strong financial position in 1984, with assets of $6.4 billion and shareowners' equity of $3.6 billion. Working Capital Position Remains Solid The current ratio (current assets divided by current liabilities), an indicator of liquidity, was 2.2:1 at year-end 1984, compared to 2.3:1 at year-end 1983. Management believes a current ratio of 2.0:1 is desirable. Working capital (current assets minus current liabilities) was $1,395 million at year-end 1984, compared to $1,535 million at the end of 1983. Inventories and receivables remained well managed and in line with current business needs. The Company has available various short term bank facilities, which are discussed further in the "Short-Term Debt and Credit Arrangements" note to the financial statements (page 51). Short-term debt includes bank borrowings and $111 million of bank overdrafts at year-end 1984. Significant Financing Capacity Available The long-term debt to total capitalization ratio was 18 percent in 1984 as compared to 20 and 22 percent in 1983 and 1982, respectively. Management believes that the long-term debt to total capitalization ratio normally should not exceed 33 percent. As Monsanto's present ratio is significantly less than 33 percent, the Company has significant additional borrowing capacity available. The interest coverage ratio (times interest earned), excluding extraordinary items and the effect of capitalized interest, was 6.9 in 1984, compared to 5.3 and 4.6 in 1983 and 1982, respectively. The Company has made extensive use of pollution control and industrial development bonds to finance qualified projects. Pollution control and industrial development bond obligations were 31 percent of all outstanding long-term debt at year-end 1984. lb a limited extent, Monsanto has used other forms of financing, principally lease arrangements and joint venture arrangements involving take-or-pay contracts, when the effective interest cost is attractive or the nature of the capital project requires their use. Monsanto's assets are generally free from lien and not used to collateralize debt. Accordingly, these assets represent an additional source of borrowing capacity. Through its Monsanto Oil Company subsidiary, die Company owns oil and gas reserves with current market values in excess of the cost included in the accompanying financial statements. These oil and gas reserves and the undeveloped acreage represent valuable assets that also could be used to increase total debt capacity. (For more information on Oil and Gas, see page 38.) Common Stock Split Two-For-One During 1984, the Company had a twofor-one common stock split. This resulted in $82 million of Additional Contributed Capital being reclassified to Common Stock in the Statement of Consolidated Financial Position. Also, the authorized common shares were increased to 200 million. Although there are no present commitments for these newly authorized shares, they do give the Company flexibility relating to possible future financing programs, acquisitions and other uses. Also, in 1984, the Company redeemed the outstanding $2.75 Cumulative Convertible Preferred Stock at $73 per share. Effective August 1984, the Company expanded its common stock repurchase program and announced that up to 6 million shares of Monsanto common stock will be repurchased over a 17-month period. The continued strengthening of the U.S. dollar, as compared to Monsanto's major ex-U.S. currencies, resulted in the accumulated currency adjustment account increasing to $319 million at year-end 1984. Currency adjustments are accumulated in this account until the related ex-U.S. investment is sold or liquidated. Rc> I iiiancial Statistics Working Capital (Current assets less current liabilities) Current Ratio (Current assets divided by current liabilities) Percent of Loog-Htrm Debt to Ibtal Capitalization* Percent of Long-lbrm Debt to Ibtal Shareowners' Equity Total capitalization is the sum of long-term debt plus shareowners' equity. 1984 $1,395 2.2 18% 23% 1983 SI,535 2.3 20% 26% OSW 021616 STLCOPCB4006925 Statement of Changes in Consolidated financial Position m,,,,v..h,, (mnpail, :,,1(i s,,bsi,iiarkN (Dollars in millions) Sources (Uses) of Funds Operations: Income before extraordinary items Charges not using (credits not providing) funds: Depreciation, depletion and obsolescence Deferred income taxes Other Funds provided from operations, before changes in working capital and extraordinary items Investment and Other TYansactions: Extraordinary tax benefits from utilization of ex-U.S. loss carryforwards Working capital changes: Trade receivables Inventories Other current assets Accounts payable and accrued liabilities Short-term debt Total working capital changes Foreign currency adjustments on working capital Property, plant and equipment additions Proceeds from property disposals Acquisitions and investments Other 1984 $ 439 491 103 (25) 1,008 1983 S 369 517 71 (9) 948 37 (61) (16) (42) 24 (58) (58) (614) 39 (94) 60 (725) ' 33 (39) 46 (65) 147 122 211 (47) (560) 39 (208) 49 (483) 1982 S 329 439 85 27 880 (3) 49 38 (69) (44) (29) (60) (673) 31 (11) 34 (708) Financial TVansactions: Long-term financing Long-term debt reduction Extraordinary gain from exchange of debt for common shares Issuance of common stock Treasury stock purchases Dividends Increase (Decrease) in Funds 12 (127) -- (184) (182) (481) $ (198) 49 (87) -- (14) (170) (222) S 243 38 (149) 23 75 (13) (158) (184) S (12) Increase (Decrease) in Elements of Funds: Cash, time deposits and certificates of deposit Short-term securities Increase (Decrease) in Funds $ (15) (183) $ (198) The above statement should be read in conjunction with pages 49 through 53 of this report. $ 21 222 $ 243 $ (66) 54 S (12) DSW 021617 STLCOPCB4006926 Re\ itn of Sources and I scs of I unds Monsanto's 1984-1982 sources and uses of funds are shown in the Statement of Changes in Consolidated Financial Position on the preceding page. Monsanto finished 1984 in a good cash and short-term securities position -- at S459 million after funding some sizable commitments in the form of the note repayment on the 1983 purchase of Fisher Control's minority interest, new investments and the common stock repurchase program. These payments, however, resulted in the 1984 year-end cash and short-term securities position being $198 million below the prior year-end. juoo mills I'rouiktl I ruin Operations (In Millions) Funds Provided from Operations Increase Funds provided from operations were higher in 1984 as a result of improved earnings performance. Agricultural Products, Fibers and Intermediates and Polymer Products were significant cash flow contributors. Expenditures for property, plant and equipment in 1984, including capitalized interest, increased to $614 million, "Hie more significant 1984 expenditures were for the new Life Sciences Research Center in St. Louis County, Missouri, continued capital requirements in oil and gas, and various environmental projects. In recent years, capital expenditures generally have been financed by cash from operations. At December 31, 1984, Monsanto had purchase orders and contracts outstanding of approximately $178 million in connection with uncompleted property additions and commitments for investments in affiliates. In 1984, $94 million was spent on acquisitions and other investments, principally to purchase Continental Pharma, a Belgian pharmaceutical company, and to invest in various venture capital opportunities. The principal 1983 acquisition was the minority interest in Fisher Controls. Dividends Increase for 12th Consecutive Year The Company has paid dividends on its common shares without interruption or reduction since 1928 and has increased the dividend in each of the past twelve years. Dividend payout for 1984 was 41 percent of net income. The Company's dividend policy reflects a desired long-term payout percentage based on Monsanto's expectation 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. As mentioned in the Review of Liquidity and Capital Resources (page 45), the Company expanded its common stock repurchase program. During 1984, the Company repurchased approximately 4 million shares of its common stock for a total cost of $184 million. These repurchases reduced the average common shares outstanding, resulting in a $0.10 increase in earnings per share. Monsanto's common stock is traded principally on the New York Stock Exchange. The number of common shareowners of record as of February 22, 1985, was 71,085 and the high and low common stock prices on that date were $44Vi and $4334. 47 DSW 021618 STLCOPCB4006927 Statement of Consolidated Shareowners' Equity Monsanto C ompam and Subsidiaries (Dollars in millions, except per share) 1984 1983 1982 Common Stock: Balance, January 1 New shares issued (138,117, 11,289 and 988,075 shares in 1984-1982, respectively) Par value of stock issued in two-for-one stock split $ 82 82 $ 82 -- $ 80 2 Balance, December 31 $ 164 $ 82 $ 82 Additional Contributed Capital: Balance, January 1 New shares issued Par value of stock issued in two-for-one stock split Other Balance, December 31 $ 936 (82) 1 $ 855 $ 931 -- 5 $ 936 $ 853 73 5 $ 931 Accumulated Currency Adjustment: Balance, January 1 Initial translation adjustment for SFAS No. 52 Translation adjustments Income taxes Transferred to net income Balance, December 31 $ (200) (121) 2 $ (319) $ (122) (84) 6 $ (200) $ (16) (111) 9 (4) $ (122) Reinvested Earnings: Balance, January 1 Deferred tax adjustment for SFAS No. 52 Net income Preferred dividends ($2.06 per share in 1984, $2.75 per share in 1983 and 1982) Common dividends ($2.25, $2,075 and $1,975 per share for 1984-1982, respectively) Balance, December 31 $2,853 439 (182) $3,110 $2,621 402 -- (170) $2,853 $2,423 4 352 -- (158) $2,621 Common Stock in Treasury: Balance, January 1 Shares purchased (4,053,300, 159,570 and 171,940 shares in 1984-1982, respectively) Conversion of convertible securities and issuances under employee stock plans (349,837, 471,966 and 313,192 shares in 1984-1982, respectively) $ (4) (184) 12 $ (22) (14) 32 $ (26) (13) 17 Balance, December 31 $ (176) $ (4) $ (22) The above statement should be read in conjunction with pages 49 through S3 of this report. Key financial Statistics-Common Stock Data Stock Price Per Common Share: High Low Dividends Shareowners' Equity 1984 $53% 40% 2.25 44.43 1983 $58% 37% 2.075 44.83 1982 $44% 28% 1.975 42.99 DSW 021619 STLCOPCB4006928 Notes to I inaiicial Statements Where applicable, per share amounts and the number of common shares have been restated to reflect the June 1984 two-for-one common stock split. Significant Accounting Policies The Company's significant accounting policies are italicized in the following Notes to Financial Statements. Basis of Consolidation The consolidatedfinancial statements include the Company and its majority-owned subsidiaries. Intercompany transactions have been eliminated in consolidation. Companies in which Monsanto has an ownership interest between 20 and 50 percent are included in ' `Investments in affiliates'' in the Statement of Consolidated Financial Position and Monsanto's share of these companies' income or loss is included in ` 'Other income -- net' ' in the Statement of Consolidated Income. Principal Acquisitions and Divestitures In May 1984, Monsanto acquired Continental Pharma, S.A., which has pharmaceutical manufacturing and research facilities in Belgium. Its products are marketed principally in Europe and Asia. In July 1983, Monsanto purchased for $178 million the interest of The General Electric Company p.l.c. (GEC) in Fisher Controls International, Inc. (FCII). This increased the Company's ownership in FCII to 100 percent from the previous 66l/i percent. The excess purchase price above FCII's net assets attributable to GEC's interest was $81 million, which is being amortized on a straight-line basis over 20 years. In June 1983, Monsanto sold the European acrylic fibers business to Montefibre, a subsidiary of Montedison (Italy). The pretax loss provision of $20 million ($18 million, or $0.23 per share, net of tax) was established in 1982 and was included in cost of goods sold as obsolescence expense. This business was part of the Fibers and Intermediates operating unit and had 1982 sales of approximately $139 million. In June 1983, Monsanto acquired at net book value Montefibre's 50 percent interest in Polyamide Intermediates Limited (PIL), a nylon intermediates joint venture in the United Kingdom. This resulted in Monsanto Moiis;iiii ( ompam and Sntisuliarics having sole ownership in PIL, whose operations are reported as part of the Fibers and Intermediates operating unit. Had Monsanto owned 100 percent of Continental Pharma, FCII and PIL since January 1, 1983, Monsanto's net income would not have changed significantly. Depreciation 1984 1983 1982 Depredation, depletion and obsolescence: Depreciation and depletion Obsolescence (including gains and losses ftom divestitures) $449 42 S456 61 S396 43 Ibtal depredation, depletion and obsolescence $491 $517 $439 The cost ofplant and equipment is depreciated using the straight-line method over weighted average periods of 23 years for buildings and 12 years for machinery and equipment. Supplemental Data 1984 Raw material and energy costs Employee compensation and benefits Income and other taxes Rent expense $2,522 1,689 482 80 Tfcchnoiogical expenses: Research and development Engineering, commercial development and patent Ibtal technological expenses 370 76 446 Interest expense: "Ibtal interest costs incurred Less capitalized interest Net interest expense 117 17 100 Equity in affiliates' income (loss) 18 Foreign currency gains (losses) -- inducting equity in affiliates' currency gains and losses 2 1983 $2,345 1,687 368 83 290 69 359 126 30 96 15 5 1982 $2,435 1,736 394 78 264 65 329 128 46 82 (H> (15) DSM 021620 STLCOPCB4006929 Currency Translation In accordance with Statement of Financial Accounting Standards No. 52, most of Monsanto's ex-U.S. operations' financial statements are trans lated into U.S. dollars using current exchange rates. Unrealized currency adjustments in the Statement of Consolidated Financial Position are accumulated in shareowners' equity. The financial statements of ex-U.S. operations that operate in hyperinflationary economies, including Brazil, Mexico and Argentina, are translated at either current or historical exchange rates, as appropriate, and currency adjustments are included in net income. Major currency exposures are the British pound sterling and Belgian franc. Other important currencies include the German mark, French franc, Canadian dollar, Australian dollar, Japanese yen and Mexican peso. Currency restrictions are not expected to have a significant effect on Monsanto's cash flow, liquidity or capital resources. Foreign currency translation gains on long-term debt in hyperinflationary countries in 1983 and 1982 have been reclassified from ` `Cost of goods sold" to ``Other income -- net" to be consistent with the classification for 1984. Inventory Valuation Inventories are stated at cost or market, whichever is less. Actual cost is used for raw materials and supplies, and standard cost, which approximates actual cost, is usedforfinished goods and goods in process. Standard cost includes direct labor, raw material and manufacturing overhead based on practical capacity. The cost of substantially all U.S. inventories is determined by the last-in, first-out (LIFO) method, generally reflecting the effects of inflation on cost of goods sold sooner than other inventory cost methods. The cost of other inventories (approximately 25 percent of all inventories) is generally determined by the first-in, first-out (FIFO) method. Inventories at December 31, 1984 and 1983 would have been $432 million and $453 million, respectively, higher than reported if the FIFO basis of inventory valuation (which approximates current cost) had been used for all inventories. Monsanto's LIFO inventory policies make it impractical to identify inventories by classification (i.e., finished goods, goods in process, raw materials and supplies). The liquidation of lower cost inventory "tiers" under the LIFO method increased 1982 earnings approximately $83 million before taxes. Oil and Gas Activities Oil and gas exploration and production activities are accountedfor using the successful efforts method. Income Taxes The components of income before income taxes were: Total U.S. Ex-U.S. 1984 S442 265 $707 1983 $419 151 S570 1982 $425 76 S501 The components of income tax expense were: 1984 1983 1982 Current: Federal State Ex-U.S. $ 72 21 56 $103 6 45 S 53 8 39 149 154 100 Deferred: Federal State Ex-U.S. 72 3 44 119 11 72 44 (1) (4) 14 72 Tax effect of loss carryforward Total $268 33 $201 SI 72 The sources of timing differences in the recognition of revenue and expense for tax and financial statement purposes and the tax effect of each were: 1984 1983 1982 Depreciation, depletion and obsolescence Intangible drilling and development costs Interest capitalization Other $ 92 11 -- 16 S 19 (3) 8 (10) $ 49 19 18 (14) Total $119 $ 14 $ 72 Factors causing the effective tax rate to differ from the statutory rate were: 1984 1983 1982 Federal statutory rate Investment and R&D tax credits Lower ex-U.S. tax rates Benefits attributable to DISC earnings Other 46% (5) (3) (2) 2 46% (6) (1) (3) (1) 46% (ID -- (3) 2 Effective income tax rate 38% 35% 34% Investment tax credits are recorded as a reduction of income tax expense in the year they reduce the federal income tax liability. Investment tax credits for 1984-1982 were $30 million, $26 million and $53 million, respectively. Income taxes have not been provided on $472 million of undistributed earnings of DSW 021621 STLCOPCB4006930 subsidiaries either because any taxes an dividends would be offset substantially by foreign tax credits or because Monsanto intends to indefinitely reinvest those earnings. Earnings per Share Earnings per share were computed using the weighted average number of common and common equivalent shares outstanding each year, adjusted for the two-for-one stock split (80,909,755, 82,215,156 and 79,950,996 in 1984 1982, respectively). Common share equivalents (335,979, 563,622 and 319,716 in 1984-1982, respectively) consist primarily of common stock issuable upon exercise of outstanding stock options. Earnings per share assuming full dilution were not different significantly from the primary amounts. Pension Plans Most Monsanto employees are covered by noncontributory pension plans. Upon retirement, many Monsanto employees are also provided other benefits, principally medical and life insurance. Pension costs arefunded as accrued and include current service and amortization of unfunded prior service costs generally over periods of 10 to 30 years. Other postretirement benefits are not currently funded and are expensed as incurred. Pension expense for all plans was $116 million, $131 million and $136 million in 1984-1982, respectively. The 1984 decrease in pension expense reflects higher investment returns and reduced numbers of employees. Pension expense was 7 percent of total compen sation in 1984 and 8 percent in 1983 and 1982. The 1984-1982 expense recorded for other postretirement benefits was $18 million, $13 million and $8 million, respectively. Estimated benefit and asset information at year-end for Monsanto's pension plans is pre sented below. Net assets of the pension trusts were measured at market value and accumulated benefits were estimated from actuarial valuations, principally using the entry age normal actuarial cost method. 1984 1983 Actuarial present value of accumulated plan benefits: Vested Nonvested $1,554 184 $1,463 178 Total $1,738 SI,641 Net assets available for benefits $2,074 $1,958 U.S. salaried and hourly employees are covered by two principal plans. The funding and company cost assumptions for these plans include an investment return of 7.5 percent used in determining the actuarial present values. The actuarial assumptions also include an overall average salary increase of 6.5 percent for the salaried employees plan. The actuarial present value of additional projected benefits from future salary increases for the U.S. salaried employees plan at December 31, 1984 was approximately $280 million. Accumulated plan benefits included in the above table for these major U.S. plans were approximately $1,617 million at December 31, 1984. Short-Tterm Debt and Credit Arrangements 1984 1983 Notes payable: Banks Others Bank overdrafts Current portion of long-term debt $ 43 111 123 S 52 75 102 24 Total $277 $253 Monsanto has available $300 million in U.S. and Eurocurrency Revolving Credit Agreements. The U.S. agreement ($200 million) is effective through 1989, with interest rates generally at or below prevailing prime interest rates. The $100 million Eurocurrency agreements are subject to reductions beginning in 1986 and terminating in 1987. Interest rates under these agreements are at a margin above the London or Luxembourg interbank offered rates. No borrowings were made under the above credit facilities through February 22, 1985. In addition, certain ex-U.S. subsidiaries have aggregate short-term loan facilities of $266 million, under which loans totaling $43 million were outstanding at December 31, 1984. Interest on these loans is related to various ex-U.S. bank rates. Long-Term Debt Long-term debt (exclusive of current maturities): 1984 1983 Industrial development bond obligations, weighted average interest rate of 7'/z%, due 1986 to 2021 8% notes due 1985 4%% promissory notes due 1993 9`/% sinking fund debentures due 1997 8'/z% sinking fund debentures due 2000 33/% income debentures due 2002 A'/*% income debentures due 2008 8V% sinking fund debentures due 2008 Capitalized lease obligations Other $252 39 67 127 77 50 169 5 38 S247 100 44 67 127 77 50 169 7 49 Ibtal $824 $937 DSW 021622 STLCOPCB4006931 Maturities and sinking fund requirements options were granted and 106,568 options, granted on long-term debt are $123 million, $23 million, at prices ranging from $24.97 to $44.03 per share, $22 million, $18 million and $16 million for were exercised. 1985-1989, respectively. Stock appreciation rights (SARs) are Covenants of certain loan agreements authorized to be granted under both the 1974 restrict maximum borrowings and dividend and 1984 Plans, including retroactive grants for payments. It is not anticipated that additional unexercised options. At December 31, 1984, future borrowings will be affected by these SARs related to options for 805,138 shares were restrictions, and none of the Company's reinvested outstanding; of these, 390,526 were exercisable. earnings were restricted as to dividend payments at During 1984, SARs related to options for 565,941 December 31, 1984. shares were granted and 12,836 were exercised. Commitments and Contingencies Segment Information Commitments in connection with Certain operating unit segment data uncompleted additions to property and investments for 1984-1982 appear on page 36 and are integral in affiliates were approximately $178 million at parts of the accompanying financial statements. December 31, 1984. Monsanto was contingently The principal product lines included in each liable as guarantor of bank loans and for operating unit are shown in this segment data. discounted customers' receivables totaling The principal unusual charge included in the approximately $60 million at December 31, 1984. Operating Unit and World Area Segment Data Monsanto is a party to a number of is discussed in the "Principal Acquisitions and lawsuits, which it is vigorously defending, arising Divestitures" note to the financial statements. The in the normal course of business. Certain of these liquidation of lower cost inventory "tiers" under actions seek damages in very large amounts. the LIFO method increased 1982 operating income While the results of litigation cannot be predicted by $20 million, $27 million and $35 million for with certainty, management believes, based upon Fibers and Intermediates, Industrial Chemicals and the advice of Company counsel, that the final Polymer Products, respectively. outcome of such litigation will not have a material Total sales between operating units adverse effect on Monsanto's consolidated (made on a market price basis) were $304 million, financial position. $297 million and $311 million in 1984-1982, Capital Stock respectively. These sales were significant for At December 31,1984, there were Industrial Chemicals ($142 million, $140 million 39,070 common shares reserved for conversion and $151 million in 1984-1982, respectively) of convertible securities and 6,015,830 common and Fibers and Intermediates ($116 million, shares reserved for employee stock options. $101 million and $91 million in 1984-1982, The Company called for the redemption respectively). Inter-area sales, which are sales of all of the outstanding $2.75 Cumulative from one Monsanto location to another Monsanto Convertible Preferred Stock at $73 per share location in a different world area, also were made effective October 15, 1984. Prior to the redemption on a market price basis. date, preferred stock shareowners had the option Certain corporate expenses, primarily of converting each share of preferred stock held those related to the overall management of the into 2.24 shares of common stock. Company, were not allocated to the operating Stock Option Plans units or world areas. Interest expense, interest At December 31, 1984, there were income and other income -- net, as shown in the 2,756,830 shares under options outstanding for the Statement of Consolidated Income, are the only Company's 1974 and 1984 Management Incentive reconciling items between operating income Plans at prices ranging from $24.25 to $57.59. and income before income taxes. Nonoperating Options for 1,525,360 shares were exercisable assets principally include investments, and a at December 31,1984. During 1984, 1,800,699 portion of cash, time deposits and certificates of deposit, and short-term securities. DSW 021623 STLCOPCB4006932 Net sales by entities in each world area were: Unaffiliated Customers 1984 1983 1982 United States Europe-Africa Canada Latin America Asia-Pacific Eliminations $4,914 945 278 203 351 $4,596 924 259 192 328 $4,483 1.079 227 221 315 Ibtal consolidated $6,691 $6,299 $6,325 Operating income and total assets by entities in each world area were: Operating Income! (Loss) 1984 1983 1982 United States Europe-Africa Canada Latin America Asia-Pacific Eliminations Corporate expenses Nonoperating assets $ 477 192 25 4 31 2 (54) $ 434 137 24 (4) 15 (35) (50) $ 458 39 5 3 11 8 (45) Total consolidated $ 677 $ 521 $ 479 Following is a reconciliation of ex-U.S. operating income and total assets to the Company's equity in the net income and net assets of consolidated ex-U.S. subsidiaries: Operating income Interest expense Interest income Other income -- net Income taxes (including extraordinary tax benefits of loss carryforwards) Net Income of consolidated ex-U.S. subsidiaries Total operating assets Total liabilities Net assets of consolidated ex-U.S. subsidiaries Inter-Area (Between Monsanto Entities) 1984 1983 1982 $ 534 207 9 6 33 (789) $ 526 188 6 4 25 (749) $ 467 108 3 2 21 (601) $-- $-- $-- 1984 $5,088 772 105 178 257 (253) 226 $6,373 Total Assets 1983 1982 $5,110 696 92 180 203 (362) $4,711 790 81 166 172 (268) 508 $6,427 425 $6,077 1984 $ 252 (53) 36 29 (108) $ 156 $1,312 519 $ 793 1983 $ 172 (65) 28 36 (45) $ 126 $1,171 470 $ 701 1982 $ 58 (70) 17 61 (35) 5 31 $1,209 440 $ 769 DSW 021624 STLCOPCB4006933 financial Summary (Dollars in millions, except per share) Operating Results Net Sales Operating Income Net Income As a Percent of Net Sales As a Percent of Average Shareowners' Equity As a Percent of Average Capital Employed Earnings per Share1 Year-end Financial Position Total Assets Working Capital Property, Plant & Equipment: Gross Net Long-Term Debt Shareowners' Equity Current Ratio Percent of Long-Term Debt to Total Capitalization Other Data Property, Plant & Equipment Additions Depreciation, Depletion and Obsolescence Interest Expense Research and Development Expense Income Taxes Stock Price:1 High Low Price/Eamings Ratio on Year-end Stock Price Per Common Share:1 Dividends Shareowners' Equity Common Shareowners Common Shares Outstanding (in millions)1 Employees _______ 1984 $6,691 677 $ 439 7% 12% 10% $ 5.42 $6,373 1,395 $6,919 3,374 $ 824 3,634 2.2 18% $ 614 491 100 370 268 $ 53% 40% 8 $ 2.25 46.43 71,343 78 50,754 19831 $6,299 521 S 402 6% 11% 10% $ 4.89 $6,427 1,535 $6,639 3,284 $ 937 3,667 2.3 20% $ 560 517 96 290 201 $ 58% 37% 11 $2,075 44.83 69,787 82 48,835 Monsanto Compam and Subsidiaries 19823-4 1981 1980 $6,325 479 $ 352 6% $6,948 702 $ 445 6% $6,574 210 $ 149 2% 10% 9% $ 4.39 15% 11% $ 5.75 5% 5% $ 2.05 $6,077 1,503 $6,530 3,313 $1,003 3,490 2.6 22% $6,069 1,486 $6,218 3,184 $1,110 3,330 2.4 25% $5,796 1,226 $6,074 3,109 $1,371 2,808 2.1 33% $ 673 439 82 264 172 $ 44% 28% 9 $1,975 42.99 75,943 81 52,199 $ 668 263 101 233 248 $ 43% 29% 6 $1,875 42.18 79,029 79 57,391 $ 781 547 112 208 57 S 35% 21% 17 $1,775 38.82 82,441 72 61,836 'Per share amounts and shares outstanding have been restated to reflect the June 1984 two-for-one common stock split. `Net income for 1983 includes extraordinary tax benefits of S33 million, or SO.41 per share, from the utilization of ex-U.S. loss carryforwards. `Net income for 1982 includes an extraordinary gain of S23 million, or SO.29 per share, from an exchange of debt for common shares. *In 1982, the requirements of Statement of Financial Accounting Standards No. 52, 'Foreign Currency Translation," were adopted. DSW 021625 *4* STLCOPCB4006934 Mia rem ncr I iifornml ion Annual Meeting The next Annual Meeting of the shareowners of Monsanto Company will be held at 1:45 p.m., Friday, April 26, 1985, in K Building at the Company's General Offices, 800 N. Lindbergh Blvd., St. Louis, Missouri. A formal notice of the meeting, together with a proxy statement is being mailed to each shareowner. 10-K Report, Corporate Data Book and Investor News A copy of Monsanto Company's 1984 Form 10-K Report filed with the Securities and Exchange Commission; 1984 Corporate Data Book, which contains additional information relating to Monsanto; and Investor News can be obtained by writing to; ( )fficers President and Chief Executive Officer Richard J. Mahoney Chairman of the Board Dr. Louis Fernandez Executive Vice Presidents Francis J. Fitzgerald Earle H. Harbison, Jr. Nicholas L. Reding Senior Vice Presidents Robert L. Berra Harold J. Corbett Dr. Howard A. Schneiderman Senior Vice President and Chief Financial Officer Francis A. Stroble Investor Relations Department Monsanto Company 800 N. Lindbergh Blvd. St. Louis, Missouri 63167 Stock Symbol: MTC Transfer Agent and Registrar The First National Bank of Boston Quarterly Common Stock Data Stock Price High Low 1984 First Second Third Fourth $53% 49 51 46% $41% 42 41V* 40% 1983 First Second Third Fourth $46% 47 58% 58% $37% 39% 42% 50% Dividend $0,525 0.575 0.575 0.575 $0.50 0.525 0.525 0.525 Senior Vice President, Secretary and General Counsel Richard W. Duesenberg Group Vice Presidents Robert E. Burke Thomas L. Gossage Robert G. Potter Donald H. Swan Vice Presidents Dr. Constantine E. Anagnostopouios Earl N. Brasfield Leonard A. Cohn Stewart D. Daniels Richard U. De Schutter Charles A. Faden Dr. S. Allen Heininger John F. Hussey* Martin J. Kallen Thomas H. Laffenre Dr. Joseph T. Nolan James H. Senger David L. Sliney Vice President and Controller Lawrence B. Skatoff Effective May 1,1985 DSW 021626 STLCOPCB4006935 Board of Directors Or. Louis Fernandez. Chairman Dr. Donnld C. Carroll C. R. Dahl Richard I. Fricke John W. Hanley Howard M. Love Richard J. Mahoney Or. Jean Mayer Buck Mickel Edward L. Palmer Or. John B. Slaughter Admiral Stansficid TUmer Margaret Bush Wilson Richard W. Ducscnberg, Secretary Advisory Directors Robert L.. Berra Harold J. Corbett Francis J. Fitzgerald Earle H. Harbison. Jr. Nicholas L. Reding Dr. Howard A. Schneiderman Francis A. Stroble Committees of The Board Audit Dr. Jean Mayer Buck Mickel Edward L. Palmer Dr. John B. Slaughter Margaret Bush Wilson Corporate Social Responsibility Dr. Louis Fernandez Dr. Jean Mayer Admiral Stansfteld 'lbmer Margaret Bush Wilson Executive Dr. Louis Fernandez John W. Hanley Richard J. Mahoney Margaret Bush Wilson Executive Compensation and Development Richard i. Fricke Howard M. Love Buck Mickel Finance Dr. Donald C. Carroll C. R. Dahl John W. Hanley Richard J. Mahoney Edward L. Palmer Nominating C. R. Dahl Howard M. Love Buck Mickel Pension and Savings Funds Dr Donald C. Carroll Dr. Louis Fernandez Richard I. Fricke Admiral Stansficid "IUmer Richard J. Mahoney St. Louis President and Chief Executive Officer Monsanto Companv John VV. Hanley North Palm Beach. Florida Retired Chairman of the Board and Chief Executive Officer Monsanto Company Dr. Louis Fernandez St. Louis Chairman of the Board Monsanto Company Howard M. l^ovc Pittsburgh Chairman of the Board and Chief Executive Officer National Intergroup, Inc, OSH 021627 STLCOPCB4006936 Dr. Donald C. Carroll Philadelphia Professor of Management University of Pennsylvania (on leave 1983-85) Chairman CGW Data Services, Inc. Chairman Immunicon Corporation C. Raymond Dahl San Francisco Retired Chairman of the Board Crown Zellerbach Corporation Dr. Jean Mayer Medford, Massachusetts President Tbfts University Buck Mlckel Greenville, South Carolina President Fluor Corporation and Chairman of the Board Daniel International Corporation (a subsidiary of Fluor Corporation) Richard I. Frkke Montpelier, Vermont Chairman and Chief Executive Officer National Life Insurance Company 57 Edward L. Palmer New York Retired Chairman of the Executive Committee Citicorp and Citibank, N.A. DSH 021628 STLCOPCB4006937 Or. John B. Slaughter College Park, Maryland Chancellor University of Maryland at College fork 58 Harold J. Corbett Senior Vice President Advisory Director Admiral StansBdd Ihroer U.S. Navy, Retired McLean, Virginia Lecturer and Writer Margaret Bosh Wilson St. Louis Attorney Wilson, Smith and Seymour Frauds J. Fitzgerald Executive Vice President Advisory Director Earle H. Harbison, Jr. Executive Vice President Advisorv nirwtnr OSH 021629 STLCOPCB4006938 Senior Vice Presidents Francis E. Reese and Monte C. Throdahl retired during 1984 from the Board and from the Company. Both men provided clear guidance and sound advice over the years that made a lasting and significant contribution to the Board's deliberations. Wc are grateful for their hard work and dedicated service, and we wish them well during their active retirements. Richard W. Duesenberg Senior Vice President Secretary and General Counsel Robert L Berra Senior Vice President Advisory Director Nicholas L. Reding Fxcnitive Vice President Advisory Director Dr. Howard A. Schneidernian Senior Vice President Advisory Director Francis A. Stroble Senior Vice President and Chief Financial Officer Advisory Director DSW 021630 STLCOPCB4006939 Monsanto Monsanto Company 800 North Lindbergh Boulevard St. Louis, Missouri 63167 DSW 021631 STLCOPCB4006940