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Monsanto 1994 ANNUAL REPORT TO SHAREOWNERS ii i In 1994, we showed the financial power of our strong core products. This report shows how these products and new ones will keep the drive going. MONS 354708 TOWOLDMONOQ15811 .{ Monsanto Demonstrates Commitment to Shareowner Value Monsanto Company's strength throughout its 94-year history has been its ability to turn superb science into products that improve the quality of lifeOur 1994 performance was no exception. Strong core products in agriculture, performance chemicals, pharmaceuti cals and food Ingredients continued to show their power in the marketplace. New products added momentum to our lineup of well-known brands, which Include Roundup herbicide, Ortho lawnand-garden products, Wear-Dated carpet, Safltx plastic interlayer, Colon calcium channel blocker and NutraSwet brand sweetener. These key products, successful new products, and a continuing focus on reducing costs fueled our outstanding financial per formance in 1994. We reached our financial tar gets and returned excess cash to shareowner* through dividends and share repurchase*. (Utun* on Shartowmr*' Equity Hit* Target Monsanto achieved a 21.4 percent return on shareowners' equity (ROE) in 1994. By doing so, we passed a major milestone in our financial goal to reach and sustain a 20 percent ROE. N*t Incan* Qraw* 26 Psrcsni Net income in 1994 was $622 million, a 26 percent increase from net Income in 1993 and the second highest in Monsanto's his tory. Earnings per share of $5.32 set a record. MvW*mi liter***** for 22nd Ymt Dividend per Share In doilera, per crtsnder yttr IN 1M 1.H 14* IN *' * Wt Increased our dividend to $2.52 per share on an annual basis in April 1994. Monsanto htu paid quarterly diwdmdi on it] common jluret without mirrmpn'on tinct 1928 and has increased the dividend in each of the past 22 years. Since 1989, our dividend on a calendar year barii has increased 49.7 percent. Cttk Flow Remain* Strong Cash Provided by Continuing Operation* Oollers In million* I4M 1,H* (M 960666 *Co]h provided by continuing operations increased 27 percent in J994, reaching $1.3 billion. Since 1989, Monsanto has generated an average of more than SI billion in cash from continuing operation! annually. Once ongoing buimest needj are met, we use excess cash to mcreaje our dividend and to repurchase shares while maintdtsv mg favorable credit rating]. Sh*r* RejMrdittM Top 55 Mfflon We continued to repur chase shares of Monsanto stock in 1994 through several authorized share repurchase plans. Since June 1987, we have acquired 55.8 million shares through repurchase plans and fot ongoing compensa tion and benefit plans. Cost Saving* Contribut* to Operating Incoma Monsanto continues to take actions designed to make its worldwide operations more focused, productive and cost effective. Cost savings initiatives contributed approximately $250 mil lion to operating income in 1994. These savings are expected to continue. Additional cost cutting efforts will be imple mented as we respond to increased global competi tion and higher customer expectations. Conp**MtJoi Coatfnu** T6 B TM to ShartowMr Int*rwt We continued in 1994 to establish direct links between the interests of our shareowners and the compensation of our employees. An increasing portion of employees' compensation is based on achieving certain perform ance goals that are tied to shareowner value. In 1994, performance stock options were granted to 1,200 eligible employees worldwide. These options were tied to Monsanto's achieving its 20 percent ROE target. Mouit* IH4 JUmui ****** MONS 35*709 TOWOLDMONOQ15812 HTS TABLE (Dtflert t* rUftoM, ntMft p*t sktn] Net Sales......................... .......................................................... Income (Loss) from Continuing Operations.......................... Net Income (Loss)..................................................................... Per Share: . Income (Loss) from Continuing Operations....................... Net Income (Loss)................................................................ . Dividend................................................................................... Shareowners' Equity................................................................... Depreciation and Amortization............................................... Cash Provided by Continuing Operations.............................. Research and Development Expenses...................................... Return on Shareowners' Equity (ROE)................................... Percent of Total Debt to Total Capitalization.......... .............. Shareowners (year-end)............................................................ Shares Outstanding (year-end, in millions)........................... Employees (yeanend)............................................................... 1**4 $8,272 $ 622 $ 622 $ 5.32 $ 5.32 $ 2.47 $26.43 $ 561 $1,300 $ 609 21.4% 37% 53,694 112 29,354 $7,902 $ 494 $ 494 lm $7,763 $ (126) $ (88) DM **, 19) 5% 26% 26% $ 4.10 $ 4.10 $ 2.30 $24.62 $ 572 $1,022 $ 626 16.9% 38% 56,601 116 30,019 $(1.01) $(0.71) $ 2.20 $24.95 $ 765 $ 848 $ 651 (2.6)% 36% 60,074 120 33,797 30% 30% 7% 7% (2)% 27% (3>% 27% <3)% (5)% (3)% (2)% What Skaraowtwn WW $ la TNi Report /n 1994, we donorutrowd hou1 important our core product) and our commitment to reducMf costs art m metting our financial targets. This report gives short' owners a detailed review of how we achieved thu success. But thorecHvnen also warn co know' what we plan for the future. In this report, our Investors will find our view of the biumm iuu and economic climate sot will face fn the next two to four years. We obo give cm outlook for each ofour business areas, with a focus on how new product! uril com' plement our core products as we continue to deliver value to our shareowners. Lrttar to Sharaownor* 2 Chairman and Chief Executive Officer Richard J. Mahoney discusses how Monsanto's current product! delivered !tron| financial results in 1994 and how the growth potential of new product! will keep the drive going. CwTMrt art Proapocthr* Product* Thii page tummantes our founda tion of strong products and those products currently feeing developed for the futsert. MOMWttO It QtMCd 6 Thi! section provides an overview of Monsanto's four operating unit!. it jummarixes what each unit doe!, how each contributed to the compony's 1994 results, the burineii climate facing each unit, and what that unit mult achieve in die future. 1994 Review, Buelneee Cflmrte and Outlook of Operations 8 An in-depth look at each of Monsanto') operating unit! in this section includes: 1994 highlights, a description of external buimesi factors, and a discussion of what to expect in the future from each of Monsanto's key inufnejje!. The Agricultural Group 8 The Chemical Group 12 Soerte 16 The NutraSweet Comp*tty 20 Burnett UnH PmWent* 24 This section introduces Monsanto'! new orjanijfltional structure with brief information on each busmen unit and it! president. Financial Section and Corporate Information 28 Monsanto's /inancia! reports and statement!; information on Moniam'! offi cers, adviiory director! and board of directors; and shareowner information are included in this section. Financial Section 26 AdWtory Director* 59 Board of Director* 60 Executive and Other Officer* 62 Shareowner Information 63 MmmiN 1MI Aji iiMl lUpect Our 1994 earnings per share of $5.32 set a record, and net income was the iecond-b<!l m Monsanto ! history. MONS 354710 TOWOLDMONOOI5813 Core Strength in Creative Science Provides Foundation for New Growth t was a year to savor for a while -- and then move Ion from there. In 1994, Monsanto showed many of Its great strengths -- but not all. There is much more to cornel Monsanto earned $622 million in net income in 1994, up from $494 million in 1993. Calculated wlthour one-time gains and losses in both years, net income from operations would have been $623 million for 1994 vs. $479 million for 1993. Return on share owners' equity in 1994 reached 21.5 percent on the same operational basis, compared with 21.4 percent on reported income. It was a year in which the great core strength of Monsanto, irs creative chemistry, thrived in every part of our product mix, whether it was our fibers, our agri cultural businesses or our products for industrial and consumer uses. Investments made in biotechnology over many years began to pay off. This long-term developmental funding has been a target of criticism by some people who question the time it has taken for commercialuation. It has taken a long time. Bur. in many cases, we and others were "writing the rules" for this new science as we Monsanto showed went along, particularly regarding applications in food and plants. many of Ks groat Regulatory procedures have now been strengths In 1994 established for most biotechnology uses and -but not all. are in process for those remaining. Monsanto's first product in agricultural biotechnology, Posilac bovine somatotropin (BST), which Increases the efficiency of milk production in cows, was successfully introduced in the United States in 1994. It has already been used by producers who own approximately 30 percent of tire U.S. dairy herd, and its popularity is becoming estab lished. Posiidc has proved the adage that getting the first olive out of the bottle Is the hardest; the rest come much easier. This is now being demonstrated in crop appli cations of biotechnology. For example, during 1994, Monsanto took the last, steps toward commercialiration for an array of new agricultural products -- better fresh pro duce, crops internally protected against pests, and crops that are tolerant of Roundup herbicide. Some of them will be on tire market as early as 1996. It is also * RichardJ. Mahoney (left) will retire as chatrmttn and chief executive officer on March } I, i S>95. He will be succeeded by Robert B, Shojiro, currently president otv) chief of*ram\ officer. MortUfllo MONS 354711 TOWOLDMON0015814 now possible for the first time to think of a wide range only partly because health care has become more of new Industrial uses for agricultural products. price-competitive during the decade. A more impor To capitalire on our leadership in agricultural biotechnology, we have completed or have in progress several alliances designed to capture an appropriate share tant reason is that Searle's own research and devel opment (R&.D) pipeline has not yet been a significant commercial success. of the market value added by our technology. These Searle will be an important source of near-term range from joint ventures in fresh produce, cotton and earnings growth for Monsanto because of its products grains, to joint development programs, to the licensing of already on the market and others close to commerciali specific traits in for our use or out for use by others who zation. However, the multiplier will apply to a much pay Monsanto royalties. It has been a decade of invest smaller Searle earnings base than we had hoped. ment in biotechnology by our shareowners, but It will be Having looked carefully at all the options available a major contributor for decades to come! with Searle, we believe it makes sense to push forward: The Ortho lawn-and-garden products business, to accelerate earnings against demanding timetables, acquired in 1993, achieved its promised returns in its to continue to seek alliances, to bring to market the first full year under Monsanto ownership, We are now promising products from our emerging pipeline of expanding this attractive opportunity internationally. biotechnology-based pharmaceuticals, and then to Our newest corporate addition, Kelco, the specialty chemicals business we acquired from Merck & Co. Inc., offers impressive sales and earnings growth. It Is a good make a future determination about Searle's ultimate direction. While these options may not satisfy every one today, In the studied judgment of Monsanto's fit with several of our business units. In this case, we can offer almost instant gratification to our shareown management, these steps offer the best potential ers. We paid a full, but not excessive, price for Kelco, considering its excellent margins and top performance in its field of performance additives for food, Industrial, agricultural and pharmaceutical uses. Several new applications at Kelco are ready for major growth. Significant cost savings, as well as sales synergies, are available through consolidation. It will prove to be an excellent addition, and the proof will come soon. A decade of Invest* ment has ensured that biotechnology will be a major return given what we see developing both inter nally and externally. Searle has the ability to meet Monsanto's finan cial standards within three years and the potential to go well beyond them after that n earlier major move, the combined acquisi contributor for with a successful Ation of The NutraSweet Company and Searle decades to come. in 1985, as viewed now a decade later, has paid off for biotechnology-based product pipeline. shareowners, but not in the way we originally planned. The promise of our NutraSweet, our food ingredients company, earned pharmaceutical biotech back the entire cost of the combined acquisition, nology pipeline can be glimpsed in two recent achieving our corporate requirement for rate of return. alliances. The first is a 1994 agreement with Chiron But NutraSweet'i earnings carried Searle, our pharma Corp., a biotechnology firm based in California, to ceutical business, throughout the period. NutraSweet collaborate in developing a Searle product called tissue continues to perform well despite the pressures of factor pathway inhibitor. This agent prevents coagula worldwide patent expirations for its key product, aspar tion during microvascular surgery. Negotiations are also tame. Searle has had significant success in marketing, being completed with an international pharmaceutical in licensing products from outside, and in obtaining company for codevelopment rights in its home market regulatory approvals. But, clearly, the Searle portion for Searle's oral antiplatelet drug, which prevents the of the acquisition has been an underperformer. This is buildup of blood clots. Upfront and milestone payments Mtiuiti IH4 Atmul fttfwl The nevAy acquired Kelco ipeaalty chemicals feusintu offers impretsive tales and faming growth. 3 MONS 35W12 TOWOLDMONOOI5815 iA K H O W N hR will be received by Searle. Both of these drugs are now in human clinical trials. Progress on near-term finan cial perfonnance and R&D pipeline advancement at Searle will be driven hard and measured carefully as we determine the scope of our future involvement in pharmaceuticals. During 1994, cost Cost cutting cutting and the redesign of our work received and the redesign major attention, as they have for several years. of ourworit art These are not fads to get through to the next fad. now ingrained These processes are now ingrained in the com in the company. pany, and they have served us well. We have changed, and will con tinue to change, the nature of the work to be done and how we organize to do It. Customers have put fierce, global pressure on prices for those highly competitive parts of our product portfolio. This global pressure will only intensify, so we must continue our own relentless drive to reduce costs. With this kind of pressure in the workplace, our job in management is to ensure that Monsanto's people will have compensating professional and financial rewards, and that our work environment will be freer and more responsive to their Individual and team efforts. We can -- and must -- ensure that extraordi nary achievement Is extraordinarily rewarded. As I look back on more than a decade as your chief executive officer, it has been throughout a period of rethinking and remaking the corporation. Although we were always a company with several bright lights, we were once known chiefly as a commodity chemicals company. Time and external events passed that con cept by as an option for Monsanto. The move away from the past was sometimes a wrenching one for employees and shareowners alike. But the old lights shine mote brightly now, and new ones will become apparent to those who now participate, as they were for those who were "present at the creation." Share owners who believed in what we were about were Justly rewarded, as measured by Monsanto's total return to shareowners (share price appreciation plus reinvested dividends) compared with the total return of the general stock market and of our peer chemical group over that time. Those who have become share owners more recently ot who are considering Monsanto should see the attractive prospects for this company and the promise of so much more to come. Tills is a powerhouse company in agricultural biotechnology, an important addition to our strength in agricultural chemicals. Our core chemical businesses are very strong. Our acquisitions bring new sources of strength and new platforms for growth, and the growth in these new areas is accelerating. Monsanto people around the world are dedicated to making it happen. It has been a joy to observe their capability and energy over the years. Participating with them has been one of the great privileges of my life. n my first letter to shareowners in 1983,1 wrote: I"We harbor no illusions drat die course ahead will be easy as we face swiftly changing market demands, increasing competition, accelerating technological challenges, and escalating public expectations. Nevertheless, our aspiration to excel serves as a unify ing force in a time of divisive complexities. Our company is astir with a renewed sense of optimism, and indeed a spirit of excitement." Now, a decade later, neither the challenges nor the sense of optimism and excitement has changed. In April 1995, a new management team led by Bob Shapiro will guide Monsanto. The development of this team has been both a personal priority and a personal source of pride. They no doubt will confront changes in the business climate, will see new ways to do things, and will seek and find new directions not now obvious. My predecessor gave me that chance. 1 pass that opportunity on to them with great confidence. It was a year to savor for a while -- and then move on! Richard J. Mahoney Chairman and Chief Executive Officer March 6, 1995 NkiMirt* 1H4 AimiI Ktrflfl MONS 354713 TOWOLDMON0015816 ; fv New Products Will Complement Our Portfolio New products with growth potential will comple ment our core products in the coming years. Major current profit contributors are listed below. They are fol lowed by possible contributors to the company's future success now in our product pipeline. We constantly reassess our potential products and move only the most promising down the commercialiiation track. Some of these products may never be marketed, and new candi dates may be added. Several of the products listed below are discussed on pages 8-23 and 34-39 of this report. A1 the rniff of 1091, our key products writ: Roundup and oilier glyphosece-baied noruelectlve herbicides for use in agricultural, Industrial. turf nd lawn-and-garden marked Harness. Harness Xtra, Bullet, Lauo and other acetanilide-based com herbicides Ortho lawn-and-garden produca Avoir* BW, Far-Go and othet trlallate-bajed herbicides a Nylon fibers primarily for use in carper and tire production and nylon Inter mediates for UK in nylon fibers and resins a Safltx plastic interlayer fot automotive windshields and laminated architectural glass a Arrilan acrylic fiber for home famishing* and apparel a Phosphorus and it* derivatives for use In a variety of consumer products, such as cosmetics, detergents and food additives Lujtron, Vydyn/ and other plastics fot appliance and vehicle parts Rubber chemicals fot tires and other rubber produca a A variety of specialty chemical produca 1 that ate sold to automotive, housing and consumer tnatkea Colon calcium channel blocker to neat hypertension a Daypro once-a-day arthritis treatment a Cytotec ulcer preventive drug a Amfwn short-term treatment fot insomnai a Spironolactone drugs for high blood pressure a NutroSueri brand sweetener and other aspartame-based food ingtedlena a Equal, CarvUrtl and NurroSueet Spoonful brand tabletop sweeteners Rcmitly tipprovwl nt nitrotluccul products expected to coritrduite to our fimnci.d 1uir.r*"A id tin* n*xt ffi*w ytsus iurliulo: 1 a Potilac bovine somatotropin (BST) foe increased efficiency of milk production a Permit, Manage and Sempra sulfonylureabsued herbicides to control weeds in com, turf, sugar cane and grain sorghum a Safitx plastic Interlayer for improved performance in glass lamination of windshields a Arrilasr acrylic fiber specifically designed for craft yam a Sorhallu polymeric ultraviolet (UV) light blockers that keep fabrics, flooring and plastic films from fading, yellowing and degrading a Scratch-resistant coatings for glasses and for bar-code window scanners used in retail checkout stations a Fiectron metslllted materials to shield electronic devices from radio-frequency interference a Vydyns nylon molding resins for flameretardant thermoplastica B Lustion Guardian ABS thermoplastic for refrigerator Insulation that reduces otone depletion compared with previous Insulation* a Sontotoc MRS tackifier for floorings a Artfaotec arthritis treatment Prodof Is currently under development or iiemlim* .rpprov.il tli.i! wc expect to pot on the m.uhel before the end of 1997 ore: 1 a Delayed-ripenlng tomatoes a Crops that are tolerant of Roundup herbicide, including Roundup Ready canola, cotton and soybeans a NtwLtaf insect-protected potatoes a Insect-protected cotton with the Boflgurd gent a Genesis plant growth regulator to aid In hybridizing wheat crops a Sontosof dimethyl eater solvena for paint removers and cleaning solutions that biodegrade easily a Verapamil OROS nighttime hypertension treatment Potfiiti.il iitmliK ts tli.it 111.1v tif l.iiim Ini'tl .lilt s 1907 imlmlf: a Insect-protected com a Virus-protected potatoes B Higher-solids potatoes arlth improved processing properties a Crops that are tolerant of Roundup herbicide, including Roundup Ready com, oilseed tape and eugst beets a Herbicide for control of grasses and btoadleaf weeds In wheat crops a Herbicide for control of grasses and broadleaf weeds in European cereal crops a Fungicide for control of take-all disease in wheat a Fungicide fot control of leaf and eat disease* in cereal crop* a Nemitidde fot control of roundworm* a Plana that produce biodegradable plastic polymers a Industrial fluids, plastka. plasticisers and other produca that improve performance characteristics, such as strength and flexibility, of customers' produca a Tissue factor pathway inhibitor (TFPI) to neat complications during microvascular surgery ..... a IL-J syiuhoktne to help chemothenpy patiena replenish white blood cells and platelea more rapidly a Oral antiplatelet to prevent ot inhibit Mood cloa from forming after bypass surgery ot angioplasty a Eliprodil stroke treatment a COX-2 arthritis treatment a Epoxymexrenone fot the treatment of hypertension, congestive heart failure and cirrhosis a Sweetener 2000 high-inteniiry sweetener Mmii<4 1H4 Aaaaal Half of our fwfxlmt product) an bioudmotojy-drrivfd plant science or pharmaceutical products S MONS 354714 TOWOLDMON0015817 1994 Review: Agricultural Group Delivers Record Income on New Product Sales, Higher Volumes for Roundup Herbicide The Agricultural Group develop* and msifcet* crop protection product*, lawn-and'garden products, and product* enhanced by biotechnology that Improve food production and enhance environmental quality In agricultural, Industrial, turf and residential use*. In 1994, operating Income Increased by 19 percent to a record $470 million on the strength of new product sales, a ftiH year of lawiHmd^garden sales, and record volumes for Roumhip herbicide. The Agricultural Group was a model growth strategy In action in 1994. Volumes for Roundup herbicide now entering Its third decade on the market -- set a record. Two new products were suc cessfully Introduced, five herbicides received regu latory approval, and the first full year's sales from the 1993 acquisit ion of the Ortho lawn-and-garden products were added. Worldwide volumes for Roundup Increased signifi cantly for the year, mainly on the strength of sales related to conservation tillage. Farmers who use con servation tillage plow less and rely more on the Judicious use of herbicides to eliminate, weeds. They then plant into the stubble of the previous crop. The growing global popularity of conservation tillage extended to an estimated 7 percent to 10 percent of suitable farmland in 1994- Many farmers choose Roundup for conservation tillage because of its perfomnance and economics. New Product* Drive Growth The Agricultural Group laid foundations for new growth In 1994 by successfully Introducing Posihc bovine somatotropin (BST) and Harness herbicide in the United States. Volumes for Roundup Herbtciile iggUx&()(C' cl;.if*; I K.v10 t't) . ': ?00 PosilcK increases the efficiency of milk pro duction in cows. After one year on the market, m II roughly 13,000 U.S. dairy producers have purchased Posilnc. Monsanto estimates that those producers own approximately 30 percent of U.S. Ml . dairy cows. These sales helped tire Protiva animal sciences unit nearly break even Yl*- ! .'. : (2 * & .. * Ot1' ' ' i ih X < M1 i i*f V/ifeVv iv }*<* t . K -'.f : . . I f Vi f / :' Xl' 1 7 `i 1 . .. s-oiilfi'tlia'iffti*''."..<. - .;=v-*.i*i,s.,lit, .X`|:'." : jt SfL I I * ,rl | ' ' : .... : - ^ '.i?-= -v. :>!< vii?:'rf:!y. r ' * v: filin'' 3t * ' l ' ' for the year. Two herbicides approved for use in the United States dur ing 1994 strengthen Monsanto's position in the highly competitive com herbicide market. Harness herbicide, approved in March, and Harness Xtra premix herbicide, approved in October, can be applied at lower use rates than many other herbicides. In December 1994, Permit herbicide for control of sedges and broadleaf weeds in corn and grain sorghum, and Manage herbicide for nutsedge control lit turf were approved for use in the United States. In October 1994, Sempra herbicide was approved in Australia for nutsedge control in turf. This product was also approved in December 1994 for nutsedge control in sugar cane in Brazil. The active ingredient In all of these herbicides, halosulfuron, offers users effective weed control with rates as low as one-half of an ounce of active ingredient per acre. Solaris completed its first full year of manufacturing and marketing tire line of Ortko lawn-and-garden products acquired from Chevron Chemical Co. in May 1993. During 1994, Solaris concentrated on cut ting costs and on revamping certain product lines to Improve sales. MMMtitta JM4 Atineil **p*rl HONS 354717 TOWOLDMONOOI5820 Improving Productivity Tops Agriculture's Business Climate Challenges In the long term, agricultural productivity must Improve to feed a growing population while providing fanner* an economic return. In the short term, devel oping economies and conservation tillage techniques are creating new markets for agricultural products. A rapidly expanding global population requires an increasing supply of food, but the supply of suitable farmland is limited, A priority for the agricul tural industry, then, is to provide new ways for farmers to increase their productivity. Crops developed through biotechnology to increase yields, improve processing characteristics, or lower production costs offer great promise for improving efficiency. At the same time, economic development in China, India and Latin America is opening new agri cultural markets for traditional crop protection products. And the trend toward conservation tillage continues to grow worldwide, providing significant market growth. Conservation tillage encourages v A mcr/or Mlcngc /or agriculture is to improve productivity dramati cally because the amount of available farmland cannot expand enough to feed the world's rapidly growing population. New products that increase yields, improve tire processing characteristics offood, or lower production costs will be important contributors to productivity enhancements. reduced plowing and the judicious application of herbicides to control weeds. Approximately 90 percent of the world's farmland suitable for conservation tillage remains to be converted to this technique. For Wort* Population Growth Estimate In billions Source: United Nations herbicide manufacturers, this untapped potential means significant oppor tunities for sales growth. Whether the issue is efficiency of production, economic development or conservation tillage, society expects that all new products will pre serve the environment. The agricultural industry is responding to this expectation with herbi cides and biotechnology products that reduce the resources required to produce, market and * By 2020, the global population is expected to increase by more (ban 40 percent, surpassing the 8 billion rrusrk. During the same time, the amount of available farmland is expected to grow at a far slower pace. use traditional crop protection products. In this climate, agricul tural companies that have the products and global infrastructures to serve devetoping economies and the conservation tillage trend can benefit in the short term. In the long term, those companies with wotld-class abilities to develop and commercialize products that increase the efficiency of production while enhancing the environment should profit. MoMirt* l*M Annuil Report Approximately 90 percent of the world's farmland suitable for conservation tillage remains to be converted to tbts Kihnii/ik' 9 MOMS 35*718 TOWOLDMONOOI5821 New Products Create a Bright Outlook for The Agricultural Group To achieve the full profit potential of Key products mi to develop new products that will contribute to taneowtver value, The Agricultural Group Intends to: * increase Income from Roundup herbicide by expending K# use In conservation tillage applica tions and In emerging International marhets. Increase Income from new, more effective crop protection product# that enhance environmental quality and are targeted for use on major crops. * increase Income from Solaris lawn-and ganien products with expansions Into new consumer segments and new countries. * Successfully commwclafo* biotechnology products that will Increase food productivity and quality. Continue to Increase sales of and Income front PosIIkc bovine somatotropin. The Agricultural Group's current products will be complemented by several biotechnology products that are on schedule to enter the market place during the next four years. Together, this array of products will help address agriculture's long-term needs: producing abundant food economically, while enhancing environmental quality. Growth Opportunities Remain for Roundup Herbicide Roundup herbicide is expected to continue Its strong volume increases worldwide despite generic com petition in certain markets outside the United States. Conservation tillage will continue to be a growth area. Although it is well-established in Brazil, Australia, Argentina and the United States, conservation tillage is currently used on only 7 percent to 10 percent of suitable farmland worldwide, according to Monsanto estimates. Roundup is the herbicide of choice for conser vation tillage because it is effective and cost efficient. In addition to the large conservation tillage growth opportunity for Roundup, The Agricultural Group Is strengthening local infrastructures to serve emerging markets in Asia, Latin America, Central Europe and the former Soviet Union. Sales In these markets, plus the eventual additional sales of Roundup In connec tion with crops being developed to be tolerant of Roundup, could be substantial. New Product* Strengthen Coro Herbicide Portfolio Permit herbicide for sedge and broadleaf < Soybeans with the Roundup Ready gene were developed through biotechnology to tolerate Roundup herbicide. These soybeam will allow farmers such as Warren Stemme (left) to use the herbicide on (rowing soybeans to control weeds that otherwise would reduce yields. After applying Roundup to fount# Roundup Ready soybeans, farmers can reduce the/mure, cost of apptylnf other herbicides because the natural canopy of the plants discourager additional weed growth. Monsanto scientist Barb Welts (right) leads a development team that is preparing for the product's International introduction. MONS 35*719 I TOWOLDMONO015822 weed control In com will be introduced in 1995. When Permit is applied after Harness herbicide, the two products provide a complete combination: crop safety and effective treatment of both grass and broadleaf weeds in com. These new products should allow The Agricultural Croup to compete more effec tively in the weed control market for North America's largest cash crop. Solaris Looks for International Expansions Solaris is seeking opportunities to expand its tine of lawn-and-garden products around the world using the same approach that is working in the United States: acquire a local line of lawn-and-garden products, combine it with existing products, reduce costs, and use Solaris' market ing abilities to sell more volumes at higher margins. Solaris took this concept to Canada with the January * Solaris is introducing its Yard Basics line of six lawn-and-garden products in 1995. The redesignedpackages simplify buying choices for consumers and should increase salts of these products, especially to beginning gardener). 1995 acquisition of Green Cross lawn-and-garden products. Solaris also will introduce its Yard Basics line of six lawn-and- garden products in the United States in 1995. Yard Basics is geared to simplify the decisions consumers make when buying gardening supplies. Biotechnofocy-Bmd Products Emerging from Pipeline Genetically improved crops will emerge from the new product pipeline within the next several years. Candidates for commercialization include soybeans, canola and cotton that are tolerant of Roundup herbi cide; Insect-protected cotton with the Bollgard gene; NewLeaf insect-protected potatoes; insect-protected * Sales of Posilac bovine somatotropin (BST), which increases die efficiency of milk production, are expected to help die Protiva animal sciences unit turn a profit in i 995. The U.S. Department of Agriculture esti mates diat BST will be used on 12 percent of die country's dairy cows in 1995. com; and delayed-ripening tomatoes. These products will help farmers improve yields and reduce overall use rates of crop protection products. Rowndup Ready crops will offer excellent weed control with outstanding.crop safety, environmental benefits and cost advantages. Crops that are tolerant of Roundup have the added advantage of stimulating additional volumes of this top-selling herbicide. Insect-protected crops will let farmers reduce their use of insecticides, providing a convenient and effective alternative for controlling major insect pests. Delayed- ripening technology will add 10 to 15 days to the shelf life of tomatoes, allowing them to ripen on the vine .------------------------------------------- and develop full PUt Selene** PtprikM Estimated commercialization timetable based on regulatory progress through 1994 flavor before being . , , , ,, , picked and shipped, Aggressive mar- ,*H`**, NewLWInuc,-ProtectedPotatoes keting of Posilac bovin soma. Roundup Ready Soybean a JruecT'ProticiAf Cotton w uiih dvr Bollgard Gem Roundup Ready Canola Dtb>ed'Ripe7ungToT7v(Xi Roundup Ready Cotton 1 # fiwct-Proucted Com (V4J fuau (Cm*M IIUI tUAI IU.ll Vrnu-Prwcwd Potatoes Roundup Ready Com Roundup Ready Sugar Been tuts IU.1I (Urtfe) Roundup Ready Oilseed Rofx # Hh^ct'SoWj Potato*i Itmetel lu.u A Monsanto is proceeding with the development of J 2 biotechnology plant sciences products that could lead to increased crop productivity or improved food quality and processing traits. These products are being evaluated by various regulatory agencies. When brought to market, they should be important con tributors to the agricultural product line. totropin, which improves the effi ciency of milk pro duction, is expected to generate substan tial volume increases for the Ptotiva animal sciences unit. A U.S. Department of Agriculture analysis concludes that nearly oneeighth of the U.S. dairy herd will be supplemented with bovine soma totropin for the first time in 1995, almost double the number of cows treated in 1994- MvMtnlD 1M4 Annul Roundup Ready crops will offer fannen environmental and cott advantages, and stimulate sales of Roundup herbicide MONS 354720 11 TOWOLDMONOOI5823 C H E M IC A L C iR O L IJ 1994 Review: Volumes and Cost Savings Drive Chemical Group Performance The Chemical Group manufacture* and market* per formance material* that are uted by customer* to make a wide range of consumer and Industrial good*. Product* for the housing and automotive market* account for approximately 60 percent of sales, la 1904, The Chemical Group generated $304 mRHon in operating Income, an 8 percent decline from 1993 result*. Adjusted for nonrecurring Hems In 1993 and 1994, operating Income would have Improved almost 17 percent In 1994. Cost saving* and higher volumes were partially offset by higher raw material price*. /JRk The Chemical Group demonstrated In 1994 chat growth can be achieved with mature prod ucts in slow-growing markets with limited pricing flexibility. The unit also experienced a run-up in raw material costs -- as high as 25 percent In some cases -- that affected most of its product lines. Yet The Chemical Group offset these factors by selling significantly higher volumes of key products, improv ing the capacity utiliiation rate to 86 percent, and successfully continuing its business redesign and cost reduction efforts, Nylon and acrylic fibers came off a strong 1993 to increase volumes by 6 percent in 1994, primarily because of improved demand for replacement carpet. The Chemical Group also added 4 percentage points to its leading market share in Acrilun acrylic fibers for home furnishings and apparel. Volumes for Safkx plastic interlayer, used in lami nated glass for vehicles and in architectural appli cations, were up substantially compared with volumes in 1993. Contributing to this Improved performance were increased demand in the U.S. and some European automotive markets, quality improvements in manufacturing operations, and continued cost reduction activities. The year-to-year performance for plastics improved, with strong world wide sales volumes and aggressive cost reductions. Business redesign initiatives continued in 1994 and made a major contribution to the improved perform ance. Margins were dampened in the second half of the year by major demand-driven price increases in raw materials. The Plastics Division made significant progress in its efforts to market specialty products by launching a new refrigerator liner product and commercializing improved products for markets that require weatherstable materials. The Industrial Products Group -- which makes numerous products for the food, vehicle, chemicals, personal products, and construction and home furnishings markets -- increased volumes in most product lines worldwide, particularly in Asia and North America. Specialty resins and phosphates for personal products and industrial applications were especially strong in 1994. These two product lines generated volume gains as well as price increases. In the fourth quarter of 1994, The Chemical Group announced a rubber chemicals and instruments joint venture with Akzo Nobel N.V. This joint venture is scheduled to begin operating in early 1995. It should allow The Chemical Group to reduce costs, to com bine complementary technology and product lines, and to pursue new products and manufacturing processes that offer performance and environmental advantages in the competitive rubber chemicals market. I? HominW 1H4 Uui! Xtpoft MONS 35<^7^^ TOWOLDMONOOI5824 Slow to Moderate Growth in Global Economies Makes the Business Climate for Chemicals More Competitive For high-performance chemical manufacturers and most of their customers, the next two to four years will be a time of Intense competition in the developed economies of Japan, Europe and North America. Those years will also be a time of establishing posi tions In emerging economies worldwide. /Ojk Chemical customers will continue to seek vi/ higher quality and more service at lower prices during the latter half of the 1990s. Consolidation wilt also continue for both customers and suppliers. Markets will become more global, and thus more competitive. Start-up competitors with lower cost structures and lower profit expectations will compete for a greater share of existing suppliers' business. In this environment, price increases will be hard to impose and harder to maintain. While the developed economies of the United x Mw< (tan half of Tfw Chemical Croup's sales are made into the automotive, construction and home furnishings markets. These markets should continue their economic rebound in Europe and Japan, and settle into a slow but steady growth trend worldwide in the next two years. States, Canada and Western Europe are expected to grow at annual rates somewhat below historical ........... .................... ATruutcokmPobroildeuacntidonlight trends, higher growth is P. ^dit.ct,ed,.,n severa,l emergt. ng Estimate* In KyM*rkb In millions Source: DRI/McGraw-HIII World Car Industry Forecast Report economies. Certain Pacific Rim countries, particularly China, Korea, Taiwan, Hong Kong, Thailand and Singapore, are expected to lead the world's growth during the next 10 years. Latin America also is expected to grow more rapidly than the major industrial countries. These improving economies bode well for increased sales in many market segments, including automotive and home furnishings. These factors add up to a business climate that rewards a Production of automo biles and light trucks is a key indicator for sales of Monsanto's fibers, plastics and Saflcx plastic inter layer. Mantt/aclure of these vehicles in key mar kets -- North America. Western Europe, Japan and Asia -- is projected to grow modestly during the next three years. the high-performance chemical manufacturer who can keep lowering costs, keep improving its production processes, and keep running its plants at high capacity rates. Additional rewards are available to those who position themselves to serve the fast-growing economies of the Pacific Rim and Latin America. MQNS 354722 TOWOLDMONOOI5825 Outlook: Core Businesses Provide a Solid Foundation for Chemical Group Growth To uchteve the full profit potential of key products and to develop new products that will contribute to shareowner value, The Chemical Group Intend* to: * Generate profitable growth In existing product lines through cost aavlng*, new capacity, Joint venture# and product line extensions. Successfully commercialize emerging technologies that add value for customers. m Generate new Income through strategic acquisi tions of synergistic businesses. Continue to use business redesign and other productivity measure* to Increase Income. In the next two to four years, The Chemical vjt? Group should generate income growth from existing products through joint ventures, strategic capacity expansions, continued product improvements geared to customer needs, and continued productivity improvements. Joint Ventures Offer Growth for Existing Product lines In the Pacific Rim, The Chemical Group is creating Joint ventures to supply expanding markets. Produc tion is scheduled to start in mid-1995 at Thailon Six Six Ltd., The Chemical Group's nylon joint venture in Thailand. This venture will serve as a gateway to the Burmese, Vietnamese, Cambodian and Indonesian markets for nylon hosiery and apparel products. Another joint venture in Thailand, Monsanto Premier Kasei Co. Ltd., will provide The Chemical Group and its partners with a world-class plastics plant, scheduled to come on line In the latter half of 1995. Tliis facility will be a base of operations in the Pacific Rim outside Japan. It will supply global customers who make medical, appliance, automotive and consumer electronic products containing Lustrcm plastics. Joint ventures will also help The Chemical Group grow in the greater China market. A partnership with Jiangsu Chemical Pesticide Group Co., to be called Monsanto Chemical Co, Ltd. Suzhou, will manufacture and market Therminol heat transfer fluids. With this agreement, Monsanto will be the first worldwide heat transfer fluid supplier with a manufacturing base in China. * Hattie Odem is an operator on die new nylon carpet staple. production (me at The Chemical Group's Pensacola, Florida, plant. Because of market conditions, 60 million pounds of capacity was added in 1994 and another 60 million pounds of capacity mill become available in the first quarter of 1996. MQNS 354723 TOWOLDMONOOI5826 The Chemical Group is also using joint ven tures to Improve mature product lines and to share the cost of new technologies. A rubber chemicals and instruments joint venture with Akio Nobel N.V. of the Netherlands was announced in December 1994 and is scheduled to begin operating in early 1995. Because excessive global capacity suppresses prices for many chemical products, Monsanto will be conser vative in planning expansions. Nylon carpet staple used in Wear-Dated carpets, however, warrants additional capacity. In response to market conditions, 60 million pounds of production capacity came on line during the fourth quarter of 1994. Another 60 million pounds of additional capacity is scheduled to be avail able in the first quarter of 1996. In every product line, improvements are contin ually being made to meet evolving customer needs. For example, a modifica tion in the way glass is laminated for windshields left automotive glass customers without a a Monsanto is forming a joint venture with Akto Nobel N.V. for rubber chemicals and ins tor ments. This partnership makes the new company the largest rubber chemicals manufacturer worldwide. It will pursue new compounds and manufacturing processes that will provide per formance and environmental benefits in the competitive rub ber chemicals mailtet. consistently performing plastic interlayer. Chemical Group employees worked closely with their automotive glass customers to adapt Safkx plastic interlayer to the modified laminaring process. The solution has resulted in improved pro duction time and yields for glass customers. < Chemical Group employees and automotive glass customers worked together to improve the performance of Saflex plastic interlayer in a rum> glass laminating procesi. Monsanto employees Many Hopfc (left) and Dave Bourcicr compare the new material (Ieft) in a partially processed windshield with the old material at Monsanto's Indian Orchard technology center in Springfield, Massachusetts. Nw Technologies Ready To Enter Marketplace The Chemical Group is selectively bringing to mar ket new technologies that it has been developing for several years. Sorbaliu polymeric ultraviolet (UV) light blocker is one such product. Fabrics, fltxrrings and plas tic window films treated with Sorbaliu are protected against the sun's destructive UV rays, which cause materials to yellow, degrade or become brittle. Sorbaliu is superior to other UV absorbers because a much thin ner film of this product is needed to protect the sunexposed material. Customers will begin using Sorbaliu in a variety of indoor and outdoor products in 1995. The Chemical Group is also actively searching for targeted acquisitions that are synergistic with its core businesses and would provide new sources for income growth. ProductMty Program# Pay Off Four-to-One In 1995, The Chemical Group begins its fourth year of a business redesign process that is paying back $4 for every $1 invested. The payback comes in the form of cost savings, revenue enhancement and reduced capital employed, The Chemical Group believes it can still capture considerable additional savings through the business redesign process. * Sorbnlitc polymeric ultraviolet (UV) light blocker helps protect many indoor and out door floorings and fabrics against yellowing and degradation caused by the sun's UV rays. The Chemical Group is currently introducing Sorhalite to home furnishings suppliers. Mcnuito IWM Annual Report hunt ununres oic being formed to provide growth for chemical products in key geographic markets MONS 354724 1$ TOWOLDMONOOI5827 SEARLE 1994 Review: New Products Help Searle Return to Profitability Searle develop* and markets prescription pharma ceuticals. Its products include medications to relieve the symptoms of arthritis, to control high blood pressure, to relieve Insomnia, to prevent the formation of ulcers, and to treat certain infections. Increased tales of new products helped Searle generate $72 million In operating Income In 1994, after posting an operating loss In 1993, Net sales set a record at $1.7 billion. Searle returned to profitability in 1994 on the strength of more than $300 million In sales from three recently Introduced product*. insomnia and Arthritis Medications Gain Seles Momentum In its first full year in the United States, Ambien short-term treatment for insomnia posted sale* of $105 million. This drug is already the undisputed mar ket leader, with 27 percent of total prescriptions in the hypnotics market and 50 percent of the total dollar sales in that category. Tire introduction of Ambien ended a nine-year decline in the hypnotics market because of safety concerns with existing products. The hypnotics segment has grown 16 percent since the launch of Ambien in 1993. Daypro once-a-day arthritis treatment completed its first full year in the U.S. market with sales of $175 mil lion and a 5.9 percent total prescription share of the arthritis market. By comparison, the market-leading branded product In this category held a 10 percent share of total prescriptions at year-end. New arthritis drugs typically hit their peak sales within six to nine months. Searle's sales force succeeded in elevating sales of Daypro by 48 percent throughout 1994. This came after hitting a typical plateau, then implement ing an extensive marketing program that renewed physician interest and increased sales of the product. Sales of Arthrottc arthritis treatment, introduced in Canada, Sweden, Ireland and the United Kingdom in 1993, increased to $30 million in 1994 -- more than Sales o! Searle New Products vs. Sales of Branded Calan Calcium Channel Blocker fjollrll`1 *1 Ul[l|lfl!S double sales in 1993. Arthrottc also was launched success fully in Portugal and the Netherlands during 1994. C*/m Calcium Channel Blocker Remains Searle's Top-Selling Drug The combined sales of Ambien, Daypro and Artbrotec more than offset lower sales from Searle's Colon family of calcium channel 0o ; A* . \ W - -h . ' : i> * blockers. Calan has attracted strong generic verapamil A v .' -.1 ** ' . t*:.in competition since 1992. Even so, the Colon family of prod ucts continued to be Searle's largest selling ...h i . vi,, product line, finishing 1994 with $292 million in sales, down from $350 million in 1993. In addition, Searle posted sales of $29 mil lion for a generic vera pamil, which wa* sold by a distributor for Searle. At year-end, Searle held 7.6 percent of total prescriptions for calcium channel blockers in the United States. Cytotec ulcer preventive drug extended its year-to- year growth performance in 1994 with a 4.5 percent increase in sales to $138 million. New research on Cytotec supports its outstanding effectiveness in reducing complications induced by many commonly used anti-inflammatory drugs. In all, sales rose to $1.7 billion, almost a 9 percent increase from 1993 sales and a record for Searle. Restructuring Cost Saving* Reach $90 Million Cost reductions also contributed to operating income in 1994. Cost savings attributed to restructur ing action* announced in 1992 were $90 million in 1994, for a two-year total of more than $150 million. 10 Moettil* 1W4 A**l Rtport MONS 3547i5 TOWOLDMONO015828 The Pharmaceutical Bu5iness Climate Favors Innovative and Cost Conscious Solutions Generic competition, health can legislative initiative*, and managed can and group purchasing have created a cost conscious environment for pharmaceutical*. In this dbnate, the need Is greater than ever for Innovative drugs that satisfy unmet health can needs or offer alternatives to more costly treatments. /ai\ Powerful trends are remaking the pharmaceuti\lr cal industry. First, there is managed care and group purchasing. This trend has dramatically shifted marketing by drug firms away from selling product ben efits to individual physicians and toward negotiating large, long-term contracts with health care organiza tions that make buying decisions largely on price. The second major trend is generic competition. When buyers look mainly at price, generics are often favored over branded products. And when physicians prescribe from a managed care or group formulary, the brand identity of a drug becomes a secondary consideration. V Minviftd health cart anJ group purchasing ofprescription A up art ieadinf pharmaceutical companies in differentiate their product} and servico, and to offer unirjue, eost effective therapies to tucceed m this rapidly changing marketplace. A third trend is health care legislative initiatives around the world. Whenever public health care policy is debated, there is the danger that price controls for pharmaceuticals will replace market dynamics. These three trends illustrate the shift to greater cost rtjpuUrtk* Growth: Ac* 65 *nd Ov*r In millions Source; U.S. Department ot Commerce consciousness in the pharmaceutical indus try. At the same time, two factors favor com panies that offer unique pharmaceuti cal treatments. First, the aging population requires more phar maceuticals. Second, purchasing groups will still buy patented drugs that offer an affordable alternative to more expensive treatments such as I 2020 Ettimtts M iwt * The number of people 65 and over in the seven countries that account for almost SO percent of worldwide pharmaceutical sales is expected to rise from 88.2 million in 1991 to 147 6 million hy 2020. Because this age group typically purchaser more than one-third of all prescription drugs told, the trend offers growth far pharmaceutical companies that discover and marltet unirpte ceriasric surgery. These conditions mean growth oppor tunities still exist for pharmaceutical firms that can compete on price while discover ing and developing innovative, patentprotected drugs that satisfy unmet health care needs or offer alternatives to mote medications. costly treatments. MONS 354726 TOWOLDMONOOI5829 Arthrotee arthritis treatment should be available for sale in Italy, France and Germany within the next two years. It will be submitted for approval in the United States in 1995. An/trotec offers relief from the symptoms of arthritis with less risk of causing gastroduodenal ulcers than other arthritis medications. A new drug application is pending with the U.S. Food and Drug Administration for Verapamil OROS calcium channel blocker, which Searle developed in collaboration with ALZA Corp. This patent-protected $Mrlt Mtfkttfef Mri Mmfclstrativ* Ixhmmm* Pn**t of Total Salat By parcant product will allow the hyperten sion patient to take medication before going to bed for maximum effectiveness against the early morning rise in blood pressure and heart rate. The morning hours are when the risk of heart attack is greatest. Searle remains on track with the development of IL-3 synthokine, which shows prom ise in stimulating platelets and infection-fighting cells. If proven effective, IL-3 synthokine will prevent tire bleeding, anemia and infections that are common side effects of chemotherapy for cancer patients. Searle began clinical trials on this compound in December 1994. * In 1994, as recently introduced products attained greater sales Another candidate currently in development is an oral antiplatelet designed to address an unmet need and as mdTktmi by preventing or Inhibiting blood and administrative clots after bypass surgery or expensej declined, Searle improved its raiio of these expenses as a percent of total sales Searle's goal is to improve this ratio ai part of its overall cost reduction effort. angioplasty. Several injectable antiplatelct treatments are being developed by other pharmaceuti cal companies, hut only Searle is currently testing the first orally effective remedy. Searle is moving this drug through clinical trials on an expedited basis. - During 1995 and 1996. Arrlirotec arthritis treatment should he available for sale in Italy, franco anil Germany Uy expundinjt into key cotimne\ such as (Here, Searle mieiki* to merta'e anniuel .vtiks of its .trthmi.s mt'dicatirm.s sutaumM/lv. Searle Reengineers Research for Greater Productivity Searle invests mote than $300 million a year in research and development (RixD). To maximize that investment in the global health cate environment, productivity and quality must be emphasized. R&D efforts must focus on early identification of rhose products that will be first or second in their market, that will offer significant new benefits, and that can be brought to market quickly and safely. To this end, Searle is reengineering its R&D structure to make research more productive and to reduce the typical drug development time 20 percent to 40 pcrcenr. Searle is also continuing to seek R&.D collabora tions that will share costs and combine strengths to speed development. A leading example is the agree ment to collaborate with Chiron Gnp. to develop, manufacture and market a cardiovascular drug that was discovered in a Searle/ Monsanto biotechnology research program with Washington University Medical School in St. Louis. This drug, tissue factor pathway Searle scientists (from left) Tze-Chein "James" Vt'un Gerald Galluppi and Thomas Girard are swelling with Chiron Corp. scientists to speed the development of ttsiue factor pathway inhibitor (TFPi). TFPl is being developed to treat complication.! during inhibitor l TFPl), is being devel oped to treat complications caused by blood clotting during microcascuiar surgery. vascular surgery MhuiU IH4 haul Htywi Scoria's pipeline product* focus on irearmenu far nrihnus. rarJxHOSCular problems, and immune ostein ii'. ric- 19 HONS 334728 TOWOLDMONO015831 E NUTRASWEET COMPANY 1994 Review: Lower Expenses for NutraSweet Help Offset Lower Volumes, Selling Prices; Income Is Down Slightly The NutraSweet Company manufacture! and market* iweetener*, Including Nutrafwaai brand sweetener, and Equal and Nutratwaal ipqqaM tabletop sweeteners, and other food Ingredient*, in 1994, NutraSweet delivered $139 million In operat ing Income, a decrease of 4 percent from operating Income for 1993. Expected lower average selling prices and lower volumes were partially offset by lower expense*. jil The NutraSweet Company partially offset expected lower selling prices for NutraSweet brand sweetener, its trademark aspartame product, and lower volumes with lower operating expenses in 1994. Despite generic competition, market positions for NutraSweet in tabletop products and food ingredients remain strong two years after the expiration of the company's U.S. patent for aspartame. In 1994, volumes for NutraSweet decreased slightly from volumes in 1993, primarily due to lower con tractual shipments to customers. Lower volumes in the U.S. diet beverage segment were partially offset by increased use of NutraSweet brand sweetener in markets outside the United States, in private label and specialty flavor diet soft drinks, and as a sugar replacement. In addition, worldwide volumes of NutraSweei used in thousands of products other than soft drinks, such as juices, yogurts, dairy products, chewing gum and ice cream novelties, increased despite generic competi tion. Use of NutraSweet in markets outside the United States, which currently account for approximately 10 percent of all net sales, is expected to accelerate in the future. U.S. Retail Market Share ol Tabletop Sweeteners Pm < u* i if h i' f i.itf* \ * i it: , Strll'l 'Jr ' **r fl i; | >l|, *|(| P.M'I*1 p.lf.l JOO * ! i rs; 1i i iI1 9>! NutraSweet Increase* U.S, Dollar Share of Tabletop Products The U.S. market for all tabletop sweeteners was flat in 1994. Yet The NutraSweet Company's total dollar share of the U.S. market for : R i* as! tabletop sweeteners increased to 62 per cent. Despite increased competi o, 0 t '' c' oi a* . it . tion from discounted private label prod ucts, NutraSweet continued to grow volumes for Equal A . 1 , i \ * i ' i N!..... . t . . ' i' * '. tabletop sweetener in key retail channels. And NutraSweet Spoonful is the No. 1 selling bulk tabletop sweetener in dollar volume just two years after its market introduction. NutraSweet continued the global expansion of its tabletop products by introducing tabletop sweeteners in seven countries in 1994. Those seven countries were Mexico, Hungary, Uganda, Ecuador, Romania, Uruguay and Paraguay. Nondtot Swwtmm Um* Sign*! n Expansion Opportunity Virtually all of The NutraSweet Company's sweet ener sales In 1994 in Eastern Europe and Africa were for nondiet purposes. Although the volumes of NutraSweet brand sweetener in these countries repre sent less than 2 percent of the total volumes outside the United States, the nondiet applications offer a new opportunity for international market expansion. The research arm of The NutraSweet Company, NSC Technologies, successfully completed its transi tion to a profit center in 1994. It now offers its exper tise in contract research for food ingredients and pharmaceutical intermediates to external clients. MmiMirts 1**4 taint! Rtpert MONS 35<*729 TOWOLDMON0015832 The Global Business Climate Encourages New Uses for High- Intensity Sweeteners Sugar remains the dominant sweetener In the world. But growth Is available for the makers of high* Intensity sweetener* as their customers grow Internationally and as nondiet food manufacturers expand their use of high-intenslty sweeteners. Consumers and food manufacturers in the United States are the dominant customers of high-intensity sweeteners. In the past few years, more than 60 percent of all high-intensity sweetener sales were in the United States. International expansion, then, clearly emerges as the key sales opportunity for sweetener products. Traditionally, high-intensity sweeteners arc sold for use in diet foods, especially diet soft drinks. As leading food and beverage companies continue their interna tional marketing thrust, new growth potential opens up for sweeteners. In nondiet foods, high-intensity sweeteners can v Iwemational growth opprntunities exist for high-intensity sweeteners us food and beverage companies offer a greater array of products that complement die active lifestyle* of consumers around die world. Today, high-intensity sweetener rales are concentrated tn die United States, with more than 60 percent of all sales made there. play a bigger role in blended products. Blended prod ucts use more than one kind of sweetener to create a certain taste or to gain cost advantages. Some high- intensity sweeteners, particularly aspartame, offer cost Global Swootener Shr* By percent Source: Landelt Mills savings to the customer when compared with other sweeteners. In some countries with emerging economies, sugar is scarce either because the country does not produce sugar or because sugar is exported for economic reasons. In these 0 Sugar 0 Aspartame $ All other high-intensity sweeteners, such as saccharin areas, which include India, China, Africa and the former Soviet Union, blends of highintensity sweeteners and sugar * Sugar dominates die worldwide sweetener market, with a 93 per cent shore. Aspartame are of particular value. Substituting a high-intensity sweetener for sugar allows sweetener manufacturers to and other high-iruensity make inroads into sugar's share sweeteners can play a of the sweetener market. Sugar larger role in satisfying the global appetite for sweetness, particularly in blends for new non diet foods and bever ages , and as economic idtemalives for sugar. currently accounts for 93 per cent of the sweetener market, aspartame for 2 percent, and all other high-intensity sweet eners for 5 percent. Competition also is growing among high-intensity sweetener makers as generic products are introduced and as new sweeteners gain approvals. Low-cost suppliers with a global reach will be most effective in penetrating the new world markets and in gaining market share from sugar. MONS 354730 TOWOLDMONOQ15833 International Growth Fuels the Outlook for The NutraSweet Company To achieve fftc full profit potential of key products arid to develop new product* that will contribute to *hareowncr value, The NutraSweet Company intends to: Expand Its global market share of high Intensity sweeteners for tabletop and Ingredient uses. * Increase the use of NutraSweet brand sweetener In new nondiet applications, * Continue development of the next-generation, high-intensity sweetener and other innovative food ingredients. The NutraSweet Company remains focused on expanding its share of the global aspartame market by being the highest value supplier. Tailoring high-intensity sweetener offerings of NutraSweet brand sweetener, the company's trademark aspartame product, for diet and nondiet uses will strengthen NutraSweet's global presence. In addition, NutraSweet continues its development of Sweetener 2000 to meet the needs of food and beverage cus tomers in the next decade. NirtraSweet Plans To Expand Hs Sweetener Share T he NutraSweet Company will use its core strengths to expand its share of the worldwide sweet ener market and ro defend its market share against producers of generic aspartame and other highintensity sweeteners. First, NutraSweet will continue to Improve its global position as the low-cost, highest value supplier of aspartame. Costs have been significantly reduced through manufacturing process technology and effi ciency gains. Targets have been set to drive costs down continuously over the next several years. Second, NutraSweet will compete with producers of generic, aspartame in brand recognition, product qual ity, customer service, and food technology leadership. Already, NutraSweet has developed six new product forms of aspartame that enhance the value of its offer ings to customers. In tabletop sweeteners, NutraSweet will continue to press for growth in its U.S. business and sup port international expansion. NutraSweet tabletop sweetener will be launched in 1995 throughout Southeast Asia, includ ing Thailand and the Philippines. NutraSweet also plans to Introduce a tabletop product in India, and to test market NutraSweet tabletop sweetener in China during 1995. * The (xipuktrity of NutraSweet Spoonful arid other S/utraSweei tabletop sweeteners Is expected in especially among health conscious baby boomers. NutraSu'cet introduced (ablclop sweet eners in sewn countries (lining 19P4 It plans to Introduce tabletop sweeteners in Additional countries during J995, MONS 354731 TOWOLDMONOOI5834 Expanding the tabletop business into new international markets will help drive additional growth of the aspartame ingredient business NumSwcci tabletop sweetener increases brand recognition, opening the door for expansion into more food and beverage products in global markets. Economic Advantage* Lead to Nondiet Opportunities NutraSweet will intensify its efforts to market NutraSweet brand sweetener to the majority of people worldwide who are interested in great-tasting sweetness at a competitive cost, but have little or no interest in calorie reduction. The worldwide volume potential for this business is estimated to be greater than NutraSweet's current diet business. By blending NutraSweet with high-fructose corn syrup, NutraSweet has the opportunity to enter the full- * Pies mode Il'ich Equal brand sweetener and calorie segment Simpltssc ail natural fat substitute offer of the carbon consumers gooJ-tasring desserts with fewer calorie) and less fat. NSC Technologies, the research and development nnn of The NutraSweet Company, is working with food cuslomfis to find ways to improve the nutri tional value of food without sacrificing good taste and texture. ated soft drink market. These blends of up to 50 percent aspartame offer economic and taste advantages to the manufacturer, with some calorie reduction. In addition, NutraSweet will help serve the emerg ing midcalorie segment, based on blended products currently offered In some international markets. NutraSweet s participation in the full-calorie and mid calorie segments is a pure growth opportunity because most of the company's current sales to the soft drink market are in the diet segment. * Sweetener 2000, The NutraSweet Company's next-generation, high- intensity sweetener, is 35 rimes sweeter than NutraSweet brand sweetener. NutroSeveet is on schedule to file a food additive petition far Sweetener 2000 with the US, Food and Drug Administration near die turn of the decade, Next-Generation Sweetener Remains on Schedule Sweetener 2000 is the company's next-generation, high-intensity sweetener, It is 7,500 to 10,000 times sweeter than sugar. NutraSweet is on target to file a food additive petition with the U.S. Food and Drug Administration (FDA) before the end of the decade. This program is being conducted by NSC Technologies, the company's research arm. NSC Technologies' goal is to generate income through its work for customers and other companies, as well as for NutraSweet, It has initiated a growing contract research business, and makes and sells pharmaceutical inter mediates and food ingredients to external customers. NutraSweet will continue to develop fat substitute applications, such as Creme Culmarre butter and cteam replacement for food distributors. This niche product offers institutional chefs an easy way to prepare lowerfat and lower-cholesterol soups, sauces and baked gcxxk Creme Cuiinaire is a butter and cream replacement used to make lower-fat and lower-cholesterol soups, sauces and baked goods. It also offers institutional chefs greater ease in preparing and serving foods. Introduced in 1994, it is currently used by hotels, restaurants and other food distributors in several regions in the Llnired States. The | NutraSsveet Company plans to distribute ^ Creme Cuiinaire r throughout the United States by the end o/1995. Memento ISM Axitutl Repert iVmraXuvet has already developed six new |>Toiluet forms of aspartame m meet specific customer needs 23 HONS 354732 TOWOLDMONO015835 BUSINESS U N IT PRESIDENTS As of Feb. 1, 1995, Monsanto has created a new struc ture that assigns primary business responsibilities to indi vidual business units. The 1.5 units are accountable for strategy, operarions and performance, and report to the Monsanto Management Board. Information about the presidents < if these business units and a description of their responsibilities follow: Crop Protection, Arnold W. Donald: Mr. Donald, 40, joined Monsanto in 1977. Me has held several sales and managerial positions with global responsibilities in the company's chemical, agricultural and lawn-and-gardcn businesses. As president of the Crop Protection unit, he oversees Roundup and Harness herbicides, as well as numerous other commercial crop protection products and initiatives worldwide. fibers, John C. Hunter: Mr. Hunter, 48, is responsible for Monsanto's nylon and acrylic fibers, and nylon inter mediate products. Mr. Hunter has served in engineering, sales, marketing and managerial positions in several Monsanto chemical businesses since joining the company in 1969. He also has had responsibilities for Monsanto's chemical operations in the Asia-Pacific region. Growth Enterprises, Pierre Hoctiulf: Mr. Hochuli, 47, heads a group of smaller businesses that may serve as future growth platforms for Monsanto. The unit will also explore new business opportunities. Mr. Hochuli joined Monsanto in 1976 and has held positions in marketing, finance, research and development, and general manage ment in Europe, Latin America and the United States. Most recently, he ser ved as vice president of corporate planning for Monsanto. Keleo, Peter Kovacs: Mr. Kovacs, 53. has been with the recently acquired Keleo specialty chemicals company for 26 years. He has held a variety of posit ions in research and management in Belgium, the United Kingdom and the United States. Mr. Kovacs has headed Keleo since 1991. New Agricultural Products, RobertT. Fraley, Pfi,D,: Dr, Fraley, 42, is responsible for the discovery and development of new crop chemical and biotechnology-based agricultural products. Dr. Fraley began his career in research at Monsanto in 1981 and made numerous contributions in the areas of plant biology and gene, transfer technology. He also has held several managerial positions in research and development, and new product commercialization, NutraSweel Consumer Products, Nick E. Rosa: Mr. Rosa, 45, has held finance and planning positions at Searle and managerial positions in sales, operations and business development for NutraSwcet businesses worldwide. He has been with Monsanto for 14 years. Mr. Rosa is responsible for Equal, Canderel and NutraSuvet Spoonful tabletop sweeteners, and other related consumer products. NutrsSweet Ingredient, J. RSclwrd Darnaby: Mr. Darnaby, 43, is responsible for NutraSweel brand sweetener and other food ingredient products. He joined Monsanto in 1979, and has held sales and management positions in the chemical and agricultural businesses, and in the con sumer segments of the NmraSweet and lawn-and-gardcn businesses. Mr. Darnaby also previously served as presi dent and chief executive officer of Monsanto Canada. Performance Material*, David B, Price Jr,: Mr. Brice, 49, heads Monsanto's phosphorus and derivatives businesses. During his 23 years with the company, Mr. Price has HONS 354733 TOWOLDMONOOI5836 held engineering, planning, financial analysis, investor relations and general managerial positions in staff functions, He also has had international responsibilities in the chemical and agricultural businesses. Plastics, Arthur F. Fttigerald: Mr. Fitrgerald, 46, joined Monsanto in 1973. He has held several positions in marketing, purchasing, distribution, manufacturing, total quality and business operations for various chemi cal businesses in Canada, Asia-Pacific, Latin America and the United States. His current responsibilities include Monsanto's plastics businesses, such as Litstrati and Vydyne plastics. Produce, Jeffrey 0. Gargiulo: Mr. Gargiulo, 42, is respon sible for the unit that produces and markets food crops developed through biotechnology. He has been with NTGatgiulo L.P., a diversified agricultural business with operations in the United States and Latin America, since 1974. He was named president and chief executive officer of NTGatgiulo in I960, and chairman and CEO in 1994- ProCv*, Waiter P. Hobgood Jr.: Mr. Hobgood, 46, heads Piotiva, the unit that markets Pusilac bovine somatotropin and is developing other products for animal health and produc tivity. He Joined Monsanto iri 1973 and has worked in sales, marketing, planning and business operations in Australia, New Zealand, Southeast Asia and the United States. Saflcx, John J. Ferguson: Mr. Ferguson, 42, joined Monsanto in 1974 in sales. He subsequently held posi tions in marketing and business operations for a number of chemical businesses. Mr. Ferguson has been responsi ble for operations in Europe, Africa, Latin America and the United States, and led the business redesign efforts for the company's chemical businesses. In his current position, he heads the unit for Sa/Icx plastic interlayer. Searfe, Richard U. De Schtttter: Mr. De Schuttcr, 54, heads Searlc, Monsanto's pharmaceutical business. He will become chairman and chief executive officer of Senrle upon the retirement of Dr. Sheldon G. Gilgore in April 1995. Mr. De Schutter has been with Monsanto for 30 years and has served in a number of engineering, sates, marketing and business operations positions in its chemi cal businesses. He joined Searle in 1985 and has held several executive positions there. Solaris, Janice V. Novak: Ms. Novak, 39, is responsible for the Solaris line of lawn-and-garden businesses, including Roundup herbicide for residential use and Or tiro lawnand-garden products. She began her Monsanto career with Seade in 1981, where she worked in finance, plan ning and product management, Ms. Novak also held positions in international operations and sales and marketing at NutraSweet, and was then named to head residential products for Monsanto's agricultural business. Specialty and Engineered Products, Michael E. Miller: Mr. Miller, 53, joined Monsanto in 1965 In sales. He has held a variety of marketing, administration and business operations positions for the company's chemical businesses in the United States and the Asia-Pacific region. He also has served as corporate vice president for administration. As president of the Specialty and Engineered Products unit, he heads polymer modifiers, process chemicals, specialty resins and functional and plastic products businesses. At's <mJ ycim 0/Knict ai of Mttrch I. (995. Jeffrey l>. 0*tgVik John I. Fuff** Mlehnel E. MHior Fkm Hoeho* Whr P. Hobeoad Jr. Arnold W. DonaU Innlc* V. HoviV Robert T. Frnky. Pti.t), HONS 35<*7M TOWOLDMON0015837 I d> Munagaroent Report, Audit Committee Report, Independent Auditor*' Opinion Statement of ContoDdated Income Statement of ComoRdated financial Position Statement of Comolldated Shareowner*' Equity Statement of ComoRdated Cash Flow Note* to Financial Statement* Financial Summary I j. Management Report Monsanto Company's management is responsible for the fair presentation and consistency, in accordance with generally accepted accounting principles, of all 23 the financial information included in this annual report. Where necessary, the information reflects management's 41 best estimates and judgments. Management is also responsible for maintaining a sys*3 tern of internal accounting controls with the objectives of ^ providing reasonable assurance that Monsanto's assets are safeguarded against matetial loss from unauthorized use 47 or disposition and that authorized transactions are properly recorded to permit the preparation of accurate financial W information. Cost/benefit judgments are an important consideration in this regard. The effectiveness of internal controls is maintained by personnel selection and training, division of responsibilities, establishment and communica tion of policies, and ongoing internal review programs and audits. Management believes that Monsanto's system of Inter nal accounting controls as of Dec. 31,1994, is effective and adequate to accomplish the objectives described above. Richard ]. Mahoney f Chairman and Chief Executive Officer Robert B. Hoffman Senior Vice President and Chief Financial Officer Feb. 24,1995 Unless otherwise Indicated by the contest, "Monsanto" means Monsanto Company and consolidated subsidiaries, and "the company" means Monsanto Company only. All dollars ara in million*, except per share date. 2G Mou*l* 11*4 Annul A*sod HONS 35<t73S TOWOLDMONOOI5838 I !* Audit Committee Report The audit committee, composed of six nonemployee members of the board of directors, met four times during 1994- The committee reviews and monitors Monsanto's internal accounting controls, financial reports, accounting practices, and the scope and effectiveness of the audits performed by the independent auditors and internal auditors. The committee also recommends to the full board of directors the appointment of Monsanto's prin cipal Independent auditors, and it approves in advance all significant audit and nonaudit services provided by such auditors. As ratified by shareowner vote at the 1994 annual meeting, Deloitte & Touche LLP (Deloitte &. Touche) was appointed independent auditors to examine, and to express an opinion as to the fair presentation of, the consolidated financial statements. This opinion follows. The audit committee discusses audit and financial reporting matters with representatives of the company's financial management, its internal auditors and Deloitte & Touche. The Internal audttors and Deloitte & Touche meet with the committee, with and without manage ment representatives present, to discuss the results of their examinations, the adequacy of Monsanto's internal accounting controls, and the quality of its financial reporting. The committee encourages the internal audi tors and Deloitte & Touche to communicate directly with the committee. The audit committee has reviewed the financial section of this annual report. Pursuant to the recommendation of the committee, the board of directors has approved the financial section. Independent Auditors' Opinion To the shareowners of Monsanto Company; We have audited the accompanying statement of consolidated financial position of Monsanto Company and subsidiaries as of Dec. 31,1994 and 1993, and the related statements of consolidated income, shareowners' equity and cash flow for each of the three years in the period ended Dec. 31,1994. These financial statements are tire responsibility of the company's management. Our responsibility is to express an opinion on these financial statements based on our audio. We conducted our audio in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, such consolidated financial statements present fairly in all material respects the financial position of Monsanto Company and subsidiaries as of Dec. 31,1994 and 1993, and the results of their operations and their cash flows for each of the three years in the period ended Dec. 31,1994, In conformity with generally accepted accounting principles. As discussed in the Notes to Financial Statements, in 1992 Monsanto changed its methods of accounting for postretirement benefits other than pensions and for income taxes. Chair, Audit Committee Feb. 24,1995 /(Ufr/f*' t TfiutA' U/ Deloitte & louche LLP St. Louis, Missouri Feb. 24,1995 MoaMrt* IH4 Am*I The audit commitut, ctmpoud of six rtontmployce motnberj of1he board of directors, met four times during 1994. 17 HONS 354736 TOWOLDMONOOI5839 Statement of Consolidated Income (Dolr In miltofti, sxeeft (Mr ilun) Net Sale* Cost of goods sold Grot* Profit Marketing expenses Administrative expenses Technological expenses Amortization of intangible assets Restmctoring expenses -- net Operating Income Interest expense Interest income Other income (expense) -- net Income (Loss) from Continuing Operations Before Income Taxes Income taxes Income (Lots) from Continuing Operations Discontinued Operations; Income from Fisher Controls Gain on sale of Fisher Controls Income from Discontinued Operations Income Before Accounting Changes Cumulative Effect of Accounting Changes: Fbstretirement Benefits Other Than Pensions Income Taxes Net Income (Loss) Earnings per Share; Income (Loss) from Continuing Operations Discontinued Operations Accounting Changes Net Income (Loss) The above wimml should be read in ecnjunaion with pagei 47 tArowfb 57 o/rfui report. mi $8,272 4,774 3,498 1,191 589 674 81 40 923 (131) 81 22 895 273 622 622 $ 622 $ 5.32 $ 5.32 KEY FINANCIAL STATISTICS As a Percent of Net Sates; Gross Profit Marketing, Administrative and Technological Expenses Research and Development Expenses Operating Income Income (Loss) from Continuing Operations Net Income (Loss) Effective Income Tax Rate Return or Shareowners' Equity 1M4 42% 30 7 11 8 8 31 21.4 IMS $7,902 4,564 3,338 1,199 548 695 81 5 810 (129) 40 8 729 235 494 494 $ 494 $ 4.10 $ 4.10 INI 42% 31 8 10 6 6 32 16.9 IM2 $7,763 4,710 3,053 1,115 487 720 237 436 58 (169) 43 (106) (174) (48) (126) 24 554 578 452 (658) 118 $ (88) $(1.01) 4.68 (4.38) $(0.71) IM2 39% 30 8 1 (2) (1) (28) (2.6) MnmIi 1M4 A*l RHft MONS 35^73? TOWOLDMONOOI5840 I REVIEW OF CONSOLIDATED RESULTS OF OPERATIONS Monsanto Reports Record Earnings per Share Monsanto Company's earnings per share in 1994 were a record $5.32, and net income was the second-best in Monsanto's history. Net income for 1994 was $622 mil lion, compared with income of $494 million, or $4.10 per share, in 1993. Return on shareowners' equity (ROE) for 1994 was 21.4 percent. The Agricultural Group continued its impressive growth, fueled by record sales volumes for Roundup herbicide and significant Income contributions from sales of new products. Higher sales volumes for key products, excellent manufacturing performance, and con tinued cost reduction efforts led to a substantial Increase in The Chemical Group's earnings, excluding the year-toyear effect of restructurings. Searle's performance Improved dramatically as sales from new products Increased signifi cantly, infrastructure costs were lower, and costs from new product introductions declined. The NutraSweet Company performed well, as significant cost reductions largely offset lower average selling prices. Events Affecting Comparability In December 1994, Monsanto's board of directors approved a plan to eliminate redundant staff activities across the company and to consolidate certain staff and administrative business functions. The plan will result in worldwide employment reductions of approximately 500 people. In addition, the company will close or exit certain facilities and programs. These work force reduc tions and closures will be substantially completed by the end of 1995. The pretax expense related to these actions was $89 million ($55 million aftertax, or $0.47 per share). The effect of these actions Is anticipated to generate future pretax cash savings and benefit future operating income by approximately $100 million annually. Separately, in the fourth quarter of 1994, the hoard approved the reversal of $49 million ($33 million aftertax, or $0.28 per share) of excess restructuring reserves from prior years. The excess was primarily due to higher than expected proceeds and lower exit costs from the sale and shutdown of nonstrateglc businesses and facilities Included in the 1993 and 1992 restructuring actions. , In September 1994, Monsanto and the U.S. Internal Revenue Service settled certain tax matters related to the 1985 acquisition of Searle, and Monsanto recognized an aftertax gain of $21 million, or $0.18 per share, for Interest on the settlement. In December 1993, the board of directors approved a small reserve to covet the sale of or exit from certain nonstrategic products, the withdrawal from the pyridine research program in The Agricultural Group, and the consolidation of some manufacturing capacity. The net aftertax expense for these actions was $7 million, or $0.06 per share, and principally affected The Agricultural and Chemical Groups. In March 1993, Monsanto received reimbursement from insurance companies for various costs associated with damage to a manufacturing site of a raw material for Roundup. The settlement resulted in a $22 million aftertax gain, or $0.18 per share. These costs had been expensed in 1992, pending resolution of the claim. Without tire unusual events in 1994 and 1993, net Income for 1994 would have been $623 million, compared with $479 million for the prior year, an increase of 30 per cent. Earnings per share in 1994 would have been $5.33, a 34 percent increase from 1993 earnings per share. Net Sales Are Higher Net sales in 1994 were 5 percent higher than those in 1993, led by increases in net sales for The Agricultural Group and Searle. Net sales for The Chemical Group Increased slightly as a result of higher sales volumes. Net sales for The NutraSweet Company declined, in line with expectations. The Agricultural Group reached record net sales in 1994, up 13 percent from those in 1993, due primarily to a significant increase In worldwide sales volumes for Roundup herbicide. Continued worldwide adoption of conservation tillage techniques by farmers, pricing and new end-use strategies contributed to this sales volume increase. Sales of new products, such as Posilac bovine somatotropin (BST) and Harness herbicide, and the inclusion of a full year's net sales of lawn-and-garden products from the Ortho acquisition also were significant contributors to the sales Increase. Searle's net sales growth was led by significant growth in sales of recently intro duced new products in the United States, principally Daypro, a once-daily arthritis treatment, and Ambirn, a short-term treatment for insomnia. Sales of these and other new products more than offset the effect of generic Mwtuit* ISM &***! Monjamo'i net Income Increased 26 percent fn 1994. 29 MONS 354738 TOWOLDMONOOI5841 REVIEW OF CONSOLIDATED RESULTS OF OPERATIONS competition on sales of the Colon family of calcium chan nel blockers. The Chemical Group's net sales for 1994 were slightly higher than those in 1993. However, after adjusting for 1993 net sales from divested businesses, net sales for 1994 would have increased 6 percent, as sales volumes increased for all key products worldwide. The NutraSweet Company's net sales declined because of lower average selling prices for aspartame. Sales volumes for NutraSuvet brand sweetener, the company's trademark aspartame product, declined 4 percent from volumes last year. However, sates of tabletop sweeteners, such as Equal and NutraSweet Spoonful, increased slightly. Monsanto's net sales in markets outside the United States represented 40 percent of 1994 net sales, about the same percentage as last year. Monsanto Achieves Higher Operating Results Operating income In 1994 of $923 million was the second-best in Monsanto's history, and increased 14 per cent compared with $810 million in operating Income in 1993. Excluding the $40 million in net pretax restruc turing and unusual items in 1994 and the $30 million net pretax gain from unusual items in 1993, operating Income would have Increased by $183 million, or 23 percent, In 1994. Operating results In 1994 benefited from strong sales volume gains for several major products, the success ful introduction of new products, and savings from cost reduction efforts. These Increases In operating income were partially offset by the effects of lower selling prices In all units and by substantial cost increases for raw materials experienced by The Chemical Group. Excluding the aforementioned 1994 and 1993 restruc turing charges and unusual items, operating results would have improved significantly for The Agricultural Group, The Chemical Oroup and Searle. NutraSweet's operating Income declined modestly from that In the prior year. The Agricultural Group's operating income in 1994 was a record and benefited from significantly higher worldwide sales volumes for Roundup herbicide, from the Inclusion of a full year of earnings from the acquired Ortho business, and from the introduction of new products. Operating results for The Chemical Oroup benefited from significantly higher sales volumes in several major products, lower manu facturing costs and cost reduction efforts. These factors were partially offset by significantly higher raw material costs and lower average selling prices, principally In Europe and Japan. Searie's improved operating results benefited from significant growth in sales of new products, cost saving from restructuring actions, and lower new product intro duction costs. NutraSweet's lower operating income in 1994 resulted from reduced selling prices and sales volumes for aspartame, partially offset by cost reductions and by higher sates of tabletop sweeteners. Marketing and administrative expenses Increased in 1994, principally because of the higher costs associated with various employee incentive programs, and Inclusion of a full year's operating expenses of the acquired Ortho lawn-and-garden products business, partially offset by lower new product introduction costs at Searle. Interest Income in 1994 increased because of the aforementioned Searle tax refund."Other Income (expense)--net'' increase! in 1994, principally because of lower currency losses. Monsanto Reaches 20 Percent ROE Target In 1994, Monsanto achieved its goal of a 20 percent return on equity (ROE). The company continues to believe that the 20 percent ROE target is useful. Cost Savings Continue In the past few years, Monsanto has taken steps to make worldwide operations more focused, productive and cost effective. The effect of these actions benefited operating income by approximately $250 million in 1994. These savings are in line with original expectations and are expected to continue on an annual basis. Continuing business redesign and other productivity enhancement efforts have yielded significant benefits as well. These ini tiatives will continue as the company responds to increased global competition and higlrer customer expectations. New Products Are Strategic Priority New product development and commercialization con tinue to be strategic priorities for Monsanto. For example, three agricultural products developed through the use of biotechnology completed the U.S. Food and Drug Administration's consultation process in 1994, an impor tant step toward regulatory approval. Monsanto's research and development (RStD) expenditures were $609 million in 1994, or 7 percent of net sales, a level that reflects M MnhiiW IMS AmmI Ikpvrt MONS 35<s739 TOWOLDMONOOI5842 REVIEW OF CONSOLIDATED RESULTS OF OPERATIONS management's strong, long-term commitment to R&JD. The discovery and development of pharmaceutical and agricultural products continue to be the focus of most of these expenditures, Significant R&D efforts in existing product technologies and new product applications also continue across all business units. Additionally, Monsanto's research program includes the acquisition of new technologies through licensing. The result is that Monsanto has many potential products In the R&.D pipeline. Several of them should be commercialized in the next few years. Prior Year Review In 1993, Monsanto Company's operating results improved substantially from those in 1992. Net income for 1993 was $494 million, or $4.10 per share, although it was affected by several unusual events. The Agricultural Group continued its impressive growth, fueled by record sales volumes for Roundup herbicide. Savings from cost reductions and from working capital reduction efforts, coupled with slightly higher sales volumes, led to increased earnings In The Chemical Group. Searle's performance improved as sales from new products and significant cost savings from restructuring actions more than offset new product launch costs and the effect of generic competition on sales of the Calm family of caldum channel blockers in the United States. The NutraSweet Company, which completed its first postpatent year for NutraSweet brand sweetener in the United States, showed continued growth In 1993 in sales volumes and Improved earnings. As more fully described on page 29, In December 1993, the board of directors approved a small restructuring reserve. In March 1993, Monsanto received reimburse ment from insurance companies for various costs associated with damage to a manufacturing site of a raw material for Roundup. In 1992, restructuring actions were approved, which primarily affected Searle, and resulted In a one-time aftertax expense of $425 million, or $3.44 per share. The Fisher Controls business was sold In 1992, which resulted In an aftertax gain of $554 million, or $4 49 per share. Net Income In 1992 also Included $24 million, or $0.19 per share, in partial-year earnings from Fisher Controls prior to the sale of this subsidiary. In addition, Monsanto implemented new accounting rules related to postretirement benefits and Income taxes in 1992, which resulted in a net one-time aftertax charge of $540 million, or $4.38 per share. Other unusual items in 1992 totaled an aftertax expense of $47 million, or $0.38 per share. These items were principally the costs incurred from damage in January 1992 to a manufacturing unit that produces a raw material for Roundup, and from the settlement in the second quarter of 1992 of certain lawsuits related to the Brio Superfund site. Consolidated net sales in 1993 were 2 percent higher than those In the prior year. Net sales for The Agricultural Group grew 17 percent from those in 1992, due primarily to a 24 percent increase in worldwide sales volumes for Roundup. Rapid worldwide adoption of conservation tillage techniques by farmers, the effects of the wet spring in the United States, and pricing and new end-use strate gies contributed to this sales volume increase. Searle's net sales growth was led by new product introductions in the United States, principally Daypro, a once-daily arthritis treatment, and Ambfrn, a short-term treatment for insomnia. Sales of these and other new products more than offset tower sales of Cabn, which was subject to generic competition in the United States. The Chemical Groups net sales for 1993 were slightly lower, as sales volume increases in the United States were offset by lower worldwide average selling prices. The lower selling prices were principally due to the recession in Europe and Japan. In NutraSweet's first year following the expiration of its aspartame-use patent in the United States, net sales declined, as expected, because of lower average selling prices. However, aspartame sales volumes grew 6 percent from volumes in 1992. Operating income was $810 million in 1993, compared with $58 miltion In operating Income in 1992. Excluding the unusual items in 1993 and the restructuring and unusual charges in 1992, operating results would have improved for all business segments. The Agricultural Group in 1993 benefited from significantly higher worldwide sales volumes for Roundup and from lower manufacturing costs. Operating results for The Chemical Group benefited from lower raw material costs, cost reduction efforts, and increased demand in the United States. Operating results for Searle improved as a result of cost savings from restructuring actions and from higher net sales. These factors more than offset substantial costs of new product introductions and the effect of generic competition on sales of Calrm In the United States. NutraSweet's Improved operating income in 1993 resulted from increased aspartame sales volumes, and from reduced operating and amortization expenses, which combined to offset lower postpatent prices In the United States for NutraSweet brand sweetener. HmuiU UM Atnmtl Stjart In 1991. Monsanto achieved a 21.4 ptreent Kiam on shcrrecwrxn' tquitj. >1 MONS 35fr7fr0 TOWOLDMONOQ15843 REVIEW OF CONSOLIDATED RESULTS OF OPERATIONS Marketing and administrative expenses increased in 1993, principally because of tire aforementioned product launch costs incurred by Searle, higher costs associated with various employee incentive programs, and operating expenses of the acquired Ortho lawn-and-garden prod ucts business. Amortization of intangible assets declined because of the expiration of NutraSweet's U.S. aspartameuse patent in December 1992. Interest expense in 1993 fell 24 percent, primarily because of lower average debt levels. "Other income (expense) -- net" increased in 1993, principally because of lower currency losses and higher income from equity affiliates. The 1992 amount included a write-down of investments to market value. ANALYSIS OF CHANGE IN EARNINGS PER SHARE MfcrfWvm) Win. tWJn. m> vm S*J-RUrt*d Factor*: Selling prices Sales volumes and mix $(0.71) $(1.90) 1.70 133 Total Sales-Related Factors 0.99 (0.57) Co*t-Ri*t*d Factor*: Raw material co6t Manufacturing capacity utilization Other manufacturing costs Marketing, administrative and technological expenses Amortization of intangible assets Total Cost-Related Factors Interest expense Interest Income Other Income (expense) -- net Change In Income taxes Change In shares outstanding Change in Earnings per Share Before Other Factors (0.52) 0.40 034 0.55 0.01 0.23 (0.27) 0.03 (0.02) (0.01) 0.04 0.07 0.14 0.15 (0.43) 0.85 1,21 0.20 (0.02) 0.20 0.19 0.10 1.36 131 0thr Factors: Restructuring and other unusual actions Gain on sale of Fisher Controls Divestitures Accounting change for post retirement benefits Accounting change for Income taxes Total Other Factors Chwig* In Earnings per Sturt (0.13) 3.94 (4.49) (0.01) (033) 534 (0.96) (0.14) 3.50 $ 1.22 $ 4.81 MhPriMMx 1909-1,0 14 14 ` 1989-1.0 Ml M M 999 ||||| |g(|fg 1989-1.0 Ml______ __ 1J 04 11 ft ft ft The index of selling prices dec!ined in 1991. This was primarily due to the effect of lower selling prices for The Agricultural Group and for The NutraSweet Company. Refer to the discussion of the operating unit 5<fmfnt data for The Agricultural Group on pages 31-35, and for NutraSweet on paf< 39. * The higher raw material cost Index in 1991 primarily affected The Chemical Group. Refer to the dis cussion of the operating unit segment data for Thr Chemical Group on pages 36-37 * The sales volume index increase in 1991 was led by higher sales volume! for key products in The Chemical Group, a significant increase in worldwide sales volume! for Roundup herbicide from those last year, and from sales volume increases for new product! cu Searle. Refer to the discussion of the operaxmj unit segment data for The Agricultural Group on pages 31-35, far The Chemical Group on pages 36-37, and for Searle on pages 37-38. M Mmsit* 1W4 Amusl MONS 354741 TOWOLDMONOOI5844 OPERATING U N IT SEGMENT DATA The Agricultural Group The Chemical Group Searle The NutraSweet Company Corporate Total The Agricultural Group The Chemical Group Searle The NutraSweet Company Corporate Total I N* Mh 19M m3 IMS $2,224 $1,967 $1,676 3,715 3,684 3,705 1,681 1,546 1,503 652 705 879 $8,272 $7,902 $7,763 Totat Aiiiti 19*4 im rna $2,434 $2,166 $1,680 3,101 3,146 3,236 2,139 2,145 2,435 901 910 934 316 273 800 $8,891 $8,640 $9,085 N*n Howl1"end DmraJopmwst 1M4 m3 ma IftM $476 304 72 139 (68) $400 331 (13) 145 (53) $242 91 (288) 72 (59) $141 95 330 30 13 $923 $810 $ 58 $609 mi $152 113 305 42 14 $626 ms $152 112 332 44 11 $651 Capital IxpMditiirM VH4 ms mi $106 212 63 $109 224 72 $136 290 110 27 30 49 121 $409 $437 $586 H*erKlethM end Amortlratk* 1*M m3 m2 $138 $129 $112 254 263 301 114 119 116 53 59 234 222 $561 $572 $765 Amounts for 1992 have been restated from those previously reported for the reclassification of expenses and assets estimated to be attributable to biotechnology product discovery. In 1993, these expenses and assets were charged to the respective business units to reflect the current organIra ttonal structure. "'Operating Income was affected by the 1994,1993 and 1992 restructurings and other unusual items as follows: Operating Units The Agricultural Group The Chemical Group Searle The NutraSweet Company Corporate Total hlOMM sees 1M3 Utt $(16) (33) 19 (6) (4) $(40) $ (3) $(135) 43 (148) 3 (265) (12) (70) (1) (6) $30 $(624) Although Inflation is relatively low in most of Monsanto's major markets, it continues to affect operating results. To mitigate the effect of inflation, Monsanto has implemented measures to control costs, to improve productivity, to manage new fixed and working capital, and to raise selling prices where government regulations and competitive conditions permit. In addition, the current cost of replacing certain assets is estimated to be greater than their historical cost presented in the financial statements. Accordingly, the depreciation expense reported in the Statement of IWMMh Percent by operating unit Consolidated Income would be greater if the expense was stated on a current cost basis. Sales between operating units were not significant. Certain corporate expenses, primarily those related to the overall management of # Agricultural Group 9 Chemkel Group Seen* 9 NutraSwMt Monsanto, were not allocated to the operating units or geo graphic areas. Corporate assets primarily Include investments in affiliates and a portion of the cash balance. The principal factors that accounted for the operating units' performances in 1994 and 1993, along with the factors that are expected to affect operating results in the near term, are described on the following pages. i j Meeuett ItM Aeeeel Rtptrt Operating income incruiW 14 percent in 1994. S3 MQNS 354742 TOWOLDMONOOI5845 O PERATING U N IT SEGM ENT D ATA The Agricultural Group 1 1994' 1993 1992 Net Sales: Crop chemicals Animal sciences Total Operating Income 1 !$2 ,123 $1,936 $1,647 1 101 31 29 |$2 ,224 $1,967 $1,676 !$ 476 $ 400 $ 242 The Agricultural Group Is t leading worldwide devel oper, producer and marketer of crop protection products and lown-and-garden products. This group also develops and markets products enhanced by bio technology. These products Improve the efficiency of food production and preserve environmental quality for agricultural, Industrial, turf and residential uses. More than half of the unit's herbicide net sales are In mar kets outside the United States, Weather conditions In agricultural markets worldwide affect sales volumes. The Agricultural Groups sales and operating per formance in 1994 were records, helped by strong sales from the family of Roundup herbicides, the successful introduction of new products, and excellent manufactur ing performance. Net sales for The Agricultural Group in 1994 were 13 percent higher than net sales Afiiicnlttiral Group Net Sales Ihdl.W. Ill 1*1i linin'. in 1993. Net sales in 1994 ben efited from higher worldwide ! sales of Roundup, from the inclusion of a full year of 4,000 j lawn-and-garden sales from the | acquired Ortho business, and a.oooj .. . from sales of newly introduced Posilnc bovine somatotropin (BST). However, these factors 2,0001 i 11 * m p i111>.oooJ ft !a | . ! were somewhat offset by lower net sales from the acetanilide family of herbicides, which include Lasso herbicide and newly introduced Harness her bicide. Sales volumes of Lasso f 2 It !< declined from volumes last year; L !'' however, sales of Harness have L1' II-"1- ' substantially replaced those of Lasso in many U.S. markets. i ! . Operating income increased $76 million, or 19 percent. The increase in operating income was affected by unusual items in both 1994 and 1993. The unusual items included in 1994 operating income were $30 million in restructur ing charges, principally for employment reductions and costs to terminate a program. These charges were partially offset by $14 million in reversals of prior year restructuring reserves, primarily for higher than anticipated proceeds from the sale of the pyridine research program. Operating income in 1993 included $38 million in net charges primarily related to the withdrawal from the pyridine research program, and a $35 million pretax gam resulting from reimbursement by insurance companies for various costs incurred in 1992 from damage to a manufacturing site that produces a key raw material for Roundup. An analysis of the change in operating income shows: Selling prices Sales volumes and mix Raw material and other Brrttw IWww) UHn. 1993 rv 1993 1992 $(68) $(60) 106 157 manufacturing costs Restructuring and other charges Glyphosate plant damage costs Insurance settlement Inventory write-down Effect of divested businesses Other (primarily volume-related expenses) 41 24 22 25 42 (35) 35 30 30 (20) (95) Change In operating Income J_76 ' $158 Worldwide sales volumes in 1994 for the family of Roundup herbicides improved significantly from last year's sales volumes, reflecting strong demand in most key worldwide markets. The continued worldwide adoption of conservation tillage techniques by farmers and satis factory weather conditions, on balance, in many key markets contributed to this sales volume increase. Selling price declines for certain products, principally in ex-U S markets, continued to benefit sales volumes by making Roundup cost effective for weed control in a broader range of crop and industrial uses. The effect of generic compe tition, principally in certain ex-U.S. markets, dampened selling prices modestly. However, the effect of increased sales volumes on operating income exceeded the effect of the lower selling prices. Operating income in 1994 benefited from excellent manufacturing performance, from inclusion of a full year'i operating income from the acquired Ortho business, and from sales of Posilac in the United States. M Moniinto 19M Annuli lltpoit HONS 354743 TOWOLDMONOOI5846 OPERATING U N IT SEGMENT DATA i Earnings from the acetanilide family of herbicides declined due to lower sales into the former Soviet Union as a result of poor economic conditions, and one-time launch costs for the successful introduction of Harness in the United States. Mot Year Rtvtew Net sales for The Agricultural Group in 1993 were 17 percent higher than sales in 1992. Operating income increased $158 million, or 65 percent. The Increase in operating income was affected by unusual Items occurring In both 1993 and 1992. The unusual items included in 1993 operating income were $38 million in net charges primarily related to withdrawal from the pyridine research program and a $35 million pretax gain resulting from reimbursement by insurance companies for various costs Incurred in 1992 horn damage to a manufacturing site that produces a key raw material for Roundup herbicide. The unusual Items Included in 1992 operating Income were $63 million in restructuring charges and other Items, principally related to employment reductions; a $42 mil lion loss associated with the aforementioned costs incurred from damage to a manufacturing site of a raw material for Roundup; and a $30 million charge for the write-down of certain bovine somatotropin (BST) Inventories because of shelf-life expiration. Worldwide sales volumes for Roundup in 1993 Improved 24 percent from 1992 sales volumes, reflecting strong demand In most key markets. The rapid worldwide adop tion of conservation tillage techniques by farmers; the effects of the wet spring in the United States; and good weathct conditions, on balance, in many key markets contributed to this sales volume increase. The decline in selling prices, principally for certain products In ex-US. markets, continued to benefit sales volumes for Roundup by making the herbicide cost-effective for weed control in a broader range of crop and industrial uses. The effect of these increased sales volumes on operating Income exceeded the effect of lower selling prices. While 1993 sales benefited from the addition of the Ortho lawn-and-garden products business, operating Income was hurt by die dilutive effect of that acquisition. Expenditures in 1993 foe BST continued to affect financial results adversely. Agricultural Group Outlook Patents protecting Roundup and other glyphosate herbicides In various countries expired in 1991, while compound per it patent pro tection for the active ingredient in Roundup continues in the United States until the year 2000. Management expects that manufacturing process and formulation patents that are important to Monsanto's cost position will help maintain our competitive position after the expiration of this other patent. Roundup faces compe tition from several generic producers In certain markets outside the United States. Sales of Harness herbicide should continue to replace those of Lasso herbicide in most U.S. markets. This trend is expected to continue In future periods with some Incremental growth anticipated. In December 1994, the U.S. Environmental Protection Agency registered Permit herbicide for control of sedges and bfoadleaf weeds in com and grain sorghum, and Manage herbicide for nutsedge control in turf. Posilac bovine somatotropin (BST) offers significant value to the dairy industry by increasing the efficiency of milk production, but it continues to meet opposi tion from certain groups. The U.S. Food and Drug Administration has yet to finalize labeling regulations for milk products, and several state legislatures are considering milk labeling bills, which could affect future sales. The Agricultural Group has a significant number of new products in the research and development pipeline, some of which should be commercialized in the next few years. The focus continues to be on a number of herbicide and biotechnology-related products. MiiiiiSi IBS JUaul (hurt The Agricultural Oroiip'i 1994 net taleI irurreasei 13 percent. is HONS TOWOLDMONO015847 OPERATING U N IT SEGMENT DATA The Chemical Group Net Sales: industrial Products Group Fibers Plastics and Safiex Discontinued products Total Operating Income 1004 1093 ion $1,391 $1,522 $1,371 1,239 1,141 1,089 1,085 1,021 1,053 192 $3,715 $3,684 $3,705 $ 304 $ 331 $ 91 The Chemical Group produces and markets a ranee of performance materials -- Including plastics, nylon and acrylic fibers, rubber chemicals, Saflax plastic Interlayer, and phosphorus and Hs derivatives -- used by customers to make countless consumer, household, automotive and Industrial products. In 1994, The Chemical Group benefited from significantly higher sales volumes fot several key products, from improved worldwide capacity utilization levels, and from savings from continuing cost reduction efforts. Partially offsetting these gains were significantly higher raw material costs, principally In the last half of the year, and global pricing pressures in certain businesses. The Chemical Group's 1994 net sales were slightly higher than net sales last year. Sales in 1993 Included those from businesses later divested as part of the previ ously announced restructuring Chemical Grouii Ncl Sales !'. ................. program. Excluding net sates from these divested businesses, net sales in 1994 would have increased 6 percent from sales in 1993. Sales volumes increased 7 percent from sales volumes in 1993. This increase was offset by lower selling prices, principally in the rubber chemicals business. IM The sales volume increase in 1994 benefited from increased demand in the North American and certain European auto motive markets, from increases in U.S. housing starts and C1 resales, which resulted in an improved U.S. market for replacement carpet, and from an increase in the architectural use of laminated glass. Operating income in 1994 declined from operating income in the prior year, However, a number of unusual items affected profitability in both years. Specifically, 1994 operating income included $33 million in restructuring charges, principally related to employment reductions and costs to close several facilities. Operating income in 1993 benefited from $43 million in gains from the sale of several nonstrategic businesses, partially offset by expenses related to facility rationalization and other costs. An analysis of the change in operating income shows: Mtw Worn) 1004 v*. 1093 n. 1903 1002 Selling prices Sales volumes and mix Capacity utilization and other manufacturing costs Raw material costs Restructuring Asset impairment Brio litigation settlement Effect of inventory reduction Effect of divested businesses Other $(14) $(85) 128 11 74 21 (74) 71 (76) 120 30 41 (11) 31 (32) (5) (22) 5 Chang* la operating Income $(27) $240 Operating income in 1994 benefited from the effect of higher sales volumes, excellent manufacturing per formance and continued cost reduction efforts. Capacity utilization, an important factor for The Chemical Group's profitability, was 86 percent in 1994 vs. 77 percent in 1993. Partially offsetting these gains were significantly higher raw material prices. Net sales for the Industrial Products Group showed growth in North America and Asia. This growth was offset by the depressed economic conditions in the former Soviet Union during 1994 and in Europe during the first half of the year. The Fibers Division's net sales in 1994 were 9 percent higher than those in 1993. This strong performance was primarily due to increased nylon sales in the United States to carpet manufacturers for the home replacement carpet market and to tire producers for tire reinforcement. The Plastics and Safiex Divisions' net sales in 1994 were higher than those in 1993, primarily because of sales volume increases worldwide. Selling prices stabilized com pared with those in 1993, principally in the United States. Prior Year Review In 1993, The Chemical Group benefited from lower raw material prices, cost reduction efforts, and an improved U.S. economy. However, the group was adversely affected M iom hiiii ftmrt HONS 354745 TOWOLDMONOOI5848 O PER ATIN G U N IT SEGMENT DATA by the recession in Europe and Japan, which continued to constrict demand for chemical products. The Chemical Group's 1993 net sales were slightly lower than net sales in 1992. Sales volumes increased 3 percent from sales volumes in 1992. This increase was offset by lower selling prices, principally in the Plastics and Resins Divisions. The sales volume increase in 1993 was primarily in the United States, and benefited from a stronger market for replacement carpet. Sales volumes also benefited front increased U.S. automotive production, which rebounded from 1992 levels. Various product sales volumes in Europe, Japan and the former Soviet Union declined as a result of weak demand. Operating income in 1993 more than tripled when com pared with 1992 operating income. However, a number of unusual items affected profitability both years. In 1993, operating income benefited from $43 million in gains from the sale of several nonstrategic businesses, partially offset by expenses related to facility rationalization and other costs. In 1992, operating income was adversely affected by $77 million in restructuring expenses associated with Implementing further cost cutting actions; $41 million in costs associated with the settlement of certain litigation related to the Brio Superfund site; and $30 million In expenses related to a facility asset impairment. Ctiwnkai Group Outlook (73^ In 1995, Tire Chemical Group intends to merge vr its rubber chemicals and instruments businesses with the rubber chemicals business of Akzo Nobel N.V. to form a 50/50 joint venture. The new organization will serve the global rubber industry. When the venture is formed, certain redundant activities and functions for the combined businesses are expected to be consoli dated, and a one-time charge will be recorded. Net sales and operating income of the joint venture will not be included with those of The Chemical Group. The Chemical Group's share of the joint ventures earnings will be reflected in "Other income (expense)-- net" in the Statement of Consolidated Income. The Chemical Group's outlook is for growth based on continued improvement of existing businesses through process redesign and cost reductions, develop ment of new markets for existing or modified products, development of new products, and growth through rational and synergistic acquisitions. Searle Net S*W* Operating Income (Lon) ie*4 i**3 ma $1,681 $1,546 $1,503 $ 72 $ (13) $(288) Searto develop*, produce* and market* prescription pharmaceutical*. It* product* Include medication* to relieve the symptom* of arthritis, to control high Wood pressure, to relieve Insomnia, to prevent the formation of ulcers, and to treat certain Infection*. Searle's 1994 net sales were 9 percent higher than net sales last year. This Increase in net sales was driven by 10 percent higher volumes, partially offset by lower net selling ptices. Sales growth from new products -- led by Daypro, a once-daily arthritis treat ment, Amfrien, a short-term treatment for insomnia, and Arthrotec, a combination of Cytouc ulcer preventive drug with the nonsteroidal anti Scark* Net Sales 1 .. .......... inflammatory drug diclofenac, ' for the treatment of arthritis -- more than offset a decline in 4.000 sales of the Calan family of cal cium channel blockers. In total, these new products contributed 3.(100 $310 million to 1994 net sales. Net sales of the Colon family 2.000 of products, sold primarily in Canada and the United States, 1000^ nn Ml were $321 million, 8 percent lower than last year's. This decline primarily reflected the 0 effect of generic competition on C' Colon SR in the United States. However, the effect was substan tially reduced by Searle's sales l of verapamil SR resulting from a distribution arrangement with a generic distributor. Net sales of Canderel tabletop sweetener, made with bhuraSwtet brand sweetener and marketed by Searle outside the United States, were $155 million in 1994, up 3 percent from net sales in 1993, due to higher sales volumes. Searle's operating income in 1994 was $72 million compared with an operating loss of $13 million in 1993. Unusual items included in 1994 operating income were $16 million in restructuring charges, principally related MoRMtto UM Annul An nod Shaft's n?ui products contributed $3/0 million to 1994 nor sales 37 HONS 35*7*6 TOWOLDMONOOI5849 OPERATING U N IT SEGMENT DATA to employment reductions; and $35 million in reversals of prior year restructuring reserves, primarily for higher than anticipated proceeds and lower exit costs related to certain divested facilities. Operating results in 1994 benefited from increased sales of new' products, lower new product introduction costs in 1994, and cost savings, primarily from restructuring actions initiated in 1992. An analysis of the change in operating income shows: Operating results in 1993 benefited from cost savings, primarily from restructuring actions initiated in 1992. However, results were negatively affected by substantial new product introduction costs and global health care reforms. The 1992 operating loss Included a $265 million pretax restructuring charge. Searts Outlook Selling prices Sales volumes and mix Restructuring Marketing, administrative and technological expenses Other Clung* In operating incom* r*. 1MJ $(24) 100 16 vm $(34) 94 268 1 (31) (8) (22) $ 85 $275 Searle's Investment in research and development (R&D) continues to be significant. R&D expenditures were 20 percent of the unit's net sales for both 1994 and 1993. Future R&D spending is also expected to be significant, and Searle will continue to seek R&D collaborations to share development costs and combine strengths to speed development. This investment reflects Searle's commitment to securing a continuing stream of new products through discovery and development. Prior Ymt Review Searle's 1993 net sales were 3 percent higher than 1992 net sales, driven by 5 percent higher volumes, partially offset by lower net selling prices. Sales growth from new products more than offset a decline In sales of Calan. New ptoduct introductions included Daypro and Ambien in the United States and Arthrotec in the United Kingdom, Canada, Sweden and Ireland. In total, these products contributed $159 million to 1993 net sales. Net sales of Colon, sold primarily in tire U.S. and Canadian markets, were $350 million, 23 percent lower than those in 1992. This decline primarily reflected the effect of generic competition in the United States. Sales in 1993 of Maxaquin qulnolone anrMnfecdve agent were almost 50 percent higher than those in 1992, the year the product was launched In the United States. But 1993 sales of Maxorjum were short of expectations because of photosensitivity issues. Net sales of Canderel were $151 million in 1993, down 4 percent from net sales In 1992, because of a stronger U.S. dollar. Arthrotec, a combination of Cytotec ulcer pre ventive drug and diclofenac for the treatment of arthritis, was launched in the Netherlands and Portugal in 1994. Additional launches in Germany and Italy, as well as the filing of the U.S, new product application, are anticipated in 1995. Cytotec has now been approved in all major markets. Recent clinical developments related to Cytotec are believed to represent a potential opportunity to enhance future sales and performance of this product. Colon calcium channel blocker participates in an increasingly competitive market for antihypertensive drugs and faces generic competition. This increased competition is likely to continue to affect the future sales and profits of Colon adversely. Searle, In conjunc tion with ALZA Corp., is developing a formulation of verapamil hydrochloride (the active Ingredient in Colon) with proprietary delayed-release technology. The new product application for Verapamil OROS was recently filed with the Food and Drug Administration for marketing approval in the United Stares. A positive review could enhance Searle's competitive position for such hypertension products. Searle's current product development activities are focused on areas of strategic importance. In addition to Verapamil OROS, Searte is developing drugs for the treatment of cardiovascular conditions, Including an oral andplatelet agent to Inhibit blood clots from forming after bypass surgery or angioplasty; tissue factor pathway Inhibitor (TFP1) to be used during microvascular surgery to prevent blood clots; and epoxymexrenone for the treatment of hypertension, congestive heart failure and cirrhosis. COX-2 inhibitor, in early development as an improved treatment for arthritis, could potentially increase Searle's participa tion in this important therapeutic market. Other products in development include eliprodtl, a neuroprotective agent to limit the damage caused by stroke, and IL-3 synthoklne to help chemotherapy patients replen ish white blood cells and platelets more rapidly. M MoaMit* ISM Arms) MONS 35474? TOWOLDMONO015850 OPERATING U N IT SEGMENT DATA The NutraSweet Company Nets** Operating Inoorn* 1*M $652 $139 tm $705 $145 1M2 $879 $ 72 The Hirtr*SwMt Company mamifacturM and markets sweeteners, Including NvirtSmoi brand sweetener; and Equtltwi NutroSwoot Spoonful tabletop sweeteners, and other food Ingredients, Approximately W percent of NutraSweet'* net sales are In the U.5. market. NutnSwort brand sweetener Is produced and sold by 50 percent-owned European Joint ventures In the European market. These sales and operating income are not Included wtth those of NutraSweet NutraSweefs share of the European Joint ventures* earnings Is reflected In "Other Income (expense) -- net" In the Statement of Consolidated Income. In 1994, NutraSweet'* net sales decreased 8 percent from 1993 net sales as the result of lower average selling prices of NutraSweet brand sweetener. This decline was expected, and resulted from lower postpatent prices in the United States for that product. Sales volumes for NutraSweet brand sweetener decreased slightly from those In 1993, primarily due to lower contractual shipments to customers. Sales volumes for Equal and NutraSweet Spoon/ui increased 4 percent in 1994 from those In 1993. NutraSweet's 1994 operating income decreased 4 per cent from 1993 operating Income. Operating Income In 1994 and 1993 Included pretax restructuring charges for work force reductions of $6 million and $12 million, respectively. The decline In 1994 resulted from lower average selling prices and lower sales volumes, which were partially offset by lower operating expenses and higher sales of tabletop sweeteners. An analysis of the change in operating Income show*: Sales decline (lower selling prices and change in sales volumes) Restructuring charge Inventory adjustment Patent amortization 0titer, principally lower operating costs Ckang* In operating Income UHn. lMltt. 1HJ im $<64) $(177) 6 12 46 173 52 19 $ (6) $ 73 Prior Year Review In 1993, NutraSweet's net sales decreased 20 percent from 1992 net sales as the result of lower average selling prices of NutraSweet brand sweetener. This decline was expected, and resulted from lower postpatent prices in the United States for that product. Sales volumes for NutraSweet brand sweetener were 6 percent higher than those in 1992, led by growth In the private label and specialty flavor segments of the diet soft drink market. Sales volumes for Equal and NutraSweet Spoonful tabletop sweeteners increased 7 percent in 1993 from those in 1992. Despite the expiration of its aspartameuse patent, NutraSweet increased its market share in 1993 in the U.S. tabletop market as the result of tire successful launch of NutraSweet Spoonful in mid-1992. NutraSweet's 1993 operating income Included a pretax restructuring charge of $12 million, and 1992 operating income was reduced by a $46 million inventory write down and by restructuring actions totaling $24 million. The improvement in 1993 operating Income resulted from reduced operating expenses and from lower amortization expense, as the U.S. aspartame-use patent was folly amor tized in 1992. These lower expenses more than offset the lower average selling prices. KutraSwttt Outlook The market prospects for high-intensity sweeteners, such as aspartame, ate strong worldwide as an ingredient and in tabletop products. NutraSweet has built important competitive market advantages, including brand name identity, logo recog nition, and the reputation as a superior quality, highly reliable supplier. In addition, NutraSweet brand sweet ener potentially offers an economical replacement for sugar in certain markets. Competition from generic aspartame producers and other sweeteners now being reviewed by the U.S. Food and Drug Administration could negatively affect sales in the future. This could adversely affect operating income and cash flow. The United States wilt remain the principal market for NutraSweet brand sweetener in 1995, but inter national markets offer significant growth potential, particularly In the tabletop category. NutraSweet Is developing a next-generation, highintensity sweetener and expects to file a food additive petition with the U.S. Food and Drug Administration near the end of the decade. MmmiU mt Aawat Rrpwt NutraSweet brand swttuner u made and told by SO percent-owned joint venturer in the European market. HONS 35<?<8 TOWOLDMONOQ15851 Geographic Data 1 ... Tr"rt United States Europe-Africa Asia-Pacific Canada Latin America Interarea Eliminations Corporate Total WUnIi UgjWgwjftgbgg; im 1M3 1M2 $5,376 $5,162 $4,964 1,653 1,559 1,652 552 533 566 318 311 290 373 337 291 $8,272 $7,902 $7,763 OprUNf Uctm (U|M U*4 1M1 im $507 340 39 37 65 3 (68) $656 129 (2) 28 43 9 (53) $ 181 (168) 50 18 29 7 (59) $923 $810 $ 58 TdM AMtt 1M4 IM) 1W $5,844 $5,928 $5,641 1,947 586 135 300 (237) 316 1,801 502 121 261 (246) 273 2,046 533 147 242 (324) 800 $8,891 $8,640 $9,085 The data above are prepared on an "entity basis," which means that net sales, operating income and assets of a legal entity are assigned to the geographic area where the legal entity is located. For example, a sale from the United States to Latin America is reported as a U.S. export sale. Interarea sales, which are sales between Monsanto locations in different world areas, were made on a market price basis. Interarea sales have been excluded from the above table and were: ... 1M4 IMS 1M2 World area shipped from: United States Europe-Africa Asia-Pacific Canada Latin America Interarea Eliminations $ 682 $ 625 $ 683 248 133 105 5 25 44 38 33 2 42 (981) (802) (828) Total $- $-$- Following is a reconciliation of ex-U.S. operating income and total assets to the net Income and net assets of consolidated ex-U.S. subsidiaries: IMS IMS tm Operating Income (loss) Interest and other Income (expense) -- net Income taxes $ 481 $ 198 $ (71) (33) (133) (16) (67) (89) 54 Nat Inooma (loaa) af CoMoMatod Ex-lLt. fcibskUariaa $ 315 $ 115 $ (106) Total operating assets Total liabilities Hat Anris ri ConaoRdaM Ex-lLl SubsMlartaa $2,968 $2,685 $2,968 1,088 1,080 1,416 $1,880 $1,605 $1,552 The reported operating income fot the Individual geographic areas does not Include the full profitability generated by sales of Monsanto products imported from other locations, principally from the United States. Direct export sales from the United States to third-party customers outside the United States were $399 million in 1994, $435 million in 1993 and $393 million in 1992. Sales and operating income for the geographic seg ments do not include the financial results from those joint venture companies in which Monsanto does not have management control. Monsanto's share of the Income or loss of these companies is reflected in "Other income (expense) -- net" in the Statement of Consolidated Income. Monsanto's share of the unconsolidated net sales and income or loss of these companies for 1994 follows: McatinbS Hurt m ^|||| Ircmi# Am*] United States Europe-Africa Asia-Pacific Latin America $179 90 20 130 $10 2 (2) 10 11 Geographic area operating income was affected by the 1994,1993 and 1992 restructurings and other unusual items as follows: botm UM IMS UM United States Europe-Africa Asia-Pacific Canada Latin America Corporate $(105) 69 (11) 2 9 (4) $ 78 $(327) (26) (295) (15) 13 (4) (8) (2) (1) (1) (6) Trial $ (40) $ 30 $(624) tUftMato ISM Imiil MONS 354749 TOWOLDMONOOI5852 Statement of Consolidated Financial Position fPofcn b wWm, m*# p* Ur*l____________ _______________ ___________ f* tl D*. Jl, ASSETS Current Amts: Cash and cash equivalents Trade receivables, net of allowances of$57 in 1994 and $51 In 1993 Miscellaneous receivables and prepaid expenses Deferred income tax benefit Inventories Total Current Assota Proparty, Plant and Equipment: Land Buildings Machinery and equipment Construction In progress Total property, plant and equipment Less accumulated depreciation . Net Property, Plant and Equipment aI-f--f--r---l-l-Mlln----f--m-- a.t |m_ nliJmIM,1U, r,l IntangfUa Amt*, net of accumulated amortization of $522 in 1994 and $450 in 1993 Other Areata Tstal Aarets U04 $ 507 1,530 313 321 1,212 3,883 102 1,268 5,916 269 7,555 4,738 2,817 279 1,134 778 $8,891 LIABILITIES AND SHAREOWNERS' EQUITY Currant LiaMMoa: Accounts payable Wages and benefits Income and other taxes Restructuring reserves Miscellaneous accruals Short-term debt Total Current UaMMat LoMf-T*rm D*M Marred 1noons* Tkxaa Poatrettrawant llabMN Othar UaMHJre Shareownara'Equity: Common stock (authorized, 200,000,000 shares, par value $2) Issued, 164,394,194 ihares In 1994 and 1993 Additional contributed capital Treasury stock, at coat (52,859,031 shares In 1994 and 48,418,545 shares in 1993) Reserve for ESOP debt retirement Unrealized investment holding gain Accumulated currency adjustment Reinvested earnings Total Shareowners' Equity Total UabWtl-- and Shareownare* Equity TV above statement should V rwvf In corVunction id* pot's 17 *rou|fc 77 ofthis report. ESOP stands for Employee Stock Ownership Plan. $ 629 343 150 129 872 312 2,435 1,405 65 1,341 697 329 849 (2,744) (199) 19 33 4,661 2,948 $8,891 U*3 $ 273 1,445 388 342 1.224 3,672 107 1,237 5,793 245 7,382 4,580 2,802 227 1,189 750 $8,640 $ 538 299 140 255 840 223 2,295 1,502 54 1,256 678 329 826 (2,348) (218) (59) 4,325 2,855 $8,640 MmmuN lt*4 An*il Direct export sales from the United States tc, *fri-part> customers outside the United States were $799 million in 1991 41 MONS 354750 TOWOLDMONO015853 REVIEW OF CHANGES IN FIN AN C IAL POSITION I i Financial Position Remains Strong Monsanto's financial position remained strong in 1994, as evidenced by Monsanto's current "A" debt rating. Financial resources were adequate to support existing businesses and to fund new business opportunities. Working capital was higher at year-end 1994, princi pally because of higher cash and cash equivalent balances, offset, in part, by higher short-term commercial paper borrowings. Trade receivables at year-end 1994 increased compared with those at the prior year-end, primarily because of higher fourth-quarter sales of The Agricultural Group. Inventories at year-end 1994 declined slightly, primarily because of planned inventory reductions in The Chemical Group. The amount of net property, plant and equipment was higher than at year-end 1993, as $409 million in capital additions and the effect of a stronger U.S. dollar exceeded 1994 depreciation expense. Total deferred tax benefits, both current and non current, of $392 million at year-end 1994 are primarily related to U.S. operations, which generally have a strong earnings history. Long-term debt at year-end 1994 was lower than that at the prior year-end primarily because of principal payments on the company's medium term note*. On Feb. 20,1995, Monsanto completed It* acquisition of the worldwide business of Kelco, the specialty chemi cals division of Merck &. Co. Inc., for approximately $1,075 million. Kelco Is the wotldwide leader In the development, application and production of alginates and biogums. Monsanto will fund the acquisition through a combination of cash and debt. Net sales in 1995 will benefit from the acquisition of Kelco. However, the effect on Monsanto's 1995 operating income from the acquisition is expected to be slightly dilutive. Monsanto uses financial markets worldwide for its financing needs and has available various short- and medium-term bank credit facilities, which are discussed in the Notes to Financial Statements (page 51). These credit facilities provide the financing flexibility to let Monsanto take advantage of investment opportunities that may arise and to satisfy future funding requirements. To maintain adequate financial flexibility and access to debt markets worldwide, Monsanto management intends to maintain an "A" debt rating. The company's strong financial position will not be significantly affected by the debt Issued to fund the Kelco acquisition. In October 1991, Monsanto's board of directors approved the establishment of an Employee Stock Ownership Flan (ESOP). In January 1992, the ESOP purchased from Monsanto $250 million in common stock, which is being used to match employee contribu tions under the company's existing savings and investment plan. A more detailed description of tire ESOP is provided In the Notes to Financial Statements on page 54. In February 1994, Monsanto established a grantor trust that had been approved by the board of directors. A more detailed description of the grantor trust U provided in the Notes to Financial Statements on page 55. Monsanto's commitments and contingencies are described in the Notes to Financial Statements on page 55. Monsanto's return on shareowners' equity (ROE) was 21.4 percent in 1994. The ROE and other key financial statistics are presented in the table below. KTV FINANCIAL 8WBTKS Ratarn on Shareownara' EfuHy (HOC) (Net Income divided by average shareowners' equity) Current Ratio (Current assets divided by current liabilities) Trad* RacafraMta Days Ia4 Ouhhwflm (Fourth-quarter trade receivables divided by fourth-quarter net sales times 30 days) Inventory Tarrwrar RaMa (Co*t of goods sold divided by inventory) Intemt Covers#* (Income before interest expense and income taxes divided by total Interest cost) Ca*li Provided by Oparattena/Vstai MM Total MA/Total Capttafcattoa* cafx'wlitivion 0 Af wi of AorHrrmdeis, lon^-tem<W*<md rfwstourwn' equity I*H 21.4% 1.6 67 3.9 7.3 76% 37% i 10*3 16.9% 1,6 71 3.7 6.1 42% 38% 1M2 (2.6)% 1.6 67 4.1 -- 54% 36% 42 ltM AMid Rt*wt RONS 3547&I TOWOLDMONOOI5854 i i i i I Statement of Consolidated Shareowners' Equity (Mhrt b film, cc*p< pee ifcr*l COMMON STOCK; Balanca, Jan. 1 atKl D*c. 31 ADWTTONAL CONTRIBUTED CAPITAL; Balance, Jan. 1 Employee stock plans and ESOP Balance, Dae. 31 TREASURY STOCK; Balance, Jan, 1 Shares purchased (6,1 70,0l6; 5,795,600; and 6,732,300 shares In 1994, 1993 and 1992, respectively) Shares issued under employee stock plans and ESOP (1,729,530; 1,306,882; and 4,269,180 shares in 1994,1993 and 1992, respectively) Balance, Dec, 31 vm $ 329 $ 826 23 $ 849 $(2,348) (478) 82 $(2,744) 1M3 $ 329 $ 820 6 $ 826 $(2,029) (380) ' 61 $(2,348) RESERVE FOR ESOP DEBT RETIREMENT Balance, Jan. 1 Allocation of ESOP shares Balaaoe, Dec. 31 $ (218) 19 $ (199) $ (233) 15 $ (218) UNREALIZED INVESTMENT HOLDING GAIN: Balance, Jan. 1 Net change in market value Balance, Dec, 31 $ 15 4 $ 19 ACCUMULATED CURRENCY ADJUSTMENT. Balance, Jan. 1 Translation adjustments Balance, Dec. 31 $ (59) 92 $ 33 $ 15 (74) $ (59) REINVESTED EARNINGS; Balance, Jan. 1 Net income (loss) Dividends (net of ESOP tax benefits) $ 4,325 622 (286) $ 4,103 494 (272) Balance, Dec, 31 $ 4,661 $ 4,325 TV ofcow jfcMfrnfTU Ml i* read M conjunction uSlb pafcs V tfirongb 57 of this repon. ESOP Hands for Employe* Stock Outimbip Plan. KEY FINANCIAL STATISTICS Stock Price* High Low Year-End Per Share Dividends Shareowners' Equity Average Daily Share Trading Volume (thousands of shares) *Based on daily reported Hfk and low stock prices. m* $86% 66 VS 70V5 2.47 26.43 376 ut) $75 48% 73% 2.30 24.62 335 ; 19M $ 329 $ 726 94 $ 820 $(1,797) (417) 185 $(2,029) $ (250) 17 $ (233) $ 187 (172) $ 15 $ 4,459 (88) (268) $ 4,103 1M2 $7154 49% 57% 2.20 24.95 392 MoMMt* 1#W AM<I fttptrt Monsanto maintained iti current "A" debt rating in 1994. 43 HONS 354752 TOWOLDMONOOI5855 Statement of Consolidated Cash Flow (Dolan tamMoMl INCREASE (DECREASE) M CASH AND CASH EQUIVALENTS OPERATING ACTWriTES; Income (Loss) from continuing operations Add income taxes -- continuing operations Income (Loss) from continuing operations before income taxes Adjustments to reconcile to Cash Provided by Continuing Operations: Income tax payments Items that did not use cash: Depreciation and amortization Restructuring expenses -- net Incremental SFAS No. 106 expenses Other Working capital changes that provided (used) cash: Accounts receivable Inventories Accounts payable and accrued liabilities Other Other items Cm* Provided by CotrUnuin* Operation! Cash Provided by (Used in) WfMwtinaed Operation* Total Cash Provided by Operations im 1993 $ 622 273 895 (196) 561 40 48 (5) . (88) 15 (125) 74 81 1,300 1,300 $ 494 235 729 (166) 572 5 48 09) 62 (31) (202) 34 (10) 1,022 (291) 731 1992 $ (126) (48) 0 74) (162) 765 436 45 157 21 (30) (107) (125) 22 848 64 912 INVESTING ACTlVmESe Property, plant and equipment purchases Acquisition and investment payments Investment and property disposal proceeds Proceeds from sale of Fisher Controls Discontinued operations -- other Cash Provided by (Used In) Investing ActMtks (409) (185) 202 (392) (437) (510) 298 (649) (586) (259) 177 1,275 (30) 577 FINANCING ACTIVITIES: Net change in short-term financing Long-term debt proceeds Long-term debt reductions Treasury stock purchases Dividend payments Common stock Issued to ESOP Other financing activities Cash Used In Flnandnf ActMtie# INCREASE (DECREASE) M CASH AND CASH EQUIVALENTS CASH AND CASH EQUMALOfT* Beginning of year 89 49 (152) (478) (289) 107 (674) 234 273 (31) 379 (299) (380) (275) 68 (538) (456) 729 (78) 120 (565) (417) (270) 250 11 (949) 540 189 End of year $ 507 $ 273 $ 729 The above statement should lx read in conjunction with pages 47 through 57 of this report. The effect of exchange rate changes on cojfi and cash waj not matenal. Cash payments for Interest (netofamounts capitalized) tvert $(29 million, $123 million and $176 million for the years 1994,1993 and 1992, rtifxctivelj Durtnf 1991. Momanio established an EmfJoy S(ocl< Oumcnluf* Plan (ESOP) Monsanto was guarantor of $70 million of ESOP nocti and $100 million of ESOP debenture a> of Dec. 31,1994. I 44 MmuiU 1M4 tiHil MONS 35V753 i TOWOLDMONO015856 R EVIEW OF CASH FLOW Monsanto's cash flow for 1994,1993 and 1992 is shown in the Statement of Consolidated Cash Flow on the preceding page. Cash Flow Remains Strong Cash provided by continuing operations of $1,300 mil lion was strong in 1994, 27 percent higher than that in 1993. This outstanding improvement was due primarily to higher net income in 1994, but also to successful efforts in streamlining working capital requirements and in inventory management. Working capital as a percentage of net sales was about the same as that for last year. Cash from continuing operations was generated primarily by The Chemical Group, The Agricultural Group and The NutraSweet Company. Monsanto's operations have historically generated sufficient cash to fund existing businesses and growth- related research and investments. Management expects that cash provided by operations, supplemented by periodic borrowings, will Cif.li I'tnvnlul liy Cuitiiitiim;: Uiit'i .limits be adequate to fund future requirements. Other Investment and property disposals in 1994 gen l.'itilt erated more than $200 million in cash. The principal proceeds P in 1994,1993 and 1992 were i .mm from the sales of various 9 fitm businesses associated with restructuring actions. In 1992, Monsanto received $1,275 million in cash from the sale of Fisher Controls. 4) A portion of the cash proceeds * was used to reduce debt and to purchase Monsanto common stock. Cash used by discontinued operations in 1993 was for income taxes related to the sale of Fisher Controls. Major uses of cash for 1994,1993 and 1992 Included dividends, capital expenditures, and treasury stock pur chases. The acquisition of the Ortho lawn-and-garden products business in 1993 and investments in various 1992 acquisitions were also major uses of cash. Monsanto's 1994 capital expenditures focused on improved technology, capacity expansions and environmental projects, and totaled $409 million. Business redesign efforts and productivity enhancements were successful in Increasing effective capacity at many facilities, reducing the need for additional capital expenditures. Long-term debt repayments in 1993 included $150 mil lion in 9Vt percent debentures. Long-term debt repayments in 1992 included $145 million in l\V percent debentures, $141 million in 8X percent debentures, $104 million in 8K percent debentures, and $51 million in industrial revenue bonds. 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. Based on the cost and availability of insurance and the likelihood of a toss, management decides the amount of insurance coverage to purchase from unaffiliated companies and the appropriate amount of risk to retain. 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. 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, Monsanto Maintains Strong Environmental Commitment Monsanto is subject to various laws and government regulations concerning environmental matters, employee safety and employee health. It is anticipated that increasingly stringent requirements will be imposed upon Monsanto, its competitors and industry in general. Monsanto is dedicated to a long-term environmental protection program that reduces emissions of hazardous materials into the environment, as well as to the remedia tion of identified existing environmental concerns. In 1988, management committed to a 90 percent reduc tion in toxic air emissions from worldwide operations by the end of 1992. Monsanto achieved its goal, based on 1992 year-end operating rates. The cost to accomplish this target did not materially affect operating results. In feet, some of the targeted capital projects lowered operating costs and improved operating efficiency. Expenditures in 1994 were approximately $47 million for environmental capital projects and approximately Monurt* 1W4 JUnctl Rta*tt Cash /W from continuir^ ofKratkms increastd 27 percou m 1994. 45 HONS 35*75< TOWOLDMONOOI5857 R EVIEW OF CASH FLO W $202 million for management of environmental programs, including the operation and maintenance of facilities for environmental control. Monsanto estimates that during 1995 and 1996 approximately $35 million to $45 million per year will be spent on additional capital projects for environmental protection. Monsanto periodically receives notices from the U.S, Environmental Protection Agency (EPA) that it is a potentially responsible party (PRP) under the Comprehensive Environmental Response, Compensation and Liability Act (CERCLA), commonly known as Superfund, The EPA has designated Monsanto as a PRP at 92 Superfund sites. Monsanto has resolved disputes, entered partial consent decrees, and executed administra tive orders between Monsanto and the EPA in 47 of these cases, settling a portion or all of Monsanto's liability for these Superfund cases. Six other matters involve sites where allegations are predicated on tentative findings of reuse of drums by others that once contained products sold by Monsanto. These six matters have been inactive as to Monsanto for at least 10 years. At one other site, Monsanto has determined that it has no liability whatsoever. Monsanto's policy Is to accrue costs for remediation of waste disposal sites in the accounting period In which the responsibility Is established and the cost Is estimable. Monsanto's estimates of its liabilities for Superfund sites are based on evaluations of currendy available facts with respect to each Individual site and take into consideration factors such as existing technology, presently enacted laws and regulations, and prior experience In remediation of contaminated sites. Monsanto does not discount these liabilities, and they have not been reduced for any claims for recoveries from insurance or from third parties. However, Monsanto is engaged In litigation with some of its insurance carriers regarding both the applicability and the amount of its coverage responsive to claims foe damages at these sites. Monsanto has an accrued liability of $72 million as of Dec. 31,1994, for Superiund sites. As assessments and remediation aedvities progress at Indi vidual sites, these liabilities are reviewed periodically and adjusted to reflect additional technical, engineering and legal information that becomes available. Major sites in this category Include the noncompany-owned Brio, Flke/Artel, Motco and Woburn sites, which account foe $54 million of the accrued amount Monsanto's estimate of its Superiund liability is affected by several uncertainties such as, but not limited to, the method and extent of remediation, the percentage of material attributable to Monsanto at the sites relative to that attributable to other parties, and the financial capabilities of the other PRPs at most sites. Due to these uncertainties, primarily related to the method and extent of remediation, potential future expenses could be as much as $25 million for these sites. These potential future expenses may be incurred over the balance of the decade. There are various other lawsuits, claims and proceed ings that state agencies and others have asserted against the company seeking remediation of alleged environ mental impairments. Monsanto is in the process of determining its involvement, if any, at 41 of these sites. Monsanto has an accrued liability of $108 million as of Dec. 31,1994, for these matters and for environmental reserves at certain former Monsanto plant sites. The com pany's estimate of its liability related to these sites is affected by several uncertainties such as, but not limited to, the extent of Monsanto's Involvement, and the method and extent of remediation. Due to these uncertainties, potential future expenses could be as much as $75 million for these sites. Four sites in this category account for $58 million of the accrued amount and for approximately $55 million of the potential future expenses. Monsanto spent $52 million in 1994 for remediation of Superiund and other waste disposal sites. Most of these expenditures related to The Chemical Group, and similar or greater amounts can be expected in future yean. For hazardous and other waste facilities at operating locations, Monsanto recognizes post-closure environmental costs and remediation costs over the estimated remaining useful life of the related facilities, not to exceed 20 years. Monsanto spent $13 million in 1994 for remediation of these facilities and has an accrued liability of $27 million as of Dec. 31,1994, for these sites. Uncertainties related to these costs are evolving government regulations, the method and extent of remediation, and future changes in technology. Monsanto's estimated closure costs for these facilities are approximately $135 million. While the ultimate costs and results of remediation of waste disposal sites cannot be predicted with certainty, Monsanto's liquidity, financial position and profitability are not expected to be materially affected. Common Stock Purchase Program Continued in 1994 In October 1992, Monsanto's board of directors authorized the purchase of 12 million shares of Monsanto common stock. This authority is In addition to the normal repurchase of shares for compensation and benefits 44 MMUiti 1M AmiH MONS 354755 TOWOLDMONO015858 NOTES TO F IN A N C IA L STATF.MENTS j programs. In 1994, Monsanto purchased 6.2 million shares at a cost of $478 million. Since June 1987, Monsattto has purchased 55.8 million shares at a cost of $3,028 million. Management believes that the stock purchase program represents an appropriate use of excess cash. Dividend Increases for the 22nd Consecutive Year Monsanto has paid quarterly dividends on its com mon shares without interruption or reduction since 1928, and has increased the dividend per share in each of the past 22 years. Dividend payout for 1994 was 22 percent of cash provided by operations. Monsanto's dividend policy reflects a desired long-term payout percentage based on Monsanto's expectations of future growth and profitability levels. For both common stock repurchases and dividends in any individual year, additional consideration is given to expected financial position and results, acquisitions, working and fixed capital needs, scheduled debt repay ments, and economic conditions, including inflation. Monsanto's common stock is traded principally on the New York Stock Exchange. The number of share owners of record as of Feb. 24,1995, was 53,312. The high and low common stock prices on that date were $79% and $78%. Dividend Per Share 111 |M | lellfMliil IJil'J'iOCifiOOOO * Monsanto's dividend per stare on a calendar year basis has increased 120 percent since 1984 Significant Accounting Policies Monsanto's significant accounting policies ate italicized in the following Notes to Financial Statements. Previously reported amounts have been reclassified consistent with the 1994 presentation. Basis of Consolidation The consolidated fiiwnciai statements t'nclwtle the com pany and its majority-owned subsidiaries. Intercompany transactions have been eliminated in consolidation. Other companies in which Monsanto has a significant ownership interest (generally greater than 20 percent) are included in "Investments in Affiliates" in the Statement of Consolidated Financial Position. Monsanto's share of these companies' income or loss is included in "Other income (expense) -- net" in the Statement of Consolidated Income. Currency Translation The financial statements for most of Monsanto's ex-L'.S entities are translated into U.S. dollars at current exchange rates. Unrealized currency adjustments in the Statement of Consolidated Financial Position are accumulated in shareowners' equity. The financial statements of ex-l/S. entities that operate in hyperinflationary economies, principally Brazil, are translated at either current or historical exchange rates, as appropriate. These currency adjustments are included in net income. Major currencies are the U.S. dollar, British pound sterling, Belgian franc and Japanese yen. Other important currencies include the Brazilian real, Canadian dollar, French franc, German mark and Italian lira. Currency restrictions are not expected to have a significant effect on Monsanto's cash flow, liquidity or capital resources. Currency option contracts are purchased to manage currency exposure for anticipated transactions (for example, expected export sales in the following year denominated in foreign currencies). Currency forward contracts and option contracts are used to manage other currency expo sures, primarily for receivables and payables outside the United States. This hedging activity is intended to protect the company from adverse fluctuations in currencies vs. the U.S. dollar. MouftnU WM Annual At port Since June 1987. Monsanto has fnwchascd 55 .8 million shares 0/ u> common (. ck 7 HONS 354*756 j TOWOLDMON0015859 NOTES TO F IN A N C IA L STATEMENTS As of Dec. 31,1994, Monsanto had currency forward contracts to purchase $119 million and to sell $179 million, and purchased currency option contracts to sell $256 million of other currencies, principally the French franc, Japanese yen, Canadian dollar and British pound sterling. Gains and losses on contracts that are desig nated and effective as hedges are deferred and are included in the recorded value of the transaction being hedged. Net deferred hedging losses as of Dec. 31,1994, were not material. Gains and losses on other currency forward and option contracts are included in net income immediately. Monsanto is subject to loss if the counterparties to these contracts do not perform. Restructuring and Other Actions In December 1994, the board of directors approved a plan to eliminate redundant staff activities across the company and consolidate certain staff and administrative business functions. The plan will result in reductions in worldwide employment levels of approximately 500 people. In addition, the company will close or exit certain facilities and programs. These work force reduc tions and closures will be substantially completed by the end of 1995. The pretax expense related to these actions was $89 million ($55 million aftertax). In September 1994, Monsanto received $67 million from die U.S. Internal Revenue Service in settlement of certain tax matters related to the 1985 acquisition of Searle. This settlement included interest of $33 million ($21 million aftertax), recorded as a one-time gain. Most of die remainder of the proceeds reduced the balance of unamortized goodwill related to the Searle acquisition. In December 1993, the board of directors approved a small reserve to cover the sale or exit from some nonstrategic products, the withdrawal from die pyridine research program in The Agricultural Group, and the consolidation of some manufacturing capacity. The net pretax expense related to these actions was $5 million ($7 million aftertax) and principally affected The Agricultural and Chemical Groups. In the first quarter of 1993, Monsanto recognized a $35 million pretax gain resulting from reimbursement from insurance companies of various costs associated with damage in January 1992 to a manufacturing unit that produces a key raw material for Roundup herbicide. These costs had been expensed in 1992 pending resolu tion of the claim. In November 1992, the board of directors approved a series of actions designed to make Monsanto's worldwide operations more focused, productive and cost-effective. Major elements included reductions in employment; a realignment of selected research investments; a number of consolidations, closings and asset write-downs; and sales of nonstrategic businesses and facilities. These actions principally affected Searle, but also included a reduction in corporate staff and additional fine-tuning of other operating units. Other unusual items in 1992 included the aforemen tioned costs incurred from damage in January 1992 to a facility that makes Roundup herbicide and from the settlement in the second quarter of 1992 of certain law suits related to the Brio Superftind site. The components of the pretax expense (income) related to the restructuring programs and tire other unusual items were; 1HM IMS m2 Cost of employee reductions Shutdown and consolidation $ 68 $ 5 $224 of various facilities and departments (25) 51 164 Asset write-downs 188 Glyphosate plant damage costs (settlement) (35) 42 Brio litigation settlement Other costs (income) Gains on business sales 41 (22) 47 111 (14) (98) (71) Total $ 7 $(30) $699 In addition, Monsanto recogni&d r\t r<jtrwctunn^ expend of $457 million m 1991, primarily for the shutdown and consolidation of wm'oui facilities. Restructuring expenses are recorded based on estimates prepared at the time the restructuring actions are approved by the board of directors. In the fourth quar ter of 1994, the board approved the reversal of $49 million of pretax excess restructuring reserves from prior years. The excess was primarily due to higher than expected proceeds and lower exit costs from the sale and shutdown of nonstrategic businesses and facilities included in the 1993 and 1992 restructuring actions.The balance in restructuring reserves as of Dec. 31,1994, was $254 mil lion, and consisted primarily of work force reduction costs under the 1994 actions and planned facility dismantling and site closure costs remaining under previous restruc turings. Management believes that the balance of these reserves as of Dec. 31,1994, is adequate for completion of those activities. Reductions to restructuring liabilities 41 MonmhTo IW4 AM*t H*prt MONS 35*75? TOWOLDMONOOI5860 NOTES TO FIN A N C IA L STATEMENTS over the last three years for restructuring actions taken were approximately $1.1 billion. Approximately two-thirds of these reductions were for write-offs and expenditures related to the closure or sale of nonstrategic products and facilities. Most of the remainder of the reductions related to the cost of work force reduction programs, which have been completed. The pretax expenses (income) related to the restructur ing programs and the other unusual items were recorded in the Statement of Consolidated Income in tire follow ing categories: 19*4 19*3 1992 Cost of goods sold Restructuring expense -- net $(35) $188 $ 40 5 436 Decrease (Increase) in operating income Interest income Other expense 40 (30) 624 (33) 75 Total docfMM dncmaa) la lacomt from continuinc operations bafort iacoaw tax** $ 7 $(30) $699 Income from continuing operations was decreased by $1 million aftertax, or $0 01 per share, for 1994; increased by $15 million aftertax, or $0,12 per share, for 1993; and reduced by $472 mlltion aftertax, or $3.82 per share, for 1992 from the effect of these restructurings and unusual items. Product sales of businesses targeted for divestiture in these restructurings were excluded from Monsanto's net sates after the board of directors approved the divesti tures. Net sales and operating income for these businesses In 1993 and 1992, included in Monsanto's net sales and operating Income, were: _______im uw Net sales Operating Income$ 1 $208 $289 $ 26 Principal Acquisitions and Divestitures On Feb. 20,1995, Monsanto completed its acquisition of the worldwide business of Kelco, the specialty chemi cals division of Merck & Co. Inc., for approximately $1,075 million. Kelco Is the worldwide leader in the development, application and production of alginates and biogyms. In December 1994, Monsanto and Akxo Nobel N.V. agreed to form a 50/50 joint venture by contributing their respective rubber chemicals businesses. When formed, the venture will be accounted for as an equity affiliate. In May 1993, Monsanto purchased the assets, including a seasonally high amount of working capital, of the Ortho Consumer Products Division of Chevron Chemical Co. for $412 million. The acquisition included total assets with a fair market value of $327 million and liabilities of $51 million. The financial results of the Ortho business were included in the Statement of Consolidated Income from the date of acquisition. On an unaudited, pro forma basis, assuming the acqui sition of Ortho had occurred at the beginning of 1993 and 1992, Monsanto's net sales in each of those years would have been approximately $8 billion. Net income (loss) and earnings per share for those years would not have been significantly different from the reported amounts. In October 1992, Monsanto sold the worldwide Fisher Controls business. Monsanto received $1,275 million in cash, which resulted In an aftertax gain of $554 million (net of applicable income taxes of $371 million). Financial data for the nine months ended Sept. 30, 1992, for Fisher Controls were: net sales, $679 million; Income before income taxes, $37 million; income taxes, $13 million; and net income, $24 million. Depreciation and Amortization Depreciation Amortization of intangible assets Obsolescence Total 19*4 $442 81 38 $561 1993 $469 81 22 $572 1993 $473 237 55 $765 Property, plant and equipment is recorded at cost, The cost of plant and equipment is depreciated over weighted average periods of 18 years for buildings and 10 years for machinery and equipment, by the straight-line method. Intangible assets are recorded at cost less accumulated amortization. Tire components of intangible assets and their estimated remaining useful lives were: N*mMnf UN* Goodwill Patents Other Intangible assets 26 6 14 Total WcigJuttl avetoct, m years, as o/Dec. SI, 1994. 1904 1993 $ 776 $ 798 48 62 310 329 $1,134 $1,189 Goodwill is the cost of acquired businesses in excess of the fair value of their identifiable net assets and is amor tized over tire estimated periods of benefit (five to 40 years). MmuiU 1994 /Um*I Monsanto aajuirtd Kelco, a specialty chemicals business, and is formini a rubber chemicals and instruments joint venture with Ahto Nobel N.V MONS 354758 TOWOLDMONO015861 NOTES TO FINANCIAL STATEMENTS Patents obtained in a business acquisition are recorded at the present value of estimated future cash flows resulting from patent otmership. The cost of patents is amortized over their legal lives. The cost of other intangible assets (principally product rights and trademarks) is amortized over their estimated useful lives. Impaimem tests of long-lived assets are made when conditions indicate a JxwsiMe loss. Such impairment tests are based on a comparison of undiscounted cash flows to the recorded value of the asset. If an impairment is indicated, the asset value is mitten down to its discounted cash value, using an appropriate discount rate. Investments Effective Jan. 1,1994, Monsanto adopted Statement of Financial Accounting Standards (SFAS) No. 115, "Accounting for Certain Investments in Debt and Equity Securities," which requires that certain investments, primarily equity securities, be recorded at their market values. The Jan. 1,1994, adoption of this standard resulted in a $15 million Increase, net of taxes of $7 million, In investment balances and shareowners' equity by the recognition of a net unrealized Investment holding gain. As of Dec. 31,1994, the aggregate fair value of these equity securities was $140 million, and gross unrealized holding gains and losses were $44 million and $8 million, respectively. Debt securities held are recorded at amortized cost, because the company has the ability and intent to hold these securities to their maturity date. Mo6t of these securi ties mature in less than five years. As of Dec. 31,1994, the total amortized cost of these securities was $247 million. When a decline in market value is deemed other than temporary, the reduction to the investment in a security is charged to expense. Inventory Valuation Inventories are stated at cost or market, whichever is less. Actual cost is used to value raw materials and supplies. Stattdard cost, which approximates actual cost, is used to value finished goods and goods m fwocess. Standard cost includes direct labor and raw materials, and manufacturing overhead based on practical capacity. The cost of certain inventories (54 percent as of Dec. 31,1994) is determined by using the last-m, first-out (UFO) method, which gener ally reflects the effects of inflation or deflation on cost of goods sold sooner than other inventory cost methods. The cost of other inventories generally is determined by using the first-in, first-out (FIFO) method. The components of inventories were: Finished goods Goods in process Raw materials anc supplies Inventories, at FIFO cost Excess of FIFO over LIFO cost Total 1*M ISS) $ 751 $ 734 285 319 459 430 1,495 1,483 (283) (259) $1,212 $1,224 Inventories at FIFO cost approximate current cost. The effect of LIFO inventory liquidations increased pretax income by $15 million in 1994 and by $31 million in 1993. Income Taxes The components of income (loss) from continuing operations before Income taxes were: ISM ISO) ISM United States Outside United States $447 $547 $ (14) 448 182 (160) Total $895 $729 $(174) The components of income tax expense (benefit) charged to continuing operations were: ISM ISO) ISS2 Current; U.S. federal U.S. state Outside United States $118 17 94 $113 $ 56 12 24 56 19 229 181 99 Deferred: U.S. federal U.S. state Outside United States 2 35 (59) 3 8 (15) 39 11 (73) 44 54 (147) Total $273 $235 $ (48) Factors causing Monsanto's effective tax rate for continuing operations to differ from the U.S. federal statutory rate were: ISM 1SSJ 1SS2 U.S. federal statutory rate Benefits attributable to: U S. export earnings Puerto Rican operations Higher (lower) ex-U.S. rates Nondeductible goodwill Valuation allowances Effect of U.S. tax rate change State income taxes Other 35% 35% (34)% (1) (2) (9) (2) (1) (4) -- (3) 02) 113 (1) 5 19 (2) l22 (2) (3) 7 ENscttva tncoms tax rats .31% 32% (28)% SO Mtttttrtc IHt AftfUftt IUr*r1 HONS I 35*759 TOWOLDMONO015862 NOTES TO FIN A N C IA L STATEMENTS in 1992, the income taxes netted against the gain on the sate of Fisher Controls and the cumulative effect of adopting Statement of Financial Accounting Standards (SFAS) No. 106 exceeded the 34 percent U.S. federal statutory rate, primarily because of the effect of state Income taxes. . Monsanto adopted SFAS No. 109, "Accounting for Income Taxes," effective Jan. 1,1992, and recognized a gain of $119 million, or $0.96 per share. This gain has been reflected in the Statement of Consolidated Income as a cumulative effect of an accounting change. Deferred income tax balances reflect the effect of temporary differ ences between the amounts of assets and liabilities for income tax purposes, compared with the respective amounts for financial statement purposes. Deferred income tax balances were related to; 19*4 IM) hmt iMMtr a*mt LMMr Property Ebstretlrement benefits $(383) $40 $(347) $49 475 8 480 2 Restructuring reserves 69 (3) 128 9 Environmental liabilities 69 93 Inventory Other 35 212 20 44 145 (6) Valuation allowances (85) (89) Total $392 $65 $454 $54 Income and remittance taxes have not been recorded on $700 million in undistributed earnings of subsidiaries, either because any taxes on dividends would be offset substantially by foreign tax credits or because Monsanto intends to rein vest those eammgs indefinitely. If such earnings were paid as dividends, the estimated U.S. income tax would be $96 million. Short-Term Debt and Credit Arrangements Short-term debt was: Notes payable to banks Commercial paper Bank overdrafts Current portion of long-term debt Total 1M4 $ 79 75 77 81 $312 1903 $ 49 16 67 91 $223 Weighted average interest rates of notes payable as of Dec, 31: Banks* Commercial paper 5.1% 4.1% 6.8% 3.1% /nctwfei the tfleet of notei In certtsm cowvrfej ufirrt loot/ inflation multi m h|(h huerot rater. Monsanto had aggregate short-term loan facilities of $299 million, under which loam totaling $79 million were outstanding as of Dec. 31,1994- Interest on these loam is related to various bank rates. Monsanto's world wide unused short-term loan facilities were $220 million as of Dec. 31,1994. On Feb. 2,1995, Monsanto amended its existing $750 million credit facility to expire in the year 2000, and to permit the company to request that the lenders increase their commitments to an aggregate of $1 billion. There were no borrowings under die previous facility as of Dec. 31,1994. Also on Feb. 2,1995, Monsanto entered Into a new $450 million credit agree ment widi a term of 364 days. Monsanto may request that the lenders under that agreement increase their com mitments up to an aggregate of $650 million, and/or agree to renew die agreement for additional 364-day periods. To the extent that lenders decline to increase or, in the case of the 364-day agreement, renew their commitments, Monsanto may request that new lenders become parties to the agreements. These credit facilities will be used to support the Issuance of commercial paper. Interest on amounts borrowed under these agreements would likely be at money market rates. Covenants under these credit facilities restrict maximum borrowings. The com pany does not anticipate that future borrowings will be limited by these restrictions. Koiuiti IMS AhmW in 1994, Monwuo't effective income tax rate wash f*rctnt. } si HONS 35<t76Q TOWOLDMONO015863 NOTES TO F IN A N C IA L STATEMENTS i | Pension benefits are based on the employee's years of service and/or compensation level. Pension plans are funded in accordance with Monsanto's long-range projec tions of the plans' financial conditions. These projections take into account benefits earned and expected to be earned, anticipated returns on pension plan assets, and income tax and other regulations. Pension costs are determined by using the preceding year-end rate assumptions. Assumptions used as of Dec. 31 for tire principal plans were: 1*M tm LM2 Discount rate Assumed long-term rate 8.5% 7.25% 8.5% of return on plan assets 9.5% 9.50% 9.5% Annual rates of salary Increase (for plans that base benefits on final compensation level) 5.0% 4.25% 6.0% The funded status of Monsanto's pension plans at year- end was: IW4 iaa Plan fttttt* at fair vahta $3,358 $3,827 Actuarial present value of plan benefits: Vested $2,913 $3,266 Nonvested 130 120 Accumulated benefit obligation Effect of projected future salary increases 3,043 3,386 360 373 Pmofactad baaiflt aMgatfaa111 $3,403 $3,759 Excess (Deficiency) of plan assets over projected benefit obligation Less: Unrecognized initial net gain Unrecognized prior service costs Unrecognized subsequent net gain $ (45) $ 68 121 161 (202) (261) 206 305 Acentad nat panda* labWty" $ 170 $ 137 "'/ncWcj million mi fill million, rejpecthely, for unfuniei flmi. nllncludej tl26 million mi j(08 million, respectively, for vi\fiini*i plmi. The accrued net pension liability was Included In: Fbstretlrement liabilities Less: Other assets Accruad oat pamlofl laMKy $ 225 $ 185 (55) (48) $ 170 $ 137 As a result of employment reductions from the 1992 restructuring program, Monsanto settled a portion of its projected benefit obligation through lump-sum payments to retirees in 1993. Accordingly, $30 million of accrued net pension liability was transferred to restructuring reserves during 1993. Included in the aforementioned table, plan assets and projected benefit obligations for the principal U.S. plans were approximately $2,983 million and $2,883 million, respectively, as of Dec.31,1994. The assumptions used to compute the funded status of the principal U.S. plans were changed as of Dec. 31,1994. These changes in assumptions resulted in a decrease of approximately $360 million in the projected benefit obligation. Plan assets consist principally of common stocks and U.S. government and corporate obligations. Because the company's principal pension plans are well funded, con tributions to these plans were neither required nor made in 1994,1993 and 1992. Postretirement Benefits- Health Care and Other Monsanto provides certain health care and life insur ance benefits for retired employees. Substantially all of Monsanto's regular, full-time U.S. employees and certain employees in other countries may become eligible for these benefits if they reach retirement age while employed by Monsanto. These postretirement benefits are unfunded and are generally based on the employee's years of service and/or compensation level. Monsanto adopted Statement of Financial Accounting Standards (SFAS) No. 106, "Employers' Accounting for Fbstrettremenr Benefits Other Than Pensions,'1 effective Jan. 1,1992, and recognized an aftertax expense of $658 million ($1,045 million pretax), or $5.34 per share, for retiree benefits earned through 1991. The expense was included in the Statement of Consolidated Income as a cumulative effect of an accounting change. SFAS No. 106 requires that the cost of other postretirement benefits be accrued by the dace the employees become eligible for the benefits. The components of the cost of these postretirement benefits, principally health care and life insurance, were: vm 1H3 tt2 Service cost for benefits earned during the year $ 23 Interest cost on benefit obligation 87 $ 24 92 $ 26 88 Amortization of unrecognized net loss 7 ,.T Total $117 $116 $114 1SH AimsI Beenuk Monsanto's principal pension plans are ueti funded, conrrifcunons to these plans saere neitner requirednor made in 1994,1993 and 1992 S3 HONS 354762 TOWOLDMONOOI5865 NOTES TO FINANCIAL STATEMENTS fbstretircmerit costs are determined by using the pre ceding year-end rate assumptions. Assumptions used as of Dec. 31 for die principal plans were: 1M4 M2 Discount rate Initial trend rate for health care costs* Ultimate trend rate for health care costs 8.5% 7.25% 8.5% 11.5% 12.00% 14.0% 5.5% 5.00% 6.0% TV Mridl trtnd rate for health cart foie (fccimtl by J fxrcmi a year to 5.5 Jwrcru [or yean after the year 2000. A 1 percent increase in the assumed trend rate for health care costs would have increased the cost of 1994 postrettremeni health care benefits by $4 million and the accumulated benefit obligation as of Dec. 31,1994, by $50 million. As of Dec. 31, the status of Monsanto's postretirement health care and life insurance benefit plans, and employee disability benefit plans was: _______ im vm AocumdaMd booWK oblfBow Retirees Eligible active employees $ 869 $ 870 55 86 Other active employees 214 277 Total $1,138 $1,233 Unrecognlied benefits from prior service Unrecognlied subsequent net gain (loss) 43 36 17 (126) Aocnrad laMKy $1,198 $1,143 The accrued liability was included in: Miscellaneous accruals Postretirement liabilities Accruad labWy $ 82 $ 72 1,116 1,071 $1,198 $U43 The assumptions used to compute the accumulated benefit obligation of the principal plans were changed as of Dec. 31,1994, resulting In a decrease of approxi mately $100 million in the obligation. Employee Savings Plans For some employee savings plans, employee contri butions ate matched in part by Monsanto. Matching contributions charged to expense for such plans were $30 million in 1994, $31 million In 1993 and $33 mil lion in 1992. During 1991, Monsanto established an Employee Stock Ownership Plan (ESOP) and guaranteed the long-term notes and debentures issued by the ESOP. The ESOP also borrowed $50 million from Monsanto. In January 1992, the ESOP used the proceeds of the loans to purchase 3.7 million shares of common stock from Monsanto, a portion of which is allocated each year to employee savings accounts as matching contributions. Unallocated shares held by the ESOP are considered out standing for earnings per share calculations .The proceeds from the Issuance of common stock to the ESOP were used primarily for the purchase of an equivalent number of common shares under a treasury stock purchase program. Compensation expense is equal to the cost of the shares allocated to participants, less dividends paid on the ESOP shares held. Dividends on the common stock owned by the ESOP are being used to repay the ESOP borrowings. In 1994, 324,020 shares were allocated to participants under the plan, leaving 2,976,155 unallocated shares as of Dec. 31,1994. Total ESOP expense Interest portion of total ESOP expense Cash contribution Dividends paid on ESOP shares held 1M4 XH) 1*02 $29 $25 $28 17 18 19 19 20 19 99 8 Stock Option Plans Key officers and employees have been granted Monsanto stock options under the company's 1994 Management Incentive Plans, the Searle Monsanto Stock Option Plan (Searle Plan), and the NutraSweet/Monsanto Stock Plan (NutraSweet Plan). Information about the status of such stock options is presented below: Dec. 31,1992 1993; Granted Exercised Expired Dec. 31,1993 1994; Granted Exercised Expired Dec. 31,1994 Hum We* pwttarv 5,140,969 10,142,705 $21.31-$74.25 5,724,125 4,710,999 (1,253,869) (337,230) 13,262,605 51.19- 65.81 21.31- 68.13 41.13- 73.56 22.81- 74.25 7,168,599 2,579,294 (1,821,245) (311,874) 13,708,780 69.44- 82.06 22.81- 74 25 38.94- 77.75 22.81- 82.06 M Muiirti DM AtmI HONS 354763 TOWOLDMONOOI5866 NO TES TO FIN A N C IA L STATEMENTS Under die 1994 Management Incentive Plans, the Searle Plan and the NutraSweet Plan, 5,510,925 shares remain available for grant. In February 1994, Monsanto established a grantor trust and contributed 2.5 million shares of Monsanto common stock to be used to satisfy compensation and benefit arrangements and obligations, including issuance of shares upon the exercise of certain stock options. Shares held by the grantor trust are included in earnings per share calculations only after they axe transferred to employees. Earnings per Share Earnings per share were computed using the weighted average number of common shares and common share equivalents outstanding each year (116,984,960 In 1994: 120,380,516 in 1993; and 123,443,744 in 1992). Common . share equivalents (2,399,245 In 1994; 1314,921 In 1993; and 1,041,096 in 1992) consist primarily of common stock Issuable upon exercise of outstanding stock options. Earnings per share assuming full dilution were not signifi cantly different from the primary amounts. Capital Stock As of Dec. 31,1994, there were 19,219,705 common shares reserved for employee stock options. In January 1990, the company's board of directors declared a dividend of one preferred stock purchase right on each outstanding share of the company's common stock. If a person or group acquires beneficial ownership of 20 percent or more, or announces a tender offer drat would result in beneficial ownership of 20 percent or more, of the company's outstanding common stock, the rights become exercisable and each right will then entitle its holder to purchase one one-hundredth of a share of a new series of preferred stock for $450. If Monsanto is acquired in a business combination transaction while the rights are outstanding, each right will entitle its holder to purchase, for $450, common shares of the acquiring company having a market value of $900. In addition, if a person or group acquires beneficial ownership of 20 percent or more of the company's outstanding com mon stock, each right will entitle Its holder (other than such person or members of such group) to purchase, for $450, a number of shares of the company's common stock having a market value of $900. Furthermore, at any time after a person or group acquires beneficial ownership of 20 percent or more (but less than 50 percent) of the company's outstanding common stock, the board of direc tors may, at its option, exchange part or all of the tights (other than rights held by the acquiring person or group) for shares of the company's common stock on a one-forone basis. At any time prior to the acquisition of such a 20 percent position, the company can redeem each right for $0.01. The board of directors is also authorized to reduce the aforementioned 20 percent thresholds to not less than 10 percent. The rights expire in the year 2000. Commitments and Contingencies Commitments, principally in connection with uncompleted additions to property, were approximately $45 million as of Dec. 31,1994. Excluding the ESOP notes and debentures, Monsanto was contingently liable as a guarantor for bank loans and for discounted cus tomers' receivables totaling approximately $311 million and $316 million as of Dec. 31,1994 and 1993, respec tively. Future minimum payments under noncancelable operating leases and unconditional inventory purchases are $119 million for 1995, $96 million for 1996, $117 mil lion for 1997, $59 million for 1998, $60 million for 1999, and $106 million thereafter. The more significant concentrations In Monsanto's trade receivables at year-end were: _____ im mi U.S. agricultural product distributors $295 $294 European agricultural product distributors 103 Pharmaceutical distributors worldwide 287 117 287 Customers in tire former Soviet Union 40 78 Management does not anticipate incurring losses on its trade receivables In excess of established allowances. Costs for remediation of waste disposal sites are accrued m the accounting period m which the responsibility is estab lished and when the cost Is estimable. Monsanto's Statement of Consolidated Financial Position included accrued liabil ities of $207 million and $266 million as of Dec. 31,1994 and 1993, respectively, for the remediation of identified waste disposal sites, Expenditures related to remediation activities were $65 million in 1994, $53 million in 1993 and $46 million in 1992. ISM Aatu) lUfWt In 1992, du employee itock oumenhip plan purchased S.7 million ihara of common nock from Monsanto, a (KJrtion of uhich ij allocated each year to employee tavmp account! as matekmf contribution) W MONS 354764 1 I i i TOWOLDMONOOI5867 NOTES TO FINANCIAL STATEMENTS Monsanto's future remediation expenses for waste disposal sites are affected by a number of uncertainties, including, but not limited to, the method and extent of remediation, the percentage of material attributable to Monsanto at the sites relative to that attributable to other parties, and the financial capabilities of the other potentially responsible parties (PRPs). Because of the uncertainties associated with remediation activities, Monsanto's potential future expenses to remediate these sites could approximate an additional $100 million. Post-closure and remediation costs for hatardow and other waste facilities at operating locations are accrued over the estimated life of the facility as part of its anticipated closure cost. Monsanto's estimated closure costs for these facilities could approximate $135 million- Uncertainties related to these costs include evolving government standards, the method and extent of remediation, and future changes in technology. On April 20,1994, a federal court jury verdict was returned against Monsanto in a lawsuit related to a Superfund site in La Marque, Texas. The lawsuit was brought by IT Corp. (IT), a subsidiary of International Technology Corp., claiming fraud, negligent misrepresen tation and breach of a contract calling for IT to perform incineration and remediation work at the site.The verdict awarded IT $52.8 million in compensatory damages, $28.6 million in punitive damages and $2.6 million In fees. On Dec. 13,1994, the federal trial judge set aside the jury's findings of fraud and negligent misrepresenta tion, but upheld the finding on breach of contract. The court set aside the punitive damage award and reduced the amount of compensatory damages to $43.8 million. On Jan. 26,1995, tire trial judge Issued a memorandum confirming that prejudgment interest would be awarded to IT and specifying the manner in which tire amount of such interest should be calculated. Based upon that memorandum, it Is not likely that such interest will exceed approximately $21 million. No judg ment has yet been entered. The company believes, based on tire advice of counsel, that it has meritorious defenses to all of IPs claims. The company will appeal the judg ment when it is entered and will continue to defend this matter vigorously. No provision has been made In the company's consolidated financial statements with respect to this matter. Monsanto is a party to a number of lawsuits and claims, which it is vigorously defending. Such matters arise out of the normal course of business and relate to product liability, government regulation, Including environmental issues, and other issues. Certain of the lawsuits and claims seek damages in very large amounts. While the results of litigation cannot be predicted with certainty, management believes, based upon the advice of company counsel, that the final outcome of such litigation will not have a material adverse effect on Monsanto's consolidated financial position, profitability or liquidity in any one year. Supplemental Data Supplemental Income statement data were: IMS U93 1M2 Raw material and energy costs $2,375 $2,258 $2,247 Employee compensation and benefits Current income and other taxes Rent expense 2,193 477 124 2,092 442 129 1,994 393 138 Technological expenses: Research and development Engineering, commercial 609 626 651 development and patent 65 69 69 Total technological expenses 674 695 720 Interest expense: Total Interest cost Less capitalized interest 141 141 185 (10) (12) (16) Net interest expense 131 129 169 Currency gains (losses) including equity in affiliates' currency gains and tosses (23) (6) (39) Segment Information Certain operating unit segment data and geographic data for 1994,1993 and 1992 that appear on pages 33 and 40 are Integral parts of the accompanying financial statements. The principal product lines included in each operating unit are shown in the operating unit segment data. M Mmm*U IMS AiimI HONS j i j ! 35W65 t i TOWOLDMONOQ15868 NOTES TO FINANCIAL STATEMENTS Quarterly Data (unaudited) ft* MMfnr Net Sales Gross Profit Operating Income Net Income Earnings per Share Dividends per Share 1994 1993 1994 1993 1994 1993 1994 1993 1994 1993 1994 1993 $2,001 1,941 893 835 319 231 194 141 1.63 1.17 0.58 0.56 Common Stock Price 1994 1993 High Low High Low ' 80}/s 12% 57 s/# 49J/t (comI $2,269 2,230 1,045 959 397 326 258 200 2,19 1.66 0.63 0.58 83 H 1)% 6014 487/e i TkH Quart* $1,912 1,849 733 768 131 152 116 95 0.99 0.78 0.63 0.58 8615 7415 66% 56 Ka F*Kth $2,090 1,882 827 776 76 101 54 58 0.51 0.49 0.63 0.58 Total Yw $8,272 7,902 3,498 3,338 923 810 622 494 5.32 4.10 2.47 2.30 8014 6615 75 655/a 8615 6615 75 487/a Historically, Monsanto's net income is higher during the first half of the year, primarily because of the concentration of generally more profitable sales ofThe Agricultural Group during that part of the year. In tire third quarter of 1994, net Income included an aftertax gain of $21 million, or $0.18 per share, for Interest on the amount of the settlement of certain tax matters with the U.S. Internal Revenue Service related to the 1985 acquisition of Searle. Net Income for the fourth quarter of 1994 included an aftertax expense of $55 million, or $0.47 per share, for a work force reduction plan approved by the board of directors and for costs to dose or exit certain facilities and programs. Also Included In the quarter was an after tax gain of $33 million, or $0.28 per share, from the reversal of excess restructuring reserves from prior years. Net income in the first quartet of 1993 included a $22 million aftertax gain, or $0.18 per share, resulting from reimbursement from insurance companies of various costs associated with damage to a manufacturing site of a raw material for Roundup herbicide. Costs associated with the damage had been expensed in 1992, pending resolution of the claim. The fourth quartet of 1993 Included an aftertax expense of $7 million, or $0.06 per share, for a restruc turing program and other actions approved by the board of directors. IMS AnmI i I' Historically, Monsanto's net income is hifher durmf the first half of the year. 17 MOMS 354766 Il TOWOLDMONOOI5869 Financial Summary tPrihrc h mWim, wH r*e shttl Operating Rwuft* Net Sales Operating Income As a Percent of Net Sales Income (Loss) from Continuing Operations As a Percent of Net Sales Income from Discontinued Operations Cumulative Effect of Accounting Changes Net Income (Loss) Return on Shareowners' Equity Eamk* per $har* Income (Loss) from Continuing Operations Net Income (Loss) Ymt-EmI Financial Position Total Assets Working Capital Property, Plant and Equipment: Gross Net Long-Term Debt Shareowners' Equity Current Ratio Percent of Total Debt to Total Capitalization Other Data Property, Plant and Equipment Purchases Depreciation and Amortization Interest Expense Research and Development Expenses Income Taxes Cash Provided by Operations Stock Price! High Low Year-End Price/Earnings Ratio on Year-End Stock Price Per Share: Dividends Shareowners' Equity Shareowners (year-end) Shares Outstanding (year-end, in millions) Employees (year-end) 1W4,U $8,272 923 11% 622 8% 622 21.4% $ 5.32 5.32 $8,891 1,448 $7,555 2,817 $1,405 2,948 1.6 37% $ 409 561 131 609 273 UOO $ 86Yi 66 Vi m 13 $ 2.47 26.43 53,694 112 29,354 lWJ** $7,902 810 10% 494 6% 494 16.9% $ 4.10 4.10 $8,640 1,377 $7,382 2,802 $1,502 2,855 1.6 38% $ 437 572 129 626 235 731 $ 75 4834 7334 18 $ 2.30 24.62 56,601 116 30,019 IW2* 1M1" $7,763 58 1% (126) (2)% 578 (540) (88) (2.6)% $7,936 475 6% 238 3% 58 296 7.6% $(1.01) (0.71) $ 1.87 2.33 $9,085 1,512 $9,227 1,536 $7,602 3,005 $1,423 3,005 1.6 36% $7,510 3,191 $1,871 3,654 1.7 38% $ 586 765 169 651 (48) 912 $ 554 714 166 610 116 1,180 $ 7m 49 K 57H -- $ 76 46 6m 29 $ 2.20 24.95 60,074 120 33,797 $2,045 29.72 60,152 123 39,281 twoTM $8,068 808 10% 486 6% 60 546 13.6% $ 3.77 4.23 $9,236 1,323 $7,226 3,316 $1,645 4,089 1.6 35% $ 711 704 176 595 230 1,104 $ 6034 3834 4854 11 $ 1.88 32.51 62,230 126 41,081 1*W $7,829 1,006 13% 627 8% 52 679 17.6% $ 4.63 5.01 $8,604 1,326 $6,578 3,009 $1,464 3,941 1.7 33% $ 578 659 176 581 327 1,037 $ 6234 4034 5734 12 $ 1.65 29.79 61,942 132 42,179 "'toeome from condnsdrtt ofwTWioni and nti (jwoirw for 1991 include a wl aftertax la for mtructurmt txpense end J*r unwind iitnu of $1 million, or SO 01 per share. "'Income from condnuinf operations and net Income for 1993 include a net aftertax/am for restructurin/ and other unusual ilemi o/$15 million, or $0.12 per there. "'Loss from corufntrfnf operations av) net loi for 1992 include a net aftertax loi for wtrwtiifinj and other unusual iumi of H72 million, or $3 82 per ihare "'Net income for 1991 includes no! rotnicivrfn|tx{xru< of $325 million, or $2.51 per ihare. "'Net Income for 1990 fnoludoi $56 million, or $0.43 per share, (njnlni rwubtaf/romAtwtimTo, including the Jivootur* of certain assets ofa joint wnrurf m/afKtn. ''Net incomt for 1989 includes a $36 million, or $0.27 per share, gain on the sale of the analgesics burtnou. SI Mort 1H4 Akm1 Rtf*rt HONS 354767 1 | TOWOLDMONOOI5870 ADVISORY DIRECTORS Monsanto established advisory directors in 1981 to provide counsel to the board of directors tin board mat ters. Currently, seven executive officers serve as advisory directors. T hey are: Robert E. flynn, 61, joined Monsanto in 1981. He is chair man and chief executive officer of The NutraSweet. Company, a subsidiary of Monsanto. He has also served as chairman and chief executive officer of Monsanto's former Fisher Controls International Inc. subsidiary. Mt. Flynn has been an advisory director for two years. Sheldon Cl. CHgore, M.D., 63, is chairman and chief execu tive officer of G.D. Searle &. Go., a subsidiary of Monsanto. He |oined Searle in 1986 as president and chief executive officer, and was named chairman later that year. Dr. Gilgore has been an advisory director for two years. He will retire as chairman and CEO of Searle on April 26, 1995. and will be succeeded by Richard U. De Schutter, the current president and chief operating officer of O.D. Searle vSt Co. Monsanto. Dr. Ncedleman joined Monsanto in 1989 and has been an advisory director for four years. RobertO. Potter, 55, joined Monsanto in 1965 and has held a variety of sales, marketing and administrative posi tions in Monsanto's chemical businesses, including presi dent of The Chemical Group from 1986 through 1994. Currently, he is an executive vice president of Monsanto. Mr, Potter has been an advisory director for eight years. Hendrik K. Vcrfalilk, 49, is a vice president of Monsanto and has been an advisory director for two years. Mr. Verfaillie joined Monsanto in 1976 and has served in marketing and administrative assignments in Brussels and St. Louis, Including president of The Agricultural Group from 199.3 through 1994. Virginia V. Weldon, M.D., 59, joined Monsanto in 1989. She is senior vice president of public policy and is responsible for public policy trend analysis and communications. Dr. Weldon has been an advisory director for four years. Robert B. Hoffman, 58, is senior vice president and chief financial officer of Monsanto. Mr. Hoffman joined the company and became an advisory director in April 1994. Prior to joining Monsanto, he worked for several companies in finance and international assignments. Philip Reodleman, Pli.D., 56, is senior vice president and chief scientist of Monsanto, and president of research and development of G.D. Searle & Co., a subsidiary of Richard W. Duesenberg, 64, serves as secretary to the board of directors in addition to his responsibilities us senior vice president and general counsel. He joined Monsanto in 1963 and provided legal counsel to several Monsanto businesses prior to being named vice president, general counsel and secretary in 1977. He was appointed to his current position in 1983. Agei and of ttrvkt <u (>/ Mr< h 1, 1095. I. Flynn (t, OHtfont, M.O. Hilllp Ndtemit, nj>. ftotmt B, VirflnlJ V, WcWtm, M.D. Hendilk ft. Vertolllte Robrt 0. roltw Wctwml W. Otwwnbur* MONS 354768 TOWOLDMONO015871 B O A R D OF DIRECTORS fhclutnl I. Mahoney, 61, of St. Louis, is chairman and chief executive officer of Monsanto. He joined Monsanto in 1962 and was named CEO in 1983 and chairman in 1986. Mr. Mahoney will retire on March 31, 1995, as chairman and CEO, hut will continue as a hoard member, l ie has been a director for 15 years. Mr. Mahoney chairs the hoard's executive committee and is a member of the finance committee. Joan T. Boh, 65, of Westborough, Massachusetts, is chairman of the board of New England Electric System, a puhlic utility holding company. She has been a Monsanto direc tor for eight years. Mrs. Bok chairs the board's corporate social responsibility committee and is a member of the audit committee. Robert M. Heyssel, M.D., 66, of Seaford, Delaware, is a consultant and president emeritus of the Johns Hopkins Health System, a group of not-for-profit medical centers irt Baltimore. He Is the retired president and chief execu tive officer of the Johns Hopkins Health System and the Johns Hopkins Hospital. Dr. Heyssel has been a Monsanto director for six years. He chairs the board's pension and savings funds committee arid Is a member of the audit, nominating and executive compensation and development committees. Gwendolyn $. Wag, 54, of Philadelphia, is senior vice president, corporate and public affairs for PECO Energy Co., an electric and natural gas provider for the greater Philadelphia area. She is also the former commissioner of the U.S. Social Security Administration. Mrs. King has been a Monsanto director for one year. She is a member of the board's audit and corporate social responsibility committees. Philip Letter, M.R., 60, of Boston, is chairman of the Department of Genetics at Harvard Medical School, a medical teaching institution. He is also senior investiga tor for the Howard Hughes Medical Institute, Dr. Leder has been a Monsanto director for five years. He is a member of the board's executive, and pension and savings funds committees. Howard M. Love, 64, of Pittsburgh, is the retired chief executive officer of National Intergroup Inc., a holding company formed to effect n corporate restructuring of National Steel Cotp. He has been a Monsanto director for 17 years. Mr. Love chairs the hoard's executive com pensation and development committee, and Is a member of the finance and nominating committees. Frank A. Met* In, 61, of Sloatsburg, New York, is a retired senior vice president of finance and planning, and chief financial officer of IBM Corp., an international com puter and data processing enterprise. He has been a Monsanto director for five years. Mr. Mew is a member of the hoard's finance, nominating and executive compensa tion and development committees. W<HUm D. RwcfcoUhaiM John I, Slaughter, Pk.P. Robert B, Shapiro Nicholas l.. (lading Joan T. Bok Richard I. Mahowsy 60 ti HONS j 35*769 TOWOLDMONOOI5872 I Buck Mtekel, 69, of Greenville, South Carolina, is chairman of the board and chief executive officer of RSI Holdings Inc., a distributor of outdoor equipment and office sup plies. He U also the former vice chairman and president bf Fluor Corp., a construction firm. Mr. Mickcl has been a Monsanto director for 20 years. He chairs the board's audit and nominating committees, and Is a member of the executive compensation and development committee. Jacobin F.M. Paler#, 63, of Wassenaar. the Netherlands, is the retired chairman of the executive board and chief executive officer of AEGON N.V., an international insurance and financial services company. He has been a Monsanto director for two years. Mr. Peters Is a member of the board's pension and savings funds committee. Nfcboln U Reding, 60, of St. Louis, is vice chairman of the board of Monsanto. He has been a director for two years. Mr. Reding joined Monsanto in 1956 and headed the company's agricultural businesses for 14 years. He also has served us an executive vice president of Monsanto, with responsibility for environmental, safety and health, and manufacturing operations. John S. Reed, 56, of New York, is chairman and chief executive officer of Citicorp and Citibank N.A. financial service companies. He has been a Monsanto director for nine years. Mr. Reed chairs the board's finance committee. WHBmn D. Ruekrlshau*, 62, of Houston, is chairman and chief executive officer of Browning-Ferns Industries Inc., a waste management firm. He is also a former administra tor of the U.S. Environmental Protection Agency. Mr. Ruckelshaus has been a Monsanto director for nine years. He is a member of the board's audit and cordate social responsibility committees. Robert B. Shaplm, 56, of St. Louis, is president and chief operating officer of Monsanto. Effective April l, 1995, he will become chairman and chief executive officer of Monsanto. Mr. Shapiro joined Searle, a subsidiary of Monsanto, in 1979. He also has served as chairman and chief executive officer ofThe NurraSweet Company, a Monsanto subsidiary, and as the head of Monsanto's agricultural businesses. Mr. Shapiro has been a director for two years. He is a member of the board's pension and savings funds committee. John (L Slaughter, Ph.0., 60, of Los Angeles, is president of Occidental College, an undergraduate school specializ ing in the liberal arts and sciences. Before assuming this position, he served as chancellor of the University of Maryland at College Park. He is also a former director of the National Science Foundation. Dr. Slaughter has been a Monsanto director for 11 years. He is a member of the board's audit, executive and corporate social responsibility committees. A{fi and yon of xrvht <u of March 1, 1995, Ufotm. F.M, P*tr* How*nt M. Lot* Rptwtt M. M*)**i, M.D. ri*k A. Mh John S. ft*< Philip UkIm, M.O. GrrmKliUjn $, King Buck Mkk*t MONS 354770 TOWOLDMONO015873 EXECUTIVE AN D OTHER OFFICERS }' Chairman and Chief Executive Officer Richard J. Mahooay" Vice Chairman Mcbolai L Reding' President and Chief Operating Officer Robert B. Shapiro Executive Vice President Robert 0. Pottor' Senior Vice President and Chief Financial Officer Robert B. Hoffman' Senior Vice President, General Counsel and Secretary Richard W. Dueeenberg' Senior Vice Presidents PWtlp Needfeman, Ph.D,` Virginia V. WeMoff, MJX.' Vice Presidents Robert A. Ctaween Steve* L Eogafberi 1 A. Nfchota FlRpeeAi, Pti.D. Linda J, Fbher' Ptenre HodraR1 Marti* I. KaRo* Frank N. KotoonH, PkD.' Tereea L MoCetHn' lamee H. Mabel Rkhard A. Omrton Michael A. Pferia Robert W. Reynold*' DavW L SAnejr Hendrtk A. Vetfame' Michael KWAnkel' Vice President and Controller Bruce R. lento Vice President and Treasurer Juanita H. Hhnbaw Chairman and Chief Executive Officer The NutraSweet Company Robert L Flynn' Chairman and Chief Executive Officer G.D. Searle St Co. Sheldon 6. Qhcere, M.D." President and Chief Operating Officer G.D. Searle St Co. Richard U. De Scbuttor " 1 Ertcuriw officers as defied bj dw Securities and Etchonfi CommlrriCTi. * On April 1,199},Mr. Mahoney utlb succeededby Mr. Slwplro. > Effective April 1, 1995. 4 On April 26, 1995, Dr. GUtorr sM fx succeeded bj Mr. De Sduriter. Monsanto Executive Management Committee Monsanto's Executive Management Committee is responsible for corporate policy and coordination. Members of this committee are: Robert B. Shapiro' President and Chief Operating Officer Richard U. Da Scbuttor' President and Chief Operating Officer G.D. Searle St Co. Richard W. Paatanhiry Senior Vice President, General Counsel and Secretary vwrTR Vice President, Worldwide Government Affairs Robert L Ftyim Chairman and Chief Executive Officer The NutraSweet Company Sbatdea CL Ohtora, M.D.' Chairman and Chief Executive Officer G.D. Searle St Co. PWraHocM' Vice President and President, Growth Enterprises Business Unit ftoitrt B. HoffMAi1 Senior Vice President and Chief Financial Officer Tmta E. McCatia Vice President, Human Resources PWp Hudiwisaa, PhJ. Senior Vice President and Chief Scientist; and President, Research and Development, O.D. Searle St Co. Robort <L Pottor' Executive Vice President Mchalaa L Mh|' Vice Chairman VWIji-L __a aAt ifc.-----a Ji- \ smHWain *Tr* W%WwU Vice President, International Operations and Development HaaAft A UailaHa) Vice President WrgMaVlWaMo'i.MJ. Senior Vice President, Public Policy * These momben of the Etteuthe ManojMnrru Commit< art also members of A< Monsanto Mariajrmrru Board. TKij group, charred by Mr. Sbaf>iro, 0 nspcmsIbU for corporate direction, resource allocation <md measurement of bujmru performance. Business units, stafffunctions and world aru report to tbu board 12 NMUib ItM haul hf< HONS 354771 TOWOLDMONO015874 SHAREOWNER INFORMATION WvWand Policy The declaration and payment of quarterly dividends is made at the discretion of Monsanto's board of directors. The dividend is reviewed by the board quar terly. Monsanto has paid quarterly dividends on its com mon shares without interruption since 1928 and has increased the dividend in each of the past 22 years. OMdend fWinvattmeirt Plan Registered shareowners (shareowners whose stock certificates state that they are the holders of shares in Monsanto) who are U.S. citizens may reinvest their dividends In common shares of Monsanto. To receive an enrollment form, please call or write: Shareholder Service* Monsanto Company 800 North Lindbergh Boulevard St. Louis, Missouri 63167 U.S.A. (314) 694-5432 DupOcata Malting* If you receive duplicate mailings of Monsanto's annual report and would like for us to eliminate the extra copies, please send us your written permission. Duplicate mailings can occur if shares are held in multiple accounts, are registered under different names, or are registered with slight differences In names and addresses. Please send us the labels from the copies you do not want or the names of the accounts. If you have the account numbers, that is also helpful. Please send this information to: Shareholder Services Monsanto Company 800 North Lindbergh Boulevard St. Louis, Missouri 63167 U.S.A. Transfer Agant awl RsgMrar The First National Bank of Boston Box 644 Boston, Massachusetts 02102-0644 U.S.A. .f ' I I i . >, ' ' i AddKfenal Information Shareowner, financial and other information about Monsanto is available from several sources. These materials include quarterly press releases on earnings; Forms 10-K and 10-Q, which are filed with the Securities and Exchange Commission; and the corporate data book, which provides a detailed analysis of Monsanto's financial results and businesses. Monsanto's environmental annual review is also available. It explains our progress in meeting our strong commitment to the environment. There is no charge for any of these materials. You can obtain this information through the company's automated telephone system by dialing: (314) 694-5432 You can also request these publications by writing: Literature Fulfillment Monsanto Company -- D2000 800 North Lindbergh Boulevard St. Louis, Missouri 63167 U.S.A. You can access financial and other information, such as quarterly press releases on earnings and Forms 10-K and 10-Q, through Internet. To connect to Monsanto'* World Wide Web page, set your browser software to: http://www.monsanto.com Annual Meeting The next annual meeting of the shareowners of Monsanto will be held at 1:30 p.m., Friday, April 28,1995, in K Building at the company's world headquarters at 800 North Lindbergh Boulevard, St. Louis, Missouri. A formal notice of the meeting, together with a proxy statement, is being mailed to each shareowner. Stock Symbol -- MTC Principal Stock ExchangIe -- Haw York AftottonitteCw* IT APwfcOommAnwul Monjawo a a partner In tf* Chtmfcai Maror/actunm Auodatfem RoponriH* Car** projram, the chemical Indunr/i tnWatfvc la Improve tnvrrorimtnzol, safety and hedbh performance. 40 Thu report ii pmted u.rJi toy'bated Inkj on re.rycled papa, of ichich 10 percent is derted from postconsumer waste. 1995 Momanro Company. Trademarks and service marks owned or licensed by Monjcma and Us subsidiaries an Indicated by special type throughout this publication. Mmirtt ISM n*e**t Monjanto'i 93rd annual meeting of shareowners uill be held Friday, April 28, 1995, at I -iO p m m Sr Lours i I MONS 35*772 TOWOLDMONO015875 Monsanto 800 North Lindbergh Boulevard St. Louis, Missouri 6)167 US.A. It was a year to savor for a while--and then move on! -- Richard}. Mahoney Chaimum and Chief Executive Officer HONS 354773 i I - TOWOLDMONOQ15876