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1963 ANNUAL REPORT MONSANTO CHEMICAL COMPANY MAR 000732 LAM016791 The next Annual Meeting of the shareowners of the Company is to be held on Thursday, March 26, 1964, at the Company's General Offices, 800 North Lindbergh Boulevard, St. Louis County, Missouri. A formal notice of the meeting, together with a proxy statement and form of proxy, is being mailed to each shareowner. CONTENTS Page Summary of Income and Expenses.......................... 1 Message..........................................................................2 1963 Operational Highlights........................................5^ Sales by Product Groups............................................... 16TM Accountants' Opinion.................................................... 17 Statement of Financial Position...............................18 Statement of Income.....................................................20 Statement of Paid-in Surplus and Retained Earnings................................................................. 21 Financial Review.............................................................22 Comparative Financial Data....................................... 24 Source and Disposition of Funds............................... 28 Directors and Officers.................. Inside Back Cover * SHAREOWNERS OF RECORD 1963 Number of Shareowners Number of Shares Men................................. 27,760 4,311,187 Women........................... 24,263 3,593,863 Joint Accounts.............. 16,844 872,683 Charitable Institutions. 50 17,957 Educational Institutions 92 111,119 Estates and Trusts.... 8,284 1,557,168 Insurance Companies. 181 914,390 Brokers and Nominees 1,554 13,152,169 All Others....................... 1,580 5,433,289 Total..................... 80,608 29,963,825 1962 Number of Share owners Number of Shares 28,545 4,557,252 24,657 3,640,656 17,375 858,686 224 87,445 117 178,808 8,446 1,697,284 201 988,887 1,133 9,856,764 1,754 7,144,365 82,452 29,010,147 1961 Number of Share owners Number of Shares 28,722 4,723,196 24,565 3,647,262 17,346 852,952 234 125,849 111 154,489 8,191 1,875,843 190 859,916 1,120 9,090,762 1,724 6,693,171 82,203 28,023,440 1960 Number of Share!- owners Number Of Shares 29,953 4,810,770 24,680 3,682,808 18,173 923,112 263 130,699 107 151,581 7,755 1,804,416 178 782,364 1,063 8,666,965 1,637 6,242,474 83,809 27,195,189 1959 Number of Share owners Number of Shares 28,830 4,856,599 23,629 3,673,086 16,654 862,573 255 169,421 106 92,336 6,458 1,666,564 177 722,566 1,312 9,953,829 1,254 1,159,883 78,675 23,156,857 Owning lOO shares or more Owning fewer than lOO shares 1959 1960 1961 1962 1963 ii ii i i i i i i i i i i i i i i iI 28 26 24 22 20 18 16 14 12 10 8 6 4 2 0 2 4 6 8 10 12 14 16 18 20 22 24 26 28 30 32 34 36 38 40 42 44 46 48 50 52 54 56 NUMBER OF SHAREOWNERS (in thousands) MAR 000733 LJTHO IN U.S.A. PR-02-02W-62 LAIVI016792 1 SUMMARY OF INCOME AND EXPENSES (In Thousands of Dollars Except Per Share Figures) t i Income: From sale of products.................................... From licenses, dividends, interest, etc........ Deductions from Income: For raw materials, fuel, supplies, etc........... For wages and salaries to employes............. For depreciation, obsolescence, depletion.. For taxes......................................................... For interest, principally on long term debt.. - For minority interests in subsidiaries........... Which Left as Net Income...................................... Distributed to Shareowners as Cash Dividends Retained for Future Growth.................................. Per Common Share Parent Company: Net income..................................................... Cash dividends paid...................................... Book value...................................................... Common Shares Outstanding............................... 1963 $1,192,270 13,470 1,205,740 1962 $1,063,195 11,731 1,074,926 605,848 284,766 114,606 100,080 15,750 1,700 1,122,750 82,990 34,978 $ 48,012 546,286 254,046 97,639 81,565 15,422 1,600 996,558 78,368 29,470 $ 48,898 $ 2.77 1.20 26.17 29,963,825 $ 2.70 1.05 24.74 29,010,147 MAR 000734 LAM016793 2 TO THE SHAREOWNERS In 1963, sales and income were the highest in our history. Disappointing first quarter results were more than offset by gains made in the next two quarters. The final three months pushed both sales and net income to new annual peaks. Consolidated sales, which totaled $1,192,270,000, were 12 per cent higher than those of the prior year. Net income increased almost six per cent to $82,990,000. Earnings were $2.77 a share on 29,963,825 shares outstanding, compared to $2.70 a share on 29,010,147 shares the year before. After giving effect to 1963's two per cent stock dividend, the adjusted per-share earnings for 1962 were $2.65. It is significant to compare the pre-tax income of 1963 with that of 1962. The 1963 figure, which was higher by 13.5 per cent or about $19 millions, reflected a material improvement in operating re sults. It is unfortunate that less than one-quarter of the increase could be brought down to net. In 1963, the provision for income taxes increased by about $14.5 millions over that of 1962. This resulted in an effective 1963 tax rate of 48.3 per cent, compared with a 44.5 per cent rate in the previous year. A significant reason for the tax rate increase was the difference in tax treatment of earnings from certain foreign sources required by changes in the tax law. Also, a lower rate of capital spending resulted in a smaller 1963 investment credit. Thus, our gain in net income was limited to approximately $4.5 millions. Capital outlays for plants, equipment and in vestments totaled $132,945,000 in 1963. Such expenditures amounted to $178,430,000 the year before. Cash flow -- i.e., earnings before depreciation, obsolescence, depletion, etc. -- amounted to $6.59 In 1963, earnings advanced to $2.77 a share from 1962 earnings of $2.70 a share as reported and $2.65 a share after adjustment for the 1963 stock dividend. The increase is accounted for by these factors: Earnings a Share Year 1962 earnings as reported...................... $2.70 Less adjustment for 1963 stock dividend.................................. .............................. 05 Additional operating earnings resulting from: Higher sales volume....................... $ .74 Manufacturing cost savings................ 37 Lower raw material prices......................09 2.65 Reductions in operating earnings caused by: Lower selling prices.............. $.45 Higher selling, administra tive, research, develop ment and other expenses. .35 Chocolate Bayou shut-down, start-up and idle plant....... .05 1.20 .85 Increase in operating income...................... 35 Non-operating items: Foreign currency devaluation in 1962................... 06 Less income charges -- net... .06___ -- Deduct: Higher income taxes, due primarily to the difference in tax treatment of earn ings from certain foreign sources....................................16 .35 Lower investment tax credit on property additions............. 03 .19 .16 Less decrease due to common shares issued in 1963 for stock options............................ .04 .12 Year 1963 earnings as reported...................... $2.77 MAR 000735 LAM016794 a share in 1963, compared to $5.95 a share in 1962, after adjustment for the 1963 stock dividend. As in the previous year, a general sales increase was mainly responsible for improved earnings. Yet, a number of additional factors helped determine our final results. These factors and their effects are tabulated on the previous page. Erosion of selling prices persisted. Yet, the profit decline attributable to this cause was less than 1962's by six cents a share. This gives us hope that the prolonged trend toward lower pricing is slackening. Although 1963 price declines were costly, their effect was more than compensated for by a com bination of increased manufacturing efficiencies and lower raw material prices. Selling, administrative and research costs were considerably higher than in 1962. More than 40 per cent of the increase is attributable to the inclusion of such costs incurred by subsidiaries acquired during 1962 and 1963. In addition, we chose to accelerate certain marketing and research programs. The first quarter bore two special burdens to set it apart from the rest of the year. One was produc tion difficulty at the Chocolate Bayou Plant near Alvin, Tex. The other was a downturn in the fiber market. Despite an apparently smooth start-up at Choco late Bayou in the fall of 1962, serious operational problems soon developed. As the situation worsened, a three-week shutdown for modification became necessary in February. Since that first quarter, however, Chocolate Bayou operations have been continuous and rela tively trouble-free. All the plant's major products are meeting quality specifications. Although the long-range trend in fiber sales is upward, short-term fluctuations often occur. A market dip occurring in 1962 lasted through 1963's first quarter. Fiber sales in general and nylon sales in particular suffered reversals. Profits were simi larly affected. Several other 1963 developments merit mention. Among them is the establishment of a new marketoriented division. Early in the year, a special task force was created to determine whether Monsanto's position in the rapidly growing packaging industry was in need of strengthening. When the findings confirmed such a need, the decision was made to combine those elements of the company concerned with develop ing, manufacturing and marketing plastics materials for packaging consumer goods. Accordingly, our Packaging Division was formed on October 1. As a major supplier of detergent chemicals, Monsanto has realized for several years that pres ent detergents feed hard-to-remove residues into rivers and streams, where they continue to foam -- harmlessly but annoyingly. As detergent use has increased, so has the problem. Detergent makers also have been sensitive to this problem and have searched with us and with others for a solution. That solution has come in the form of biodegradables -- the so-called "soft" deter gents -- that leave residues easily decomposed by microscopic organisms found in water. Monsanto will begin producing biodegradables commercially in 1964. Major detergent companies say they will start using them in proprietary for mulations immediately thereafter. In 1963, the company acquired the remaining 50 per cent interest in Shawinigan Resins Corporation of Springfield, Mass., and a 50 per cent interest in Aiscondel S.A. of Barcelona, Spain. Among subsidiaries formed during the year was Monsanto Cie. S.A., which will manufacture nylon yarn in a plant under construction at Echtemach, Luxembourg. The facility is scheduled to begin its operations in 1965. MAR 000736 LAM016795 Another new subsidiary, Fabric Services, Inc., will build and operate a plant for the dyeing and finishing of fabrics. Among important 1963 discoveries was one made in our Central Research Department. It is an economic new way to manufacture a great number of organic compounds electrochemically. Already the process has been adapted to Mon santo's use by the Chemstrand Company Division. A production unit based on the new technology is being built at Decatur, Ala. It will manufacture adiponitrile, a nylon intermediate, from acryloni trile starting material. The process is more eco nomical than the one in present use. Monsanto will now be able to derive nylon as well as Acrilan acrylic fibers from its own acrylonitrile -- which is itself derived from Monsanto's own hydrocarbons. We have many favorable recollections of 1963, including the vigorous national economy and Mon santo's active participation in it. Yet, the year was indelibly marred by the tragic assassination of President John F. Kennedy on November 22. We are aware that the new President, Lyndon B. Johnson, faces many difficult challenges. We commend the President when he says: "I hf.ppen to believe that a strong, vibrant economy is as essential to our leadership in the free world as military hardware." Our company has many reasons to be hopeful and confident. We believe the principal one to be the many loyal and dedicated employes working tirelessly for the good of Monsanto. Their valuable accomplishments are gratefully acknowledged. Sincerely, Chairman of the Board February 25, 1964 St. Louis, Missouri President COMPARATIVE CONSOLIDATED SALES, INCOME AND EARNINGS A SHARE BY QUARTERS 1963 1962 SALES: {In Thousands) First quarter. .$ Second quarter Third quarter... Fourth quarter. 273,671 $ 312,660 298,069 307,870 259,805 276,785 247,449 279,156 $1,192,270 $1,063,195 Per Cent Increase Decrease 5.3 13.0 20.5 10.3 12.1 INCOME: First quarter..$ Second quarter Third quarter... Fourth quarter. $ 15,556 $ 24,721 20,207 22,506 82,990 $ 20,048 22,979 16,912 18,429 78,368 22.4 7.6 19.5 22.1 5.9 1963 1962 Adjusted for 1963 Stock Dividend As Reported EARNINGS A SHARE (1>: First quarter____....... $ .52 Second quarter.................82 Third quarter___ .............. 68 Fourth quarter.. ...............75 $ .68 .77 .58 .62 $ .69 .79 .59 .63 $2.77 $2.65 $2.70 SHARES OUTSTANDING DECEMBER 31: 1963....................................................29,963,825 1962....................................................29,010,147 (1) Restated for the first three quarters of 1963 to reflect the shares outstanding on December 31. MAR 000737 LAMO16796 5 1963 OPERATIONAL HIGHLIGHTS AGRICULTURAL DIVISION Agricultural chemicals sales were well above 1962 levels. Virtually all plant foods, pesticides and feed additives contributed to the gain. Despite stiffened competition, the division enlarged its share of the total market. In anticipation of continued growth in demand for farm chemicals, capacities for a number of plant nutrients and pesticides were expanded. Fertilizer Materials Sales of fertilizer materials -- which include ammonia, ammonium nitrate and related products -- rose. The gain was due to greater fertilizer use and to Monsanto's increased commitment of manu facturing and marketing energies in this area. All three nitrogen plants -- at El Dorado, Ark., Muscatine, Iowa, and Luling, La. -- increased capacities and operated at design limits. In its first year, the Muscatine ammonia unit underwent process improvements which added to output. A new nitric acid facility was completed at El Dorado. Its output is used to make additional ammonium nitrate. Retail fertilizer outlets increased in kind as well as in number. Ammonia stations and independent custom blenders were complemented by Monsantoowned agricultural centers in the Midwest and South and by bulk bin plants in the north central states. These outlets serve all the farmer's bulk fertilizer needs and some provide soil analyses and appli cation equipment as further conveniences. Pesticides Sales of pesticides were up sharply. Record amounts of parathion were applied to save fruit, vegetable and cotton crops from insect destruction. Many growers turned to parathion as insects de veloped new resistance to other types of insecticides. Monsanto substantially increased its capacity to manufacture parathion. Monsanto weed killers also were in strong de mand. Rice growers with grassy weed problems turned to Rogue in such numbers that its sales tripled. Vegadex gained in use and benefited some 30 different vegetable crops. Avadex and Avadex BW wild oat killers made similar gains. Randox, particularly in granular form, was applied at record rates to protect com and soybeans. A new facility being built at Muscatine will double Monsanto's capacity to produce this herbicide. Two specialty weed killers were added to Mon santo's line. One, Lambast, proved effective against, lambsquarter weeds that plague California's saf flower crop. The other. Limit, was equally effective against grass and weeds in Florida's sugar cane. Its use eliminates up to 30 mechanical cultivations per season. Orders for 2,4-D and 2,4,5-T weed and brush killers increased. A new production unit for 2,4,5-T acid boosted capacity more than 50 per cent. A best-selling book which made some disturbing charges against weed and insect killers performed one useful service. It reminded the public that pesticides must be tested thoroughly, marketed responsibly and applied discriminately. Monsanto has always said so. In 1963, Monsanto screened more than 7,000 compounds in its search for better pesticides. Several of the most promising reached field-test status. Monsanto is a leader in developing and in troducing patented, specialty herbicides. Feed Chemicals There was a modest sales gain in feed chemicals. Sales of MHA protein supplement for poultry and livestock were reduced by a Common Market tariff that curbed broiler imports from the U.S. At the same time, low-cost feed additives from Europe increased competition for domestic business. MAR 000738 LAWI016797 Santoquin, an antioxidant for preserving nutritive values of feeds and dehydrated forage, fared better. Sales of this, the animal feed industry's principal antioxidant, improved considerably. Blasting Agents Two factors helped bring about a healthy sales increase in ammonium nitrate-fuel oil explosives. One was expanded use in strip mining and quarry ing. The other was an enlarged distribution network. CHEMSTRAND COMPANY DIVISION Sales of man-made fibers and yams climbed to higher levels. Chemstrand's gain exceeded the in dustry's by a substantial margin. Acrylic fibers and nylon yams were involved in major capacity increases. Spandex became the third fiber in the division's product line. Facilities for a fourth fiber -- polyester -- were planned. Acrylic Fibers Acrilan acrylic fiber increased its sales and its share of the total market. The largest gain was in carpets, as leading manu facturers featured Acrilan in their better quality lines. In apparel, too, the Chemstrand fiber made gains, particularly in the sweater market. A whiter, more dyeable Acrilan for use in sweaters was intro duced. Development of an antistatic fiber for blankets was announced late in the year. The division's "Wear-Dated" program was con tinued to the mutual benefit of Chemstrand, its customers and consumers. Under the program, the performance of Acrilan is guaranteed in qualifying lines of apparel. Capacity for Acrilan was increased 40 per cent by enlargement of the plant at Decatur, Ala. Nylon Yarns Nylon had its best growth in the field of textured yarns for knitwear and in woven stretch fabrics. Especially noteworthy gains were in ski pants, women's slacks, men's sports jackets, swim suits, and play suits for children. Number one industrial end use for nylon was again tire cord. For the industry, it represented a 1963 market of more than 200 million pounds -- a new record. Chemstrand itself made progress in the tire market and in such other important industrial applications as coated fabrics, conveyor belts, automotive seat belts, rope and thread. In the home furnishings field, carpets and up holstery continued as the largest nylon end uses. Product improvements that strengthened Chem strand's market position included deep-dye and ultra deep-dye nylon carpet yams; and special nylon yams for automobile seat belts. At year-end, the division announced plans to produce a wholly synthetic backing for tufted car peting. Designated Chemback, the product is ex pected to improve the qualities of carpeting and further stabilize raw material prices for the carpet industry. Nylon capacity was boosted 20 per cent. The expansion was divided between the plants at Pensacola, Fla., and Greenwood, S. C. Also in 1963, a new nylon unit was completed at Blacksburg, S. C. This plant, which combines warping operations with modem warehousing, pro vides additional service to customers in the heart of an important textile center. Polyester Fibers Plans to produce polyester fibers were announced in the third quarter. Completion of production facilities at Decatur is scheduled for mid-1965. Fabric Services, Inc., (see page 15) is to become an integral part of Monsanto's program in the polyester fiber field. Spandex Fibers Technological problems delayed the marketing of spandex elastic fibers until late in the year. After they were solved, however, the fiber became the third in Chemstrand's commercial line. Nylon Molding Powders Facilities to make nylon molding powders were added at Pensacola. 'Hie products are to be mar keted in 1964. HYDROCARBONS DIVISION Sales increased as most manufacturing units of the division operated at new high levels. Petroleum Chemicals At Chocolate Bayou, outputs of ethylene, propyl ene, naphthalene, ethylbenzene, orthoxylene and MAR 000739 LAM016798 benzene were brought up to desired volume and quality. A major portion of these products is con sumed within Monsanto in making plastics and organic chemicals. Monomers Demand for acrylonitrile was exceptionally strong as markets for fibers and plastics made from it con tinued to expand. At Chocolate Bayou, work is under way to double Monsanto's acrylonitrile capacity, using propylene and ammonia as raw materials. In 1965, acrylonitrile from this plant will supplement that now made at Texas City, Tex. The vinyl acetate monomer unit at Texas City had a smooth start-up in the spring. The product goes to other Monsanto plants to make plastics for a variety of uses. Production of lactonitrile also began at Texas City. The product is a feedstock for the company's research-developed synthetic lactic acid unit. Significant process developments contributed to capacity increases and to improved manufacturing costs of acetylene and hydrogen cyanide, important intermediates consumed within the company. A major efficiency in vinyl chloride manufactur ing also resulted from utilization of an oxidative chlorination process based on Monsanto research. Styrene sales were especially strong to manufac turers of plastics. Ethylbenzene and styrene ca pacities and efficiencies were increased through technological improvements. Petroleum Products Branded product sales of gasolines, lubricants and diesel fuels increased. Gross refinery sales held up well. Price ranges for branded products improved but wholesale refinery prices stayed around 1962 levels. A five-year program to develop full sales potential for Lion brand products in Midsouth marketing areas got under way. Marginally profitable service stations are being eliminated as part of the program. Distributors and bulk plants for Lion products were set up in five new areas of Mississippi and Texas. Installation of octane-blending pumps at all company-owned stations was a customer con venience that helped sales. Throughput of crude oil at the El Dorado, Ark., refinery increased slightly. It averaged 34,476 barrels daily for the year. Production and Exploration Exploration expenditures were down, due mainly to a cutback in overseas commitments. To concen trate on potential reserves closer to its consuming plants, Monsanto has withdrawn from foreign exploration, except in Western Canada. Net production of crude oil and natural gas liquids was down 6.8 per cent to 7,231,611 barrels. The decrease was due partly to the shift into more fully developed petroleum areas, where new dis coveries failed to offset productivity declines at older wells. Extension of pipelines to shut-in gas wells in creased natural gas production to 27.2 billion cubic feet, a 17.6 per cent rise. Completion of 44 producing wells gave Monsanto a net increase of 18.62 wells in 1963. Included were 13 wildcat discoveries in the United States and Canada. In 1963, the company acquired several producing properties. Most significant are Mound Company's petroleum assets, purchased September 1. Located primarily on the Gulf Coast, the former Mound wells have a daily production of about 2,500 barrels of oil and 35 million cubic feet of gas. INORGANIC CHEMICALS DIVISION Phosphates, detergents and heavy chemicals par ticipated in a 1963 sales increase. Manufacturing costs were lowered appreciably, with improvements being widely spread -- in main tenance, raw material costs, yields and manpower savings. Although prices remained firmer than fore cast for most of the year, a few declines near year-end caused some profit erosion. Phosphorus and Phosphates The new sodium phosphate plant at Augusta, Ga., which ran smoothly after its first quarter start-up, reached capacity operation in October. Potassium phosphates enjoyed exceptional growth due to their use in liquid detergents. Among new products marketed in 1963 were a family of leavening agents -- Levn-Lite, Stabil 9 and Pan-O-Lite -- to improve flours and packaged mixes for cakes, biscuits and pancakes; an improved calcium pyrophosphate for fluoride dentifrices; Lustre-Phos, a special calcium phosphate that is MAR 000740 V>N\0''67" INDEX OF HOURLY ) WAGE RATES, PRICES OF RAW MATERIALS AND SELLING PRICES 1947-1949 = 100 HOURLY WAGE RATES PRICES OF RAW MATERIALS SELLING PRICES 190 190 180 180 170 170 160 160 150 150 140 140 130 130 120 120 110 110 100 100 90 90 1954 1955 1956 1957 1958 1959 1960 1961 1962 1963 compatible with fluorides used in toothpastes made overseas; and Phos-Chek, a phosphate-based mix ture dropped from airplanes to bring forest fires under control. Detergents Sales of detergent chemicals continued to grow. Manufacturing facilities for the alkylbenzene soft detergent intermediate (discussed on page 3) are being built at the Chocolate Bayou Plant near Alvin, Tex. These facilities will use a unique process developed by Monsanto research and will have a capacity of 150 million pounds annually. Sales of ACL chlorinated cyanuric acids and salts continued such rapid growth that new capacity was installed at Monsanto, I1L The new unit added more than 20 million pounds to annual production capability. ACL is used by Monsanto customers in dry bleaches, swimming pool disinfectants, scouring powders and other consumer products. A family of ethylene maleic anhydride resins was introduced. Such resins are major factors in coldwater detergents. They are also useful in photo graphic emulsions, textile print pastes and drilling muds. Heavy Chemicals Sales of heavy chemicals were up sharply, with significant gains in caustic potash and in new silica specialty products. The new silicas are Santocel 62, an improved flatting agent for lacquers and enamels; Santocel Z, a thickener for plastisols and resins; and 50 per cent Syton, the most concentrated colloidal silica on the market. Monsanto now has an interest in a salt mine on Cote Blanche Island, La. Shipments of salt began there in late fall, with full operations scheduled for late in 1964. The mine will provide salt for Mon santo's use and for customer sales. Electronic Chemicals Electronic chemicals, which are used in the manu facture of transistors and other electronic devices, equaled their 1962 performance. Demand for epi taxial silicon wafers was particularly strong. Work began early in 1963 on an expansion of facilities at St. Charles, Mo., for the production of float-zone, polycrystalline and pulled-crystal silicon. New facil ities for fabricating epitaxial wafers are being added. ORGANIC CHEMICALS DIVISION Sales of the Organic Chemicals Division achieved an all-time peak in tonnage and dollars. The larger sales, new operating economies and MAR 000741 LAM016800 firmer prices late in the year combined to restore some of the profits eroded by earlier price competi tion. Processing improvements at a number of plants resulted in better yields, higher product quality and substantial cost reductions. Fine Chemicals Increased sales of bulk aspirin, vanillin and sac charin helped overcome lower sales of phenacetin. Yet, sales of the group were slightly less than those of 1962. Two major steps were taken in long-range re search and development efforts to broaden and strengthen Monsanto's service to the food process ing industry: The world's first large-scale plant for synthetic lactic acid began operations at Texas City, Tex. And new facilities at St. Louis increased Monsanto's saccharin capacity by 50 per cent. Synthetic lactic acid, unlike fermentation acid, is colorless, heat stable and of a very high purity -- a combination of properties expected to stimulate many new uses. Already it is used in yeast-raised bakery products to improve their texture and keeping qualities. In addition to lactic acid, coldwater soluble fumaric acid joined Monsanto's line of food acidulants -- used to help preserve certain foods and to enhance their tartness. The division will begin manufacture of sodium and calcium cyclamates late in 1964. These syn thetic sweeteners have about one-tenth the strength of saccharin and are used to sweeten low-calorie beverages. Functional Fluids Fire-resistant hydraulic fluids -- Skydrol for air craft and Pydraul for industrial uses -- led sales of this group to levels considerably above those of 1962. Monsanto manufactures a wide variety of syn thetic fluids having mechanical, electrical and heattransfer capabilities beyond those of petroleum, water and other conventional fluids. The Monsanto fluids were given new emphasis early in the year by the establishment of a separate research, develop ment and marketing group to carry out a sustained program to insure Monsanto's leadership in this area. Already this has resulted in several new products, including Therminol 77, a fire-resistant heat-transfer fluid for service at temperatures higher than 600 F. Early tests of other developmental products indicate large market potentials, particu larly in meeting the lubrication requirements of jet engines. Intermediates Sales volume of intermediates exceeded that of 1962. But despite rigorous cost reductions -- par ticularly in phenol manufacture -- the profitability of the group was slightly off, mainly because of price declines. In 1963, a unit for producing larger quantities of higher quality cyclohexanol came on stream at Luling, La. By mid-1964, a new biphenyl unit in corporating an improved process is to be in opera tion at Anniston, Ala. Capabilities for chlorine and caustic soda manu facture were increased by about one-half at Mon santo, 111. Monsanto's entire production of the two chemicals is used within the company. Paper Chemicals Favorable acceptance of new Mersize TFL, a more efficient fortified rosin size imparting moisture resistance to paper and paper board, helped increase the sales and profits of this group. Scripset 530, an additive for paper-surface treatment, began to move in carload quantities. Another outstanding performer was prilled pentachlorophenol, a freeflowing wood preservative. Concentrated effort to develop a water soluble transparentizer for tracing papers and business forms yielded a material expected to be in produc tion in 1964. Another new product with potentially large volume -- a starch modifier to improve the surface of paper -- also is in an advanced stage of market development. Petroleum Additives An over-all volume increase, which offset lower prices in some segments of the market, enabled this group to equal its 1962 dollar sales. A multifunctional additive for crankcase oils, Santolube 314, was introduced. It is the first of several new Monsanto products being developed for use in "long-driving" oils for high-speed automobile engines and in lubricants for heavy-duty machinery. The division makes more than 40 additives for automotive fuels and lubricants. Plasticizers Sales of plasticizers reached record levels, par ticularly to makers of vinyl floor covering, acrylic lacquer and vinyl foam. Increased sales and fourth quarter price boosts on certain plasticizers made MAR 000742 lawk>16801 from phthalic anhydride partially offset earlier volume and price weaknesses. Seven new plasticizers reached commercial status. Each is tailored to impart specific properties to products made of plastics -- mainly polyvinyl chlorides. Resin Materials A substantial increase in tonnage enabled this group to match its 1962 dollar sales. Although prices declined through most of 1963, late in the year a three-cents-a-pound increase on phthalic anhydride led a move toward firmer pricing. Monsanto initiated additional price increases on maleic anhydride, fumaric acid and their ester derivatives. These materials are used mainly to make polyester resins and surface coatings. Sales of adipic acid and bisphenol A remained strong. New applications for hydrogenated bis phenol A included automotive undercoatings and corrosion-resistant resins for the manufacture of chemical-processing equipment. Rubber Chemicals Sales of rubber chemicals held their 1962 levels. Research and marketing programs to keep Mon santo in step with the rubber industry's changing technological and commercial needs produced a number of developments. Santoflex 13 and Santoflex 77, two proprietary antidegradants, were among several chemicals introduced to improve the quality and durability of tires. A Monsanto-designed in strument for continuous analysis of rubber proper ties during the curing cycle was well received by customers in 1963. PACKAGING DIVISION This new division resulted from consolidation of research, manufacturing, development and mar keting efforts in the area of plastic materials for packaging use. Such materials are film, sheet and fabricated containers. Present and potential cus tomers include such high-volume users as packagers of foods and beverages, liquid detergents and bleaches, toiletries and cosmetics, and many other household goods. Technologies brought into the division added vending cups and other disposable low-cost con tainers to existing lines of blow-molded containers and transparent film and sheet. The latter lines had been produced by Monsanto's former Plax Company Department, which became an important part of the new organization. The highly regarded Plax trademark was retained. The division has plants at Anaheim, Calif.; Deep River, Conn.; Stonington, Conn.; Melrose Park, 111.; Ligonier, Ind.; Yardville, N. J.; and Sharonville, Ohio. Manufacture and sale of Vuepak cellu lose acetate sheeting, produced at Springfield, Mass., also are divisional responsibilities. In 1963, capacity for Polyflex polystyrene sheet and film for packaging was increased at Ligonier. New bulk-handling equipment added to the effi ciency and economy of several plants. PLASTICS DIVISION Sales volume of plastics increased substantially for the third consecutive year. As a group, the division's products were hard hit by price declines. However, downward price trends of long standing were reversed in a few major product lines. In the second half of the year, the division's plants operated near capacity. Process improvements at several locations increased capaci ties and yields. Polyethylene Increased polyethylene sales volume was more than offset by severe price attrition. Late in the year, however, there was some indication of price finning in a number of markets. An improved compound was developed for wire and cable jacketing. A new resin for coating milk cartons was introduced. In 1963, at Texas City, Tex., Monsanto began making high-density polyethylene -- used mainly in bottle manufacture. Polyvinyl Butyral Steady sales of interlayer for laminated safety glass reflected the automotive industry's high level of activity. Sales of gradient color interlayer (for tinted windshields) were the highest since 1959. Polyvinyl Chloride Polyvinyl chloride resins, film and sheeting sold near capacity. Sales to makers of floor tile and electrical insulation showed special strength. Monsanto initiated a trend-reversing price in crease at mid-year. MAR 000743 LA/V/076802 Vyram rigid vinyl compounds were introduced in 1963. Such compounds are used to make building materials. Examples include corrugated sheeting, panels, residential siding and pipe. Vyram, which has outstanding toughness, weatherability and chemical resistance, extrudes 20 to 30 per cent faster than competitive materials. Resin Products Sales ofresins were above 1962 levels. Noteworthy gains were made in bonding and adhesive uses such as glass-fiber insulation, clutch facings, battery separators, plywood, and decorative melamine lami nates for furniture. Surface coating resins, particu larly melamines, shared in the general high level of business. New products included specialty phenolic resins for bonding thermal insulation, improved melamine resins for high-gloss laminates, and a styrene allyl alcohol copolymer resin intermediate for use in surface coatings. Styrene Polymers and Copolymers Dollar sales of Lustrex polystyrene molding and extrusion materials rose to a new level despite severe price competition. Strong demand by makers of refrigerators and plastic packages was chiefly responsible for the gain. Improvements in the properties of high-impact polystyrene helped in crease Monsanto's share of the market. Lustran styrene copolymers more than doubled their sales. Firm pricing and a high operating level enhanced their contribution to 1963 results. Tough Lustran molding and extrusion materials are mak ing especially good headway in the appliance, housewares, automotive, luggage and packaging fields. Capacity for both Lustrex and Lustran is to be expanded in 1964. Building Products Department Demand for the Building Products Department's Lustra-Span corrugated polyvinyl chloride building panel was such that capacity was tripled at Kearny, N. J. An additional production line was installed at Los Angeles. Introduced on a limited basis in 1963 was the first commercial, all-plastic siding in clapboard design for residential buildings. Several additional products are to be marketed through the depart ment's expanding distribution system in 1964. Gering Plastics Company Gering's sales rose substantially. Those of vinyl garden hose and Ger-Pak polyethylene film for agricultural, construction and industrial uses were especially strong. Production facilities were added at Anaheim, Calif., to service customers in the West. There are plans to expand production of polyethylene film at Kenilworth, N. J., in 1964. Specialty flame-retardant polyolefins and poly styrenes, and industrial grades of nylon molding powders grew in acceptance. So did color concen trates, as more customers began in-plant coloring. Gering added polyvinyl chloride pipe to its line of polystyrene pipe products. Pipe sales more than doubled. NEW STOCK RECORDS SYSTEM In September, a newly created stock records office completed a shareowner records system which utilizes electronic computers. It enables Monsanto to establish a closer rela tionship with shareowners and to handle shareowner mailings with new speed and efficiency. Already the system has been used for the rapid preparation of 82,000 stock certificates, as well as order forms, checks and invoices for the December stock dividend. As a further service, Monsanto has ap pointed a second transfer agent--The Boat men's National Bank of St. Louis. Beginning April 1,1964, shareowners may have stock cer tificates transferred either by Boatmen's or by Monsanto's present New York transfer agent. MAR 000744 LAM016803 RESEARCH Monsanto's broad and intensive research program helped the company score important successes on many fronts. In 1963, following a 10-year period in which more than 500 products were introduced by Monsanto, these products contributed over 50 per cent of total sales and more than 60 per cent of gross profit. During the year, 70 new Monsanto products sur vived screening tests and were sold commercially. Also in 1963, the company was granted 311 U.S. patents and 1,027 foreign patents. Expenditures for research, development, patent work and basic engineering totaled $58.4 millions in 1963, compared to $51.6 millions in 1962. All manufacturing divisions conduct independent research programs and benefit accordingly. Typical rewards of such programs are reported elsewhere in this Annual Report. A few organizations devoted wholly to research merit special comment, however. Central Research Department The major product of Monsanto research is knowledge which must be closely guarded because of its proprietary value to the company. Only after proper patent coverage has been assured and only in special instances is such information made public. Such an instance occurred in 1963, when Monsanto revealed the new electrochemical process discovered in the Central Research Department and discussed on page 4 of this report. In recent years, Monsanto has materially reduced the time for translating a technological success into a commercial reality. This is due in part to the everincreasing contribution of the applied mathematics section of Central Research. Modem computers and advanced mathematical techniques permit swift handling of extraordinary masses of data and solve problems which otherwise would require hundreds of thousands of manhours. During the year, Central Research completed work on several major products, two of which are being introduced by appropriate divisions of Monsanto: The first is a new vinyl copolymer system pre cisely tailored for metal coatings markets. Its prop erties are marked by hardness combined with outstanding toughness and impact resistance. It represents the first fruit of many years of pioneering research in the precise structuring of complex copolymers. The second product is a new form of silicon (epitaxial wafers) which was brought from the laboratory to interim production in a 16-month period. In the electronics materials area in 1963, Mon santo established a leading position in the develop ment of new materials, some capable of translating electric energy into light and others capable of de tecting light by converting light waves into electrical energy. Monsanto's gallium arsenide is under broad development by the electronics industry as well as by the Department of Defense and the National Aeronautics and Space Administration (NASA). Devices made of gallium arsenide and the other intermetallic compounds, an area in which Mon santo has made many important fundamental contributions, should permit new advances in the field of communications and in the development of higher speed computers. Monsanto Research Corporation Wholly owned Monsanto Research Corporation in 1963 gave technical support to important pro grams of such government agencies as the Atomic Energy Commission, the Department of Defense and NASA. It also worked on projects holding promise for the civilian economy. For example, non-military uses are being sought for a plastic composition developed earlier to reduce vibration in hulls of naval vessels. And, in 1963, under contract to the Agricultural Division, the subsidiary developed new sensitizers to improve the performance of Monsanto's ammonium nitrate-fuel oil blasting agents, thereby lowering blasting costs. Also in 1963, Monsanto Research Corporation built and began testing, for use in orbiting satellites, a thermoelectric generator with ten times the power of a previous model; demonstrated the feasibility of an efficient new battery which extracts power from reactants moving through it on coated tapes; made progress in developing coatings to protect aircraft against, high temperatures generated at supersonic speeds; gained ground in its search for a fireresistant hydraulic fluid for submarines; and pushed forward in its development of a de-icer for aircraft runways. Monsanto Research Corporation continues to operate Mound Laboratory at Miamisburg, Ohio, MAR 000745 LAM016804 GROSS ADDITIONS TO PROPERTY AND DEPRECIATION * (in $ millions) *Depreciation includes: depreciation, obsolescence, amortization and depletion. Cbemstrend end subsidiaries net included in yeers prior to I960. PROPERTY ADDITIONS 1 DEPRECIATION' 170 170 160 150 140 130 120 110 100 90 80 70 60 50 40 30 20 10 1954 1955 1956 1957 1958 1959 1960 1961 1962 1963 13 where research, development and special manufac turing are conducted for the Atomic Energy Com mission. The laboratory supplied the power capsule con taining plutonium 238 to provide energy for the thermoelectric generator in the Transit satellite launched on September 28. The capsule was the third and largest radioisotope-fuel generator suc cessfully hurled into space. Its power-generation principle originated at Mound. Chemstrand Research Center, Inc. Wholly owned Chemstrand Research Center, Inc., continued to make important contributions to Monsanto's technical efforts in the fiber field. In 1963, such contributions included modifications and improvements in Acrilan acrylic fiber and nylon, and additional improvements in spandex and polyester fibers. The company also made important discoveries in studies of the crystalline structure of polymers to open the way for new fiber im provements. INTERNATIONAL OPERATIONS Export sales set a new record in 1963 as Monsanto continued to market its products in virtually all nations of the free world. For the past decade, export sales of a significant number of chemicals and plastics have been re placed by overseas production. Yet, the lost busi ness has been more than offset by new sales of exported specialities and raw materials. Exports of agricultural chemicals continued strong in 1963. Avadex wild oat killer was used extensively in Europe, Canada and Australia. Monsanto parathion insecticides continued to receive world-wide recognition for their effectiveness. The company's line of specialty plasticizers is becoming as well recognized abroad as it is domes tically. In 1963, this was reflected in sharp sales increases for these products. Another example of an increasingly popular spe cialty product abroad is Lustran styrene copolymer. Intensive technical sales effort helped boost sales of this versatile, tough, plastic molding material to a record level. Overseas interests are monitored in the European area by Monsanto Europe S.A., a wholly owned subsidiary with headquarters at Brussels, Belgium, and in other areas of the world by the Overseas Division. Effective March 1, the Overseas Division will be renamed the International Division. European Area Monsanto Chemicals Limited, Monsanto's prin cipal subsidiary in the United Kingdom, increased its sales. Although operating results were up MAR 000746 LAM016805 sharply, reported income was lower than in 1962, when the company benefited from income tax adjustments. Major gains were in rubber chemicals, oil additives and plastics. Production of a new granular type of bulk aspirin was begun. Con struction of facilities to make styrene-acrylonitrile copolymers was started. Chemstrand Limited, the Monsanto subsidiary making Acrilan acrylic fibers in Northern Ireland, substantially improved its sales and profits. In 1963, capacity was enlarged 27 per cent. Additional Acrilan expansion is scheduled for 1964 and plans are under way to begin construction of a nylon yam plant in the United Kingdom, also in 1964. Its annual capacity will approximate 15 million pounds. Lansil Limited, another Monsanto subsidiary in the United Kingdom, also bettered its sales and earnings of the previous year. The firm produces cellulose acetate flake and filament yams. Monsanto Belgium, a division of Monsanto Europe, made strong gains in sales and profits. The division produces Saflex polyvinyl butyral inter layer for laminated safety glass at Ghent, Belgium. At Echtemach, Luxembourg, construction of a nylon yam plant was begun by newly formed Mon santo Cie. S.A. Production is to begin there in 1965. Initial annual capacity will be about 25 million pounds. Monsanto's French subsidiary, Societe Monsanto, found price weakness * problem. But lower prices were more than offset by higher sales volume. Profits rose accordingly. Already a major producer of styrene polymers and copolymers for the plastics industry, the company added Mersize, a finishing chemical for the paper industry, to its line in 1963. In November, Monsanto purchased a 50 per cent interest in Aiscondel S.A., Spain's largest producer of finished plastic products. At the same time, two other Spanish companies in which Monsanto and Aiscondel each formerly held a 50 per cent interest became Aiscondel subsidiaries. They are Monsanto Iberica S.A. and Etino-Quimica S.A. Monsanto Iberica brought its major plant on stream in 1963's second quarter. Its products in clude vinyl chloride, calcium carbide and acetic acid. Etino-Quimica, which had a 1963 sales in crease, produces polyvinyl chloride and polystyrene plastics. At Ashdod, Israel, construction of the acrylic fiber plant of Israeli Chemical Fibres Limited, a subsidiary, is scheduled for 1964 completion. Western Hemisphere Sales and profits of Monsanto Canada Limited showed healthy increases. The subsidiary's fortunes are closely identified with the plywood, agricultural, paper, furniture and clothing industries -- all major segments of the Canadian economy. Mexico's industrial activity accelerated in 1963 and Monsanto Mexicans S.A. did well throughout the Latin American Free Trade Area. Sales of polyvinyl chloride were particularly strong and capacity for the product was increased. Compania Industrial de Plasticos S.A., a plastics-fabricating subsidiary of the Mexican company, improved its sales and earnings. Monsanto Argentina S.A.I.C. held its own despite Argentina's economic and political uncertainties. Sales were above 1962 levels and operations showed a modest profit. If stability returns to Argentina, the subsidiary should recover rapidly. Sinteticos Slowak S.A., a Uruguayan corporation in which Monsanto has a minority interest, began production of nylon 6 yam at Montevideo. Fabrica de Hilazas Vanylon S.A., a Monsanto affiliate which makes and markets nylon 6 yams in Colombia, increased spinning capacity and prepared to install a new polymerization process. Sales and profits exceeded those of 1962. Monsanto (El Salvador) S.A., a 50 per cent owned associate company in El Salvador, was formed early COMPANY NAME The Board of Directors recommends that the corporate name be changed from "Monsanto Chemical Company" to, simply, "Monsanto Company." It is thought that the word "Chemical" no longer adequately de scribes the scope of the company's business. In keeping with legal requirements, shareowners will have an opportunity to vote on the proposal at the Annual Meeting on March 26, 1964. If they approve, the change will take effect on or about April 1. Details will be provided in the proxy statement. mar 007t7 LAM016806 in 1964. It will formulate insecticides, principally parathions, for Central American crops. Its prod ucts are to be ready for the 1964 growing season. Asia-Pacific Area Monsanto Chemicals (Australia) Limited con tinued at its 1962 operational level. Late in the year, certain assets of a major Australian distributor of farm chemicals were acquired to aid in the sub sidiary's marketing of such products. Meanwhile, new facilities for phenol were being built. Monsanto's other Australian subsidiary, Aus tralian Petrochemicals Limited, equaled its 1962 results. In Japan, 50 per cent owned Mitsubishi Monsanto Chemical Company added to its sales and prof itability. Its capacity was virtually sold out for much of the year. Meanwhile, construction was begun at a new plant site -- the company's third. Located in the Tokyo area, its facilities will include a vinyl calender and other plastics-fabricating equipment. Mitsubishi Vonnel Company Limited, a Japanese acrylic fiber producer in which Monsanto has a minority interest, operated at capacity through out 1963. Additional capacity came on stream during the year. Meanwhile, further expansion is in progress. U. S. SUBSIDIARIES Shawinigan Resins Corporation experienced increased sales, with practically all products contributing. Sales of polyvinyl butyral, which is converted by Monsanto into interlayer for laminated safety glass, were aided by high-volume production of automo biles. Polyvinyl acetate, polyvinyl butyral and polyvinyl alcohol moved well to makers of adhesives, textiles, surface coatings, paper and chemical spe cialties. Polyvinyl formal, used mainly in wire enamels and coatings, continued to hold a major share of the market. Shawinigan's line has been expanded to more than 150 products that meet a wide variety of cus tomer requirements. In 1963, polyvinyl acetate facilities were expanded. Fabric Services, Inc., formed in December, will build a multimillion-dollar plant for dyeing and finishing textiles. Located at Orangeburg, S. C., it is expected to be operating by mid-1965. ASSOCIATED U. S. COMPANIES Domestic companies in which Monsanto has 50 per cent interests are not included in the consoli dated financial statements of the parent company and its subsidiaries. They are discussed here as a matter of interest. Mobay Chemical Company, which again in creased its sales, retains a favorable growth position along a broadening market base of isocyanates, urethane intermediate chemicals and polycarbonate resins. The United States Bureau of Mines 1963 en dorsement of rigid urethane foam based on Mobay's "Mondur MR" isocyanate system gave important leverage to developing markets in the mining and commercial insulation fields. At the same time, the building industry responded favorably to a Mobay program to generate interest in rigid urethane foam as a primary structural material. Flexible methane foam continued to win favor. For example, its acceptance in furniture and bed ding increased at a rate exceeding forecast. Devel opment of a new "heavy" foam is expected to help urethane make additional gains in the huge comfort cushioning and mattress markets. In 1963, Mobay increased from 50 to 70 million pounds its annual capacity for tolylene diisocy anate, the primary raw material for urethane foams, elastomers and coatings. It also planned a multimillion-dollar expansion to more than double its capacity to produce tough polycarbonate plastics. Fome-Cor Corporation increased its sales but again showed a loss. Its product -- a lightweight laminate of polystyrene foam and kraft paper -- was sold mainly to the construction industry. Polythane Corporation, now in production at Providence, R. I., is moving spandex yams into the market through Chemstrand. Development work in 1963 resulted in a substantially improved fiber. The corporation's subsidiary in the United Kingdom, Polythane Fibres Limited, is to begin its own spandex production in Northern Ireland in 1964. PERSONNEL Monsanto's personnel development program, which encourages maximum realization of employe potential, was again emphasized. MAR 000748 LAM016807 Management surveys and performance audits guided and strengthened training efforts. Stress was given to personnel performance reviews and to the coaching and counseling of employes. Group training was emphasized in technical seminars, instrument schools and supervisory courses. Technical and executive development pro grams included academic and advanced manage ment courses. Continuing among the safest of chemical com panies, Monsanto achieved the best safety record in its history. Its injury frequency was significantly reduced and bettered the industry average by a wide margin. To accommodate Monsanto's expanding man power requirements, recruitment activities were intensified at colleges and universities. At the same time, a national program to find well qualified, experienced people was energetically pursued. University relations and aid-to-education pro grams were actively maintained through fellow ships, scholarships and unrestricted grants. More than a hundred departments in various schools benefited by Monsanto grants supporting under graduate study in engineering and science and graduate work in research. Employe relations were excellent throughout the year. Work contracts were satisfactorily negotiated at 11 plants. Five are on a three-year basis; the other six run for two years. Company growth prompted organizational changes. A new Business Systems Department was formed to appraise company-wide data processing needs and to meet these needs with efficient systems utilizing modem electronic equipment. Richard D. Dunlop, formerly of the Corporate Planning and Control staff, was named director of the new de partment. The former Research & Engineering Division was dissolved early in the year, in favor of two separate units -- a Central Research Department and an Engineering Department. The Central Research Department is directed by Dr. Richard S. Gordon, former director of research for the Agricultural Division. The Engineering Department is directed by John S. Hayes, who previously had responsibility for engineering in the Research & Engineering Division. In September, James E. Crawford Jr. was elected a company vice president and appointed general manager of the new Packaging Division. Mr. Craw ford was previously assistant general manager of the Plastics Division. SALES BY PRODUCT GROUPS PARENT COMPANY AND ALL SUBSIDIARIES Chemical Fibers............................................................................. ............... Plastics, Synthetic Resins and Surface Coatings....................... ............... Phosphate Products and Detergents.......................................................... Intermediates and Plasticizers..................................................... ............. Rubber and Oil Chemicals............................................................ ............. Agricultural Chemicals.................................................................. .............. Petroleum Products--Net of purchases...................................... ............. Textile and Paper Chemicals........................................................ ............. Pharmaceuticals, Flavors and Condiments................................. ............. Heavy Chemicals........................................................................... ............. Other............................................................................................... ............. 1963 % 26.7 24.8 10.9 9.2 7.2 7.1 5.7 3.1 2.9 2.0 .4 100.0 1962 % 26.3 23.5 11.3 9.8 7.4 6.9 5.6 3.1 3.3 2.3 .5 100.0 1958 % 23.1 20.1 12.6 10.9 8.6 5.8 8.1 3.1 4.5 3.1 .1 100.0 MAR 000749 LAM016808 17 # ACCOUNTANTS' OPINION HASKINS & SELLS CERTIFIED PUBLIC ACCOUNTANTS BOATMEN'S BANK BUILDING SAINT LOUIS 63102 Monsanto Chemical Company: We have examined the statement of consolidated financial position of Monsanto Chemical Company and its subsidiary companies as of December 31, 1963 and the related statements of consolidated income and paid-in surplus and retained earnings for the year then ended. Our examination was made in accord ance with generally accepted auditing standards, and accordingly included such tests of the accounting records and such other auditing procedures as we considered necessary in the circum stances . In our opinion, the accompanying statement of consolidated financial position and statements of consolidated income and paid-in surplus and retained earnings present fairly the financial position of Monsanto Chemical Company and its subsidi aries at December 31, 1963 and the results of their operations for the year then ended, in conformity with generally accepted accounting principles applied on a basis consistent with that of the preceding year. February 10, 1964 # MAR 000750 LAM016809 .10 MONSANTO CHEMICAL COMPANY STATEMENT OF CONSOLIDATED FINANCIAL POSITION ASSETS Current Assets: Cash........................................................................................ Marketable securities, at cost which approximates market Net receivables...................................................................... Inventories............................................................................. Investments and Miscellaneous Assets, at Cost or Less: Investment in and advances to associates.................... Miscellaneous investments and receivables.................. 1963 1962 (In Thousands) $ 40,896 $ 34,435 84,667 67,037 198,703 173,924 191,579 515,845 170,595 445,991 r->.v*v ' ; 29,382 T; 56,256 " < . 85,638 ,: 25,552 58,808 84,360 Property, Plant and Equipment, at Cost............. Less accumulated depreciation and depletion Net property............................................. 1,520,813 ' 738,660 782,153 1,402,062 632,190 769,872 Deferred Charges 32,436 24,639 The above statement should be read in conjunction with pages 22 and 23 ol this report. $1,416,072 $1,324,862 MAR 000751 LAM016810 19 # AT DECEMBER 31, 1963 AND 1962 LIABILITIES Current Liabilities: Accounts payable and accruals............................................................... Income taxes............................................................................................. Current portion of long term debt (less $1,000,000 debentures in treasury) 1963 1962 (In Thousands) $ 122,803 69,041 10,227 202,071 $ 126,964 42,855 9,346 179,165 Notes, Debentures, etc.--Less Current Portion Above 352,801 360,864 Other Liabilities: Deferred income taxes Miscellaneous............. 41,335 4,306 45,641 33,520 3,459 36,979 Minority Interests in Subsidiary Companies 31,326 30,268 Shareowners' Equity: Common shares--authorized, 35,000,000 shares, par value $2 each; outstanding, 29,963,825 shares in 1963 and 29,010,147 shares in 1962 ................................................................................................ Paid-in surplus.......................................................................................... Retained earnings..................................................................................... 752 ooo 59,928 406,243 318,062 784,233 $1,416,072 58,020 360,856 298,710 717,586 $1,324,862 LAM016811 20 MONSANTO CHEMICAL COMPANY STATEMENT OF CONSOLIDATED INCOME Income: Net sales Other___ Deductions: Cost of goods sold............................................. Selling, administrative and research expenses Interest.............................................................. Minority interests.............................................. Other.................................................................. Income Before Income Taxes 1963 1962 (In Thousands) $1,192,270 $1,063,195 13,470 11,731 1,205,740 1,074,926 Increase Decrease $129,075 1,739 130,814 849,669 176,109 15,750 1,700 2,106 1,045,334 160,406 762,218 151,724 15,422 1,600 2,679 933,643 141,283 87,451 24,385 328 100 573 111,691 19,123 Provision for Income Taxes: Current................................. Deferred............................... Net Income 65,043 12,373 77,416 51,464 11,451 62,915 $ 82,990 $ 78,368 13,579 922 14,501 $ 4,622 The above statement should be read in conjunction with pages 22 and 23 of this report. 000753 MAR l_AW1016812 SUBSIDIARIES 21 STATEMENT OF CONSOLIDATED PAID-IN SURPLUS AND RETAINED EARNINGS PAID-IN SURPLUS 1963 1962 (In Thousands) Balance at Beginning of Year............................................................................... Additions: Excess of approximate market value of common capital stock distributed as a stock dividend over the par value thereof..................................... Excess of amounts received over the par value of common capital stock issued under stock option plans............................................................ Excess of approximate market value over the par value of common capital stock issued for the remaining 50 per cent interests in Plax Corpora tion and Societe Monsanto Boussois.................................................... Excess of equity in the net assets of Societe Monsanto Boussois over the carrying value of the investment therein........................................ Other.............................................................................................................. Balance at End of Year......................................................................................... $360,856 31,549 13,798 40 $406,243 $323,055 21,191 2,501 13,806 303 $360,856 RETAINED EARNINGS Balance at Beginning of Year.............................................................................. Additions: Net income for the year................................................................................ One-half of retained earnings at December 31, 1962 of Shawinigan Resins Corporation, a 50 per cent-owned company, which became a wholly-owned subsidiary in April 1963............................................... Deduction: Dividends on capital stock of parent company: Cash -- at the rate of $1.20 a share in 1963 and $1.05 a share in 1962 Stock --2%................................................................................................ ^^hance at End of Year......................................................................................... $298,710 82,990 4,062 385,762 34,978 32,722 67,700 $318,062 $272,127 78,368 350,495 29,470 22,315 51,785 $298,710 MAR 000754 LAM016813 22 FINANCIAL REVIEW The accompanying financial statements (pages 18 through 21) consolidate all active domestic and foreign subsidiaries in which Monsanto Chemical Company directly or indirectly has more than a 50 per cent interest. The accounts of Shawinigan Resins Corporation have been included in consoli dation from the date of acquisition in 1963 of the remaining 50 per cent interest in that company. The equity in the unaudited 1963 net income of 50 per cent-owned companies was $2,059,000, com pared with $2,250,000 in 1962. Dividends of $1,300,000 were received from these companies in 1963 and $1,822,000 in 1962. The equity in the unaudited net assets of such companies at the end of the year was $33,985,000, which exceeded the carrying value of $29,382,000 by $4,603,000. The Revenue Act of 1962 provides for a credit against Federal income taxes equal to approxi mately seven per cent of expenditures for machinery and equipment purchased and placed in service during the year, with a corresponding reduction of the depreciable tax base of such property. As a result of this investment credit, the income tax liability of the company and certain of its subsidi aries for 1963 was reduced by $4,670,000, of which $2,242,000 or 48 per cent has been included in 1963 net income. The remainder, $2,428,000, was credited to the reserve for deferred income taxes and will be amortized over the life of the properties to which attributable, to compensate for the reduc tion of the depreciable tax basis. In 1962, $3,220,000 was credited to income and $3,489,000 was credited to reserve for deferred income taxes resulting from the investment credit. The use of the sum of the years digits method for computing depreciation on the majority of new assets acquired since 1954 was continued in 1963. The excess of depreciation provided by this method over straight line depreciation increased from $13,755,000 in 1962 to $18,646,000. For income tax purposes only, the company and one of its subsidiaries in 1962 adopted the shorter lives established for machinery and equipment by the United States Treasury Department. The addi tional depreciation taken for tax purposes reduces the current income tax liability of these companies. Net income for the year, however, is not affected, since an amount equivalent to the reduction in current taxes payable is charged to income to provide for deferred taxes payable in future years. Charges against income for depreciation, obsoles cence and depletion amounted to $114,606,000, of which $111,092,000 was depreciation and obso lescence and $3,514,000 depletion of mines and wells. In 1962, such charges were $94,161,000 and $3,478,000. Repair and maintenance charges included in operating expenses were $76,628,000 in 1963 and $68,143,000 in 1962. In certain prior years, provisions were made for income taxes payable in future years resulting primarily from the excess of depreciation and amortization of facilities constructed under Certifi cates of Necessity for income tax purposes over depreciation for accounting purposes. For the years 1963 and 1962, $4,138,000 and $3,830,000 of such taxes became payable and were charged against the reserve provided in prior years. Examination of the company's Federal income tax returns has been completed for all years through 1956, and returns for the years 1957 through 1959 are presently under examination by the Internal Revenue Service. Differences in opinion exist be tween the company and the Service on the tax treatment of certain items of income and expense during this period. The ultimate disposition of the items in question is not presently determinable. Inventories are generally stated at the lower of cost or market, determined on the first-in, first-out basis. Annual rate of turnover was 4.7 in 1963 and in 1962. Reserves for doubtful accounts were $5,158,000 in 1963 and $5,014,000 in 1962. The long term debt of the company and its subsidiaries is shown in the table on Page 23. In 1963, four quarterly cash dividends of 30 cents each were paid on the common shares. Also, 586,840 common shares were issued on Decem ber 23, 1963, in payment of a two per cent stock dividend. MAR 000755 LAM016814 23 The company was contingently liable as guaran tor of bank loans to 50 per cent-owned companies and others aggregating approximately $7,700,000 at the end of 1963 and $4,200,000 at December 31, 1962. The changes occurring during 1963 in the two stock option plans authorized by shareowners in 1951 and 1960 for key employes, and in the Second Employes' Stock Plan, authorized by shareowners in 1960 for hourly and salaried employes except participants in the key plans, were: 1951 Stock Option Plan 1960 Stock Option Plan Second Employes' Stock Plan Outstanding 1/1/63___ 160,961 Unoptioned 1/1/63...... Optioned during year... Exercised during year... 49,508 Cancelled during year.. Terminated during year. 1,081 Outstanding 12/31/63. 112,636* Unoptioned 12/31/63.. 544,524 4,768 5,500 57,257 7,601 494,987* 7,174* 271,109 89,235 260,073 89,235 11,036 Adjusted for 1963 two per cent stock dividend. Under the Stock Option Plans, 362 options are outstanding, at prices ranging from $25.03 to $62.00 a share. The prices have been adjusted for stock dividends and, where applicable, for the 1955 three-for-one split. The three-year Second Employes' Stock Plan, which became effective on June 3, 1960 and ter minated on June 30, 1963, provided for the grant to hourly and salaried employes of options to purchase a maximum of 450,000 Monsanto com mon shares. During the life of the plan, employes purchased a total of 349,729 shares, at prices ranging from $39.25 to $50.50 a share. The prices were the higher of approximately 95 per cent of the New York Stock Exchange average price on the date the options were granted or the highest option price on any earlier date on which options were granted. Payments by employes over the option period were made by payroll deductions on which the company credited interest at a minimum rate of four per cent. LONG TERM DEBT (Exoluslve of Currant Maturities) 1963 1962 (In Thousands) Parent company: 3%% sinking fund debentures, due 1968....................$ 8,750 $ 10,000 2.65% debentures, due 1971 (less $2,000,000 in treasury in 1963)......................................................... 20,000 23,000 3%% sinking fund debentures, due 1972.................... 10,000 10,500 3l/2% promissory notes, due 1972................................ 48,212 55,412 4%% promissory notes, due 1993................................ 100,000 100,000 33A% income debentures, due 2002............................. 91,000 91,000 4%% income debentures, due 2008............................. 50,000 50,000 Shawinigan Resins Corporation: 4V2% debentures, due 1976.......................................... 4,060 Monsanto Chemicals Limited (British subsidiary): 6% debentures, due 1977/82....................................... 7,980 8,400 5% debentures, due 1982............................................. 9,307 9,800 Other subsidiaries.............................................................. 3,492 2,752 Total $352,801. $360,864 MAR 000756 LAM016815 24 MONSANTO CHEMICAL HISTORICAL STATEMENT OF CONSOLIDATED (In millions) ASSETS Current Assets: Cash.................................................... Marketable securities........................ Net receivables.................................. Inventories......................................... 1963 1962 1961 $ 40.9 $ 34.4 $ 28.9 84.7 67.1 18.6 198.7 173.9 152.7 191.6 170.6 154.5 515.9 446.0 354.7 1960d) 1959 $ 32.8 $ 25.7 75.1 93.3 124.4 101.6 153.5 105.5 385.8 326.1 10 YEARS AGO 1953 $ 37.8 11.3 40.3 70.7 160.1 25 YEARS AGO 1938 $10.7 1.0 3.9 9.2 24.8 Investments, etc................................... 85.6 84.4 90.5 75.4 79.6 28.6 1.2 Property: Land................................................... Buildings............................................ Machinery and equipment............... Phosphate deposits.......................... Producing oil and gas properties.... Undeveloped oil and gas leaseholds. Accumulated depreciation, etc......... Accumulated depletion..................... Net property............................. 27.7 237.0 1,148.3 9.6 89.2 9.1 705.4 33.3 782.2 25.2 219.3 1,054.5 8.6 84.8 9.6 600.9 31.2 769.9 23.4 195.0 907.0 8.5 82.1 8.9 514.8 29.3 680.8 19.2 181.0 795.5 8.1 79.5 9.0 449.4 27.2 615.7 14.2 110.4 524.1 6.9 76.6 10.0 307.7 25.6 408.9 6.3 58.6 253.7 4.6 106.9 .7 215.6 1.8 9.6 28.8 .5 14.6 .7 26.0 Deferred Charges................................... 32.4 24.6 16.3 12.7 10.2 $1,416.1 $1,324.9 $1,142.3 $1,089.6 $824.8 3.6 $407.9 .2 $52.2 (X) The accounts of The Chemstrand Corporation and subsidiaries are not included in the years prior to 1960. Italics indicate deduction. MAR 000757 LAM016816 25 and subsidiaries FINANCIAL POS T I O N (in millions) LIABILITIES Current Liabilities: Accounts payable and accruals....... Income taxes less tax notes............. Current portion long term debt........ 1963 $ 122.8 69.1 10.2 202.1 1962 $ 127.0 42.9 9.3 179.2 1961 $ 109.3 48.8 9.2 167.3 19600) 1959 $ 86.4 46.8 9.9 143.1 $ 65.5 36.1 1.8 103.4 10 YEARS AGO 1953 $ 33.3 2.2 35.5 25 YEARS AGO 1938 $ 3.6 .9 4.5 Notes, Debentures, etc.......................... 352.8 360.8 269.2 289.2 209.8 106.8 Other Liabilities: Deferred income taxes...................... Miscellaneous.................................... 41.4 4.3 45.7 33.5 3.5 37.0 28.1 3.4 31.5 31.1 3.1 34.2 19.0 1.7 20.7 4.5 6.7 11.2 .4 .4 Minority Interests in Subsidiaries___ 31.3 30.3 23.1 23.1 21.6 19.0 2.3 Shareowners' Equity: Preference shares............................. Common shares................................ Paid-in surplus.................................. Retained earnings............................. 59.9 406.2 318.1 58.0 360.9 298.7 56.0 323.1 272.1 784.2 717.6 651.2 $1,416.1 $1,324.9 $1,142.3 54.4 286.7 258.9 600.0 $1,089.6 46.3 222.6 200.4 469.3 $824.8 1 15.0 26.4 100.5 93.5 235.4 $407.9 10.0 12.4 11.3 11.3 45.0 $52.2 MAR 000758 LAM016817 26 MONSANTO CHEMICAL COMPAN HISTORICAL STATEMENT OF CONSOLIDATED INCOME (In millions except per share earnings) Income: Net sales............................................ Other.................................................. 1963 1962 $1,192.3 $1,063.2 13.4 11.7 1961 $932.9 11.8 1,205.7 1,074.9 944.7 196011) $890.1 10.4 900.5 1959 10 YEARS AGO 1953 25 YEARS AGO 1938 $688.0 12.3 $375.6 2.8 $31.9 .7 700.3 378.4 32.6 Deductions: Cost of goods sold............................. Selling, administrative, research___ Interest.............................................. Minority interests.............................. Other.................................................. 849.7 176.1 15.7 1.7 2.1 1,045.3 762.2 151.7 15.4 1.6 2.7 933.6 672.9 . 131.4 11.6 .4 1.3 817.6 632.7 126.3 12.4 1.6 .9 773.9 512.5 83.4 7.5 1.6 1.8 606.8 267.8 51.7 3.8 .9 1.8 326.0 23.5 4.5 .1 .5 28.6 Income Before Income Taxes............. Provision for Income Taxes................ 160.4 77.4 141.3 62.9 127.1 58.4 Net Income........................................... $ Per Common Share: Adjusted for splits............................. $ Adjusted for splits and stock divi dends............................................. $ 83.0 $ 78.4 $ 68.7 2.77 $ 2.70 $ 2.45 2.77 $ 2.65 $ 2.35 126.6 58.8 $ 67.8 $ 2.49 $ 2.35 93.5 40.0 $ 53.5 $ 2.31 $ 2.13 52.4 25.4 $ 27.0 $ 1.67 $ 1.42 4.0 .9 $ 3.1 $ .26 $ .22 (1) The accounts ot The Chemstrand Corporation and subsidiaries are not included in the years prior to 1960. MAR 000759 LAM016818 (In millions except where italicized) 1963 1962 Depreciation, depletion, etc................. $ 114.6 $ 97.6 1961 $ 86.9 1960(D $ 79.0 1959 $ 56.1 10 YEARS AGO 1953 25 YEARS AGO 1938 $ 24.8 $ 2.6 Book value a share............................ $26.17 $24.74 $23.24 $22.06 $20.27 $13.94 $3.73 Gross additions to property................. $ 114.5 $ 168.8 $153.8 $121.3 $ 68.7 $ 28.9 $ 3.4 Employes........................................... 48,133 45,665 38,621 36,266 25,982 19,759 6,229 Net working capital.............................. $ 313.8 $ 266.8 $187.4 $242.7 $222.7 $124.6 $20.3 Net worth and long term debt............ $1,137.0 $1,078.4 $920.4 $889.2 $679.1 $342.2 $45.0 Per employe................................... $23,622 $23,615 $23,832 $24,519 $26,137 $17,319 $7,224 Parent company: Cash dividends on common shares. $ 35.0 $ 29.5 Per common share..................... $1.20 $1.05 Preference shares outstanding........ Common shares outstanding........ 30.0 29.0 Number of shareowners................... 80,608 82,452 $ 27.3 $ 23.2 $ 22.4 $ 13.1 $ 2.4 $1.00 $7.00 $7.00 $.83 $.22 28.0 82,203 27.2 83,809 23.2 78,675 150,000 100,000 15.8 11.2 24,415 8,501 1) Data 1or The Chemstrand Corporation and subsidiaries are not included in the years " prior to 1960. (2) Adjusted for splits. (3) Including employes of government plants. **** 000760 LAM016819 '28' MONSANTO CHEMICAL COMPANY AND SUBSIDIARIES SOURCE AND DISPOSITION OF FUNDS (In Thousands) Source of Funds: TOTAL 1963 1962 Net income....................................................... . Provisions for: Depreciation, etc........................................... Deferred income taxes................................. Outside financing: 43A% promissory notes................................ 41A% income debentures........................... . Other.............................................................. Common shares issued under options.......... Other--net........................................................ $351,294 434,214 23,824 99,593 25,000 1,669 41,983 8,470 969,107 $ 82,990 114,606 12,373 1,669 14,532 5,368 220,802 $ 78,368 97,639 11,451 99,593 2,639 2,366 292,056 1961 1960 1959(!) $ 68,656 $ 67,807 $ 53,473 86,876 79,038 56,055 25,000 9,926 7,918 157,540 1,040 2,273 145,612 13,846 4,723 153,097 Disposition of Funds: Dividends on common shares: Monsanto..................................................... Chemstrand.................................................. 137,337 2,500 34,978 29,470 Plant additions and replacements................ . Investment in affiliated companies............... Retirement of debt......................................... , Increase--decrease in working capital12)....... Increase--decrease in cash and securities.. 139,837 627,063 53,077 67,171 61,671 20,288 34,978 114,502 18,443 13,452 18,042 21,385 29,470 168,833 9,597 17,877 14,614 51,665 $969,107 $220,802 $292,056 27,316 27,316 153,818 9,810 21,928 5,021 60,353 23,159 2,500 25,659 121,253 9,723 9,915 27,479 48,417 22,414 22,414 68,657 5,504 3,999 3,485 56,008 $157,540 $145,612 $153,097 (1) The accounts of The Chemstrand Corporation and subsidiaries are not included in the year 1959. (2) Exclusive of cash and securities, italics indicate decrease. MAR 000761 LAM016820 DIRECTORS AND OFFICERS BOARD OF DIRECTORS OFFICERS Charles Allen Thomas, Chairman...........St. Louis Charles Allen Thomas . . . Chairman of the Board Dillon Anderson................................................ Houston Charles H. Sommer............................................President David R. Calhoun............................................................ St.LouisJohn L. Christian...........................................................VicePresident John L. Christian .............................................St. Louis John L. Gillis..................................................................VicePresident Carroll A. Hochwalt...................................................VicePresident Fredrick M. Eaton.......................................................NewYorkRobert K. Mueller...................................................... VicePresident John L. Gillis ................................................... St. Louis Edward A. O'Neal Jr.................................................... VicePresident Carroll A. Hochwalt....................................................St.LouisFelix N. Williams.....................................Vice President Herbert Hoover Jr.................................Los Angeles Robert K. Mueller........................................................St.LouisH. Harold Bible...........................................Vice President Edward A. O'Neal Jr....................................................NewYork Edward J. Bock.............................................Vice President Edgar M. Queeny.............................................................St.LouisJames E. Crawford Jr................................Vice President Charles H. Sommer........................................................St.LouisJohn R. Eck.....................................................Vice President Alan H. Temple..............................................................NewYorkArthur W. Lucas..........................................Vice President Robert M. Morris.......................................Vice President Felix N. Williams............................................................St.LouisEdwin J. Putzell Jr.....................................Vice President Tom K. Smith Jr.............................................Vice President EXECUTIVE COMMITTEE Charles H. Sommer, Chairman J. Russell Wilson................../..................Vice President Marshall E. Young.................................... Vice President John L. Christian John L. Gillis Carroll A. Hochwalt Robert K. Mueller Charles Allen Thomas Felix N. Williams Marlette C. Covert...........................................Controller Edwin J. Putzell Jr.............................................Secretary Patrick J. Dowd....................................................Treasurer FINANCE COMMITTEE Edgar M. Queeny, Chairman Dillon Anderson Herbert Hoover Jr. David R. Calhoun Charles H. Sommer Fredrick M. Eaton Alan H. Temple Charles Allen Thomas Transfer Agents Morgan Guaranty Trust Company of New York The Boatmen's National Bank of St. Louis {Effective April 1, 1964) Registrars The Chase Manhattan Bank St. Louis Union Trust Company Lloyd R. Cole.........................................................AssistantController Jack W. Mueller...............................Assistant Controller Walter C. Thilking.............................................AssistantController Earl J. Wipfler.....................................................AssistantController Charles E. Caspari Jr.........................................AssistantSecretary John N. Ehlers......................................................AssistantSecretary Rodney Harris Jr..................................................AssistantSecretary C. Brent Holleran..............................................AssistantSecretary Franklin C. Rehfeld..........................................AssistantSecretary Norvell G. Jones...............................Assistant Treasurer J. Robert Matlock............................Assistant Treasurer Thomas M. Rasmussen.....................Assistant Treasurer Rolla H. Stocke.................................Assistant Treasurer George F. Wingard...........................Assistant Treasurer Regional Vice Presidents Roy L. Brandenburger Franklin J. Cornwell Edward W. Gamble Jr. February 25, 1964 MAR 000762 LAM016821 MONSANTO CHEMICAL. COMPANY 800 N. LINDBERGH BLVD., ST. LOUIS. MO. 63166 MAR 000763 LAW'016822