Document v1na7bva0n3kMOKLG9K0YwK79

19 9 8 FORM 10-K SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 (Mark One) [X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THF SECURITIES EXCHANGE ACT OF 1934 For the fiscal year ended December 31, 199S OR [ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THF SECURITIES EXCHANGE ACT OF 1934 Commission file number 1-2516 MONSANTO COMPANY (Exact name of Registrant as specified in its charter) DELAWARE (State or Other Jurisdiction of Incorporation or Organization) 43-0-420020 (I.R.S. Eniplo\or Identification No.) 800 NORTH LINDBERGH BLVD., ST. LOUIS, MO (Address of Principal Executive Offices) (314) 694-1000 Registrant's Telephone Number, Including Area Code 63 LOT (Zip Code) Securities Registered Pursuant to Section 12(b) of the Act: Title of Each Class Name of Each Exchange On Which Registered Common Stock $2 Par Value Preferred Stock Purchase Rights New York Stock Exchange New York Stock Exchange Securities Registered Pursuant to Section 12(g) of the Act: None Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. \y*\ Yes [ ] No Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein and will not be contained, to the best of registrant's knowledge, in definitive proxy' or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. [ ] State the aggregate market value of the voting stock held by nonaffiliates of the registrant: approximately $29.0 billion as of the close of business on February 26, 1999. Indicate the number of shares outstanding of each of the registrant's classes of common stock, as of the latest practicable date: 628,044,729 shares of Common Stock, $2 par value, outstanding at February 26, 1999. DOCUMENTS INCORPORATED BY REFERENCE 1. Portions of Monsanto Company Annual Report to security holders for the year ended December 31, 1998. (Parts I and Part II of Form 10-K.) 2. Portions of Monsanto Company Notice of Annual Meeting and Proxy Statement dated March 15, 1999. (Part III of Form 10-K.) LAM018826 MAR 002577 PART I em 1. BUSINESS. Monsanto Company is a life sciences company, committed to finding solutions to the growing global needs for ad and health by applying common forms of science and technology among agriculture, nutrition and health, onsanto makes and markets high-value agricultural products, pharmaceuticals and food ingredients. Monsanto impany was incorporated in 1933 under Delaware law and is the successor to a Missouri corporation, Monsanto lemical Works, organized in 1901. "Monsanto" and the "Company" are used interchangeably to refer to Monsanto impany or to Monsanto Company and its subsidiaries, as appropriate to the context. Trademarks and service marks med or licensed by Monsanto and its subsidiaries are indicated by special type. For 1998, Monsanto reported its business under four segments: Agricultural Products, Nutrition and Consumer oducts, Pharmaceuticals, and Corporate and Other. The tabular and narrative information appearing under Geographic Data" and "Segment Data" on pages 30 and 31, and the two paragraphs immediately following the Table Contents on page 24, of the Company's Annual Report to shareowners for the year ended December 31,199S (the 998 Annual Report") is incorporated herein by reference. incipal Products Monsanto's principal products, categorized by the segments in which they were reported for 1998, include the GRICULTURAL PRODUCTS ajor Products mndup herbicide and other glyphosate-based rbieides tsso and Harness herbicides and other etanilide-based herbicides Com only .adex BW herbicide, Far-Co herbicide achete herbicide nnit. Manage and Sempra herbicides mndup Ready canola, mndup Ready cotton, mndup Ready soybeans mndup Ready com tllgard insect-protected cotton, NewLeaf insectotected potatoes, YieldGard insect-protected com iriPro, Agroceres, Asgrow, Cargill, DEKALB, irtz, Hybritech, Monsoy and Stoneville branded eds; Holden's and PBi foundation seed The Company has announced its intention to sell is business. >silac bovine somatotropin UTRITION AND CONSUMER PRODUCTS ajor Products tlraSweet brand sweetener End-Use Products and Applications Nonselective agricultural and industrial applications Corn, soybean, peanut and milo (sorghum) crops Wheat crops Rice crops Postemergence control of sedges and broadleaf weeds in corn and grain sorghum, turf and sugarcane crops Crops tolerant of Roundup herbicide Crops protected against certain insect pests Com hybrids, soybean varieties, alfalfa, grain sorghum and forage varieties, sunflowers, oilseed rape and barley varieties, cotton varieties, wheat varieties and hybrids Increase efficiency of milk production in dairy cows End-Use Products and Applications High-intensity sweetener used primarily in beverages and food products 1 mar 002578 LAM018827 Nutrition and Consumer Products (Cont'd) Major Products End-Use Products and Applications Alginate products, under various tradenames such as Keltone and Manugel sodium alginates, and Kelcoloid propylene glycol alginate;0 Xanthan gum products under various tradenames such as Keltml; Kelcogel gellan gum The Company has announced its intention to sell the algins business. Equal, Canderel, NutraSweet, SweetMate, Chuker, Misura and other tabletop sweeteners Alginate products, under various tradenames such as Manutex and Kelgin sodium alginates;0 Xanthan gum products, under various tradenames such as Kelzan AR The Company has announced its intention to sell the algins business. Xanthan gum products, under various tradenames such as Kelzan and Xanvis; Biozan welan gum Roundup herbicide Soups, sauces, gravies, dressings, beverages, snack foods, breadings, batters, bakery products, dairy products, pet foods Tabletop sweeteners Cleaners, textile printing, paper sizings and coatings, firefighting foams Oil and gas well drilling applications Residential lawn and garden applications Pharmaceuticals Major Products End-Use Products and Applications Daypro (oxaprozin), Arthrotec (misoprostol/ diclofenac) Aldactone (spironolactone), Aldactazide (spironolactone/hydrochlorothiazide), Calan formulations and Covera-HS (verapamil hydrochloride) Ambien (zolpidem tartrate) Cytotec (misoprostol), Lomotil (diphenoxylate hydro chloride) Demulen (ethynodiol diacetate), Flagyl formulations (metronidazole), Synarel (nafarelin acetate) Anti-inflammatory Cardiovascular Central nervous system (sleep) Gastrointestinal Women's health Corporate and Other Major Products End-Use Products and Applications Enviro-Chem engineering and construction manage ment services for processing plants using sulfuric acid; proprietary equipment and air pollution control systems Processing plants for fertilizer producers, basic metals production, oil refining On December 31, 1998, G. D. Searle & Co. ("Searle"), a subsidiary of the Company, received approval from the U.S. Food and Drug Administration ("FDA") to market Celebrex, a new arthritis treatment for the signs and symptoms of osteoarthritis and adult rheumatoid arthritis. Celebrex was launched in the United States in February 199 and 'is expected to be launched in more than a dozen other countries in 1999. In early 1999, Searle also received approval to market the drug in Brazil and Mexico. Principal Equity Affiliates Monsanto participates in a number of joint ventures in which it shares management control with other companies. For example, aspartame is manufactured and sold in Europe by fifty percent-owned joint ventures; and Monsanto has a 60% ownership interest in a joint venture with Solutia Inc., from which it purchases elemental phosphorus. In addition, on January 7,1999, Monsanto and Cargill Incorporated formed Renessen LLC, a worldwide joint venture in which Monsanto has a 50% interest, to create and market new products enhanced through biotechnology for the crop processing and animal feed markets. Sale Of Products Monsanto's products are sold directly to customers in various industries, to wholesalers and other distributors, to retailers and to the ultimate user or consumer, principally by its own sales force, or, in some cases, through third parties. With respect to pharmaceuticals, such sales force concentrates on detailing to physicians and managed health care providers. The Pharmaceuticals segment's new anti-arthritis product Celebrex will be co-promoted with Yamanouchi Pharmaceutical Co. Ltd. in Japan and with Pfizer Inc. in most other countries of the world. As indicated on page 46 of the 1998 Annual Report, Monsanto's net income has been historically higher during the first half of the year, primarily because of the concentration of generally more profitable sales of the Agricultural Products segment during that part of the year. Monsanto's marketing and distribution practices do not result in unusual working capital requirements on a consolidated basis, although the seasonality of sales of the Agricultural Products segment results in short-term borrowings to finance customer accounts receivable and inventories. Inventories of finished goods, goods in process and raw materials are maintained to meet customer requirements and Monsanto's scheduled production. In general, Monsanto does not manufacture its products against a backlog of firm orders; production is geared primarily to the level of incoming orders and to projections of future demand. Monsanto generally is not dependent upon one or a group of customers. The Nutrition and Consumer Products segment, however, makes significant sales to a few companies for use in carbonated soft drinks. Monsanto has no material contracts with the government of the United States or any state, local or foreign government. However, pursuant to contracts executed under U.S. federal and state laws, the Pharmaceuticals segment pays rebates to state governments for pharmaceuticals sold under state Medicaid programs and under state-funded programs for the indigent. The Pharmaceuticals segment also grants discounts to certain managed health care providers. Sales through managed health care providers constitute an increasing percentage of that segment's sales. Introduction of new products by the Agricultural Products and Pharmaceuticals segments typically is, and introduction of new products by other segments may be, subject to prior review and approval by the FDA, the U.S. Environmental Protection Agency and/or the U.S. Department of Agriculture (or comparable agencies of govern ments outside the United States) before they can be sold. Such reviews are often time-consuming and costly. These agencies also have continuing jurisdiction over many existing products of these segments. Governmental actions may also affect or determine the pricing of certain products, particularly in the Pharmaceuticals segment. Raw Materials And Energy Resources Monsanto is both a producer and significant purchaser of a wide spectrum of its basic and intermediate raw material requirements. Major requirements for key raw materials and fuels are typically purchased pursuant to long term contracts. Monsanto is not dependent on any one supplier for a material amount of its raw materials or fuel requirements, but certain important raw materials are obtained from a few major suppliers. Monsanto purchases its North American supply, and has the option to purchase its ex-North American supplies, of elemental phosphorus, a key raw material for the production of Roundup brand herbicides, from P4 Production, L.L.C., a joint venture between the Company and Solutia Inc. In general, where Monsanto has limited sources of raw materials, it has developed contingency plans to minimize the effect of any interruption or reduction in supply. While temporary shortages of raw materials and fuels may occasionally occur, these items are generally sufficiently available to cover current and projected requirements. However, their continuing availability and price are subject to unscheduled plant interruptions occurring during periods of high demand, or due to domestic and world market and political conditions, as well as to the direct or indirect effect of U.S. and other countries' 3 LAM018829 MAR 002580 government regulations. The impact of any future raw material and energy shortages on Monsanto's business as a whole or in specific world areas cannot be accurately predicted. Operations and products may, at times, be adverselv affected by legislation, shortages or international or domestic events. Patents, Trademarks, Licenses, Franchises And Concessions Monsanto owns a large number of patents which relate to a wide variety of products and processes and has pending a substantial number of patent applications. In addition, Monsanto holds a number of licenses granted bv other parties, some of which may be significant. Also, Monsanto owns a considerable number of established trademarks in many countries under which it markets its products. Monsanto's patents and trademarks in the aggregate are of material importance in the operation of its business, particularly in the Agricultural Products and Pharmaceuticals segments and with respect to NutraSweet brand sweetener. Certain proprietary products such as Roundup herbicide are covered by patents. Certain of Monsanto's patents and licenses are currently the subject of litigation; see "Legal Proceedings" below. Although patents protecting Roundup herbicide have expired in most countries, compound per se patent protection for the active ingredient in Roundup herbicide continues in the United States until September 20, 2000. Monsanto's insect-resistant plant products (including NewLeaf potato, YieldGard com and Bollgard cotton) are protected by patents which extend until at least 2013. Monsanto's herbicide-resistant plant products, Roundup Ready cotton, com, canola and soybeans, are protected by patents which extend until at least 2014. Posilac bovine somatotropin is protected by a United States patent that expires in 2008, and by corresponding patents in other countries, most ofwhich expire in 2005. Other patents protect various aspects of bovine somatotropin manufacture in the United States and expire as late as 2012; corresponding patents in other countries have varying terms. All patents covering the use of aspartame as a sweetener have expired. NutraSweet brand sweetener is currently manufactured under several patents owned or licensed by The NutraSweet Company, a subsidiary of the Company. Calan SR, an antihypertensive pharmaceutical, is licensed through the year 2004 to Searle by a third party, which has retained co-marketing rights. The product no longer has patent protection nor non-patent regulatory exclusivity conferred by the Waxman-Hatch amendments to the U.S. Food, Drug and Cosmetics Act. Cytotec ulcer preventive drug is protected by a U.S. composition patent until July 29, 2000. Ambien short-term treatment for insomnia is licensed to a joint venture, of which Searle is a general partner for the duration of the venture. Pursuant to the joint venture agreement, the other partner will purchase Searle's interest and thereby terminate the venture in April 2002. Ambien is protected by a U.S. patent until October 21, 2006. Daypro once-a-day arthritis treatment is licensed to Searle until January 5, 2003 in the U.S. and varying dates in other countries. This product is protected by a U.S. process patent that expires on February 26, 2002, and by non-patent regulatory exclusivity extending to October 29, 1999. Arthrotec an arthritis treatment is protected by a U.S. patent until February 11, 2014. Celebrex, a COX-2 inhibitor for the treatment of osteoarthritis and rheumatoid arthritis is protected by a U.S. patent to November 30, 2013 and by regulatory exclusivity under the Waxman-Hatch Act to December 31, 2003. Monsanto leases or subleases a number of kelp beds off the coast of California from the State of California and several private parties. Monsanto also has leases to harvest seaweed off the coasts of Scotland and (through a joint venture) Ireland. None of these leases taken individually is deemed by Monsanto to be material, although the leases to harvest seaweed in the aggregate are significant to the Nutrition and Consumer Products segment. The leases relate to the algins business and have varying terms. Competition Monsanto encounters substantial competition in each of its industry segments. This competition, from other manufacturers of the same products and from manufacturers of different products designed for the same uses, is expected to continue in both U.S. and ex-U.S. markets. Depending on the product involved, various types of competition are encountered, including price, delivery, service, performance, product innovation, product recogni tion and quality. The number of Monsanto's principal competitors varies from product to product. It is not practical to discuss Monsanto's numerous competitors because of the large variety of Monsanto's products, the markets served and the worldwide business interests of Monsanto. Overall, however, Monsanto regards its principal product groups to be 4 MAR 002581 LAW1018830 competitive with many other products of other producers and believes that it is an important producer of many of such product groups. Research And Development Research and development constitute an important part of Monsanto's activities. See "Review of Consolidated Results of Operations--Development and Commercialization of New Products Remain Priorities," "Agricultural Products--Outlook," "Nutrition and Consumer Products," "Pharmaceutical Products" and "Notes to Financial Statements--Supplemental Data" on pages 29, 33-34, 34-35, 36-37 and 57, respectively, of the 1998 Annual Report, incorporated herein by reference. Environmental Matters Monsanto remains strongly committed to complying with various laws and government regulations concerning environmental matters and employee safety and health in the United States and other countries. Monsanto is dedicated to long-term environmental protection and compliance programs that reduce and monitor emissions of hazardous materials into the environment, as well as to the remediation of identified existing environmental concerns. While the costs of compliance with environmental laws and regulations cannot be predicted with certainty, Monsanto does not expect such costs to have a material adverse effect upon its capital expenditures, earnings, or competitive position. See information regarding remediation of waste disposal sites appearing under "Notes to Financial Statements--Commitments and Contingencies" on page 57 of the 1998 Annual Report, incorporated herein by reference. Employee Relations As of December 31, 1998, Monsanto had approximately 31,800 employees worldwide. Satisfactory relations have prevailed between Monsanto and its employees. International Operations Monsanto and affiliated companies are engaged in manufacturing, sales and/or research and development in the United States, Europe, Canada, Latin America, Australia, Asia and Africa. A number of products are manufactured abroad. Ex-U.S. operations are potentially subject to a number of unique risks and limitations, including: fluctuations in-currency values; exchange control regulations; import and trade restrictions, including embargoes; governmental instability; economic conditions in other countries; and other potentially detrimental' domestic and foreign govern mental practices or policies affecting U.S. companies doing business abroad. See "Geographic Data" on page 30 of the 1998 Annual Report, incorporated herein by reference. Legal Proceedings Because of the size and nature of its business, Monsanto is a party to numerous legal proceedings. Most of these proceedings have arisen in the ordinary course of business and involve claims for money damages or seek to restrict the Company's business activities. While the results of litigation cannot be predicted with certainty, Monsanto does not believe these matters or their ultimate disposition will have a material adverse effect on Monsanto's financial position, profitability or liquidity in any one year, as applicable. In 1974, Searle introduced in the United States an intrauterine contraceptive product, commonly referred to as an intrauterine device ("IUD"), under the name Cu-7. Following extensive testing by Searle and review by the FDA, the Cu-7 was approved for sale as a prescription drug in the United States. It was marketed internationally as the Gravigard. Searle has been named as a defendant in a number of product liability lawsuits alleging that this IUD caused personal injury resulting from pelvic inflammatory disease, perforation, pregnancy or ectopic pregnancy. As of March 9, 1999, there were 3 cases pending in various U.S. state and federal courts and approximately 270 in the Supreme Court of New South Wales, Australia. On February 22, 1999, Searle received a defense verdict after a trial of the nine lead Australian plaintiffs. Though not technically a class action, these nine individuals are considered representative of the entire group of Australian plaintiffs. They have indicated their intention to appeal that verdict. The lawsuits seek damages in varying amounts, including compensator)' and punitive damages, with most suits seeking at least $50,000 in damages. Searle believes it has meritorious defenses and is vigorously defending each of these lawsuits. On January 31, 1986, Searle voluntarily discontinued the sale of the Cu-7 in the United States, citing the cost of defending such litigation. Ex-U.S. sales were discontinued in 1990. 5 MAR 002582 LAM018831 Searle has been named, together with numerous other prescription pharmaceutical manufacturers and in some cases wholesalers or distributors, as a defendant in a large number of related actions brought in federal and/or state court, based on the practice of providing discounts or rebates to managed care organizations and certain other large purchasers. The federal cases have been consolidated for pre-trial proceedings in the Northern District of Illinois. The federal suits include a certified class action on behalf of retail pharmacies representing the majority of retail pharmacy sales in the United States. The class plaintiffs alleged an industry-wide agreement in violation of the Sherman Act to deny favorable pricing on sales of brand-name prescription pharmaceuticals to certain retail pharmacies in the United States. The other federal suits, brought as individual claims by several thousand pharmacies, allege price discrimination in violation of the Robinson-Patman Act as well as Sherman Act claims. Several defendants, not including Searle, settled the federal class action case. Trial of the federal class action case commenced on September 14,1998. On November 30,1998, Searle and its co-defendants received a verdict for the defense and all claims were dismissed. On January 4, 1999, the class plaintiffs filed a notice of appeal with the U. S. Court of Appeals for the Seventh Circuit. In addition, consumers and a number of retail pharmacies have filed suit in various state courts throughout the country alleging violations of state antitrust and pricing laws. While most of these suits have been settled, suits remain pending in California and Alabama. In 1996 the Company was the first to commercially introduce cotton containing a gene encoding for Bacillus thuringiensis ("Bt") endotoxin. Monsanto is a leader in this scientific field and has engaged in Bt research and biotechnology development over many years and owns a number of present and pending patents which relate to this technology. On October 22, 1996, Mycogen Corporation ("Mycogen") filed suit in U.S. District Court in Delaware seeking damages and injunctive relief against the Company, DEKALB Genetics Corporation ("DEKALB") (subse quently acquired by Monsanto) and Delta & Pine Land Company alleging infringement of Bt related U.S. Patent Nos. 5,567,600 and 5,567,862 issued to Mycogen on that date. Jury trial in this matter concluded on February 3,1998 with a verdict in favor of all defendants. The patents of Mycogen were found invalid on the basis that Monsanto was a prior inventor. On February 20,1998 Mycogen filed motions requesting that the Court set aside the jury's verdict. Due to the other pending Bt litigation before the Delaware court, no ruling has been issued regarding any post trial motion and final judgment has not yet been entered for defendants. The Company has several meritorious defenses in the case including non-infringement, lack of validity of Mycogen's patent and prior invention by the Company. The Company will continue to vigorously defend against Mycogen's lawsuit and will take all appropriate action to support the verdict in favor of all defendants. On May 19, 1995, Mycogen initiated suit in U.S. District Court in California against the Company alleging infringement of U.S. Patent No. 5,380,831 invoking synthetic Bt genes and seeking damages and injunctive relief. The District Court has granted motions dismissing virtually all of Mycogen's patent claims on the basis that products containing Bt genes made prior to January 1995 do not infringe the patent. The Company has various meritorious defenses to the claims of Mycogen including non-infringement, lack ofvalidity, prior invention and collateral estoppel as a result of the outcome in the jury trial in which Mycogen's related patents were found invalid. This litigation has been stayed pending a final judgment determination in the related Delaware litigation between the parties. The Company is also a party in interference proceedings against Mycogen in the U.S. Patent and Trademark Office to determine the first partv to invent certain inventions related to Bt technology. In all of the foregoing actions the Company is vigorously litigating its position. In 1997 the Company commercially introduced com containing a gene encoding for Bt endotoxin. Monsanto is a leader in this scientific field and has engaged in Bt research and biotechnology development over many years and owns a number of present and pending patents which relate to this technology. On January 21,1997, Novartis Seeds, Inc. ("Novartis") filed suits in U.S. District Court in Delaware seeking damages and injunctive relief against the Company and DEKALB, alleging infringement of Bt related U.S. Patent No. 5,595,733 issued to Ciba-Geigy Corporation (Seed Division) and now held by Novartis. The cases of Monsanto and DEKALB were consolidated and tried to jury verdict in favor of defendants on November 9, 1998. The jury determined that the Novartis patent was invalid and not enabled. The matter remains pending on post trial motions seeking entry ofjudgment as a matter of law. The Company and DEKALB have several meritorious defenses to support the verdict including non-infringe ment and lack of validity of Novartis' patent. The Company and/or DEKALB are vigorously defending against Novartis' lawsuit and will take all appropriate action to support the verdict in favor of all defendants. The Company and/or DEKALB is the plaintiff in various legal actions involving Bt: (a) The most significant of the DEKALB-initiated actions have been filed in federal district court in the Northern District of Illinois and allege LAM018832 Mar 002583 infringement of one or up to five of DEKALB's biotechnology related patents. The DEKALB patents involved are U.S. patent No. 5,484,956 covering fertile, transgenic com plants expressing genes encoding Bacillus thuringiensis (Bt) insecticidal proteins, U.S. patent No. 5,489,520 covering the microprojectile method for producing fertile, transgenic com plants covering a bar or pat gene, as well as the production and breeding of progeny of such plants; U.S. patent Nos. 5,538,880 and 5,538,877 directed to methods of producing either herbicide-resistant or insectresistant transgenic com; and U.S. patent no. 5,550,318 directed to transgenic com plants containing a bar or pat gene. In each such case DEKALB has asked the court to determine that infringement has occurred, to enjoin further infringement and to award unspecified compensatory and exemplary damages. Lawsuits were initially filed on April 30, 1996 against Pioneer Hi-Bred International, Inc., Mycogen Corporation (and two of its subsidiaries) and CibaGeigy Corporation. A similar lawsuit was filed against Northrup King Co. on June 10, 1996. In addition, DEKALB sued Beck's Hybrids, Inc. and Countrymark Cooperative, Inc. on July 23, 1996 and filed against several Hoechst Schering AgrEvo GmbH entities on August 27, 1996. All lawsuits related to patent No. 5,550,318 have been stayed pending resolution to an interference proceeding involving that patent at the U.S. Patent and Trademark Office, (b) On March 19,1996, Monsanto was issued U.S. Patent No. 5,500,365 and filed suit in U.S. District Court in Delaware seeking damages and injunctive relief against Mycogen Plant Science, Inc., Agrigenetics, Inc. and Ciba-Geigy Corporation (Seed Division) (now Novartis Seeds, Inc.) for infringement of that patent. Trial of this matter ended June 30, 1998, with a jury verdict that while the patent was literally infringed by defendants the patent was not enforceable due to a finding of prior invention (now owned by Monsanto) by another party, and not infringed due to the defense of the reverse doctrine of equivalents. Monsanto has filed a motion for judgment as a matter of law to overturn the jury verdict and will continue to litigate vigorously its position in the matter. In 1997 the Company commercially introduced com containing a gene providing glyphosate resistance. Monsanto is a leader in this scientific field and has engaged in such research and biotechnology development over many years and owns a number of present and pending patents which relate to this technology. On November 20, 1997, Rhone Poulenc Agrochimie S. A. ("Rhone Poulenc") filed suit in U. S. District Court in North Carolina (Charlotte) against the Company and DEKALB contending they did not have a right to license, make or sell products using Rhone Poulenc technology for glyphosate resistance. DEKALB has sublicensed to Monsanto certain technology previously licensed from Rhone Poulenc. The terms of Rhone Poulenc's license to DEKALB are now in dispute and have resulted in Rhone Poulenc's claim that the Company's sale of Roundup Ready com infringes on the Rhone Poulenc patent. Rhone Poulenc also contends that Monsanto is in violation of certain antitrust laws. Trial of this matter is set for April 5, 1999. A lawsuit with similar allegations was filed in Paris, France in the Tribunal de Grand Instance on March 13, 1998. The outcome of the North Carolina litigation will be dispositive of the claims in France. The Company has meritorious defenses to the allegations, including that the parties are licensed under an existing agreement, and is vigorously defending the litigation. On July 30, 1998, Monsanto was served with a lawsuit filed in United States District Court in Delaware by Zeneca Inc. ("Zeneca"). The complaint alleges that Monsanto has violated Sections 3, 4 and 16 of the Clayton Act and Sections 1 and 2 of the Sherman Act and Zeneca seeks treble damages. In addition to the antitrust allegations, the complaint seeks a declaration that certain United States patents assigned to Monsanto (U.S. Patent Nos. 4,940,835; 5,352,605; 4,535,060) are invalid, unenforceable or have not been infringed by Zeneca. The complaint also asserts a claim for tortious acts of unfair competition with prospective economic advantage. The allegations in the complaint center on Monsanto's technology related to Roundup Ready seed and marketing activity associated with soybeans. The complaint asserts that Zeneca will be precluded in its ability to sell a herbicide with respect to which it is seeking registration for use in application over Roundup Ready seed. Regulatory approval of this Zeneca herbicide has not occurred. On August 12, 1998, the complaint was amended, adding Pioneer Hi-Bred International, Inc. ("Pioneer") as a plaintiff. Pioneer seeks a declaratory judgment that it did not breach its license agreement with Monsanto by providing Roundup Ready soybean seed to Zeneca for testing. The complaint was also amended to add an additional claim for relief by Zeneca, seeking a declaratory judgment that its obtaining the Roundup Ready soybean seed from Zeneca was not improper. Monsanto believes that its activities have been lawful and that the allegations are without merit. Under agreement of the parties Monsanto has not been required to file an answer to the complaint. Under an agreement announced on March 18, 1999, the parties have agreed to dismiss this lawsuit. In June 1996, Mycogen Corporation, Agrigenetics Inc. and Mycogen Plant Sciences, Inc. filed suit against Monsanto in California State Superior Court in San Diego, alleging damage by an alleged failure of Monsanto to license, under an option agreement, technology relating to Bt com and to glyphosate resistant com, cotton and canola. 7 MAR 002584 LAM018833 On September 9, 1996, Monsanto successfully demurred to all claims but plaintiffs were permitted to amend to file a damage claim seeking recovery under a theory of continuing breach. On October 20, 1997, the court construed the contract as involving only a license to receive genes rather than a license to receive germplasm. Jury trial of the remaining damage claim for lost future profits from the alleged delay in performance ended March 20, 1998, with a verdict against the company awarding damages totaling $174.9 million. The case is now on appeal as Appeal No. D031336 before the California Court of Appeal for the Fourth Appellate District. Mycogen and Agrigenetics Inc. have filed a cross appeal seeking to reinstate claims for damages that were dismissed prior to trial. This cross appeal has been consolidated for all purposes on appeal. The Company has numerous meritorious defenses and grounds to overturn the award, including the speculative nature of the damages for lost future profits, improper splitting of the causes of action, lack of continuing breach, and trial error in directing a verdict against the company on the issue of liability. Mycogen is also seeking to overturn an award of sanctions against it in connection with this litigation and to obtain a determination that the contract entititles Mycogen to a license to germplasm not genes from Monsanto. The Company will continue to vigorously litigate its position. On February 4, 1999, Pioneer Hi-Bred International Inc. ("Pioneer") filed suit against Monsanto Company, (Civil Action No. 4-99-CV-90063) in U.S. District Court for the Southern District of Iowa. The suit seeking equitable relief and jury trial alleges that Monsanto has misappropriated trade secrets through the acquisition and purchase of certain international seed operations of Cargill International ("Cargill"). Pioneer alleges that Cargill's employees misappropriated (via theft) germplasm belonging to Pioneer's com seed business and then bred the Pioneer germplasm into the corn lines of Cargill. A related lawsuit. Civil Action No. 4-98-CV-90576 has been filed by Pioneer against Cargill. On February 2, 1999 a joint statement issued by Pioneer and Cargill indicated that a former Cargill employee may have misappropriated technology of Pioneer and that efforts were underway between those Compa nies to resolve this issue. Monsanto purchased the Cargill seed operations pursuant to the warranty and representa tion of Cargill's parent that all intellectual property and seed lines were the property of the business and not any third party. A study is underway to ascertain the scope of the seed lines that may be affected by the allegations raised by Pioneer. In the lawsuit Pioneer seeks the return of its alleged trade secrets, injunction against Monsanto's further use of the material, an accounting and damages for any sales of the misappropriated material and other relief. Monsanto will maintain that it is not liable for damages from its unknowing acquisition of the Cargill International business. Monsanto has meritorious defenses against liability and will vigorously defend this action and may assert claims for indemnity, breach and other causes against Cargill. Op October 28, 1998, two related lawsuits were filed in U.S. District Court in Iowa: one against Asgrow Seed Company, L.L.C., a subsidiary of the Company (No. 4-98-CV70577); and the other against DEKALB (since acquired by the Company) (No. 4-98-CV-90578). The lawsuits allege that defendants'misappropriated trade secrets of Pioneer in their com breeding programs. In addition to claims under Iowa state law for trade secret misappropriation, Pioneer alleges violations of the Lanham Act. Actual and exemplary damages and injunctive relief are sought. Pioneer also asserts that defendants have violated an unspecified contractual obligation not to breed with Pioneer germplasm. No answer has been filed by defendants but motions to dismiss were filed on or about January 22,1999 asserting that the claims of Pioneer are preempted by federal law (the Plant Variety Protection Act) which expressly permits the activities of breeding and research with germplasm sold in commerce. The Company has meritorious defenses including preemption, laches, statute of limitations, lack of trade secret, ownership of the germplasm at issue and other defenses. Following the announcement of the merger agreement between Monsanto and American Home Products Corporation ("AHP"), six alleged holders of Monsanto common stock filed suits in the Delaware Court of Chancery in and for New Castle County (the "Delaware Actions") against Monsanto, members of the Monsanto Board of Directors (the "Monsanto Board") and AHP. Seeking to represent a purported class of Monsanto shareowners, plaintiffs in each of the Delaware Actions alleged that the consideration to be received by holders of Monsanto common stock in the merger was unfair and inadequate, that the members of the Monsanto Board breached their fiduciary duties by approving the merger, and that AHP aided and abetted such breaches. By agreement of the parties this litigation has been dismissed. Following the announcement on May 11,1998, of the merger agreement between Monsanto and Delta and Pine Land Company ("Delta and Pine Land"), five alleged holders of Delta and Pine Land common stock filed suits, now consolidated (the "Delta and Pine Land Suit"), in the Delaware Court of Chanceiy in and for New Castle County against Monsanto, Delta and Pine Land, and members of the Delta and Pine Land Board of Directors (the "Delta and Pine Land Board"). Seeking to represent a purported class of Delta and Pine Land shareowners, plaintiffs in the 8 MAR 002585 LA.M018834 Delta and Pine Land Suit allege that the consideration to be received by holders of Delta and Pine Land common stock in the merger is unfair and inadequate, that the members of the Delta and Pine Land Board have breached their fiduciary duties by approving the transaction and that Monsanto has aided and abetted such breaches. Plaintiffs in the Delta and Pine Land Suit seek judgment declaring that each Delaware Action is maintainable as a class action, preliminarily and permanently enjoining consummation of the merger or rescinding the transaction in the event that it is consummated, awarding unspecified compensatory damages against defendants, and awarding plaintiffs their attorneys' fees and expenses. Plaintiffs and defendants have reached a memorandum of understanding to settle and resolve the litigation. This agreement will require court approval which the parties reasonably expect will occur. Risk Management Monsanto continually evaluates risk retention and insurance levels for product liability, property damage and other potential areas of risk. Monsanto devotes significant effort to maintaining and improving safety and internal control programs, which reduce its exposure to certain risks. Management decides the amount of insurance coverage to purchase from unaffiliated companies and the appropriate amount of risk to retain, based on the cost and availability of insurance and the likelihood ofa loss. Since 1986, Monsanto's liability insurance has been on the "claims made" policy form. Management believes that the current levels of risk retention are consistent with those of other companies in the various industries in which Monsanto operates and are reasonable for Monsanto. There can be no assurance that Monsanto will not incur losses beyond the limits of, or outside the coverage of, its insurance. Monsanto's liquidity, financial position and profitability are not expected to be affected materially by the levels of risk retention that the Company accepts. Disclosure Regarding Forward-Looking Statements Information regarding forward-looking statements, and factors that could cause actual performance or results to differ materially from those described, are set forth in Exhibit 99.2, accompanying this Report and incorporated herein by reference. Item 2. PROPERTIES. The General Offices of the Company are located on a 285-acre tract of land in St. Louis County, Missouri. The Company also owns a 210-acre tract in St. Louis County on which additional research facilities are located. In addition, Monsanto and its subsidiaries own or lease manufacturing facilities, laboratories, agricultural facilities, office space, warehouses, and other land parcels in North America, South America, Europe, Asia, Australia and Africa. In addition to the facilities in St. Louis County, Missouri, Monsanto's principal properties include the following locations, serving the sectors noted: Alvin, Texas (Agricultural Products); Antwerp, Belgum (Agricultural Products); Augusta, Georgia (Agricultural Products, Nutrition and Consumer Products, Pharmaceuticals); Barceloneta, Puerto Rico (Pharmaceuticals); Caguas, Puerto Rico (Pharmaceuticals); Davis, California (Nutrition and Consumer Prod ucts); Fayetteville, North Carolina (Agricultural Products); Feucht, Germany (Pharmaceuticals); Luling, Louisiana (Agricultural Products); Mt. Prospect, Illinois (Nutrition and Consumer, Pharmaceuticals); Morpeth, United King dom (Pharmaceuticals); Muscatine, Iowa (Agricultural Products); Okmulgee, Oklahoma (Nutrition and Consumer Products); San Diego, California (Nutrition and Consumer Products); Sao Jose dos Campos, Brazil (Agricultural Products); Skokie (Old Orchard), Illinois (Pharmaceuticals, Corporate and Other); Skokie (Searle Parkway), Illinois (Pharmaceuticals); and Zarate, Argentina (Agricultural Products). All of these properties are manufacturing facilities, except for the research and office building in Davis, California, the research buildings in Mt. Prospect, Illinois and Skokie (Searle Parkway), Illinois, and the office building in Skokie (Old Orchard), Illinois. Monsanto's principal properties are suitable and adequate for their use. Utilization of these facilities may vary with seasonal, economic and other business conditions, but none of the principal properties is substantially idle. The facilities generally have sufficient capacity for existing needs and expected near-term growth, and expansion projects are undertaken as necessary to meet future needs. Most of these properties are owned in fee. However, major portions of the San Diego, California plant and the Davis, California facilities are leased. In addition, a portion of a plant at Augusta, Georgia is currently leased with an option to purchase, pursuant to an industrial revenue bond financing. The Company also leases the land underlying facilities that it owns at Akin, Texas. In certain instances, Monsanto has granted leases on portions of plant sites not required for current operations. 9 LAM018835 MAR 002586 Item 3. LEGAL PROCEEDINGS. For information concerning certain legal proceedings involving Monsanto, see "Business--Environmental Matters", "Business--Legal Proceedings" and "Business--Disclosure of Forward-Looking Statements" in Item 1 of this Report. Item 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS. No matters were submitted to the security holders during the fourth quarter of 1998. EXECUTIVE OFFICERS OF THE REGISTRANT. Information regarding executive officers is contained in Item 10 of Part III of this Report (General Instruction G) and is incorporated herein by reference. PART II Item 5. MARKET FOR THE REGISTRANTS COMMON EQUITY AND RELATED STOCKHOLDER MATTERS. The narrative information appearing under "Review of Cash Flow--Dividend Policy is Unchanged" on page 41, and the tabular information regarding Dividends Per Share and Common Stock Price (for the years 1997 and 1998) appearing under "Quarterly Data" on page 46, of the 1998 Annual Report are incorporated herein by reference. Item 6. SELECTED FINANCIAL DATA. The tabular information under "Financial Summary--Operating Results, Earnings (Loss) per Share and Year- End Financial Position" and the amounts of Dividends per Share, all for the years 1994 through 1998, appearing on page 61, and the two paragraphs immediately following the Table of Contents on page 24, of the 1998 Annual Report, is incorporated herein by reference. Item 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATION. The tabular and narrative information appearing under "Review of Consolidated Results of Operations" on pages 27 through 29, "Review of Consolidated Results of Operations--Analysis of Change in Earnings (Loss) Per Share from Continuing Operations" on page 30, "Segment Data" and information regarding segments on pages 31 through 37, "Review of Changes in Financial Position" on page 39, "Review of Cash Flow" on page 41 and "Additional Financial Information" on pages 42-43, and the narrative information appearing under "Geographic Data" on page 30, "Disclosure of Forward-Looking Statements" on pages 58-60, and the two paragraphs immediately following the Table of Contents on page 24, of the 1998 Annual Report is incorporated herein by reference. Item 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISKS. The tabular and narrative information appearing under "Financial Instruments" on page 44 of the 1998 Annual Report is incorporated herein by reference. Item 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA. The consolidated financial statements of Monsanto appearing on pages 26, 38, 40, 41, 45 and 47 through 57; the Independent Auditors' Report appearing on page 25; the tabular and narrative information appearing, under "Quarterly Data" on page 46; and the two paragraphs immediately following the Table of Contents on page 24, of the 1998 Annual Report are incorporated herein by reference. Item 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE. None. 10 LAM018836 mar 002587 PART HI tem 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT. Information regarding directors and executive officers appearing under "Election of Directors" on pages 2 through 4, and Other Information Regarding Management--Section 16(a) Beneficial Ownership Reporting Compliance" on pages 18-19, of the Monsanto Company Notice of Annual Meeting and Proxy Statement (the "1999 Proxy Statement") dated March 15, 1999, is ncorporated herein by reference. The following information with respect to the Executive Officers of the Company on March 1, 999, is included pursuant to Instruction 3 of Item 401(b) of Regulation S-K: Name--Age Present Position with Registrant________________ Year First Became an Executive Officer Other Business Experience since January 1,1994 Sruce P. Bickner, 55 Co-President, Global Seed Group--Monsanto Company lartin E. Blaylock, 58 Jary L. Crittenden, 45 Vice President, Manufacturing Operations--Monsanto Company Senior Vice President, Chief Financial Officer--Monsanto Company .ichard U. De Schutter, 7 Vice Chairman--Monsanto Company; Chairman, Chief Executive Officer and President--G.D. Searle & Co. mold W. Donald, 44 Senior Vice President; Co-President, Nutrition and Consumer Products--Monsanto Company :even L. Engelberg, 55 Senior Vice President-- Monsanto Company 1999 1999 Chairman and Chief Executive Officer--DEKALB Energy Co., 1986; Chairman and Chief Executive Officer--DEKALB Genetics Corporation, 1988 to present. Director, Manufacturing Operations--Monsanto Company, 1993; and present position, 1995. 1998 1995 1998 1995 Executive Vice President and Chief Financial Officer--Melville Corp., 1994; Executive Vice President, Strategy and Business Development-- Sears Roebuck & Co., 1996; President, Hardware Stores Division--Sears Roebuck & Co., 1996; Executive Vice President and Chief Financial Officer--Sears Roebuck & Co., 1998; and present position, 1998. President and Chief Operating Officer--G.D. Searle & Co., 1993; Chairman, Chief Executive Officer and President--G.D. Searle & Co.; Advisory Director-- Monsanto Company, 1995; and present position, 1997. Group Vice President North America Division-- Monsanto Company, 1993; Group Vice President and General Manager--Monsanto Company, 1994; President, Crop Protection--Monsanto Company, 1995; Co-President, Agricultural Sector--Monsanto Company, 1997; Senior Vice President--Monsanto Company, 1998; and present position, 1999. Partner-in-Charge, Keck, Mahin & Cate Washington, D.C. office, 1986; Chief of Staff of Office of the United States Trade Representative (on leave from Keck, Mahin & Cate until May 1993), 1993; Vice President, Worldwide Government Affairs-- Monsanto Company, 1994; and present position, 1996. 11 LAM018837 Name--Age Patrick J. Fortune, 50 Robert Fraley, 46 Hugh Grant, 40 Alan L. Heller, 45 R. William Ide III, 58 Madonna A. Kindi, 40 Ganesh M. Kishore, 45 Philip Needleman, 60 Robert W. Reynolds, 54 Present Positron wtth Registrant Vice President and Chief Knowledge Officer--Monsanto Company Year First Became an Executive Officer 1997 Other Business Experience since January 1,1994 Corporate Vice President, Information Management--Bristol-Myers Squibb, 1991; President and Chief Operation Officer--Coram Healthcare Corporation, 1994; Vice President, Information Technology--Monsanto Company, 1995; Vice President and Chief Information Officer--Monsanto Company, 1997; and present position, 1998. Co-President, Agricultural Sector--Monsanto Company 1999 Group Vice President and General Manager, New Products Division--Monsanto Company, 1993; President, Ceregen--Monsanto Company, 1995; and present position, 1997. Co-President, Agricultural Sector--Monsanto Company 1999 Director, Global Roundup Product Strategy-- Monsanto Company, 1994; General Manager, Agricultural Sector for Southeast Asia, Australia, New Zealand & South Korea--Monsanto Company, 1995; and present position, 1998. Chief Operating Officer-- G.D. Searle & Co. 1999 Vice President, Sales--G.D. Searle & Co., 1992; Vice President, Finance--G.D. Searle & Co., 1994; President, Americas, G.D. Searle & Co., 1995; and present position, 1997. Senior Vice President, General Counsel and Secretary-- Monsanto Company 1996 President, American Bar Association, 1993-1994; partner. Long, Aldridge & Norman, 1993; and present position, 1996. Vice President, Human Resources--Monsanto Company 1996 Director of Human Resources, Staff of the Vice Chairman--Monsanto Company, 1993; Director, Human Resources, Crop Protection Business Unit--Monsanto Company, 1995; and present position, 1996. Co-President, Nutrition and Consumer Products--Monsanto Company 1999 Director of Technology, Agricultural Sector-- Monsanto Company, 1994; Director of Technology, Ceregen--Monsanto Company, 1995; Director of Crop Enhancement, Ceregen--Monsanto Company, 1996; Distinguished Science Fellow--Monsanto Company, 1996; and present position, 1997. Senior Vice President, Research and Development and Chief Scientist; Co-President, Pharmaceuticals Sector--Monsanto Company 1991 Vice President, Research and Development; Advisory Director--Monsanto Company; President, Research and Development--G.D. Searle & Co., 1992; Senior Vice President, Research and Development and Chief Scientist--Monsanto Company; President, Research and Development--G.D. Searle & Co., 1993; and present position, 1996. Vice Chairman--Monsanto Company 1994 Vice President and Managing Director, Latin America World Area--Monsanto Company, 1992; Vice President, International Operations and Development--Monsanto Company, 1995; and present position, 1997. 12 mar 002589 LAM018838 Name--Age 'Jicholas E. Rosa, 47 Present Position with Registrant Co-President, Nutrition and Consumer Products--Monsanto Company Executive Officer 1999 lobert B. Shapiro, 60 Director; Chairman and Chief Executive Officer--Monsanto Company 1987 lendrik A. Verfaillie, 53 President--Monsanto Company 1993 dr. Reynolds has announced his intention to retire April 30, 1999. Other Business Experience since January 1,1994 President--NutraSweet Europe, 1991; Executive Vice President--The NutraSweet Company, 1994; President, Benevia--Monsanto Company, 1996; President, Nutrition and Consumer Products--Monsanto Company, 1997; and present position, 1999. Director, President and Chief Operating Officer--Monsanto Company, 1993; Director, Chairman, Chief Executive Officer and President--Monsanto Company, 1995; and present position, 1997. Vice President and Advisory Director--Monsanto Company; President--The Agricultural Group--Monsanto Company, 1993; Vice President and Advisory Director--Monsanto Company, 1995; Executive Vice President and Advisory Director--Monsanto Company, 1995; and present position, 1997. 13 LAMO18839 Item 11. EXECUTIVE COMPENSATION. Information appearing under "Directors' Fees and Other Arrangements" on pages 8-9, and under "Executive Compensation" beginning on page 15 and continuing through "Certain Agreements" on page 18 of the 1999 Proxy Statement is incorporated herein by reference. Item 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT. Information appearing under "Stock Ownership of Management and Certain Beneficial Owners" on pages 5 and 6 of the 1999 Proxy Statement is incorporated herein by reference. Item 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS. Information appearing under "Other Information Regarding Management--Transactions and Relationships" and "--Indebtedness" on pages 18 through 20 of the 1999 Proxy Statement is incorporated herein by reference. PART IV Item 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K. (a) Documents filed as part of this Report: 1. The financial statements set forth at pages 26,38,40,41,45 and 47 through 57 of the 1998 Annual Report (See Exhibit 13 under Paragraph (a)3 of this Item 14) 2. Financial Statement Schedules None required 3. Exhibits--See the Exhibit Index beginning at page 17 of this Report. For a listing of all management contracts and compensatory plans or arrangements required to be filed as exhibits to this Form 10-K, see the Exhibits listed under Exhibit No. 10, items 4 through 29 on pages 17 through 19 of the Exhibit Index. The following Exhibits listed in the Exhibit Index are filed with this Report: 13 The Company's 1998 Annual Report to shareowners 21 Subsidiaries of the registrant (See page 20) 23 Consent of Independent Auditors (See page 21) 24 1. Powers of attorney submitted by Robert M. Heyssel, Michael Kantor, Gwendolyn S. King, Philip Leder, Jacobus F.M. Peters, John S. Reed, John E. Robson, William D. Ruckelshaus, Robert B. Shapiro, Gary L. Crittenden and Richard B. Clark. 2. Certified copy of Board resolution authorizing Form 10-K filing utilizing powers of attorney 27 Financial Data Schedule (part of electronic submission only) 99.1 Computation of the Ratio of Earnings to- Fixed Charges for Monsanto Company and Subsidiaries (See page 22) 99.2 Disclosure Regarding Forward-Looking Statements (See page 23) (b) Reports on Form 8-K during the quarter ended December 31, 1998: The following reports on Form 8-K were filed by the Company on the dates indicated: October 13, 1998 (termination of merger agreement with American Home Products Corporation); October 19,1998 (information presented to the financial community); October 30,1998 (financial information for quarter ended September 30, 1998); November 13 and 16, 1998; (announcement of financing plans); November 27, 1998 (offerings of common stock and Adjustable Conversion-rate Equity Security Units); December 8, 1998 (acquisition of DEKALB Genetics Corporation); and December 14, 1998 (closings of financings and filing of related documents). 14 LAM018840 MAR 002591 SIGNATURES Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this Report to be signed on its behalf by the undersigned, thereunto duly authorized. MONSANTO COMPANY (Registrant) Date: March 25, 1999 By. /s/ Richard B. Clark Richard B. Clark Vice President and Controller (Principal Accounting Officer) Pursuant to the requirements of the Securities Exchange Act of 1934, the Report has been signed below by the following persons on behalf of the registrant and in the capacities and on the dates indicated. Signature Title Date e (Robert B. Shapiro) 0 (Robert M. Heyssel) 0 (Michael Kantor) Chairman, President and Director (Principal Executive Officer) Director Director March 25, 1999 March 25, 1999 March 25, 1999 (Gwendolyn S. King) o (Philip Leder) o (Jacobus F. M. Peters) 0 (John S. Reed) Director Director Director Director March 25,1999 March 25, 1999 March 25, 1999 March 25, 1999 e (John E. Robson) o (William D. Ruckelshaus) O (Gary L. Crittenden) Director March 25, 1999 Director March 25, 1999 Senior Vice President. Chief Financial Officer (Principal Financial Officer) March 25, 1999 /s/ Richard B. Clark (Richard B. Clark) Vice President and Controller (Principal Accounting Officer) March 25, 1999 15 MAR 002592 LAM018841 Barbara L. Blackford, by signing her name hereto, does sign this document on behalf of the above noted individuals, pursuant to powers of attorney duly executed by such individuals which have been filed as an Exhibit to this Report. /s/ Barbara L. Blackford Barbara L. Blackford Attomey-in-Fact 16 MAR 002593 LAWI018842 EXHIBIT INDEX These Exhibits are numbered in accordance with the Exhibit Table of Item 601 of Regulation S-K. Exhibit No. Description 2 Omitted--Inapplicable 3 1. Restated Certificate of Incorporation of the Company as of October 28, 1997 (incorporated herein by reference to Exhibit 3(i) of the Company's Form 10-Q for the quarter ended September 30, 1997) 2. By-Laws of the Company, as amended effective February 26, 1999 (incorporated herein by reference to Exhibit 3.2 of the Company's Registration Statement on Form S-4 filed March 2, 1999) 4 1. Form of Rights Agreement, dated as of January 26, 1990 between the Company and First Chicago Trust Company as successor to The First National Bank of Boston (incorporated herein by reference to Form 8-A filed on January 31, 1990) 2. Registrant agrees to furnish to the Securities and Exchange Commission upon request copies of instruments defining the rights of holders of certain long-term debt not being registered of the registrant and all subsidiaries for which consolidated or unconsolidated financial statements are required to be filed. 9 Omitted--Inapplicable 10 1. Distribution Agreement by and between Monsanto Company and Solutia Inc., as of September 1, 1997, plus identification of contents of omitted schedules and exhibits and agreement to furnish supplementally a copy of any omitted schedule or exhibit to the Securities and Exchange Commission upon request (incorporated herein by reference to Exhibit 2.1 of the Company's Form 8-K filed September 16, 1997) 2. Employee Benefits and Compensation Allocation Agreement between Monsanto Company and Solutia Inc., dated as of September 1, 1997 (incorporated herein by reference to Exhibit 99.1 of the Company's Form 8-K filed September 16, 1997) 3. Tax Sharing and Indemnification Agreement dated as of September 1, 1997, by and between Monsanto Company and Solutia Inc. (incorporated herein by reference to Exhibit 99.2 of the Company's Form 8-K filed September 16, 1997) 4. Monsanto Company Non-Employee Director Deferred Compensation Plan (incorporated herein by reference to Exhibit 10.3 of the Company's Form 10-Q for the quarter ended September 30, 1997) 5. Monsanto Company Non-Employee Director Equity Incentive Compensation Plan (incorporated herein by reference to Exhibit 10.4 of the Company's Form 10-Q for the quarter ended September 30, 1997) 6. Non-Employee Directors Stock Plan, as amended in 1991 (incorporated herein by reference to Exhibit 19(ii)l of the Company's Form 10-Q for the quarter ended June 30, 1991) 7. Amendment to Non-Employee Directors Stock Plan (incorporated herein by reference to Exhibit 10.8 of the Company's Form 10-Q for the quarter ended June 30, 1997) 8. Charitable Contribution Program effective April 1,1992 (incorporated herein by reference to Exhibit 19(i)l of the Company's Form 10-K for the year ended December 31, 1991) 9. Deferred Compensation Plan for Non-Employee Directors, as amended in 1983 and 1991 (incorporated herein by reference to Exhibit 19(ii)l of the Company's Form 10-K for the year ended December 31, 1991) 17 MAR 002594 LAM018843 EXHIBIT INDEX (Cont'd) Exhibit No. Description 10. Excerpt of Resolutions of Monsanto Company Board of Directors Regarding Directors' Compensation, adopted by Unanimous Consent effective August 4, 1997 (incorporated herein by reference to Exhibit 10.5 of the Company's Form 10-Q for the quarter ended September 30, 1997) 11. Consulting Agreement between the Company and Philip Leder dated January 17, 1990 (incorporated herein by reference to Exhibit 19(i)3 of the Company's Form 10-K for the year ended December 31, 1989) 12. Monsanto Management Incentive Plan of 1988/1, as amended in 1988, 1989, 1991, 1992, April 1997 and July 1997 (incorporated herein by reference to Exhibit 10.3 of the Company's Form 10-Q for the quarter ended June 30, 1997) 13. Monsanto Management Incentive Plan of 1988/11, as amended in 1989, 1991, 1992, April 1997 and July 1997 (incorporated herein by reference to Exhibit 10.4 of the Company's Form 10-Q for the quarter ended June 30, 1997) 14. Monsanto Management Incentive Plan of 1994, as amended in April 1997 and July 1997 (incorporated herein by reference to Exhibit 10.5 of the Company's Form 10-Q for the quarter ended June 30, 1997) 15. Monsanto Management Incentive Plan of 1996 as amended April 1997, July 1997, August 1997, February 1998 and September 1998 (incorporated herein by reference to Exhibit 10.1 of the Company's Form 10-Q for the quarter ended September 30, 1998) 16. Monsanto Executive Stock Purchase Incentive Plan (incorporated herein by reference to Appendix B of the Monsanto Company Notice ofAnnual Meeting and Proxy Statement dated March 14, 1996) 17. Form of Non-Qualified Purchased and Year 2000 Premium Stock Option Certificate (incorporated herein by reference to Exhibit 10.2 of the Company's Form 10-Q for the quarter ended March 31, 1998) 18. Form of Non-Qualified Premium Stock Option Certificate (incorporated herein by reference to Exhibit 10.2 of the Company's Form 10-Q for the quarter ended June 30, 1998) 19. Annual Incentive Program for Executive Officers (incorporated herein by reference to the description on pages 25-26 of the Monsanto Company Notice of Annual Meeting and Proxy Statement dated March 15, 1999) 20. Long-Term Incentive Program and Premium Option Purchase Program for Executive Officers (incorporated herein by reference to the description on pages 12-13 of the Monsanto Company Notice of Annual Meeting and Proxy Statement dated March 15, 1999) 21. Split-dollar Life Insurance Plan (incorporated herein by reference to Exhibit 10(iii)19 of the Company's Form 10-K for the year ended December 31, 1987) 22. Form of Employment Agreement for Executive Officers (incorporated herein by reference to Exhibit 10.7 of the Company's Form 10-Q for the quarter ended September 30, 1997) 23. Letter Agreement between the Company and Robert B. Shapiro entered into as of July 23, 1990 (incorporated herein by reference to Exhibit 19(i)3 of the Company's Form 10-Q for the quarter ended September 30, 1990) 24. Amendment to Letter Agreement between the Company and Robert B. Shapiro entered into as ofJuly 23,1990 (incorporated herein by reference to Exhibit 10.23 of the Company's Form 10-K for the year ended December 31, 1996) 18 LAM018844 MAR 002595 EXHIBIT INDEX (Cont'd) Exhibit No. Description 25. Letter Agreement between the Company and Hendrik A. Verfaillie entered into as of June 27,19S8 (incorporated herein by reference to Exhibit 10.20 of the Company's Form 10-K for the year ended December 31, 1996) 26. Supplemental Retirement Plan regarding Richard U. De Schutter (incorporated herein by reference to Exhibit 10.26 of the Company's Form 10-K for the year ended December 31, 1996) 27. Searle/Monsanto Stock Plan of 1994, as amended in 1995, April 1997 and July 1997 (incorporated herein by reference to Exhibit 10.6 of the Company's Form 10-Q for the quarter ended June 30, 1997) 28. G. D. Searle & Co. Split Dollar Life Insurance Plan, as amended in 19S9 (incorporated herein by reference to Exhibit 19(ii)3 of the Company's Form 10-Q for the quarter ended June 30, 19S9) 29. G. D. Searle & Co. Legal/Tax/Financial Counseling Plan (incorporated herein by reference to Exhibit 19(i)8 of the Company's Form 10-Q for the quarter ended June 30, 1988) 11 Omitted--Inapplicable; see "Earnings per Share" on page 60 of the 1997 Annual Report 12 Statement re Computation of the Ratio of Eamings to Fixed Charges--See Exhibit 99.1 below 13 The Company's 1998 Annual Report to shareowners. (The electronic submission includes only the financial report section of the Annual Report, appearing on pages 25 through 61 of that Report.) Only those portions expressly incorporated by reference into this Form 10-K are deemed "filed"; other portions are furnished only for the information of the Commission. 18 Omitted--Inapplicable 21 Subsidiaries of the registrant (See page 20) 22 Omitted--Inapplicable 23 Consent of Independent Auditors (See page 21) 24 1. Powers of attorney submitted by Robert M. Heyssel, Gwendolyn S. King, Philip Leder, Jacobus F.M. Peters, John S. Reed, John E. Robson, William D. Ruckelshaus, Robert B. Shapiro, Gary L. Crittenden and Richard B. Clark 2. Certified copy of Board resolution authorizing Form 10-K filing utilizing powers of attorney 27 Financial Data Schedule (part of electronic submission only) 99 1. Computation of the Ratio of Eamings to Fixed Charges for Monsanto Company and Subsidiaries (See page 22) 2. Disclosure Regarding Forward-Looking Statements (See page 23) Only Exhibits Nos. 13, 21, 23, 99.1 and 99.2 have been included in the printed copy of this Report. 19 002596 MAR LAM018845 EXHIBIT 21 SUBSIDIARIES OF THE REGISTRANT The following is a list of the Company's subsidiaries as of December 31, 1998, except for unnamed subsidiaries which, considered in the aggregate as a single subsidiary, would not constitute a significant subsidiary. G. D. Searle & Co. (Delaware) DEKALB Genetics Corporation (Delaware) Monsanto Europe, S.A.N.V. (Belgium) 20 MAR 002597 LAM018846 CONSENT OF INDEPENDENT AUDITORS EXHIBIT 23 Monsanto Company: We consent to the incorporation by reference in Monsanto Company's Registration Statements on Form S-8 (Nos. 2-36636, 2-76696, 2-90152, 33-13197,33-21030,33-39704,33-39705,33-39706,33-39707,33-49717, 33-53363, 33-53365, 33-53367, 333-02783, 333-02961, 333-02963, 333-33531, 33-38599 and 333-45341) and Registration Statements on Form S-4 (Nos. 333-66175 and 333-73233) of our report dated February 26,1999, incorporated by reference in this annual report on Form 10-K of Monsanto Company for the year ended December 31, 1998. Saint Louis, Missouri March 18, 1999 DELOITTE & TOUCHE LLP MAR 002598 21 LAMO18847 EXHIBIT 99.1 MONSANTO COMPANY AND SUBSIDIARIES COMPUTATION OF THE RATIO OF EARNINGS TO FIXED CHARGES (Dollars in millions) 1998 Year Ended December 31. 1997 1996 1995 Income from continuing operations before provision for income taxes................................................... Add Fixed charges................................................... Less capitalized interest.................................... Dividends from affiliated companies................. Less equitv income (add equity loss) of affiliated companies..................................................... Income as adjusted................................... ($243) 372 (15) 8 23 S145 $366* 236 (14) 4 (20) $572 $553 172 (9) 6 42 $764 $645 178 (5) 3 (3) $818 1994 $636 140 (4) 2 (4) $770 Fixed charges Interest expense............................................... $312 $170 $119 S132 $100 Capitalized interest........................................... 15 14 9 5 4 Portion of rents representative of interest factor............................................................ 45 52 44 41 36 Fixed charges............................................ $372 $236 $172 $178 $140 Ratio of earnings to fixed charges............................ 0.39 2.42 4.44 4.60 5.50 Includes charges for restructuring, acquired in-process research and development, and other unusual items of 31,060 million, $684 million, $376 million, and $90 million for the years ended December 31, 1998, 1997, 1996 and 1995 respectively. Excluding these unusual items, the ratio of earnings to fixed charges would have been 3.24,5.32, 6.60 and 5.10 for the years ended December 31,1998,1997,1996 and 1995 respectively. The ratio was not materially affected by the restructuring and other unusual items in 1994. MAR 002599 22 LAM018848 EXHIBIT 99.2 DISCLOSURE OF FORWARD-LOOKING STATEMENTS Under the Private Securities Litigation Reform Act of 1995, companies are provided with a "safe harbor" for making forward-looking statements about the potential risks and rewards of their strategies. Monsanto believes it's in the best interest of its shareowners to use these provisions in discussing future events. Forward-looking statements include Monsanto's plans for growth; the potential for the development, regulatory approval, and public acceptance of new products; and other factors that could affect Monsanto's future operations or financial position. Such statements often include the words "believes," "expects," "anticipates," "intends," "plans," "estimates," or similar expressions. Monsanto's ability to achieve its goals depends on many known and unknown risks and uncertainties, including changes in general economic and business conditions. These factors could cause the anticipated performance and results of the company to differ materially from those described or implied in forward-looking statements. Factors that could cause or contribute to such differences include, but are not limited to, those discussed below. Factors Affecting the Agricultural Products Segment Generic Competition: The family of Roundup herbicides is a major product line for Monsanto's Agricultural Products segment. These herbicides are likely to face increasing competition from generic products. Patents protecting Roundup in several countries expired in 1991. Compound per se patent protection for the active ingredient in Roundup herbicide expires in the United States in September 2000. Monsanto believes its pricing strategy will help it compensate for increased generic competition in the United States. Monsanto recently significantly reduced the price of Roundup in the United States. This price elasticity strategy is expected to result in increased demand for Roundup in the United States because the lower prices will make Roundup more economical, encouraging both new uses of the product and expansion of the number of acres treated. Monsanto's experience in numerous markets worldwide has been that price reductions have stimulated volume growth. However, the volume increases in the other countries also may have been influenced by a variety of other factors, such as weather; the increased use of conservation tillage practices; development of other new markets or applications for Roundup; launch of new products including Roundup Ready crops; competitive products and practices; and an increase in agricultural acres planted. Conditions, and therefore volume trends in one country may or mav not be duplicated in other world areas. As a result, Monsanto's experience with price elasticity in markets outside the United States may or may not be replicated in the United States. Monsanto also believes that increased volumes and technological innovations will lead to efficiencies that will reduce the production cost of glyphosate. Such cost reductions will depend on realizing such increased volumes and innovations, and securing the resources required to expand production of Roundup. Governmental and Consumer Acceptance: The commercial success of agricultural and food products developed through biotechnology will depend in part on government and public acceptance of their cultivation, distribution and consumption. Monsanto continues to work with consumers, customers and regulatory bodies to encourage under standing of nutritional and agricultural biotechnology products. However, public attitudes may be influenced by claims that genetically modified plant products are unsafe for consumption or pose unknown risks to the environment or to traditional social or economic practices. Securing governmental approvals for, and consumer confidence in, such products poses numerous challenges, particularly outside the United States. For instance, France has instituted a moratorium on the planting of certain genetically modified seeds, and consumer groups have brought lawsuits in various countries seeking to halt industry activities with respect to products developed through biotechnology. Some countries also have labeling requirements. In some markets, because these crops are not yet approved for import, growers in other countries may be restricted from introducing or selling their grain. In these cases, the grower may have to arrange to sell the grain only in the domestic market or to use the grain for feed on his or her farm. The market success of Monsanto's products developed through biotechnolog)' could be delayed or impaired in certain geographi cal areas because of such factors. Technological Change and Competition: A number of companies are engaged in plant biotechnology research. Technological advances by others could render Monsanto's products less competitive. Monsanto believes that competition will intensify, not only from agricultural biotechnology firms but from major agrichemical, seed and food 23 LAM018849 MAR 002600 companies with biotechnology laboratories. Some of Monsanto's agricultural competitors have substantially greater financial, technical and marketing resources than Monsanto does. Successful Integration of Recent Transactions: Monsanto has made significant acquisitions, mergers and joint ventures involving seed, agricultural biotechnology and grain processing companies. These transactions are designed to strengthen Monsanto's capability to bring important new life sciences products to customers worldwide, and to contribute to the company's long-term growth. The Delta and Pine Land Co. (D&PL) transaction is subject to regulatory approval and other customary conditions. It is anticipated that the pending D&PL transaction, when final, and the recently completed acquisitions of DEKALB Genetics Corp., Plant Breeding International Cambridge, and certain international seed operations of Cargill Inc., will significantly dilute Monsanto's financial results for the next several years. Long term, Monsanto must integrate these companies into its business to realize projected synergies. It must also fit such acquisitions, mergers andjoint ventures into its growth strategy to generate sufficient value to justify their cost. Mergers, acquisitions, and joint ventures also present other challenges, including geographical coordina tion, personnel integration, and the reconciliation of corporate cultures. This integration could cause a temporary interruption of or loss of momentum in Monsanto's business and the loss of key personnel from the acquired company. There can be no assurance that the diversion of management's attention to such matters or the delays or difficulties encountered in connection with integrating these operations will not have an adverse effect on Monsanto's business, results of operations, or financial condition. Planting Decisions and Weather: The company's agricultural products business is highly seasonal. It is subject to weather conditions and natural disasters that affect commodity prices, seed yields, and decisions by growers regarding purchases of seed and herbicides. Commodity prices also affect growers' decisions about the types and amounts of crops to plant. All of these factors influence sales of Monsanto's herbicide and seed products. Factors Affecting the Pharmaceuticals Segment Ability to Realise Potential of Existing Pipeline Products: Pharmaceutical research and development (R&D) is subject to inherent uncertainty, difficulties and delays. These include, but are not limited to, successful completion of clinical trials and the ability to obtain regulatory approval for the compounds worldwide. Failure to receive government approvals as anticipated could preclude or substantially delay commercialization of products in the company's R&D programs. Development and Commercialisation of New Products: The Pharmaceuticals segment's long-term success will depend in great part on its ability to commercialize new products. Such efforts require substantial funding of R&D and launch expenses. If Monsanto is unable to earn or borrow sufficient resources to fund such expenses, its ability to develop new products will suffer. Further, the outcome of R&D is inherently difficult to predict. Anticipated results mav never materialize, or they may not be promising enough. Even when new pharmaceutical products are marketed, there can be no guarantees of their commercial success. Consumer demand and competitive factors, including the availability and price of treatment alternatives influence sales. In addition, timing is crucial. The results of R&D of new pharmaceutical products are difficult to forecast, and new products must be carefully deployed, with resources sufficient to realize the full value of the products. Product Liability and Consumer Acceptance: The sale of pharmaceutical products always involves a risk of product liability claims and associated adverse publicity. Substantial damage awards for injuries allegedly caused by the use of pharmaceuticals have been made against certain companies in past years. In addition, unexpected safety or efficacy concerns can arise with respect to marketed products. Whether or not they are scientifically justified, such concerns could lead to product recalls, withdrawals, or declining sales. Competition: Pharmaceutical research is intense and highly competitive. It is characterized by rapid technological change. Depending on the product involved, competition may be encountered in price, delivery, service, perform ance, innovation, brand recognition and quality. Many of Monsanto's pharmaceutical competitors have greater research, financial, marketing and other resources than Monsanto does. Some of Monsanto's trademarked pharma ceutical products also face increasing pressures from producers of lower-priced generic products and from new products entering the marketplace. 24 LAM018850 MAR 002601 Pricing: Managed care groups, health care organizations and government agencies worldwide actively seek discounts and lower prices on pharmaceutical products. Monsanto's challenge is to provide overall economic benefits to health care providers and negotiate prices for specific products that will allow it to profit at acceptable levels. Factors Affecting the Nutrition and Consumer Products Segment Monsanto's Nutrition and Consumer Products Segment faces many challenges similar to those faced by the Agricultural Products and Pharmaceuticals segments. These challenges include increased competition from generic substitutes for its aspartame-based tabletop and ingredient sweeteners, rapid technological changes, the ability to realize the potential of its pipeline products, the development of new products, and the ability to negotiate favorable pricing terms with its major customers. Each of these challenges is subject to risks and uncertainties comparable to those described above. Factors Affecting all Segments Financial Requirements: Monsanto's recent and planned acquisitions will require a significant commitment of the company's financial resources. In addition, new technological innovations generally require a significant investment for R&D and product launch. Lack of funds for investment in these areas could hinder the company's ability to make technological innovations and to introduce and distribute new products. Monsanto expects to generate the required capital by maintaining the revenues of its core businesses, by seeking sufficient outside financing and by containing costs. The company's ability to do so will depend upon a variety of specific factors listed elsewhere in this report and upon general capital market conditions. Intellectual Property: Monsanto has devoted significant resources to obtaining and maintaining patent protection worldwide for its products. It seeks to preserve its trade secrets and to operate without infringing the proprietary rights of third parties. Monsanto's patents and trademarks are of material importance in the operation of its business, particularly in the Agricultural Products and Pharmaceuticals segments. Intellectual property positions are becoming increasingly important within the agricultural biotechnology and pharmaceutical industries, as products developed through biotechnology become a larger part of the product landscape. Monsanto generally relies upon patent and trademark laws worldwide to establish and maintain its proprietary rights in its technology and products. There is some uncertainty about the value of available patent protection in certain countries outside the United States. Moreover, the patent positions of biotechnology and pharmaceutical companies involve complex legal and factual questions. Rapid technological advances and the number of companies performing such research can create an uncertain environment. Patent applications in the United States are kept secret: outside the United States, patent applications are published 18 months after filing. Accordingly, competitors may be issued patents from time to time without any prior warning to the company. That could decrease the value of similar technologies under development at Monsanto. Because of this rapid pace of change, some of the company's products may unknowingly rely on key technologies developed by others. If that occurs, the company must obtain licenses to such technologies in order to continue to use them. Certain of Monsanto's germplasm and other genetic material, patents, and licenses are currently the subject of litigation and additional future litigation is anticipated. Although the outcome of such litigation cannot be predicted with certainty, Monsanto will continue to defend and litigate its positions vigorously. The company believes it has meritorious defenses and claims in the pending suits. Markets Outside the United States: Sales outside the United States made up approximately 45 percent of the company's 1998 revenues and Monsanto intends to continue to actively explore international sales opportunities. Challenges the company may face in international markets include changes in foreign currency exchange rates, changes in a specific country's or region's political or economic conditions, trade protection measures, import or export licensing requirements, and unexpected changes in regulatory requirements. In particular, the decline in the value of Southeast Asia and Brazilian currencies may, if not reversed, adversely affect future income. Also, future sales may decrease because the decline in such economies could cause customers to purchase fewer goods in general, and also because imported Monsanto products could become more expensive for customers to purchase in their local currency. 25 LAM018851 MAR 002602 Joint Ventures and Divestitures: The company plans to continue to frequently explore the potential benefits of possible strategic alliances, joint ventures, and divestitures. However, despite its efforts, the company may be unable to divest assets at an acceptable price or to reach agreement with third parties with whom it desires to enter into a joint venture or other alliance. Year 2000 Readiness; The dates on which Monsanto believes the Year 2000 (Y2K) Program will be completed are based on management's best estimates, which include numerous assumptions about future events. There can be no guarantee that these estimates will be achieved, or that there will not be a delay in, or increased costs associated with, the implementation of the Y2K Program. Factors that may cause delays in the Y2K Program or increased costs in connection with it include, but are not limited to, the continued availability and cost of experts trained in these areas, the ability to locate and correct all relevant computer code and embedded systems, and the success of similar programs conducted by suppliers and other third parties. 26 LAM018852 MAR 002603