Document v1yQXvNwykQBGj60En82RRw76

PLAINTIFF'S EXHIBIT * MAR 000764 LAM016823 1964 ANNUAL REPORT MONSANTO COMPANY FINANCIAL HIGHLIGHTS (Dollars in Millions, Except Per Share Figures) Earnings a Share........................................................... Cash Dividends a Share............................................... Stock Dividend............................................................... Income: Net sales................................................................... Interest, dividends, etc.......................................... Costs of Doing Business: Raw materials, fuel, supplies, etc........................ Wages and salaries to employes.......................... Depreciation, depletion, etc.................................. Taxes (income, property, etc.).............................. Interest expense..................................................... Minority interests in subsidiaries......................... Net Income...................................................................... Cash Dividends Paid..................................................... Retained for Future Growth........................................ Per Cent of Sales: Gross profit............................................................... Selling and administrative expenses................... Research, development, patent, engineering... Net income............................................................... Plant Additions and Replacements............................ Investment in Affiliated Companies.......................... Long Term Debt (Exclusive of Current Maturities) Shareowners' Equity..................................................... Equity to debt ratio................................................. Common Shares (In Millions)..................................... Book Value a Common Share..................................... Working Capital............................................................. Current Assets to Current Liabilities Ratio.............. Employes......................................................................... Shareowners.................................................................. MAR 000765 1963 $ 2.77 1.20 2% $1,192.3 13.5 1.205.8 605.8 284.8 114.6 100.1 15.8 . 1.7 1 122.8 83.0 35.0 $ 48.0 28.7% 9.9 4.9 7.0 $ 114.5 18.4 $ 352.8 784.2 2.22 30.0 $ 26.17 $ 313.8 2.55 48,133 80,608 LAM016824 1 TO THE SHAREOWNERS In 1964, the U.S. economy expanded vigorously. And Monsanto Company's rate of gain was even greater. The company achieved the best year in its his tory. Sales, income and per-share earnings climbed to record levels, exceeding those of 1963 by sub stantial margins. And, effective the fourth quarter, the dividend was increased. Consolidated sales rose 14 per cent and amounted to $1,358,678,000. Net income increased 38 per cent to $114,891,000. Earnings were $3.72 a share on 30,859,927 shares outstanding, compared to $2.77 a share on 29,963,825 shares a year earlier. Capital outlays for plant and equipment also were at their highest levels. For the year, they totaled $218,105,000, compared to 1963 expendi tures of $114,502,000. Charges against income for depreciation, obsolescence and depletion were $120,268,000 in 1964 and $114,606,000 in 1963. Investments in affiliates amounted to $13,340,000 in 1964 and $18,443,000 a year earlier. The sharp increase in total sales was mainly responsible for the improvement in earnings. But this was not the only significant determinant of the year's outcome. An analysis of the 1964-1963 profit change is shown on this page. Selling prices again drifted lower. Yet, price softening was less damaging than in 1963 by 20 cents a share. And, for the third consecutive year, its effect was more than offset by a combination of new manufacturing economies and lower raw material costs. Selling, administrative, research and develop ment costs rose considerably as the natural conse quence of growth, intensified technological effort and expanded worldwide marketing programs. The year-to-year increase in earnings of 95 cents a share is accounted for as follows: Earnings a Share Year 1963 earnings.................. ......................... $2.77 Additional earnings resulting, from: Higher sales volume........................ $1.20 Manufacturing cost sayings................... 37 Lower raw material prices...................... 06 ' ' 1.63 _ - y . Reductions in earnings ~ caused by:. .? * Lower selling prices;$.25 ... Higher selling, administra-. five, research, develop ment and other expenses. .49 . .74, Increase in operating results.,........... ...................... 89 3.66 Non-operating items: Lower income taxes, due primarily to difference in tax rate.......................................................12 Higher investment tax credit on property additions...............................12 Other income and charges -- net..............................:... :03 Unusual write-offs: Obsolescence............................ .06 Self-insurance reserve..;............ 07 Other...................................... .03.JO Effect on earnings of shares issued during the year.................. .11 .06 Year 1964 earnings............................................ $3.72 Italics indicate deduction. - MAR 000766 LAM016825 2 The vitality of the 1964 economy spread to virtually all markets served by Monsanto. Among the most notable were those for fibers, farm chemicals and plastics. The Chemstrand Company Division, although it operated at capacity, could not fill all orders for Acrilan acrylic fiber. To relieve this situation, Monsanto is speeding expansions that will make new capacity available in 1965. This, however, is but one facet of the greatest worldwide expansion program Monsanto has ever undertaken. Other facilities being built or enlarged in 1964 included those for producing nylon yarns, nylon intermediates, polyester fibers, fertilizer materials, weed killers, detergent intermediates, phosphorus, styrene-based plastics, silicon, adhe sives and chemical intermediates. Altogether, Monsanto had expansions under way in 10 nations, including the United States. In June, several divisional engineering depart ments were consolidated into a new Central Engi neering Department. The new organizational unit enables Monsanto to utilize its valuable engineering resources in managing the company's expansion program efficiently and permits it to deal ade quately with the rapid obsolescence of existing technology and the swift advance of new technol ogy. Construction of a building for the new con solidated engineering activity began at the General Offices in St. Louis. Petrochemical facilities at the Chocolate Bayou Plant, near Alvin, Tex., operated near capacity all year and supplied important raw materials for a number of Monsanto processes. Late in the year, production of biodegradable raw materials for the new "soft" detergents began at Chocolate Bayou. The new detergents will minimize the foam on rivers and streams caused by residues from present products. Monsanto further strengthened its position as a supplier to the detergent industry with the development of an improved method of detergent manufacture. The company continues to emphasize its orienta tion to certain consumer markets -- particularly through its Agricultural and Packaging Divisions. For example, the sale of fertilizer materials and pesticides direct to growers through Monsanto agricultural centers is rapidly being expanded in principal farming areas. Greater emphasis is being given to the develop ment of worldwide marketing strategies. No longer are overseas markets treated in isolation. Instead, they are integrated into Monsanto's corporate thinking, planning and action. Thus, the many components of the corporation are bound together by the worldwide needs of their customers. Even the format of this Annual Report acknowl edges Monsanto's international scope and philos ophy. Operating highlights are reviewed by product group on a worldwide basis for the first time. This puts the book in sharp contrast to earlier reports, which discussed domestic and foreign operations in geographic and organizational segments. The volume of Monsanto's 1964 overseas business makes obvious the importance of worldwide plan ning. Monsanto's sales outside the United States, including exports, amounted to $286 million, which was 21 per cent of the company's total sales. In 1964, more than 60 nations began negotiating tariff reductions at Geneva. Although the complex bargaining sessions may not end until 1966, their results are sure to affect the long-range development of v orldwide chemical markets. It is important that the U.S. chemical industry -- one of the nation's leading growth industries -- not be penalized in order to obtain concessions abroad. To this end, Monsanto has supplied extensive information and recommendations on domestic and foreign tariffs. A Monsanto employe represents the U.S. chemical industry on the technical advisory staff of the chief U.S. negotiator. In April, the U.S. Department of Justice filed a civil action against Monsanto, Farbenfabriken Bayer A. G., and Mobay Chemical Company, alleging that the formation of Mobay by Monsanto and Bayer in 1954 constituted a violation of the antitrust laws. The petition asks that the two com panies divest themselves of their Mobay interests. It is too early to predict the outcome of this litiga tion. 000767 LAM016826 Two long-time Monsanto directors -- Dr. Carroll A. Hochwalt and Felix N. Williams -- retired in the second quarter. Dr. Hochwalt was vice president of research, development, patents and basic engineering. Mr. Williams was vice presi dent of new commercial activities. Both were also members of the Executive Committee. Few careers have enriched Monsanto so conspicuously as those of these two men. Monsanto's management recognizes that the achievements reported on these pages are due mainly to the teamwork of industrious, dedicated employes throughout the world. We are indebted to them for their efforts. Sincerely, COMPARATIVE CONSOLIDATED SALES, INCOME AND EARNINGS A SHARE BY QUARTERS 1964 1963 SALES: 11 n Thousands) First quarter.. $ Second quarter Third quarter... Fourth quarter. 324,414 $ 358,898 326,957 348,409 273,671 312,660 298,069 307,870 $1,358,678 $1,192,270 Per Cent increase 18.5 14.8 9.7 13.2 14.0 Chairman of the Board President February 20, 1965 St. Louis, Missouri The next Annual Meeting of the shareowners of the Company is to be held at 10 AM. Thursday. March 25. 1965. at the Company's General Offices. S00 North Lindbergh Boulevard. St. Louis County. Missouri. A formal notice of the meeting, together with a proxy statement and form of proxy, is being mailed to each shareowner. INCOME: First quarter..$ Second quarter Third quarter... Fourth quarter. 28,696 $ 35,285 23,023 27,887 $ 114,891 $ 15,556 24,721 20,207 22,506 82,990 84.5 42.7 13.9 23.9 38.4 1964 1963 Adjusted for 1964 Stock Dividend As Reported EARNINGS A SHARE (1>: First quarter.......... ... $ .93 Second quarter___... 1.14 Third quarter......... .75 Fourth quarter.... .90 $ .51 .81 .66 .74 $ .52 .82 .68 .75 $3.72 $2.72 $2.77 SHARES OUTSTANDING DECEMBER 31: 1964........................................................30,859,927 1963....................................................... 29,963,825 (1) Restated for the first three quarters of 1964 to reflect the shares outstanding on December 31. MAR 000768 LAM016827 4 1964 OPERATIONAL HIGHLIGHTS In previous Annual Reports, sharp distinctions were drawn between the operations of the parent company and its subsidiaries. Each operating divi sion received individual treatment. Developments at home and abroad also were discussed separately. This 1964 Annual Report breaks with that tradition in an attempt to describe Monsanto's efforts and achievements in a more cohesive man ner. Corporate activities are reviewed by product group on a worldwide basis without regard to organizational units. To supplement this review, a list of Monsanto's worldwide interests begins on page 14. The parent company has these eight divisions: Agricultural Division, Chemstrand Company Division, Hydro carbons Division, Inorganic Chemicals Division, International Division, Organic Chemicals Divi sion, Packaging Division and Plastics Division. CHEMICAL FIBERS Unprecedented worldwide demand for the com pany's fibers strained capacities as sales climbed 25 per cent to record levels. Acrilan acrylic fiber strengthened its position in virtually all U.S. markets. Its gains in carpeting, sweaters, jersey and blankets were especially note worthy. For example, sales to carpet manufacturers increased about 70 per cent. Overseas markets for Acrilan also were more active than ever. The plant in Northern Ireland had a 75 per cent sales increase; its sales to carpet makers more than tripled. In the sweater market, sales gains also were of major proportions. To remedy a serious shortage of Acrilan, a two-part expansion of production facilities was begun at Decatur, Ala. The first part, which neared completion at the end of 1964, represents a onethird increase in Monsanto's domestic capacity for the fiber. The second part, to be completed late in 1965, will push annual production capability to twice its 1964 level. In 1964, Monsanto started producing Acrilan in a new plant at Ashdod, Israel. In Northern Ireland, capacity to make Acrilan is being more than doubled............. Chemstrand nylon yarns were successfully mar keted in more than 40 countries. Among the out standing sales increases were those achieved in Australia, Belgium, France, Mexico, Turkey and the United Kingdom. Nylon yams fared well domestically, too. Sales improvement was general; purchases by tire and carpet makers were especially heavy. Wide accept ance of an improved tire yam played a major role in boosting volume. New Cumuloft continuous-filament textured nylon yams offered carpet producers a number of property improvements, including better dyeing characteristics and greater resistance to soiling. The new Chemstrand yams t'.us contributed to a strong 1964 uptrend in the popularity of nylon carpeting. Growth continues in the stretch nylon field, with Chemstrand's "Actionwear" program making great strides. Increased use of the stretch concept has been particularly significant in woven fabrics -- a trend that is expected to continue. At year-end, construction of Monsanto's two nylon plants overseas was on schedule. One -- the first nylon plant to be built in Europe by a U.S. firm -- is to go on stream in 1965 at Echtemach, Luxembourg. The other, located near Dundonald, Scotland, is to begin producing in 1966. Facilities to make nylon intermediates from acrylonitrile are scheduled for 1965 completion at Decatur. They will use a new electrochemical process announced in 1963. It was discovered and developed by Monsanto scientists and engineers. MAR 000769 LAM016828 The plant at Lancaster, England, increased its sales of cellulosic fibers and other textile products. Production of acetate fibers is being expanded 15 per cent. Polyesters will be added to the company's line of man-made fibers in 1965. Production facilities under construction at Decatur are scheduled to turn out test quantities in the first quarter. Manufacture and sale of Chemback synthetic backing for tufted carpeting are scheduled to be gin in March, 1965. Initial availability will be 40 million square yards annually. To capitalize on the versatility of nylon, Monsanto is developing a series of nylon molding materials. Although the product line was still incomplete in 1964, definite sales progress was evident. Production of these materials is moving at a satisfactory pace and the line is being broadened so that all major formulations can be marketed in 1965. PLASTICS, RESINS AND COATINGS Sales rose 16 per cent and manufacturing facili ties for most products ran at or near their capacities. Process improvements bettered yields, boosted product quality and lowered costs. Larger sales of specialty products helped soften the impact of price declines affecting certain commodity-type plastics. Lustrex styrene polymers and tough Lustran styrene copolymers and terpolymers were in good demand. Improved molding and extrusion ma- CONSOLIDATED SALES BY PRODUCT GROUPS PER CENT INCREASE-DECRBASB 1964 OVER 1963 1959 25 97 16 85 6 30 8 19 19 100 4 28 0 19 87 6 14 17 4 -- -- Chemical Fibers......................................................... Plastics, Resins and Coatings................................. Phosphates and Detergents.................................... Intermediates and Plasticizers............................... Agricultural Chemicals........................................... Rubber and Oil Chemicals....................................... Petroleum -- Net of purchases............................... Pharmaceuticals, Flavors and Condiments........... Textile and Paper Chemicals................................... Heavy Chemicals....................................................... Other............................................................................. MAR 000770 PER CENT OF TOTAL 1964 1963 1959 29.1 25.2 10.1 8.7 7.4 6.6 5.0 2.7 2.5 2.1 .6 26.7 24.8 . 10.9 9.2 7.1 7.2 5.7 2.9 3.1 2.0 .4 23.3 21.5 12.3 11.6 5.8 8.1 6.6 4.0 3.5 3.1 .2 100.0 100.0 100.0 LAM016829 terials sparked new gains in such end uses as refrigeration, packaging, lighting fixtures, TV sets and housewares. New capacity for Lustran came on stream at Addyston, Ohio, and in England. Capacity for Lustrex was increased at two U.S. plants and a new installation was added in Japan. Strong global demand for styrene monomer in 1964 prompted expansions at Texas City, Tex., and in Australia. Further expansion of monomer ca pacity is scheduled at Texas City in 1965. New polyethylenes for cable jacketing and ex trusion coating helped Monsanto increase its par ticipation in these important markets. Capacity to extrude polyethylene film was increased at Kenil worth, N. J. Vinyl chloride polymer consumption continued to rise. Areas of major growth included wire and cable insulation, flooring and new building products. Installation of additional capacity to make this versatile plastic was completed or under way at Springfield, Mass., and in Argentina, Canada, Japan, Mexico and Spain. Vyram rigid polyvinyl chloride, introduced in 1963, continued to demonstrate its .merits in such applications as pipe, containers and building prod ucts. Manufacture of Vyram was extended to several overseas locations. Also introduced in 1964, were several building products of rigid vinyl. They include the first full line of plastic guttering, downspouts and accessory equipment offered by a U.S. producer. The raincarrying system, which never needs painting, represents Monsanto's latest contribution to a maintenance-free home exterior. A major contri bution had also been made in 1963 when the com pany introduced rigid vinyl siding under the Monsanto label. National distribution for the latter product was established in 1964. Sales of Saflex polyvinyl butyral (interlayer for laminated safety glass) and other products based on vinyl acetate were strong in 1964. To accommo date greater internal use and larger external sales of vinyl acetate, a 25 per cent capacity increase was achieved by means of process improvements at Texas City. The Springfield plant began making RJ-100 styrene-based resin intermediate to improve a variety of surface coatings. The product is used at home and abroad by makers of exterior house paints, floor enamels, varnishes and water-based wall paints. RJ-100 makes possible for the first time water-based interior paints that dry to a semi-gloss or gloss finish. Late in the year, a new plant at Eugene, Ore., started producing formaldehyde, and resin ad hesives for plywood and particleboard. In 1965, installation of a phenolic resin unit will be com pleted at the Chocolate Bayou Plant. Monsanto's plastic bottles, film and sheeting for packaging use sold well to high-volume users. So did its plastic cups for coin-operated vending machines. To accommodate customer needs, most of the company's plants making plastic bottles operated seven days a week. Such scheduling also resulted in more efficient utilization of capacity. Development of an economical process for mak ing containers from rigid polyvinyl chloride was among 1964's notable achievements. This pioneer ing work by Monsanto enables customers to pack age in vinyl plastic a variety of products for which suitable plastic packages were not previously avail able. Such products include mouthwashes, sham poos, hair dressings, polishes and household cleansers -- some of which already are sold in the new Monsanto containers. Bottles and jars made by the new process range from clear to opaque. Monsanto's plastic vending cup line was ex panded to include a translucent nine-ounce cup for cold drinks and an insulated seven-ounce model for hot beverages. In 1964, the plant at Melrose Park, 111., produced its one-billionth cup. PHOSPHATES AND DETERGENTS The group had a sales increase of six per cent. Production of phosphorus and its derivatives rose to record levels. The detergent industry, - representing the largest market for Monsanto phosphates, experienced an- *** 0007?I LAM016830 PARENT COMPANY INDEX OF HOURLY WAGE RATES, PRICES OF RAW MATERIALS AND SELLING PRICES HOURLY WAGE RATES PRICES OF RAW MATERIALS SELLING PRICES 1947-1949 = 100 210 210 200 200 190 180 / 170 / 160 s' 190 180 170 160 150 150 140 140 130------- N V 120 no X 100 ................. 90 1955 1956 1957 1958 130 ------- X \ V\ . 120 110 100 ..................... 90 ............... ................ 1959 1960 1961 1962 1963 1964 other year of growth. Liquid detergents utilizing potassium phosphates moved particularly well. An improved method of detergent manufacture announced by Monsanto in 1964 is based on a new raw material that yields a higher quality detergent builder. At the same time, it eliminates a costly processing step. Monsanto will license the new process to companies purchasing plants and will stress the technology in the international market. New facilities to make raw materials for bio degradable detergents began operating at Chocolate Bayou in December. The Monsanto materials are being used to produce a detergent active that serves a major market need. Research and develop ment work on materials useful for other actives is well advanced and such materials are to be mar keted in 1965. These biodegradables will help com bat the growing problem of foaming on surface waters caused by the residues of present detergents. A number of products introduced in 1963 won new customer favor in 1964. Among them are a broad line of leavening agents and a phosphate- MAR 000772 LAM016831 based mixture dropped from airplanes to help control forest fires. New products in an advanced stage of develop ment include a phosphate compound that makes paints fire-retardant without impairing their film properties, and an organic phosphate with a variety of potential applications in the field of water treatment. To assure ample phosphorus for future growth, furnaces were enlarged at Columbia, Tenn., and Soda Springs, Idaho. Plans were made to install an additional furnace at Soda Springs. Expansion of facilities to convert phosphorus to phosphoric acid and phosphates is being planned at Augusta, Ga.; Kearny, N. J.; Long Beach, Calif.; St. Louis; and Trenton, Mich. INTERMEDIATES AND PLASTICIZERS Sales of the group gained eight per cent. From Monsanto intermediates, the company and its customers derive other chemicals. In 1964, not only sales but internal consumption of the products increased. A number of expansions helped Monsanto keep pace. Plasticizers, used mainly to alter the properties of plastics, were in firm demand. Santicizer 160 primary plasticizer was approved by the U. S. Food and Drug Administration as an ingredient of plastic films, coatings and adhesives for food packaging. The approval, which followed several years of exhaustive testing, opened the way to big-volume use. Santicizer 160 is the lowest priced plasticizer of its type to have such clearance. To Monsanto's plasticizer line -- already the world's most complete -- two new products were added in 1964. One is Santicizer 406 plasticizer, which is an improved product for use in refrigerator gasketing. The other is Santicizer 462 plasticizer, which is a low-priced "permanent" type used to formulate plastics and rubber for coating and im pregnating papers and fabrics. Resin raw materials, although made primarily for Monsanto's own use, moved well in 1964 -- particularly to producers of reinforced plastics and surface coatings. Industry-wide overcapacity again led to softer selling prices on resin raw materials. But Monsanto partially offset the effect by reducing production costs, increasing its own use of the materials and putting strong emphasis on newer, more profitable products. One such product is adipic acid, sales of which have been especially strong. Using completely new technology, Monsanto began low-cost manufacture of phenol in Australia. The new production unit replaced one based on a process that had become obsolete. A doubling of bisphenol A capacity began at St. Louis. New facilities there will utilize a Monsanto-developed process to turn out material of unusually high purity. Monsanto. customers use the product to manufacture polycarbonate and epoxy resins. Monsanto's functional fluids -- for such markets as aviation and aerospace, heat and power, and metalworking -- made new headway. Their use to perform hydraulic, dielectric and heat-transfer func tions broadened. Demand from manufacturers of equipment and systems requiring such fluids was especially strong in Europe, South America, Canada and Japan. A new, relatively inexpensive Pydraul fire-resis tant industrial hydraulic fluid was introduced. It is the first nonaqueous fire-resistant fluid priced to compete with water-based hydraulic fluids. Another 1964 newcomer to Monsanto's product line was Coolanol 15 coolant-dielectric fluid. The material, which is pumpable at temperatures below -- 100F, was developed to help control the environ ment in the Gemini two-man spacecraft. It is expected to find additional uses in space vehicles and missiles. Therminol low-pressure, fire-resistant fluid for heat transfer was used in the heating system of a Detroit apartment building. The installation, which is the first of its kind, may help open a large new market to Therminol. The system is proving less costly to operate and maintain than conventional heating systems based on high-pressure steam. MAR 000773 LAM016832 9 4 AGRICULTURAL CHEMICALS As total sales of farm chemicals rose 19 per cent, Monsanto's capacity to produce fertilizer materials was especially taxed. Anticipating even stronger demand for plant foods in 1965, the company launched major expansions. At Luling, La., ammonia capacity is being doubled and ammonium nitrate capacity is being increased 20 per cent. At the same site, Monsanto's first ammonium phosphate unit is being installed. All three projects are to be completed for the 1965 growing season. By year's end, the company's distribution net work had been supplemented by more than 75 Monsanto agricultural centers to sell fertilizer materials and pesticides direct to growers. Monsanto pesticides gained in established U. S. and European markets and found new markets in Latin America and Asia. Pest problems of other nations received special attention. Eight compounds ^ were tested in 29 foreign countries. Corn and soybean acreage treated with Randox weed and grass killer was more than twice that of the prior year. A plant addition at Muscatine, Iowa, doubled Monsanto's capacity to make Randox. Ramrod herbicide, a companion product to fight grassy weeds in more diverse soils and climates, was readied for introduction in 1965. Rogue herbicide became increasingly popular among U. S. rice growers and also began protecting Asian and Latin American rice crops. Capacity to make Rogue is being doubled by installation of a production unit at Luling. Wet weather held domestic use of Avadex wildoat killer below expected levels. Demand picked up, however, in Australia, Canada and Europe. Niran 10-G insecticide sold at twice the expected volume in its introductory season. The compound offers effective low-cost control of corn rootworm, which now threatens millions of corn acres. The worm is becoming resistant to other types of insecticides. In October, a 50 per cent increase in parathion insecticide capacity was completed at Anniston, < h*r 000774 Ala. Earlier, a parathion formulating plant was opened in El Salvador to serve Central American cotton growers, who use the product to combat the boll weevil. A similar facility is planned in Guatemala. Animal nutrition products also had a good year. Santoquin antioxidant, to preserve the nutritive value of feeds and dehydrated forage for poultry and livestock, performed particularly well in Europe, where it has become the standard product of its type. Increased sales of MHA protein feed supplement were due partly to greater use of the product in rations fed to laying hens. RUBBER AND OIL CHEMICALS Sales were up four per cent, reflecting increasing global demand. This was particularly evident in those overseas nations where new industrialization helped expand the markets for rubber products, fuels and lubricants. Sales of butadiene to synthetic rubber firms increased. Introduction of new polybutadiene rub bers expanded total demand. Sales of styrene monomer for synthetic rubber also were at a high level. At Monsanto, 111., larger facilities were installed to make Santoflex 13 and Santoflex 77 rubber antiozonants, both of which were introduced in 1963. The materials protect tires and other rubber prod ucts from damage by weather and sunlight. By the close of 1964, six of seven major rubber companies were developing and testing compounds made with Santoflex 13. Testing facilities were established at Monrovia, Calif., to study the effect of heavy doses of ozone and sunlight on rubber compounds. At Akron, Ohio, production of oscillating-disk rheometers was put on an assembly-line basis. The rheometer is a Monsanto-developed instru ment for measuring the stiffness of rubber through out the curing cycle. Introduced in 1962, it is rapidly becoming a standard measuring device in the rubber industry. LAMO16833 In 1964, there was an increase in the number of motor oils, gasolines and other petroleum products relying on blended Monsanto additives to help them meet the severe operating conditions imposed by devices for controlling air pollution and by today's powerful engines. Such additives include detergents, rust inhibitors and anti-icers. To help Monsanto keep pace with mounting worldwide demand for oil chemicals, new manu facturing units are planned for several overseas sites. They will be in addition to facilities already producing in the United Kingdom. PETROLEUM PRODUCTS The group's total sales approximated those of 1963. Sales of crude oil and natural gas liquids stayed close to year-earlier levels. Gas sales rose 15 per cent. In 1964, 33 shut-in gas wells went on transmission lines. Completion of 71 producing wells gave Monsanto a net increase of 43.33 wells. Among them were 19 wildcat producers. The more significant finds in cluded a gas well and an oil well in New Mexico, a gas well in Oklahoma and an oil well in North Dakota. In North Dakota, development of existing fields was highlighted by new wells that added more than 1,000 barrels to Monsanto's daily oil production. In southern Arkansas, where the company has substantial production, Monsanto is participating in an experimental project to effect secondary recovery of crude oil by steam injection. It is hoped this will lead to substantial reserves of crude heretofore unrecoverable. An area for future development was staked out in 1964 when Monsanto was licensed to explore 92 square miles of the North Sea off England. In 1965, seismographic tests will be conducted there to aid further evaluation of the oil and gas potential. Retail sales of gasolines and lubricants were 10 per cent above 1963 levels. Ten new distributor ships were established in key market areas of Louisiana, Mississippi, Tennessee and Texas. PHARMACEUTICALS, FLAVORS AND CONDIMENTS The group's overall sales increase amounted to eight per cent. At its St. Louis facilities for making bulk aspirin, Monsanto completed one expansion and began another. The two-part capacity increase will nearly double the company's domestic output of the popular low-priced medicinal. Monsanto, which also manufactures aspirin in the United Kingdom, is among the world's major producers. Production of calcium saccharin, a special sweet ener for persons on low-sodium diets, began in 1964. At St. Louis, Monsanto's saccharin capacity is being doubled and facilities to make cyclamate sweeteners are under construction. Both projects are scheduled for 1965 completion. Monsanto is the only major supplier of all types of nonnutritive sweeteners. The company's position as a leading producer of food-grade acidulants also is being strengthened. In 1965, a new unit at St. Louis will start making a special fumaric acid that dissolves easily in cold water. The patented product imparts a tartness to such items as powdered beverages and fruit-juice drink concentrates. In 1964, a food laboratory was established at Monsanto's St. Louis Research Center. Its main purpose is to develop new and improved specialty ingredients for foods. TEXTILE AND PAPER CHEMICALS The group's total sales declined six per cent. In response to a worldwide shortage of acryloni trile, Monsanto in 1964 completed one expansion, began a second and planned a third. At Texas City, output was increased 30 per cent. At Chocolate Bayou, the company's second acrylonitrile facility neared completion. And another expansion, also to be at Chocolate Bayou, was scheduled for com pletion by mid-1966. These moves will more than triple Monsanto's total acrylonitrile capacity. *** 000775 LAM016834 Scriptset 540 additive, for treating paper sur faces, was used by customers in substantial quantity to give offset printing papers improved water resistance and smoother surfaces, and to manufacture stock for paper cups. Scriptite 435 resin, which gives paper extra wet strength, was successfully introduced. It is useful in making paper for bags, towels, napkins, tea bags, posters and other products exposed to weather or water. Other new products undergoing commercial trials in 1964 included a material for producing trans parent tracing papers and business forms, and a modifier to improve the performance of starch paper size. HEAVY CHEMICALS Several production units were expanded as stead ily growing demand helped increase sales of heavy chemicals by 17 per cent. Sulfuric acid output was close to capacity. A new unit went into production at the El Dorado, Ark., chemical plant. Meanwhile, worldwide sales of Monsanto-designed sulfuric acid plants to other producers more than doubled. Capacity for vanadium catalyst -- a key ma terial in sulfuric acid production -- was increased at Monsanto, 111. In India, manufacture of the catalyst was begun by a Monsanto licensee. Monsanto's Santocel specialty silica products -- for flatting surface coatings and thickening resin systems -- came into broader use. Facilities for their manufacture were expanded at Everett, Mass. On Cote Blanche Island, La., the salt mine in which Monsanto owns an interest neared com pletion. The mine is to be in full operation by mid1965, when a large production shaft is completed. Monsanto will use some of its salt as a raw material; the balance will be marketed. OTHER PRODUCTS Silicon -- for the manufacture of electronic de vices -- is the most important product in the group. Its sales more than doubled. Monsanto, which offers a complete line of silicon varieties, intensified its research and development efforts on this "space-age" product. One result of this accelerated program was the development of highly complex epitaxial wafers. At St. Charles, Mo., capacity of the silicon plant was more than doubled. At Ruabon, Wales, another silicon expansion was near completion at the end of the year. The two expansions increase Monsanto's ability to supply the many silicon forms needed in the international market.' ' ` RESEARCH, DEVELOPMENT AND ENGINEERING Concentrated technological effort again helped keep Monsanto in the forefront of an intensely competitive industry. From the company's laboratories came new de velopments to enhance corporate profitability. They included not only many new products but a number of process improvements to help trim production costs and boost yields. In 1964, the company introduced 42 new chemi cal products. This total does not include the many important new models added to previously existing lines of fibers, plastics and packages. Such product improvements are no less indicative of creativity. They are excluded simply because they represent evolutionary products rather than revolutionary ones. Also in 1964, Monsanto received a total of 1,362 U.S. and foreign patents. Expenditures for research, development, patent work and basic engineering totaled $66.8 million, compared to $58.4 million in 1963. The Central Engineering Department formed in 1964 will provide Monsanto's worldwide operations with integrated engineering services that embrace planning and evaluation; design of processes, equip ment, facilities and buildings; purchasing; and con struction of all major capital projects. To help the new department fulfill its function overseas, Monsanto International Engineering Company Inc. was also formed as a subsidiary in 1964. The latter firm has established offices in London and Brussels. mar 000776 LAM016835 There were no major changes in the conduct of Monsanto research in 1964. Yet, the desire to grow from within prompted a modest reorientation of effort. For example, there was greater emphasis on food ingredients, polyester fibers, unusual plastics, and electronic chemicals. Man's chemistry, skillful as it is, is outmatched by the chemistry of nature. Where man requires great heat and high pressure to accomplish his ends, nature performs her wonders more delicately, with catalysts and template patterns called en zymes. Part of Monsanto's research is devoted to gaining an understanding of these mechanisms of nature and applying them to industrial purposes. Increased understanding of the relationship be tween the structure and properties of polymers led to the discovery of new polymer applications in pigment binders for paper, floor tile and surface coatings. Probing into the high-temperature region, Monsanto scientists developed organic fibers for use in systems operating at more than 1,000F. A series of inorganic fibers was compounded for use at temperatures in excess of 3,000F. MAR 000777 LAM016836 lI : 13 In support of the U. S. space program, a device Training programs were expanded. A manage was developed to convert energy from the sun into ment development program inaugurated in 1964 electricity. The device is a cell made of Monsanto's includes group courses in advanced technical and gallium phosphide. It can function at temperatures management concepts. Also implemented was a as high as 675F, which is some 200 degrees beyond new plan to identify individuals with exceptional i the capability of materials in present use but still management potential and to accelerate their short of the research objective. development. Significant projects undertaken for the govern Courses in advanced technology proved valuable ment by wholly owned Monsanto Research Corpo to engineering managers and supervisors. And an ration involved successful building and testing of expanded three-year training program for market an experimental thermoelectric generator to run at ing people was prepared for 1965 launching. The high temperatures; development of promising anti latter program provides new salesmen with on- radiation drugs; and work on fuel cells capable of the-job training combined with orientation courses i producing electricity from a variety of fuels and and sales training -- both basic and advanced. oxidizers (including air). There was continued emphasis on in-plant train Mound Laboratory -- which the research sub ing, individual performance reviews, job rotation, sidiary operates at Miamisburg, Ohio, for the Atomic Energy Commission -- continued to con and management and academic leaves for advanced education at universities. duct important research, development and manu Monsanto gave financial aid to universities and facturing activities. In 1964, this key unit in the educational organizations in support of fellowships, nation's nuclear programs was named sole dis scholarships and departmental operations. More tributor of stable gaseous isotopes such as helium-3, than 150 departments of U.S. schools received uses for which include research at extremely low such aid in 1964. temperatures. The laboratory also distributes carbon-13, particularly useful as a tracer in medical research. To the mutual benefit of Monsanto and its organ ized employes, work contracts covering more than one year were agreed to at 11 locations. Five three- A new textile technical center began operating year agreements were reached; six negotiations in 1964 at Leicester, England. resulted in two-year agreements. CORPORATE INSURANCE In November, Monsanto made a substantial change in its insurance program. Among the im portant features of a new broad-coverage policy placed on Monsanto's U.S. properties is a de ductible of $2 million for each loss incurred. Re tention by the company of the first $2 million of loss has significantly reduced premium costs. A self-insurance reserve considered adequate has been established to absorb losses assumed by Monsanto under the deductible provisions of this new coverage. PERSONNEL Expanding operations required the largest an nual addition of technical and professional person nel in Monsanto's history. Three work stoppages occurred in 1964. One, where a first contract was under negotiation, lasted five weeks. Neither of the other two ran more than a week. Monsanto's worldwide employment rose nine per cent, increasing the total number on the payroll to 52,284. Despite this increase in personnel, the com pany's 1964 injury rate was well below the industry average. These were among the executive changes in 1964: Vice President and Director Edward A. O'Neal Jr. was elected to the Executive Committee. Prior to taking over the new post in St. Louis, Mr. O'Neal had been president of the Chemstrand Company Division. As a member of the Executive Committee, he is concerned with the general area of fibers and textiles. mar 000778 LAM016837 Vice President Tom K. Smith Jr. transferred from St. Louis to New York to become Chemstrand's new president. Before that, Mr. Smith had been general manager of the Agricultural Division. Robert R. Rrnner, former director of manufac turing for the Agricultural Division, became that division's general manager. (In January, 1965, he was elected a vice president.) Vice President Marshall E. Young, who had been general manager of the International Division, transferred from St. Louis to Washington to head Monsanto's regional office there. He succeeds Vice President Edward W. Gamble Jr., who will retire shortly, following 15 years of Monsanto service in the nation's capital. Monte C. Throdahl became general manager of the International Division, having previously served as its assistant general manager. (He was elected a vice president in January, 1965.) Treasurer Patrick J. Dowd was elected a vice president. Irving C. Smith, who had been deputy managing director of Monsanto Europe S.A. at Brussels, became managing director. He replaced Peter Webb, who transferred to the United States to take over an important assignment in commercial development. Earl J. Wipfier, a former assistant controller, was elected controller. He succeeded Marlette C. Covert, who suffered a fatal heart attack in May. John M. Depp was appointed director of the newly formed Central Engineering Department. Prior to that, he had been assistant general man ager of the Inorganic Chemicals Division. MONSANTO'S WORLDWIDE INTERESTS This list, which includes Monsanto's principal equities, reveals the scope and diversity of the company's international activities. No attempt is made to indicate size. Many companies named here are chemical industry leaders in their respec tive countries. Others are relatively small. Omitted entirely are the more than 100 sales agencies repre senting Monsanto in virtually all parts of the Free World. Percent ownerships, in some cases rounded to the nearest whole number, are shown paren thetically. NORTH AMERICA UNITED STATES: Chemstrand Research Center Inc. (100%) conducts research in the field of textiles. Filtered Rosin Products Company (100%) produces gum naval stores and synthetic resins. Leonard Construction Company (100%) designs and builds chemical plants and other types of plants. Mobay Chemical Company (50%) is a major producer of urethane chemicals. Monsanto International Engineering Company Inc. (100%) provides engineering service and counsel to the parent company and overseas units. Monsanto Research Corporation (100%) does research for government agencies and for Monsanto; produces nuclear sources; operates a government-owned labora tory for the Atomic Energy Commission. Polythane Corporation (100%) manufactures spandex elastomeric yarns. 000779 LAM016838 Shawinigan Resins Corporation (100%) makes plastics raw materials. Wood Treating Chemicals Company (100%) produces wood preservatives. CANADA: Monsanto Canada Limited (100%) manufactures chemicals and plastics raw materials. Monsanto Oils Limited (100%) handies oil and gas exploration and production in Canada. Plax Canada Limited (50%) produces plastic blownware. MEXICO: Monsanto Mexicana S. A. (100%) produces chemicals, plastics raw materials and building products. A major subsidiary makes plastics into consumer products. CENTRAL AND SOUTH AMERICA ARGENTINA: Monsanto Argentina S.A.I.C. (100%) manufactures chemicals and plastics raw materials. BRAZIL: Monsanto Comercio e Industria Limitada (100%) performs technical service and development activities in South America. COLOMBIA: Fabrica de Hilazas Vanylon S. A. (49%) produces nylon 6 yarns. GUATEMALA: Monsanto (Guatemala) S. A. (100%) will formulate in secticides starting in 1965. PANAMA: Monsanto Overseas S. A. (100%) handles certain invest ments and licensing outside the U. S. PUERTO RICO: Chemstrand Overseas S. A. (100%) markets Chemstrand products exported to areas outside Europe and handles certain investments outside the U. S. VENEZUELA: Monsanto Venezuela Inc. (100%) produces oil. EUROPE AND MIDDLE EAST BELGIUM: Monsanto Europe S. A. (100%) provides management supervision of investments and marketing activities in Europe and the Middle East, and produces polyvinyl butyral plastic interlayer for laminated safety glass. Sidaplax S. A. (50%) produces biaxially oriented plastic film. FRANCE: Societe Monsanto (100%) makes plastics raw materials and paper chemicals. ISRAEL: Israeli Chemical Fibres Limited (60%) manufactures Acrilan acrylic fiber. ITALY: Applicazioni Chimiche Societa Per Azioni (40%) pro duces acrylic fiber. LUXEMBOURG: Monsanto Cie S.A. (100%) will begin making Chem strand nylon 6, 6 yarns in 1965. SPAIN: Aiscondel S.A. (50%) makes consumer products of plastics. Two subsidiaries produce chemicals and plastics raw materials. SWITZERLAND: Chemstrand International S.A. (100%) markets Chem strand fibers and yarns in Switzerland and Austria. Monsanto Research S.A. (100%) conducts basic research. Plax A.G. (100%) handles certain investing and licens ing matters. MAR 000780 LAM016839 UNITED KINGDOM: Chemstrand Limited (100%) manufactures Acrilan acrylic fiber and will start making nylon 6, 6 fiber in 1966. Lansil Limited (100%) produces acetate flake and yarn, textile fabrics and garments. Monsanto Chemicals Limited (67%) manufactures chemicals, plastics and plastics raw materials. Major subsidiaries produce plastics for construction and packaging. Polythane Fibres Limited (100%) makes spandex yarns. A subsidiary produces rubber yarns. WEST GERMANY: Monsanto (Deutschland) GmbH (100%) markets chemi cal fibers and provides technical service on chemicals and plastics. ASIA AND AUSTRALIA AUSTRALIA: Australian Petrochemicals Limited (55%) manufac tures plastics raw materials. Monsanto Chemicals (Australia) Limited (80%) makes chemicals and plastics raw materials. A subsidiary pro duces fluorocarbons. INDIA: Monsanto Chemicals of India Pvt. Limited (83%) mar kets chemicals and plastics raw materials in India. JAPAN: Mitsubishi Monsanto Chemical Company (50%) manu factures chemicals, plastics and plastics raw materials. Mitsubishi Vonnel Company Limited (38%) makes acrylic fiber. Monsanto Japan Limited (100%) is a sales and service organization. SHAREOWNERS OF RECORD 1964 Number of Shareowners Number of Shares 1963 Number of Shareowners Number of Shares 1962 Number of Shareowners Number of Shares 1961 Number of Shareowners Number of Shares I960 r Number Number of Share- of owners Shares Men... . ... 30,446 4,691,800 . 27,863 4,354,601 28,545 4,557,252 : 28,722 4,723,196 f 29,953 4,810,770 Women........................ 28,328 Joint Accounts............. 17,770 Charitable Institutions.. 480 3,850,905 .; 24,322 909,442 :. 16,881 204,432 395 3,603,280 876,116 144,691 24,657 17,375 224 3,640,656 fc 24,565 858,686 | 17,346 87,445 r 234 3,647,262 4.' 24,680 852,952 fc 18,173 125,849 263 3,682,808 923,112 130,699 Educational Institutions. 136 190,164 k 127 151,485 : 117 178,808 l 111 154,489 fc 107 151,581 Estates and Trusts.. Insurance Companies. Brokers and Nominees. All Others.................... Total.................. 9,384 236 1,685 1,368 89,833 1,669,731 ? 8,065 1,196,581 ff 211 16,629,555 ! 1,640 1,517,317 k 1,104 30,859,927 | 80,608 1,395,227 8,446 1,058,065 201 13,397,722 1,133 4,982,638 h 1,754 29,963,825 82,452 1,697,284 l 8,191 988,887 l- 190 9,856,764 I 1,120 7,144,365 % 1,724 29,010,147 | 82,203 1,875,843 1 7,755 1859,916 178 9,090,762 1I6,693,171 128,023,440 1,063 1,637 83,809 1,804,416 782,364 8,666,965 6,242.474 27,195,189 In 1964, 68 per cent of Monsanto shareowners held fewer than 100 shares. MAR 000781 LAM016840 ACCOUNTANTS' OPINION 17 HASKINS & SELLS CERTIFIED PUBLIC ACCOUNTANTS BOATMEN'S BANK BUILDING SAINT LOUIS 63102 Monsanto Company: We have examined the statement of consolidated financial position of Monsanto Company and its subsidiary companies as of December 31, 1964 and the related statements of consolidated income and paid-in surplus and retained earnings for the year then ended. Our examination was made in accordance with gener ally accepted auditing standards, and accordingly included such tests of the accounting records and such other auditing pro cedures as we considered necessary in the circumstances. In our opinion, the accompanying statement of consolidated financial position and statements of consolidated income and paid-in surplus and retained earnings present fairly the financial position of Monsanto Company and its subsidiaries at December 31, 1964 and the results of their operations for the year then ended, in conformity with generally accepted account ing principles applied on a basis consistent with that of the preceding year. ** February 8, 1965 \\7 /k MAR 000782 LAM016841 STATEMENT OF CONSOLIDATED FINANCIAL POSITION ASSETS Current Assets: Cash............................................................................................. Marketable securities, at cost which approximates market Net receivables........................................................................... Inventories.................................................................................. 1964' 1963 On Thousands) $ 40,896 52J806I fs12395 84,667 198,703 191,579 515,845 Investments and Miscellaneous Assets, at Cost or Less: Investment in and advances to associates..................... Miscellaneous investments and receivables................... Property, Plant and Equipment, at Cost.................... Less accumulated depreciation and depletion, etc, Net property....................................................... 29,382 56,256 85,638 *25.9831 1,520,813 740,535 780,278 Deferred Charges 32,436 The above statement should be read in conjunction with pages 22 and 23 of this report. $1,414,197 * mar 000783 LAM016842 SUBSIDIARIES AT DECEMBER 31, 1964 AND 1963 LIABILITIES Current Liabilities: Accounts payable and accruals.................................................................... Income taxes................................................................................................... Current portion of long term debt (less $1,000,000 debentures in treasury) 1964 1963 } (In Thousands) $ 154,770 75,870 10,500 241,140 $ 122,803 69,041 10,227 202,071 Notes, Debentures, etc.--Less Current Portion Above............................. m Other Liabilities: Deferred income taxes................................................................................... Miscellaneous.................................................................................................. Minority Interests in Subsidiary Companies............................................... 345,480 - V 46,375 49,811 :?X T Y' ' 261858' 352,801 41,335 2,431 43,766 31,326 Shareowners' Equity: Common shares--authorized, 35,000,000 shares, par value $2 each; outstanding, 30,859,927 shares in 1964 and 29,963,825 shares in 1963 ...................................................................................................... Paid-in surplus................................................................................................ Retained earnings.......................................................................................... (> mar 000784 61,720 466,630 343,929Jv 871,679$ < - - 'j'u zz-A 'h- ^ $l,534.968|g 59,928 406,243 318,062 784,233 $1,414,197 19 LAM016843 20 MONSANTO COMPAQ STATEMENT OF CONSOLIDATED INCOME Net Sales Cost of Goods Sold................................ 1964' -V,;' 1963 (In Thousands) $1,358,678 $1,192,270 940,077 , 849,669 Increase Decrease $166,408 90,408 Gross Profit............................................ '418,60H 342,601 76,000 Less: Selling and administrative expenses Research, development, patent and engineering expenses.................... Operating Profit....................... Income Charges -- Net........... Income Before Income Taxes . 134,279` :0?'(2d66,-796: 0751 < 217,526 " 3,457 117,714 58,395 176,109 166,492 6,086 . 214,069: 160,406 16,565 8,401 24,966 51,034 2,629 53,663 Provision for Income Taxes: Current................................... Deferred................................. '87j198? : ' , ' - 4.V' - . 11,980 - 99,178' 65,043 12,373 77,416 22,155 393 21,762 Net Income The above statement should be read in conjunction with pages 22 and 23 of this report. $ 82,990 $ 31,901 MAR 000785 LAM016844 SUBSIDIARIES 21 STATEMENT OF CONSOLIDATED PAID-IN SURPLUS AND RETAINED EAR N I N GS PAID-IN SURPLUS Balance at Beginning of Year Additions: Excess of approximate market value of common capital stock distributed as a stock dividend over the par value thereof......................................... Excess of amounts received over the par value of common capital stock issued under stock option plans................................................................. Other....................................................................................................................... Balance at End of Year........................................................................................... 1964 1963 (In Thousands) - ,1-7 $406,243 $360,856 48,263. 31,549 .*11,524^$466,030 13,798 40 $406,243 RETAINED EARNINGS Balance at Beginning of Year................................................................................ Additions: Net income for the year....................................................................................... One-half of retained earnings at December 31, 1962 of Shawinigan Resins Corporation, a 50 per cent-owned company, which became a wholly-owned subsidiary in April 1963.................................................. Deductions: Dividends on capital stock of parent company: Cash -- $1.25 a share in 1964 and $1.20 a share in 1963 Stock -- 2%................................................................................. One-half of deficit at December 31, 1963 of Polythane Corporation and subsidiaries, 50 per cent-owned companies, which became whollyowned subsidiaries in May 1964............................................................... m.alance at end of year. $318,062 5?*! $298,710 .,114,8Stm 82,990 \ 432,953 - 4,062 385,762 37,606 49,471" *. 87,077 34,978 32,722 67,700 ,, * 1,947 89,024 -- ......... i ; $343,929 . 5 _________ 67,700 ------------------------------- $318,062 The above statement should be read in conjunction with pages 22 and 23 of this report. MAR 000786 LAM016845 FINANCIAL REVIEW The accompanying financial statements (pages 18 through 21) consolidate all active domestic and foreign subsidiaries in which Monsanto Company directly or indirectly has more than a 50 per cent interest. The equity in the unaudited 1964 net income of 50 per cent-owned companies was $1,786,000, com pared with $2,059,000 in 1963. Dividends of $1,112,000 were received from these companies in 1964 and $1,300,000 in 1963. The equity in the unaudited net assets of such companies at the end of the year was $27,051,000, which exceeded the carrying value of $25,250,000 by $1,801,000. The decline in equity in net assets of associates from 1963 is largely attributable to certain retroactive adjustments which were charged to retained earnings. The Revenue Act of 1964 provides for the con tinuation of the credit against Federal income taxes equal to approximately seven per cent of expendi tures for machinery and equipment purchased and placed in service during the year, but eliminates, retroactive to January 1, 1962, the provision in the prior law which required a corresponding reduction of the depreciable tax base of such property. Conse quently, the entire amount of the investment credit for 1964, $5,946,000, has been used to reduce the current year's income tax provision. The unamor tized balance of deferred income taxes relating to the investment credit for 1963 and 1962 amounting to $5,044,000 was transferred to the current income tax liability, anc net income for the current year was not affected. The use of the sum of the years digits method for computing depreciation on most of new assets ac quired since 1954 was continued in 1964. The excess of depreciation provided by this method over straight line depreciation was $17,252,000 in 1964 and $18,646,000 in 1963. For income tax purposes only, the company and one of its subsidiaries in 1962 adopted the guideline lives established for machinery and equipment by the United States Treasury Department. The additional depreciation taken for tax purposes reduces the current income tax liability of these companies. Net income for the year, however, is not affected, since an amount equivalent to the reduction in current taxes payable is charged to income to provide for deferred taxes payable in future years. Charges against income for depreciation, obso lescence and depletion amounted to $120,268,000, of which $116,596,000 was depreciation and obso lescence and $3,672,000 depletion. In 1963, such charges were $111,092,000 and $3,514,000. Repair and maintenance charges included in operating expenses were $80,432,000 in 1964 and $76,628,000 in 1963. The company has a number of lease agreements covering the use of tank cars, other transportation equipment, office space, office equipment, etc., which are generally cancellable without penalty. For the most part, the agreements are short term, with a few extending up to 20 years. The annual rental for all leases amounts to approximately $15,921,000. In certain prior years, provisions were made for income taxes payable in future years resulting primarily from the excess of depreciation and amortization of facilities constructed under Cer tificates of Necessity for income tax purposes over depreciation for accounting purposes. For the years 1964 and 1963, $1,821,000 and $4,138,000 of such taxes became payable and were charged against the reserve provided in prior years. Examination of the company's Federal income tax returns has been completed for all years through 1956, and returns for the years 1957 through 1959 are presently under examination by the Internal Revenue Service. Differences in opinion exist be tween the company and the service on the tax treatment of certain items of income and expense. The ultimate disposition of the items in question is not presently determinable. It is believed that adequate provision has been made in the accounts for possible deficiencies. Reserves for doubtful accounts were $5,446,000 in 1964 and $5,158,000 in 1963. Inventories are generally stated at the lower of cost or market, determined on the first-in, first-out basis. Annual rate of turnover was 4.6 in 1964 and 4.7 in 1963. The long term debt of the company and its sub sidiaries, exclusive of current maturities, totaled $345,480,000 at the end of 1964, as shown in the table on page 23. To assist in financing the company's large program of capital expenditures, arrangements were made in February, 1965, for the parent company to borrow $100 million for a period up to 10 years. The company was contingently liable as guaran tor of bank loans to 50 per cent-owned companies and others aggregating approximately $12,300,000 *** 000787 LAM016846 at December 31, 1964 and $7,700,000 at the end of 1963. In 1964, cash dividends of 30 cents in each of the first three quarters and 35 cents in the fourth quarter were paid on the common shares. Also, 604,340 common shares were issued on December 22, 1964 in payment of a two per cent stock dividend. The company has four stock option plans in effect: the plans authorized by shareowners in 1951, 1960 and 1964 for key employes, and the Third Employes' Stock Plan, authorized by shareowners in 1964 for hourly and salaried employes except participants in the three plans for key employes. The status of the authorized shares of the three key plans and the changes occurring during the year were: 1951 Plan 1960 Plan 1964 Plan Outstanding 1/1/64....... 112,636 494,987 Unoptioned 1/1/64........ 7,174 Authorized during year., 550,000 Optioned during year -- 5,500 401,250 Exercised during year... 74,167 217,567 Terminated during year. 877 Outstanding 12/31/64.. 39,284* 287,995* 409,050' Unoptioned 12/31/64.. 2,687* 151,950' Adjusted for 1964 two per cent stock dividend. Under the three key plans, 574 options are out standing, at prices, after adjustment for stock divi dends, ranging from $31.76 to $84.56 a share. The following tabulation sets forth information for 1964 on common shares relating to the Third Employes' Stock Plan: Authorized........................................................ 650,000 Optioned: June 23 (27-month options) at $75.00 each....................... 297,675 December 23 (21-month options) at $81.50 each...................... ... Exercised.......................................................... 28 Terminated...................................................... 11,014 Outstanding 12/31/64................................... 286,633 Unoptioned 12/31/64.................................... 363,339 Subsequent to December 31, 1964, but prior to January 25, 1965, the expiration date for the December offering, options for an additional 12,291 shares were accepted by employes. The option prices are equal to 95 per cent of the fair market value on the dates the options were offered. Payments by the employe over the option period are made by payroll deductions on which the company credits interest at a rate of five per cent. LONG TERM DEBT (Exclusive of Current Maturities) Parent company: 314% sinking fund debentures, due 1968........... 2.65% debentures, due 1971 (less in treasury, $1,000,000 in 1964 and $2,000,000 in 1963) 3%% sinking fund debentures, due 1972........... 3promissory notes, due 1972........................ 4%% promissory notes, due 1993........................ 3%% income debentures, due 2002.................... 4%% income debentures, due 2008.................... Shawinigan Resins Corporation: A/z% debentures, due 1976.................................. Monsanto Chemicals Limited (British subsidiary): 6% debentures, due 1977/82............................... 5% debentures, due 1982...................................... Monsanto Cie, S.A. (Luxembourgian subsidiary): Bank loan................................................................... Other subsidiaries........................................................ 1964 1963 (In Thousands) $ 7,500 $ 8,750 20,000 9,500 41,012 100,000 91,000 50,000 20,000 10,000 48,212 100,000 91,000 50,000 3,720 4,060 7,769 9,061 7,980 9,307 3,000 2,918 1,669 1,823 Total.............................................................. $345,480 $352,801 MAR 00078S LAM016847 24 MONSANTO COMPANY HISTORICAL STATEMENT OF (In millions) ASSETS Current Assets: Cash............................. Marketable securities Net receivables.......... Inventories................. Investments, etc 1964 1963 1962 1961 1960 10 YEARS AGO 1954 25 YEARS AGO 1939 $ 27.8 $ 40.9 $ 34.4 $ 28.9 52.8 84.7 67.1 18.6 239.7 198.7 173.9 152.7 214.9 191.6 170.6 154.5 535.2 515.9 446.0 354.7 $ 32.8 75.1 124.4 153.5 385.8 $ 39.2 .9 46.2 68.8 155.1 $ 9.3 2.0 5.3 9.3 25.9 85.9 85.6 84.4 90.5 75.4 33.8 1.2 Property: Land....................................................... Buildings............................................... Machinery and equipment................ Phosphate deposits............................ Producing oil and gas properties___ Undeveloped oil and gas leaseholds. Accumulated depreciation, etc......... Accumulated depletion...................... Net property.............................. 27.4 263.0 1,295.2 9.8 94.7 8.2 785.7 36.6 876.0 27.7 237.0 1,148.2 9.6 89.2 9.1 707.2 33.3 780.3 25.2 219.3 1,054.5 8.6 84.8 9.6 600.9 31.2 769.9 23.4 195.0 907.0 8.5 82.1 8.9 514.8 29.3 680.8 19.2 181.0 795.5 8.1 79.5 9.0 449.4 27.2 615.7 6.5 64.8 283.0 5.0 -- -- 126.5 .7 232.1 1.8 10.0 31.6 .7 -- -- 16.5 .1 27.5 Deferred Charges 37.9 32.4 24.6 16.3 $1,535.0 $1,414.2 $1,324.9 $1,142.3 12.7 $1,089.6 4.5 $425.5 .2 $54.8 (1) After deduction of tax notes of $17.3 million. Italics indicate deduction. MAR 000789 LAM016848 2 AND SUBSIDIARIES CONSOLIDATED FINANCIAL POSITION (In millions) LIABILITIES Current Liabilities: Accounts payable and accruals........ Income taxes....................................... Current portion long term debt......... 1964 1963 1962 1961 $ 154.8 $ 122.8 $ 127.0 $ 109.3 75.8 69.1 42.9 48.8 10.5 10.2 9.3 9.2 241.1 202.1 179.2 1.67.3 1960 10 YEARS AGO 1954 $ 86.4 46.8 9.9 143.1 $ 37.2 (1) 5.9 43.1 25 YEARS AGO 1939 $ 4.6 1.4 6.0 Notes, Debentures, etc.......................... 345.5 352.8 360.8 269.2 289.2 106.5 -- Other Liabilities: Deferred income taxes....................... Miscellaneous...................................... 46.4 3.4 49.8 41.4 2.4 43.8 33.5 3.5 37.0 28.1 3.4 31.5 31.1 3.1 34.2 5.0 5.8 10.8 -- .2 .2 Minority Interests in Subsidiaries___ 26.9 31.3 30.3 23.1 23.1 19.3 2.3 Shareowners' Equity: Preference shares............................... Common shares................................... Paid-in surplus..................................... Retained earnings............................... -- 61.7 466.1 343.9 -- 59.9 406.2 318.1 -- 58.0 360.9 298.7 -- 56.0 323.1 272.1 871.7 784.2 717.6 651.2 $1,535.0 $1,414.2 $1,324.9 $1,142.3 -- 54.4 286.7 258.9 600.0 $1,089.6 15.0 26.4 100.5 103.9 245.8 $425.5 10.0 12.4 11.3 12.6 46.3 $54.8 MAR 000790 LAM016849 26 * MONSANTO COMPANY HISTORICAL STA TEMENT OF CONSOLIDATED INCOME (In millions except per share earnings) 1964- 1963 1962 1961 1960 10 YEARS AGO 1954 25 YEARS AGO 1939 Net Sales................................................. Cost of Goods Sold................................ $1,358.7 940.1 $1,192.3 849.7 $1,063.2 762.2 $932.9 672.9 $890.1 632.7 $384.2 273.9 $43.0 30.1 Gross Profit............................................ 418.6 342.6 301.0 260.0 257.4 110.3 12.9 # Less: Selling, administrative....................... Research, development, patent, en gineering.......................................... 134.3 66.8 117.7 58.4 100.1 51.6 201.1 176.1 151.7 Operating Profit.................................... Income Charges -- Net........................ 217.5 3.4 166.5 6.1 149.3 8.0 Income Before Income Taxes............. Provision for Income Taxes................ 214.1 99.2 160.4 77.4 141.3 62.9 Net Income............................................. $ 114.9 $ 83.0 $ 78.4 84.7 46.7 131.4 . 128.6 1.5 127.1 58.4 $ 68.7 79.9 46.4 126.3 131.1 4.5 126.6 58.8 $ 67.8 43.2 15.5 58.7 51.6 5.0 46.6 22.3 $ 24.3 4.4 1.2 5.6 7.3 .4 6.9 1.5 $ 5.4 Per Common Share: Adjusted for splits............................. $ Adjusted for splits and stock divi dends............................................... $ 3.72 $ 3.72 $ 2.77 $ 2.72 $ 2.70 2.60 $ 2.45 $ 2.31 $ 2.49 $ 2.30 $ 1.50 $ 1.26 $ .45 $ .3.7 4 MAR 000791 LAM016850 21 and subsidiaries OTHER DATA (In millions except where italicized) Plant additions and replacements___ 1964 $218,1 1963 $114.5 1962 1961 I960 10 YEARS AGO 1954 25 YEARS AGO 1939 $168.8 $153.8 $121.3 $ 43.1 $ 4.1 Depreciation, depletion, etc................. $120.3 $114.6 $ 97.6 $ 86.9 $ 79.0 $ 25.9 $ 2.7 Dividends a common share(1>............. SI. 25 SI. 20 SI.05 S1.00 $1.00 $.83 $.33 Book value a common share(1)........... S2S.25 S26.17 $24.74 $23.24 $22.06 $14.60 S3.25 Common sharesa)................................. 30.9 30.0 29.0 28.0 27.2 15.8 11.2 Preference shares................................. -- -- ---- -- 150,000 100.000 Working capital...................................... $294.1 $313.8 $266.8 $187.4 $242.7 $112.0 $19.9 Long term debt (less current matur ities)..................................................... $345.5 $352.8 $360.8 $269.2 $289.2 $106.5 -- Shareowners' equity............................. $871.7 $784.2 $717.6 $651.2 $600.0 $245.8 $46.3 Employes<2)............................................ 52.284 48.133 45,665 38,621 36.266 19,348 6.580 Shareowners.......................................... 89.833 SO.608 82.452 *> (1) Adjusted for splits. (2) Includes Monsanto employes in plant operated for U.S. Government (1.624 in 1964). MAR 000792 82,203 83.809 24,222 9,i >43 LAM016851 28 MONSANTO COMPANY AND SUBSIDIARIES SOURCE AND DISPOSITION OF FUNDS (In Thousands) Source of Funds: TOTAL 1964 1963 Net income.................................................... ... $ 412.712 Provisions for: Depreciation, depletion, etc..................... .... 498.427 Deferred income taxes.............................. 35,804 Insurance reserve...................................... 2,000 Outside financing: 4%% promissory notes............................. 99,593 Other............................................................ 4,945 Common shares issued under options.... 40,245 Other -- net..................................................... / 3.622 $114,891 120,268 11,980 2,000 3,276 12,108 429 $ 82,990 114,606 12,373 1,669 14,532 5,368 1,080,104 264,094 220,802 1962 1961 1960 $ 78,368 $ 68,656 $ 67,807 97,639 11,451 86,876 79,038 99,593 2,639 2,366 292,056 9,926 7,918 157,540 1,040 2.273 145,612 Disposition of Funds: Dividends on common shares........................ Plant additions and replacements................. . Investment in affiliated companies............... Retirement of debt........................................... Increase in working capital*15....................... Increase -- decrease in cash and securities. 155,029 776,511 60,913 73,590 95,001 80,940 37,606 218,105 13,340 10,418 29,845 45,220 34,978 114,502 18,443 13,452 18,042 21,385 $1,080,104 $264,094 $220,802 29,470 168,833 9,597 17,877 14,614 51,665 27,316 153,818 9,810 21,928 5,021 60,353 25,659 121,253 9,723 9,915 27,479 48.417 $292,056 $157,540 $145,612 (1) Exclusive of cash and securities. Italics indicate deduction. MAR 000793 lam16852 DIRECTORS AND OFFICERS BOARD OF DIRECTORS OFFICERS Charles Allen Thomas, Chairman. . . . St. Louis Charles Allen Thomas Dillon Anderson................................................ Houston Charles H. Sommer. .. . David R. Calhoun. . St.LouiJsohn L. Christian.......... John L. Gillis................. John L. Christian.............................................................St.Louis Robert K. Mueller. ... Fredrick M. Eaton...........................................New York Edward A. O'Neal Jr. .. John L. Gillis...................................................................St.Louis Chairman of the Board .......................President ................Vice President ............... Vice President ............... Vice President ............... Vice President Herbert Hoover Jr.................................Los Angeles Robert K. Mueller........................................................St.LouisH. Harold Bible.......... Edward A. O'Neal Jr.......................................................St.LouisEdward J. Bock............ James E. Crawford Jr. Edgar M. Queeny.......................................................... St.LouisPatrick J. Dowd........... Charles H. Sommer.........................................................St.LouisJohn R. Eck................... Alan H. Temple..............................................................NewYorkArthur W. Lucas . Robert M. Morris. . . Edwin J. Putzell Jr. . . EXECUTIVE COMMITTEE Robert R. Rumer . Tom K. Smith Jr............ Charles H. Sommer, Chairman Monte C. Throdahl. .. John L. Christian Robert K. Mueller J. Russell Wilson. . . . . Vice President . Vice President . Vice President . Vice President . Vice President . Vice President . Vice President . Vice President . Vice President . Vice President . Vice President . Vice President John L. Gillis Edward A. O'Neal Jr. Charles Allen Thomas Earl J. Wipfler.....................................................Controller Edwin J. Putzell Jr..........................................Secretary Patrick J. Dowd .................................................Treasurer FINANCE COMMITTEE Edgar M. Queeny, Chairman Dillon Anderson Herbert Hoover Jr. David R. Calhoun Charles H. Sommer Fredrick M. Eaton Alan H. Temple Charles Allen Thomas Transfer Agents Morgan Guaranty Trust Company of New York The Boatmen's National Bank of St. Louis Lloyd R. Cole................ Jack W. Mueller.......... Walter C. Thilking . .. Charles E. Caspari Jr. John N. Ehlers............. Rodney Harris Jr........ C. Brent Holleran . . . Franklin C. Rehfeld. . Norvell G. Jones......... J. Robert Matlock Walter J. Naber Jr. . Thomas M. Rasmussen . Rolla H. Stocke............ Assistant Controller Assistant Controller Assistant Controller Assistant Secretary Assistant Secretary . Assistant Secretary . Assistant Secretary . Assistant Secretary Assistant Treasurer Assistant Treasurer Assistant Treasurer Assistant Treasurer Assistant Treasurer Registrars The Chase Manhattan Bank St. Louis Union Trust Company Regional Vice Presidents Roy L. Brandenburger Franklin J. Cornwell Marshall E. Young February 20, 1965 *** OOO794 LAM016853 MONSANTO COMPANY j 800 N. LINDBERGH BLVD., ST. LOUIS, MISSOURI 63166 }iAR 000795 LAW\016854