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T J `- 1967 ANNUAL REPORT MONSANTO COMPANY i HONS 352221 TOWOLDMON0014374 (Dollars in Millions, Except Per Share Figures) Earning* a S h are............................................................ Cash Dividends a Share.............................................. Slock Dividend............................................................... 1967 $ 3.17* 1.60 2% income: Net sales.................................................................. Interest, dividends, etc......................................... Coits of Doing Business: Raw materials, fuel, supplies, etc....................... Wages and salaries to employes......................... Depreciation, depletion, etc................................. Taxes (income, property, etc.)............................. Interest expense..................................................... Minority interests in subsidiaries........................ Net Incom e...................................................................... Cash Dividends Paid..................................................... Retained for Future Growth........................................ $1,632.4 25.2 1,657.6 864.6 397.8 162.9 103.6 21.9 2,4 1,553.2 104.4* 51.4 $ 53.0 Per Cent of Sales; Gross profit............................................................... Selling and administrative expenses.................. Research, development, patent, engineering.. Net income............................................................... 25.8% 9.9 5.2 6.4 Plant Additions and Replacements........................... Long Term Debt (Exclusive of Current Maturities) Shareowners' Equity..................................................... Equity to debt ratio................................................. Common Shares (In Millions).................................... $ 160.4 $ 451.4 1,074.8 2.38 33.0 Book Value a Common Share..................................... Working Capital............................................................. Current Assets to Current Liabilities Ratio............ $ 32.61 $ 409.7 2.66 E m p lo y e *.......................................................................... 58,799 Shareowners................................................................... 111,363 In clu d $ 6 .4 m illio n , o f 19 c a n t* a ih a ra . fro m s a lt o f in ta ra a t in Mot>ay C h a m ic a l C o m p a n y. 1966 $ 3.48 1.60 2% $1,611.9 26.6 1,638,5 856.8 375.8 152.4 115.1 23.4 2.7 1,526.2 112.3 50.5 $ 61.8 26.8% 9.7 4.7 7.0 $ 211.0 $ 480.4 1,021.6 2.13 32.3 $ 31.62 $ 377.7 2.38 57,647 95,938 HONS 352222 TOWOLDMONO014375 Despite Monsanto's 1967 achievements, which included a modest sales increase and significant cost reductions, profits lagged those of the prior year. The final quarter was in fact the only quarter in which earnings from operations exceeded their 1966 level. Consolidated sales in 1967 rose to a record $1,632,357,000, which bettered the 1966 sales total by 1 per cent. But operational income declined 13 per cent to $97,959,000. This was equivalent to earnings of $2.98 a share on 32,962,005 shares out standing, compared to $3.48 a share on 32,308,823 shares in 1966. The foregoing figures exclude an extraordinary profit realized in 1967's first quarter from the sale of M onsanto's interest in Mobay Chemical Company. This nonrecurring gain, which was reported to share owners earlier, amounted to $6,394,000 or 19 cents a share. It increased 1967's net incom e to $104,353,000 and total earnings to $3.17 a share. As in past years, a table on this page shows how various factors combined to cause the year-to-year change in Monsanto's earnings. And as it has historically, the table makes abundantly clear the serious consequences of the continuing decline in selling prices. In 1967, this decline reduced net income by about $19 million. In most of recent years, similar declines were offset by gains in sales volume. In 1967, however, difficulties in certain areas of the world economy held over-all sales close to year-earlier levels. Lower selling prices were particularly damaging in the area of man-made fibers. Although demand for fibers strengthened sufficiently in the second half to trigger some price firming, the reversal was neither soon enough nor strong enough to offset earlier price cuts. Administrative, marketing and technological ex penses rose much less sharply than in 1966 and stayed well within budget. To continue Monsanto's The year-to-year decrease in earnings of 31 cents a share is accounted for as follows: Earnings a Share Year 1966 e a rn in g s ........................ $3.48 In 1967earningsw erereduced by: Lower sellin g p ric e s ..................... $ .60 Higher selling, adm inistrative, research, developm ent and o th e r e xp e n se s............................... 23 H ighe r raw m aterial p ric e s ..............01 $ .84 Earnings were increased by: M a n u fa c tu rin g cost sa vin g s ............. 25 Lower sta rt-u p c o s ts ........................... 07 H ighe r sales v o lu m e .............................15 .47 Decrease in operating re s u lts .. . . .37 O ther decreases to earnings: Lower investm ent tax credit of $.12, less be ne fit of other tax ite m s o f $ .0 7 .................................... 05 Higher incom e charges-- n e t.. .01 Effect on earnings of shares issued d u rin g the y e a r............ ,07 E arnings before extrao rdinary ite m s ................................................ Extraordinary item s:* Earnings were increased by the sale of the com pany' s interest in M obay C hem ical Com pany Year 1967 e a rn in g s ................... . .13.50 2.98 . 19 $3.17 In 9 6 6 the co m p a n y had tw o e xtra o rd in a ry ite m s, one a loss on th e w rite o ff o f Polythene C orporation goodw ill and the o th e r a gam on th e sate o f in ve stm e n ts. Each a m o u n te d to 19 cants a sitare. Ita lic s in th e te x t o f th is A n n u a l R e p o rt id e n tify M o n s a n to 's re g is te re d (g> tra d e m a rk s . HONS 352223 TOWOLDMONO014376 2 growth, it is a virtual necessity that increasing sums of money be channeled into such important functions as research, engineering, development and activities in support of marketing. The nonoperating factor that lowered 1967 earnings most significantly was the drop in invest ment tax credit, caused by reduced capital spending. The year's capital expenditures am ounted to S160.365.000. compared to $210,972,000 in 1966. This was a decrease of 24 per cent. in addition to the small sales increase and the item of extraordinary income, several other factors benefitted 1967 earnings. They included, for example, year-to-year cost savings on product manufacture and plant start-up expenses. Product lines did not share equally in the 1967 sales advance. Some in fact lost ground. Farm chemicals, paced by Monsanto's proprietary weed killers, and petroleum products made the best gains. The company's total sales beyond U.S. borders rose 5.5 per cent and amounted to $362 million, compared to $343 million in 1966. Most manufacturing operations progressed well in 1967 as newly instituted production efficiencies reduced costs by more than $15 million. A notable exception, however, was at the world's largest phosphorus furnace, which Monsanto completed in 1966 at Soda Springs, Idaho. The furnace again experienced problems. Although its production rates rose, its output was still below design capac ity. Furnace modifications made in 1967's fourth quarter are expected to provide more continuous operation and to increase output in 1968. In October, the New Enterprise Division became Monsanto's ninth division. The newly created unit is devoted exclusively to the search for and creation of new businesses. Initially, it is interested in five promising areas: electronic semiconductor materials, displays, instruments and systems; engineered com posite systems; protein foods; graphic systems; and AsrroTurf recreational surfaces. General manager of the new division is Dr. Richard S. Gordon, former director of the com pany's Central Research Department. Also in October, Monsanto formed a Corporate Development Committee to take the lead in planning and implementing the company's growth. Chaired by the president, the new committee evaluates corporate objectives, defines key issues facing Monsanto and develops appropriate long-term courses of action. In June, Finis Morgan was elected Monsanto's financial vice president, a new position. Mr. Morgan previously had administrative responsibility in the financial area for the former Chemstrand Corpora tion and more recently served as manager of the Pensacola, Fla., plant -- the company's largest. His new duties include direction of the Accounting, Central Planning & Evaluation, Treasury, and Finan cial Relations functions. The company's fight against pollution of man's environment was accelerated in 1967 by the forma tion of Monsanto Biodize Systems. Inc. The new subsidiary will design, sell and install processes for removing water pollutants from a variety of indus trial and municipal wastes. Its first commercial installation is to be a secondary waste-disposal system at Monsanto's resin plant in Trenton, Mich. Meanwhile, in conjunction with Metropolitan Edison Company, Monsanto completed installation of its prototype unit to remove air-polluting sulfur dioxide from the stack gases of Met-Ed's coal burning, electric-power station in Portland, Pa. The experimental unit is now under intensive evaluation. Concurrent work is under way to design commercialsize plants for removal of sulfur dioxide from boiler-plant stacks of industrial installations. Legislative and administrative actions by the United States continue to be of deep concern because they are certain to have important effects on the international competitive strength of the American chemical industry and thus on the interests of Monsanto's employes and shareowners. As a case in point, agreements reached during the Kennedy Round of negotiations in Geneva resulted in tariff reductions on chemical and related products for which no reciprocal treatment was obtained from other nations. No agreements whatever were reached in connection with restrictive nontariff barriers, although Monsanto is glad to see evidence that the government is commencing to give attention to this important area. Imports already supply almost 10 per cent of U.S. consumption of man-made fibers. This is an area of particular importance to Monsanto and one in MONS 352224 TOWOLDMON0014377 3 which the company has a very high percentage of investment and employment. M onsanto has been working with the entire domestic textiles industry in requesting the government to extend to all fibers and fiber products treatment similar to that already applied to cotton. The governm ent's oil-im port program , which is designed to protect domestic oil producers, requires th at U.S. petrochemical companies pay 50 per cent more for raw materials than do overseas competitors. To attempt to equalize this major cost, Monsanto is working with other U.tS. petrochemical producers in seeking government support to permit full access to petroleum feedstocks at world prices. This move is vital to the continued health of those aspects of M onsanto's business involving petroleum-derived chemicals and plastics. A lthough the tax burden is already heavy, M onsanto is aware that a tem porary income tax increase, combined with a reduction in government expenditures, is probably needed to com bat inflation. It should be noted, however, that acceleration of corporate tax payments in itself has constituted a tax increase. Social security taxes, state taxes and local taxes also have risen. In M onsanto's view, new increases should apply only after allowable tax credits have been recognized, including foreign tax and investment credits, in order to help U.S. business compete internationally. Historically, the overseas investment policies of M onsanto and U.S. industry as a whole have strengthened the nation's balance o f payments. It is therefore paradoxical that, while imposing new costs on business and following inflationary policies at home and exporting dollars for a variety of govern ment programs abroad, the administration turns to the private sector to reduce the balance-of-payments deficit. While restraints on investment abroad may serve as tem porary expedients, they cannot be regarded as realistic long-term solutions to the balance-of-payments problem. Since 1965, M onsanto has been am ong more than 700 U.S. companies participating in the government's voluntary program which puts curbs on overseas investment. Although M onsanto has not yet been forced to curtail its expansion plans, the increasing trend toward more governmental restrictions on U.S. enterprise abroad will surely have a bearing on future expansion outside the United States. Britain's devaluation of the pound sterling was felt throughout the financial world. Because M onsanto had taken the necessary steps to protect its assets, the devaluation had no adverse effect on the com pany's 1967 earnings. We are proud of M onsanto employes at all levels for splendid performance during a rather difficult year. These men and women, who constitute the main strength o f the company, will provide the drive needed for future gains. Newly added facilities should reduce costs and enhance profitability. And we anticipate that inten sive capital planning will result in improved return on investment. We are certain that changes made last year in the structure of our organization will accrue to M onsanto's benefit. Additionally, in late January, 1968, the Board o f Directors authorized a restructuring of its committees in order to adapt the responsibilities o f these committees to the com pany's changing needs. This restructuring is now under way. As we strive for greater earnings in 1968 and beyond, we recognize that future gains could be restricted by factors beyond the com pany's control. But we have great confidence that M onsanto is equipped with the kind of vigor and efficiency essential to progress. Sincerely, Chairman o f the Board President St. Louis February 23, 1968 The next annual meeting of the shareowners of the com pany is to be held at 10 a.m. Thursday, M arch 28, 1968, at the company's General Offices, 800 N. Lindbergh Blvd., St. Louis County, Mo. A formal notice of the meeting, together with a proxy statement and form of proxy, is being mailed to each shareowner. MONS 352225 TOWOLDMONOQ14378 M ost of M onsanto's activities relate in some way to the manufacture and sale of products. Therefore the year's more significant developments are dis cussed here primarily in terms of products and product uses. Inform ation is classified according to M onsanto's 11 product groups and treated on a worldwide basis. There was virtually no year-to-year change in M onsanto's sales of. man-made fibers. However, fourth-quarter sales were encouragingly higher than those of the same 1966 quarter, reflecting the general improvement manifest in the textiles industry. Sales volumes of Blue " C " nylon were at 1966 levels; but prices were significantly lower. Tire, carpet and hosiery yarns moved at record rates. New nylon yarns m arketed by M onsanto in 1967 included improved products for carpeting and hosiery manufacture. Also new was Dye 1 cationicdyeable nylon, which enables the creation of twocolor or three-color fabric in a single dyeing. Checks, stripes and other color effects are easily achieved by knitting Dye 1 into patterns with regular and deep dyeing forms of Blue " C " nylon. The three yarn types have like physical properties. But varying degrees of dye receptivity cause them to be colored differently in the same dye bath. At its nylon plant in Greenwood, S.C., M onsanto completed an addition of facilities to produce tire, textile and carpet yarns. The expansion added more than 30 million pounds to the plant's annual capacity. As the year ended, the company's nylon plants in Luxembourg and Scotland were turning out yarn in record quantities. At the latter location, facilities were being installed to convert chemical inter mediates for nylon production. Sales of Acrilan acrylic fiber were greater than ever and would have risen higher had it not been for price declines on acrylic carpet fibers. In 1967, M onsanto introduced a number of im proved fibers for textiles and carpeting. Indooroutdoor carpeting of Acrilan won excellent market acceptance during the year. New marketing programs and lower-than-ever manufacturing costs have put Acrilan in an excellent competitive position. At year-end, production of the fiber was close to capacity in the United Kingdom and at the year's best levels elsewhere. M anufacture o f Acrilan acrylic fiber in Israel continued through out the Arab-Israeli conflict. In 1967, M onsanto experienced its first full year as a supplier of polyester fiber, the m arket for which is fastest-growing o f all fiber markets. After over- C O N SO LI D A T E D S A L E S BY P R O D U C T G R O U P S PER CENT IN C R E A S E 1967 OVER 1966 1962 1 59 3 57 10 153 5 31 5 50 3 32 10 32 8 21 7 8 7 31 PER CENT OF TOTAL 1967 1966 1962 C h e m ica l F ib e rs ............................................................................ ............ 2 6 .9 27.5 26.3 P la stics, R esins and C o a tin g s ................................................. ............ 2 3 .7 P ro d u c ts fo r A g r ic u ltu r e ............................................................................. 1 1 . 2 P h o sp h a te s and D e te rg e n ts ................................................................ 9 .6 In te rm e d ia te s , P la sticize rs and F u n ctio n a l F lu id s ........................ 9.5 24.9 10.4 9.2 9.2 23.5 6.9 11.3 9.8 R u b b e r and Oil C h e m ic a ls ........................................................ ............ 6.3 6 .2 7.4 P e tro le u m -- N e t o f p u rc h a s e s ............................................. ............. 4 .8 4.4 5.6 Food In g re d ie n ts and Fine C h e m ic a ls ................................ ............ 2 .6 2.9 3.3 T e x tile and Paper C h e m ic a ls ................................................... ............ 2.2 2.4 3.1 H eavy C h e m ic a ls ........................................................................ ............. 1.9 1.9 2.3 O th e r................................................................................................. 1.0 .5 1 0 0 .0 1 0 0 .0 1 0 0 .0 HONS 352226 TOWOLDMON0014379 5 coming most of its start-up problems, Monsanto was making Blue " C " polyester fiber at near-capacity rates at year-end and had the product on allocation. PLASTICS, RESINS AND COATINGS Sales of plastics and related products were 3 per cent below year-earlier levels. The decline was caused mainly by sluggishness in certain sectors of the U.S. economy and by pro longed strikes in principal consuming industries. As the domestic economy gains strength, sales of this group should return to traditional growth rates. Meanwhile, weakness in U.S. plastics markets has been partially offset by improved sales in Mexico, Europe and the Far East. In 1967, M onsanto introduced new grades of Lustran acrylonitrile-butadiene-styrenc (ABS) for the manufacture of automotive parts and appliance com ponents by injection molding. Expansion under way in Addyston, Ohio, will boost the company's do mestic ABS capacity to 170 million pounds annually in 1968. During the year's second half, work progressed on a new unit to produce Luslrex polystyrene in M ontreal, Canada. The facility will replace the one destroyed there in 1966 by fire and explosion. Also in 1967, capacity to manufacture styrene monomer was increased to 750 million pounds a year in Texas City, Tex. The monomer is a raw material for the production of both Lustran and Lustrex. Vyram rigid polyvinyl chloride continued to expand its use for making clear bottles for toiletries and detergents. From the U.S. governm ent, Monsanto has obtained clearance of the material for packaging food products. In 1967, M onsanto polyethylenes increased their share of the market for wire and cable insulation in the United States and in the United Kingdom. Improved high-density polyethylenes were marketed for fabricating milk bottles and other containers. An expansion which neared completion in Fawley, England, will increase capacity to make low-density resins by 50 per cent, to about 100 million pounds a year. Sales of nylon resins for production of auto motive, electrical and industrial components in creased sharply. In Ghent, Belgium, Monsanto hiked its capacity to make Saflex polyvinyl butyral plastic interlayer for laminated safety glass of the kind used in auto windshields. Domestic capacity to produce resin for the interlayer was increased in Springfield, Mass., and in Trenton, Mich. In 1967, Monsanto introduced a resin-treated decorative paper for upgrading the surfaces of wood products. It is offered to manufacturers of paneling made from particleboard, hardboard and plywood. At the Addyston Plant, installation of a unit capable of producing 80 million pounds of formalde hyde annually lifted the company's total formalde hyde capacity to 400 m illion pounds a year. Formaldehyde is a raw material for a number of products sold to the furniture, paint and construction industries. Capacity to make Formvar polyvinyl formal resin for wire-insulation enamels was boosted in Spring field. Other capacity increases in Canada, Mexico, Spain and the United Kingdom helped meet growing world demand for a variety of fabricated plastic products including pipe, packages and building materials. Dom estically, the company developed and marketed a premium line of garden hose. It is sold under the Monsanto label. Among other plasticbased products new from Monsanto in 1967 were vertical siding for building applications; insulating board for use in building mobile hom es; and a great variety of packages. In 1967, the company continued as one of the w o rld 's m ajor suppliers o f p lastic containers. Monsanto-made packages which were especially successful during the year included vinyl bottles for lighter fuel, hair dressing and sham poo; table-ready tubs for soft margarines, dairy dips and specialty foods; cups for dispensing hot and cold drinks from vending machines; and transparent trays for pre packaged meats and poultry. Sales of transparent trays more than doubled. PRODUCTS FOR AGRICULTURE M onsanto's expanding role as a supplier of farm chemicals was again apparent as total sales of this product group rose 10 per cent. Movement of plant food was below 1966 levels HONS 352227 TOWOLDMON0014380 C O M PARATIVE C O NSO LIDATED SALES, IN C O M E A N D EAR NING S A SHARE. ON A Q U A RTERLY BASIS oxicc. 1967 1966 (In T houM indi) First q u a rte r-----$ 422,047 Second quarter. 422,091 Third qu arter... 383,385 Fourth q u a rte r.. 404,833 $1,632,357 $ 407,187 433,149 378,534 393,011 $1,611,881 Rar Cant Dfnccrra+a**$ 3.6 2.6 1.3 3.0 1.3 INCOME: First qu arter-- $ Second quarter. Third q u a rte r.. . Fourth q u a rte r.. $ 38,126<ri$ 27,538 16,238 22,451 104,353 $ 36,390 4.8 39,402 30.1 13,225<2) 22.8 23,289<3> 3.6 112,306 7.1 1967 1966 A1d9j6u7atStdtocfokr Olvidand A Raportad EARNINGS A SHARE(4>: First q u a rte r.................. $1.16< $1.10 $1.13 Second q u a rte r............ .83 1.20 1.22 Third q u a rte r................ .50 .40 ,41<2> Fourth q u a rte r.............. .68 .71 ,72<3> $3.17 $3.41 $3.48 SHARES OUTSTANDING DECEMBER 31: 1 9 6 7 ................................. ..........................32 ,962,005 1 9 6 6 ................................. ..........................32,308,823 (1) Includa profit on tal of mvastmant. na! of applicala incorna tax. of $6.394,000, aquivafant to 19 canta a thara. (2) tAofl1tr9dceadnutactaiotnhaorfa$. 6,075,000 for wrrta-off of goodwill, aquivalant (3) tIanxc.luodfa$6p,0r3o0fit,0o0n0,taalqauoivfailnanvat tttom1a9ntcsa.nntataoafhaarpap.licabla incorna (4) Rastatad for tha first thraa quartan of 1967 to rafiact tha haras outstanding on Oacambar 31. due to a cold, wet spring which hampered fertilizer applications. Sales of crop-protection chemicals, applications of which are less influenced by weather, gained strongly. Ramrod weed and grass killer won additional favor among corn and soybean growers in the important markets of the U.S. Midwest. In 1967. Ramrod received new label clearances from the U.S. Department of Agriculture for use of the product on sweet corn and sugar beets. Prior to the 1968 grow ing season, additional clearances are expected on com forage and silage, and grain and silage sorghum. Such clearances represent the opening of important new markets. To insure adequate supplies of Ramrod, additional production facilities were completed at Muscatine, Iowa, in 1967. Avadex wild-oat killer and associated products were sold out in Canada and were in strong demand domestically and in Australia, Europe and Latin America. Sales of Rogue herbicide, which controls the grassy weeds that infest rice fields, rose to record levels. The gain came despite strong competition from imported products of similar content. In December, Monsanto's patent application pertaining to the herbicidal use of Rogue was awarded priority of invention by the U.S. Patent Office. Cutbacks in domestic cotton acreage, reduced infestation by the boll weevil and unfavorable weather depressed not only sales but selling prices of organophosphorus insect killer. Sales of the product increased outside the United States, especially in areas served by member companies in Central America. Santoquin antioxidant, an additive for animal feed, gained an important new market in 1967 as a preservative for fish meal. PHOSPHATES AND DETERGENTS The group's total sales exceeded those of the prior year by 5 per cent. Had the giant phosphorus furnace at Soda Springs, Idaho, operated at anticipated levels, the gain would have been greater. Furnace modifications are ex pected to increase phosphorus output and enable Monsanto to participate more fully in further market growth. Output of Monsanto production units supplying MONS 352228 TOWOLDMONO014381 7 phosphates to detergent makers and others exceeded previous records. The company manufactured a number of special new grades of phosphate for use in products the detergent industry began test marketing in 1967. Many such products are responsive to the changing detergent needs spawned by increased use of man-made fibers. The market for dentifrice phosphates expanded in 1967. Export sales gained especially well. M onsanto facilities producing biodegradable alkylbenzene had to run at capacity to keep detergent makers adequately supplied with the product. In Anniston, Ala., a new Monsanto unit began producing phosphorus pentasulfide. The facility greatly increased the availability of an important intermediate widely used to make insecticides and oil additives. Sales of M onsanto's Dequest organophosphorus sequestering agents grew in 1967 as new applications developed. The proprietary com pounds serve customers in such diverse fields as industrial water treatment, textile processing and the manufacture of specialty detergents. INTERMEDIATES, PLASTICIZERS AND FUNCTIONAL FLUIDS There was a 5 per cent gain in sales of this group. Intermediates, used in the manufacture of other chemicals, made a particularly strong showing. Phthalic anhydride, a mainstay of the group, has major applications in the production of paints, polyester resins and plasticizers. In 1967, a shortage of traditional feedstocks used in making phthalic pushed the price of the product to its highest point since 1963. At the same time, a new phthalic anhydride unit came on stream at M onsanto's Chocolate Bayou Plant near Alvin, Tex. Unique technology employed there permits use of alternate feedstocks made by Monsanto and offers the possibility of significant cost savings. Additional capacity to produce maleic anhydride for surface coatings, polyester resins and other uses was installed in St. Louis in 1967. A unit to produce a material imparting fire-retardancy to polyester resins for making boat hulls and other products was completed in Bridgeport, N.J. And in Australia, M O N S A N T O 'S DIVISIONS At the close of 1967, the company had these nine divisions: Agricultural Division, Hydrocarbons & Polymers Division, Inorganic Chemicals Division, International Division, New Enterprise Division, Organic Chemicals Division, Packaging Division, Plastic Products & Resins Division and Textiles Division. construction was begun on a modern phenol produc tion unit scheduled for start-up late in 1968. Sales of plasticizers, used mainly to improve the properties of plastics, rose despite the adverse effects of a slowdown in the building industry and a strike in the automotive industry. Demand for resilient floorings and coated cloth -- both major end uses for plasticizers -- fell off sharply because of these soft spots in the U.S. economy. M onsanto's new facilities producing Santicizer 160 primary plasticizer in Antwerp, Belgium, achieved production levels that exceeded forecasts. Product is being exported from there to Asia, Australia, South Africa and Eastern Europe. Sales of Monsanto fluids for a variety of special uses again expanded. For example, Skydrol fireresistant hydraulic fluid for aircraft bettered its position despite mounting competitive activity. M onsanto's dielectric fluids are nonconductive, fire-resistant materials -- which serve, among other uses, as coolants for electric transformers. To accom modate growing worldwide demand for such fluids, the company has programmed major expansions in the United States and in the United Kingdom. Also in 1967, the company introduced new forms of Pydraul fire-resistant industrial hydraulic fluid and Therminol heat-transfer fluid. Both lines were enlarged to meet the requirements of new, highly specialized markets. RUBBER A N D OIL CH EM IC ALS These chemicals bettered their 1966 sales perform ance by 3 per cent. A strike that idled the U.S. rubber industry for three months caused M onsanto's domestic sales of rubber chemicals to decline sharply. But the lost sales were more than offset by a strong recovery in HONS 352229 TOWOLDMONO014382 8 i : . domestic business after the strike and by exception ally brisk European business all year. Domestically, Monsanto started making the concentrate used in the manufacture of isoprene rubber. In Australia, where Monsanto's sales to the rubber industry have been increasing, a 20 per cent expansion in styrene monomer capacity is scheduled for 1968 completion. The monomer is a key raw material in the manufacture of the synthetic rubber sold in largest volume. In 1967, the company established major facilities for producing rubber chemicals in Antwerp, Belgium. Sales of petroleum additives were below yearearlier levels, due largely to vigorous competition and to increasing self-m anufacture by m ajor petroleum producers. In 1967, Monsanto's associate company in Japan established facilities to manufacture oil additives at its plant in Yokkaichi. Late in the year, an expansion of existing capacity to make the products was begun in Newport, England. PETROLEUM PRODUCTS All major petroleum products contributed to the group's over-all sales advance of 10 per cent. Prices of gasolines, diesel fuels and heating oils were the highest in a decade. Market patterns improved especially well in those areas close to M onsanto's El Dorado, Ark., refinery. Sales of crude oil and natural gas benefitted in 1967 from increased demand, new well completions and improved performance in secondary recovery of crude. Canadian exploration programs resulted in com pletion of four oil wells in the North Zama region of Alberta and discovery of an oil field in southeast Saskatchewan. M onsanto's acreage in North Zama, one of N orth America's most significant producing areas, is under further development. Domestically, M onsanto discovered and developed substantial petroleum reserves in the Four Corners area of Colorado and Utah. As a member of a joint exploration group, the com pany has applied for prospecting licenses covering 33 blocks in the Netherlands North Sea. M onsanto is also participating in a multicompany exploration program in Alaska. FOOD INGREDIENTS AND FINE C H EM IC A LS Sales of this group of products declined 8 per cent. Saccharin and adipic acid moved in good volume. But sales of vanillin products were depressed by import competition. Sales of bulk aspirin were below expectations, mainly because of a slowdown in world consumption on the heels of 1966 inventory buildups by Monsanto customers. In February, 1968, Monsanto obtained ownership of George Lueders & Company, a manufacturer of flavors and fragrances. The move will permit Monsanto to serve such product needs of the food, cosmetics and toiletries industries. TEXTILE AND PAPER C H E M IC A L S Sales of chemicals for the manufacture of textiles and paper declined 7 per cent. Part of the acrylonitrile Monsanto makes is used by the company in the production of chemical fibers and plastics. The rest is marketed for similar uses. Although the company's own use of acrylonitrile increased in 1967, sales of the product were below year-earlier levels. The 1961 decision to create a paper chemicals department continued to pay dividends in 1967. Sales of paper chemicals rose slightly despite cut backs in production of paper and paperboard. Sales of Mersize sizing agents for paper increased. Sales of Scripset surface additives doubled as new areas of application for the products continued to develop. HEAVY CHEMICALS Heavy chemicals had a sales increase of 7 per cent. At its Sauget, 111., plant Monsanto brought into production the world's most modern unit for manu facturing sulfuric acid. The facility incorporates effective, new systems to curb air pollution. The production unit and all auxiliary equipment arc operating as planned. At Cote Blanche Island, La., salt-mining opera tions progressed well. Production of salt at the partially owned mine was at record rates in 1967. HONS 352230 TOWOLDMONO014383 PARENT COMPANY 130 IN D LX OF H O U R LY W AG T RA f f S, P R IC E S OF R A W M A Tl R IA LS A N D SL I I IN G PRICLTS 1957 -1959 - 100 125 120 115 HOURLY WAGE RATES 110 PRICES OF RAW 105 MATERIALS SELLING 100 PRICES 95 90 85 SO 1 135 i X 130 I S' 125 120 115 110 105 100 \ 95 V 90 - ------------- * # 85 80 OTHER PRODUCTS The electronic industry's 1967 transition from discrete transistors and diodes to microcircuits sig nificantly changed the market for silicon materials. For example, the "polished wafer" became the form of silicon most demanded. Having anticipated and prepared for the change, Monsanto was positioned to benefit. The company's silicon sales gained well. In 1967, the efficiency and perform ance of Monsanto's solid-state, light-emitting diodes were improved tenfold -- making them the brightest, most efficient, least expensive available. A variety of new applications were found for the company's solidstate infrared lasers. And Monsanto developed and began producing eight new electronic instruments for measuring and testing. AstroTurf recreational surfaces were installed in two outdoor stadiums and successfully used there during the 1967 football season. In both cases, the Monsanto product wore well, was easy to clean and required little maintenance. At the same time, AstroTurf tailored to other recreational uses served well on putting greens, golf-tee surfaces and play grounds. Indications arc that AstroTurf is earning deserved recognition among architects, designers, athletic directors and others. Also in 1967, Monsanto technology was used to adapt a high-protein soft drink already popular in Hong Kong to the flavor preferences of other regions of the world. In 1968, Monsanto plans to supply a concentrate of the drink to franchised bottlers in Taiwan and Latin America for local introduction. RESEARCH, DEVELOPMENT A N D EN G INEERING Successful introduction of new products again demonstrated the effectiveness of Monsanto's tech nological efforts. In 1967, the company commercialized 63 basic new products and upgraded many of its existing products. Also during the year, Monsanto received 584 U.S. patents and 2,267 patents in other countries. Expenditures for research, development, patent work and basic engineering totaled $84.2 million, compared to $76.0 million in 1966. Formation of the New Enterprise Division late in the year significantly altered the organization of the HONS 352231 TOWOLDMONO014384 GROSS ADDITIONS TO PROPERTY AND DEPRECIATION 1958 1959 1960 1961 1962 1963 1964 1965 1966 1967 ........................... ........................... ........................... ........................... ........................... ..................................... ........................... ........................... ........................... ...................,, .... P ro p e rty A d d itio n * Dprciation, O btolescence, A m ortlra tion and D pltion M lflina o f D ollars) 58.1 68.7 121.3 153.8 168.8 52.9 56.1 79.0 86.9 97.6 1 1 4 .5 218.1 295.2 211.0 160.4 1 1 4 .6 120.3 133.5 152.4 162.9 Central Research Department. There was a transfer from the department to the division of a number of projects nearing completion. Many of the people involved were transferred at the same time. The department was consequently reoriented to more basic work. Still within the scope of Central Research is the continuing search for better ways to make existing products. The departm ent's present work includes investigation of new catalysts, organic reaction mechanisms and chemical physics. In 1967, a re search program being conducted with Washington University for the U.S. Department of Defense resulted in significant new findings in the important field of reinforced composites. Wholly owned Monsanto Research Corporation continued its work on research problems relating to national defense, health, safety and the conquest of space. Im portant projects conducted for the Depart ment of Defense and for many civilian agencies of the government included work in the fields of ad vanced materials and energy conversion. One project resulted in new plastic materials and designs showing promise of improved blood compatibility for use in artificial heart and kidney devices. Power sources utilizing radioisotopic heat gener ated from plutonium-238 and polonium-210 radio isotopic fuels are being developed at M ound Laboratory in Miamisburg, Ohio, which Monsanto Research Corporation continues to operate for the Atomic Energy Commission. In 1967, the laboratory produced power sources for the Apollo Lunar Sur face Experiment Package. Additional Mound-pro duced power sources had application to other space programs, to the life sciences and to oceanographic research. The Central Engineering Department carried out the company's major expansions in 1967. And throughout Monsanto, the department helped im plement successful programs of process improvement and cost reduction. Increased construction costs were partially offset by highly efficient procedures for procuring equip ment. Such procedures -- which included value analysis, national contracts and competitive bidding -- effected a savings of 5 per cent on the cost of equipment purchases for major construction projects. The 1967 program of property additions was handled without major deviation from the originally estimated total cost. There were some overruns and underruns. But early project planning, careful sched uling, and efficient design and construction tended to reduce cost variations. In a number of areas, the use of computers in process control continued to improve productivity, PERSONNEL Programs to speed the development of key person nel were continued. In 1967, more than 1,000 pro fessional and managerial employes participated. More than 2,500 others bettered their job skills outside working hours under the provisions of M onsanto's improved tuition-refund policy. The company achieved its 1967 recruiting objec tives despite strong competition for professional manpower. At the same time, Monsanto's summer employment of college students and extensive aidto-education programs continued to enhance the com pany's reputation on U.S. campuses. To increase the availability and usefulness of per sonnel records, Monsanto installed a computerized data system. It is designed to make information readily accessible for use in the development and placement of manpower. Six labor contracts were negotiated during the year. In addition, four existing contracts were ex tended beyond their original termination dates. The only major work stoppage occurred in Kenilworth, N.J., during negotiations for a first contract there. The strike lasted four months. M onsanto's safety record continues to be among industry's best. In 1967, the company operated more safely than all but one other U.S. chemical maker. HONS 352232 TOWOLDMONO014385 11 SH A R EO W N ER S OF RECORD 1967 M en............................ Num ber ol S h a n - ow ners 37,094 Num ber of Shares 5,004,713 W om en........................ 32,811 3,961,870 Joint A cco un ts............ 24,541 1,282,708 Charitable Institutions.. 511 200,787 Educational Institutions. 147 202,529 Estates and T ru sts...... 12,363 1,771,876 Insurance C o m panies.. 228 1,317,139 Brokers and N om inees. 1,999 18,186,175 All O th e rs................... 1,669 1,034,208 T otal................. 111,363 32,962,005 1966 Num ber of Share- ow ners 15^oT Num ber of Shares 4,583,590 29,983 3,837,791 19,030 952,801 508 206,202 143 208,153 10,429 1,795,397 267 1,279,902 1,900 18,429,055 1,377 1,015,932 95,938 32,308,823 1965 Num ber ol Share- ow ners 32,084 Num ber Of S h a re s 4,610,890 29,211 3,872,397 18,431 897,004 488 204,768 128 197,391 9,770 1,723,319 270 1,322,827 1,800 17,853,952 1,356 951,809 93,538 31,634,357 In 1967, 68 par cant of Monaanto iharaownara held fawar than 100 th a ra i. 1964 Num ber or Share- ow ners 30,446 Num ber of Shares 4,691,800 28,328 3,850,905 17,770 909,442 480 204,432 136 190,164 9,384 1,669,731 236 1,196,581 1,685 16,629,555 1,368 1,517,317 89,833 30,859,927 1963 Num ber of Share- ow ners 27,863 Shares 4,354,601 24,322 3,603,280 16,881 876,116 395 144,691 127 151,485 8,065 1,395,227 211 1,058,065 1,640 13,397,722 1,104 4,982,638 80,608 29,963,825 AC CO UNTANTS' OPINION H A S K I N S Sc S E L L S CERTIFIED P U B LIC A C C O U N TA N TS 618 O LIV E STR EE T SAINT LOUIS 83101 Monsanto Company: We have examined the statement of consolidated financial position of Monsanto Company and its subsidiary companies as of December 31, 1967 and the related statements of consolidated income, consolidated paid-in surplus and retained earnings and of consolidated source and application of funds for the year then ended. Our examination was made in accordance with gener ally accepted auditing standards, and accordingly included such tests of the accounting records and such other auditing pro cedures as we considered necessary in the circumstances. In our opinion, the accompanying financial statements (pages 12 through 16) present fairly the financial position of Monsanto Company and its subsidiaries at December 31, 1967 and the results of their operations and source and application of their funds for the year then ended, in conformity with gen erally accepted accounting principles applied on a basis con sistent with that of the preceding year. February 8, 1968 / / HONS 352233 TOWOLDMONOQ14386 MONSANTO COMPANY S T A T E M E N T OF C O N S O L ID A T E D F IN A N C IA L ASSETS Current Asset*: C a s h ................................................................................................ Marketable securities, at cost which approximates market Net receivables........................................................................... , I n v e n to r ie s .................................................................................... 1967 1966 On Thousands) 23,276 $ 27,697 31,272 45,865 313,483 298,576 288,748 656,779 278,450 650,588 Investments and Miscellaneous Assets, at Cost or Less: Investm ent in and advances to associates................................................ Miscellaneous Investm ents and receivables............................................. 11,859 67,252 79,111 23,558 63,453 87,011 Property, Plant and Equipment, at Cost..................... Less accum ulated depreciation and depletion, etc. Net pro pe rty........................................................ 2,258,740 1,181,928 1,076,812 2,138,387 1,050,398 1,087,989 Deferred Charges 46,313 39,508 Tha above atata m on t should ba read In conjunction w ith pagea 17, 18 and 19 o f thla report. $1,859,015 $1,865,096 HONS 352234 TOWOLDMON0014387 . AND SUBSIDIARIES i3 I P O S IT IO N AT D E C E M B E R 31. 1 9 6 7 A N D 1 9 6 6 LIABILITIES Current Liabilities: Accounts payable and accru als.. Income taxe s................................... Current portion of long term debt Notes, Debentures, etc.--Less Current Portion Above Other Liabilities and Deferred Credits: Deferred income taxe s........................... M iscellaneous........................................... Minority Interests in Subsidiary Companies 1967 1966 (In Thousands) $ 186,687 $ 193,669 50,389 10,063 247,139 62,056 17,192 272,917 451,377 480,411 50,927 9,437 60,364 25,270 53,261 7,177 60,438 29,736 Shareowners' Equity: Common shares--authorized, 35,000,000 shares, par value $2 each; outstanding, 32 ,9 6 2 ,0 0 5 shares in 1967 and 32,308,823 shares in 1 9 6 6 ......................................................................................................... Paid-in surp lu s................................................................................................... Retained earnings............................................................................................. 65,924 580,533 428,408 1,074,865 $1,859,015 64,618 550,842 406,134 1,021,594 $1,865,096 HONS 352235 TOWOLDMON0014388 ii 14 i MONSANTO COMPANY S T A T E M E N T OF C O N S O L ID A T E D IN C O M E 1967 1966 (In Thousands) Net Sales...................................................................................... Cost of Goods Sold..................................................................... Gross Profit................................................................................. $1,632,357 1,211,256 421,101 $1,611,881 1,179,709 432,172 Less: Selling and adm inistrative expenses.................................. Research, development, patent and engineering expenses......................................................... Operating Profit.......................................................................... Income Charges -- N et............................................................. 161,680 84,224 245,904 175,197 10,769 156,731 75,963 232,694 199,478 10,707 Income Before Income Taxes.................................................. 164,428 188,771 Provision for Income Taxes: C u rrent....................................................................................... Deferred (c re d it)...................................................................... Income Before Extraordinary Item s...................................... 68,803 (2,334) 66,469 97,959 77,012 (592) 76,420 112.351 Extraordinary Items (Credits): W rite-off of goodw ill................................................................ Gain on sale of investm ents, less applicable income taxes of $2,131,000 In 1967 and $2,010,000 in 1 9 6 6 ......... Net Income................................................................................... (6,394) (6,394) $ 104,353 6,075 (6,030) 45 $ 112,306 Earnings a Common Share(1>: Before extraordinary ite m s .................................................... Including extraordinary ite m s ................ ............................. $2.98 3.17 $3.48 3.48 (1 ) Based on s h a is i ou tsta n d in g at end o f year--3 2 ,9 6 2 .0 0 5 In 1967 and 32,308,823 in 1966. The above s ta te m e n t should be read in conjunction w ith pages 17, 18 and 19 of this report. Increase Decrease $20.476 31,547 11,071 4,949 8,261 13,210 24.281 62 24,343 8,209 1,742 9,951 14,392 6,075 364 6,439 S 7,953 S.50 .31 HONS 352236 TOWOLDMONO014389 15 AND SUBSIDIARIES S T A T E M E N T OF C O N S O L I D A T E D P A I D - I N S U R P L U S AND RETAINED EARNINGS Baiane at Beginning of Year PAID-IN SURPLUS Additions: Excess of approximate m arket 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 p la n s............................ Balance at End of Year............................................................................................. 1967 1966 (In Thousands) $550,842 $524,033 29,440 251 $580,533 24,586 2,223 $550,842 Balance at Beginning of Year RETAINED EARNINGS $406,134 $370,188 Addition -- Net Income for the Year Deduction: Dividends on capital stock of parent company: Cash - $1.60 a share........................................ Stock -- 2 % .......................................................... Balance at End of Year........................... ................ The above s ta te m e n t s h o u ld ba read in c o n ju n c tio n w ith pages 17, 18 a n d 19 o f th is re p o rt. 104,353 510,487 112,306 482,494 51,347 30,732 82,079 $428,408 50,507 25,853 76,360 $406,134 HONS 352237 TOWOLDMONO014390 16 M O N S A N T O C O M P A N Y AND SUBSIDIARIES S O U R C E A N D A P P L IC A T I O N OF F U N D S (In Thousands) TOTAL Source of Funds: From operations: Net in co m e .................................................. $ 537,507 Non-cash charges to income: Depreciation, depletion, etc.................. 683,592 Deterred income taxe s........................... 28,905 Goodwill w rite -o ff..................................... 6,075 1,256,079 Outside financing: 4 ,/ 2%-4i4% prom issory n o te s ................... 4>/2% sinking fun d de b e n tu re s................ Foreign subsidiaries.................................... Common shares issued under op tion s----Other -- n e t...................................................... 100,000 25,000 42,927 37,309 6,019 1,467,334 1967 1966 1965 1964 1963 $104,353 $112,306 $122,967 $114,891 $ 82,990 162,871 2,334 264,890 152,362 592 6,075 270,151 133,485 7,478 263,930 120,268 11,980 247,139 114,606 12,373 209.969 265 3,089 268,244 25,000 5,206 2,305 3,745 306,407 75,000 25,000 32,776 8,099 2,982 407,787 3,276 12,108 1,571 264,094 1,669 14,532 5,368 220,802 Application of Funds: Dividends on com m on sha res..................... Plant additions and replacem ents.............. Investm ent in affiliated com p an ies............ Retirement of d e b t......................................... Increase in working capital( I ) ....................... Increase -- decrease in cash and securities 219,247 999,104 32,909 76,921 189,014 49,861 $1,467,334 51,347 160,365 31.692 43,854 19.014 50,507 210,972 9,963 52,678 17,713 44,809 295,160 1,126 11,396 44,595 10,701 37,606 218,105 13,340 10,418 29,845 45,220 34,978 114,502 18,443 13,452 18,042 21,385 $268,244 $306,407 $407,787 $264,094 $220.802 (1) Exctutiva o f ca*h n sacuritia and currant portion o f long tarm dabt. Ita lic* indicata dad uction. HONS 352236 TOWOLDMON0014391 FIN A N C IA L REVIEW Basis of Consolidation The accompanying financial statements (pages 12 through 16) consolidate all active domestic and foreign subsidiaries in which Monsanto Company directly or indirectly has more than a 50 per cent interest. Depreciation, Obsolescence, Depletion Charges against income for depreciation, obsoles cence and depletion amounted to $162,871,000, of which $158,850,000 was depreciation and obsoles cence, and $4,021,000 depletion. In 1966, such charges were $148,843,000 and $3,519,000. The use of the sum of the years digits method for computing depreciation on most of new assets acquired since 1954 was continued in 1967. The excess of depreciation provided by this method over straight line depreciation was $23,545,000 in 1967 and $23,952,000 in 1966. For income tax purposes only, the company in 1962 adopted the guideline lives established for machinery and equipment by the United States Treasury Department. The additional depreciation taken for tax purposes reduces the current income tax liability. The reduction of current taxes payable was $134,000 in 1967 and $1,386,000 in 1966. Net income, 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. In certain prior years, provisions were made for income taxes payable in future years resulting from the excess of depreciation and amortization of facilities constructed under Certificates of Necessity for income tax purposes over depreciation for accounting purposes. For the years 1967 and 1966, $1,864,000 and $2,001,000 of such taxes became payable and were charged against the reserve pro vided in prior years. Dividends During 1967, cash dividends of 40 cents were paid in each quarter on the common shares. Also, 646,313 i i common shares were distributed on December 26, 1967 in payment of a two per cent stock dividend. Doubtful Accounts and Allowances The reserves for doubtful accounts and allowances were $14,012,000 at December 31, 1967 and $8,236,000 at the end of 1966. Employes' Bonus No awards were granted for 1967 under the company's bonus plan. However, a provision of $1,200,000 was made during the year for bonuses earned which will be awarded in the future. In 1966, a provision of $2,500,000 was made and awarded in the form of bonuses. Equity In Associates The equity in the unaudited 1967 net income of 50 per cent-owned companies was $1,502,000 com pared with $1,292,000 in 1966. (The latter figure includes one-half of the net income of Mobay Chemical Company, the interest in which was sold in March, 1967.) Dividends of $553,000 were received from these companies in 1967 and $234,000 in 1966. The equity in the unaudited net assets of such companies at December 31, 1967 was $12,145,000, which exceeded the carrying value of the investment therein of $11,859,000 by $286,000. Extraordinary Incomo and Expense The gain in 1967 of $6,394,000, net of tax, from the sale of investment was realized on the disposal of a 50 per cent ownership in Mobay Chemical Com pany. The purchasers were Farbenfabriken Bayer A. G. interests, which owned the other half-interest in Mobay. The gain in 1966 of $6,030,000, net of tax, from the sale of investments resulted from the relinquishment of minority holdings in the capital stocks of Mitsubishi Vonnel Company Ltd. of Japan, and Applicazioni Chimiche Societa per Azioni of Italy. The extraordinary write-off of goodwill of $6,075,000 in 1966 related to the discontinuance of spandex elastomeric yarn operations by Polythane HONS 352239 TOWOLDMONOQ14392 18 Corporation, a subsidiary which was liquidated in that year. Foreign Currency Devaluation As a result of the company's continuing practice of following closely international monetary develop ments and taking steps necessary to protect its assets. Monsanto was fully protected against the devaluation in November and, therefore, it had no adverse effect on consolidated net income for the year. Income Tax* The company's Federal income tax returns have been examined and closed for all years through 1956. Returns for the years 1957 through 1959 have been examined by the Internal Revenue Service, and returns for the years 1960 through 1963 are presently under examination. Differences of opinion exist between the company and the service on the tax treatment of certain items of income and expense, principally depletion and foreign-source income. The Internal Revenue Service has proposed an assessment for the years 1957 through 1959 of approximately $8 million and the company is contesting the assess ment. The ultimate disposition of the items in question is not presently determinable, but it is believed that adequate provision has been made in the accounts for possible deficiencies. The Revenue Act of 1964 provides for a credit against Federal income taxes equal to approximately 7 per cent of expenditures for machinery and equip ment purchased and placed in service during the year. The reduction in income tax provision for 1967 resulting from this credit was $6,969,000 which compares with a credit of $10,931,000 in 1966. Inventory Valuation Inventories are stated at the lower of cost or market, determined generally on the first-in, first-out basis. Annual rate of turnover was 4.3 in 1967 and 4.4 in 1966. Leases The company has a number of lease agreements covering the use of transportation and other equip ment, certain buildings, and retail outlets, which are generally cancellable without penalty. For the most part, the agreements are short term, with a few extending up to 20 years. The annual rental for all leases amounts to approximately $27,309,000. Legal Proceedings The company and its subsidiaries are defendants in several lawsuits and in several related patentinfringement actions. The proceedings are in various stages, and each suit is being vigorously defended. While the results of litigation cannot be predicted, company counsel believe that the prospects of successfully defending these actions are good and that the results of such litigation will not materially adversely affect the financial position or operations of Monsanto and its consolidated subsidiaries. Llabllitl* -- Contingent The company and its subsidiaries were contin gently liable as guarantors of bank loans, customer loans, and for customers' receivables discounted aggregating approximately $10,200,000 at December 31, 1967 and $8,500,000 at the end of 1966. Long Trm Debt The long term debt of the company and its sub sidiaries at December 31, 1967 and 1966, exclusive of current maturities, was as follows: 1967 1966 Parent com pany: - 4 % % p ro m is s o ry nota, dua 1 9 7 0 /1 9 7 5 2.65% dabanturas, dua 1971 . 3 H % inking fu n d d a b antu ra*. dua 1972. 3Vi% prom issory notas, dua 1972. 44% n o ta *, dua 1 97 6 ..................... 4% % prom issory notas, dua 1993 3 ^ % incorna dabanturas, dua 2002 4 l/4% in c o m a d a b a n tu ra s , du a 200 B (In T h o u s a n d s ) $ 1 0 0 .0 0 0 18.000 8,000 21.512 3.120 1 0 0 ,0 0 0 91.000 50.000 $ 1 0 0 .0 0 0 19.000 8,500 27,312 3.320 1 0 0 .0 0 0 91.000 50.000 M onsanto Intam ation al Financa Company: 4V5% a u a ra n ta a d s in k in g fu n d d a b a n tu ra s , dua 1985 ................................... 25.000 25.000 M onsanto C ham icals L im itad (English s u b s id itry ): 6 % d a b a n tu r a s , d u a 1 9 7 7 / 1 9 8 2 ....................... 5% dabanturas, dua 1982 . 6 .071 7.132 7 .3 1 8 8.568 M onsanto Taxtilas Lim itad (English subsidiary): B a n k lo a n s (V6% ovar b a n k ra ta ) d u a 1969 10,805 13,758 M onsanto Cia S.A. (A L u x tm b o u rg subsidiary): 4 % % b an k lo a n s d u a 1 9 6 8 /1 9 7 1 ............ 6 ` % b an k lo a n s du a 1 9 6 8 /1 9 6 9 ................. 4 % % b a n k lo an dua 1 9 6 9 ............................. 6,012 3.000 8,016 8,000 3,000 M onsanto Europa S.A. (B algian subsidiary): 6 .8 % b a n k loan dua 1 9 6 9 /1 9 7 5 ..................... -- 5.440 O th a r s u b s id ia ria s ..................................................... 1.725 2.179 T o ta l........................................................ $ 4 5 1 .3 7 7 $4 8 0 .4 1 1 Monsanto intarnatlonal Finance Company Debentures The $25 million of 4}i per cent Sinking Fund Debentures due 1985 of Monsanto International Finance Company, which are fully guaranteed by Monsanto Company, arc convertible into Monsanto Common Stock at $89 a share, subject to adjustment under certain conditions. MONS 352240 TOWOLDMONO014393 P#n$ion Plans The company and its subsidiaries have several pension plans covering substantially all of their employes, including certain employes in foreign countries. The total pension expense for the year 1967 was approximately $26,300,000 which includes, as to certain of the plans, amortization of prior service cost generally over a period of 30 years. It is the policy to fund pension cost accrued. The actuar ially computed value of vested benefits for the plans of the parent company and certain domestic sub sidiaries as of December 31, 1967 was approximately equal to the related pension funds. Pro Forma Earning The reduction in earnings a common share which would result from the complete conversion of debentures of Monsanto International Finance Company and the exercise of all outstanding stock options would be approximately five cents. Rtpalr* Repair and maintenance charges included in operating expenses were $102,846,000 in 1967 and $98,091,000 in 1966. Sharas Reserved At December 31, 1967, there were 791,277 shares of common stock reserved for stock option plans. and 280,898 shares reserved for conversion of debentures of Monsanto International Finance Company. Stock Option The status of the authorized shares of the three stock option plans for key employes and the changes occurring during the year were : 1951 Plan i9 6 0 P'an O u ts ta n d in g 1, 1 . 6 7 ......... . U n o p tio n e d 1 /1 , 6 7 .......... . O p tio n e d d u rin g y e a r ........ . 21.977 -- -- 187,669 -- -- Exercised d urin g year. .. . . Term inated during y e a r.. . 1,429 -- 5.440 4 .4 5 2 O u ts ta n d in g 12, 3 1 / 6 7 . .. . 2 0 ,9 4 8 * U n o p tio n e d 1 2 , 3 1 / 6 7 ___ . -- 181.325* -- A d ju *t*d for 1967 tw o par cant stock dividend. 19 6 4 P'an 457.631 119.824 8 ,0 0 0 27,218 447.101* 141,903* Under the three key plans, 498 options are out standing, at prices, after adjustment for stock dividends, ranging from $32.28 to $97.18 a share. Po*t Balana Shaat Evant In February 1968, the company acquired the business of George Lueders & Company, a flavor and fragrance manufacturer, for 70,000 shares of Monsanto treasury stock. The transaction will be treated as a pooling of interests. Because of the timing of this transaction, it was impracticable lo reflect it in the accompanying financial statements. MOWS 352241 TOWOLDMON0014394 20 MONSANTO COMPANY H I S T O R I C A L S T A T E M E N T OF (In millions) ASSETS 1967 Currant Assets: C ash......................................................... $ 23.3 M arketable secu ritie s.......................... 31.3 Net receivables..................................... 313.5 Inve ntorie s............................................. 288.7 656.8 1966 1965 1964 1963 $ 27.7 $ 33.1 $ 27.8 $ 40.9 45.9 58.2 52.8 84.7 298.6 267.3 239.7 198.7 278.4 258.7 214.9 191.6 650.6 617.3 535.2 515.9 10 YEARS AGO 1957 25 YEARS AGO 1942 $ 28.3 22.7 79.6 108.3 238.9 $ 9.4 10.1 12.7 32.2 Investments, etc....................................... 79.1 87.0 87.4 85.9 85.6 55.4 2.5 Property: La n d ......................................................... B u ild in g s................................................. M achinery and e q u ip m e n t................. Phosphate de po sits............................. Producing oil and gas properties.. . . Undeveloped oil and gas leaseholds. Accum ulated depreciation, e tc .......... Accum ulated d e p le tio n ....................... Net p ro p e rty................................ 33.5 349.4 1,754.7 11.4 102.4 7.3 1,139.7 42.2 1,076.8 32.3 325.5 1.662.6 10.6 100.0 7.4 1,010.4 40.0 1,088.0 27.7 289.7 1.529.1 10.0 97.9 7.6 886J 38.8 1,036.7 27.4 263.0 1,295.2 9.8 94.7 8.2 785.7 36.6 876.0 27.7 237.0 1,148.2 9.6 89.2 9.1 707.2 33.3 780.3 10.9 103.0 453.3 6.1 67.7 19.7 238.5 22.3 399.9 2.4 13.5 48.0 1.0 -- -- 25.6 .2 39.1 Deferred Charges.................................... 46.3 $1,859.0 39.5 42.7 37.9 32.4 $1,865.1 $1,784.1 $1,535.0 $1,414.2 6.5 $700.7 .5 $74.3 1) A fta r d e d u c tio n of ta x no ta of S I I . 7 m illio n . Italie in d ica ta de d u ctio n . MONS 3522*2 TOWOLDMONO014395 21 AND SUBSIDIARIES CO NSO LIDATED FINANCIAL POSITION (In millions) LIABILITIES 1967 Current Liabilities: Accounts payable and accruals....... $ 186.6 Income ta xe s......................................... 50.4 Current portion of long term d e b t... 10.1 247.1 1966 1965 196 1963 $ 193.7 $ 197.6 $ 154.8 $ 122.8 62.0 59.8 75.8 69.1 17.2 9.8 10.5 10.2 272.9 267.2 241.1 202.1 10 YEARS AGO 1957 25 YEARS AGO 1942 $ 61.2 25.7 1.8 88.7 $ 5.7 (` >2.4 8.1 Notes, Debentures, etc......................... 451.4 480.4 467.5 345.5 352.8 163.3 - Other Liabilities and Deferred Credits: Deferred income taxe s........................ M iscellaneous........................................ 50.9 9.5 60.4 53.3 53.9 46.4 41.4 17.5 -- 7.2 9.8 3.4 2.4 3.3 3.7 60.5 63.7 49.8 43.8 20.8 3.7 Minority Interests In Subsidiaries___ 25.3 29.7 28.2 26.9 31.3 20.2 2.4 Shareowners' Equity: Preference shares................................. Common shares.................................... -- 65.9 Paid-in s u rp lu s....................................... Retained earnings................................. 580.5 428.4 1,074.8 $1,859.0 -- 64.6 550.9 406.1 -- 63.3 524.0 370.2 -- 61.7 466.1 343.9 -- 59.9 406.2 318.1 1,021.6 957.5 871.7 784.2 $1,865.1 $1,784.1 $1,535.0 $1,414.2 -- 44.4 186.5 176.8 407.7 $700.7 21.0 12.4 11.5 1 5 .2 60.1 $74.3 HONS 3522*3 TOWOLDMONOQ14396 22 MONSANTO COMPANY H I S T O R I C A L S T A T E M E N T OF C O N S O L I D A T E D IN C O M E (In millions except per share earnings) 1967 1966 1965 1964 1963 10 YEARS AGO 1957 25 YEARS AGO 1942 Net Sales.................................................... $1,632.4 Cost of Goods Sold.................................. 1,211.3 $1,611.9 $1,468.1 $1,358.7 $1,192.3 1,179.7 1,039.6 940.1 849.7 $624.8 468.8 $77.1 52.7 Gross Profit............................................... 421.1 432.2 428.5 418.6 342.6 156.0 24.4 Less: Selling and ad m in istra tive .................. 161.7 156.7 149.4 134.3 117.7 Research, development, patent and e n g in e e r in g ......................................... 84.2 76.0 69.9 66.8 58.4 245.9 232.7 219.3 201.1 176.1 Operating Profit....................................... Income Charge* -- N e t........................... 175.2 2.2 199.5 8.8 209.2 6.6 217.5 3.4 166.5 6.1 Income Before Income Taxes............... 173.0 190.7 202.6 214.1 160.4 Provision for Income Taxes.................. 68.6 78.4 79.6 99.2 77.4 Net Income.......................... ................ $ 104.4 $ 112.3 $ 123.0 $ 114.9 $ 83.0 53.5 24.2 77.7 78.3 5.5 72.8 33.0 $ 39.8 5.0 1.9 6.9 17.5 (4 ) 17.9 12.5 $ 5.4 Per Common Share: Adjusted for s p lits ................................ $ Adjusted for splits and stock dlvi de nd s............................. .................... $ 3.17 3.17 $ 3.48 $ $ 3.41 $ 3.89 $ 3.74 $ 3.72 $ 3.51 $ 2.77 2.56 $ 1.79 $ 1.50 $ .40 $ .32 HONS 3522*4 TOWOLDMON0014397 23 AND SUBSIDIARIES OTHER DATA (In million except wharf italicized) 1967 1966 1965 Plant additions and replacem ents....... $ 160.4 $ 211.0 $295.2 1964 $218.1 1963 $114.5 10 YEARS AGO 1957 25 YEARS AGO 1942 $ 64.8 $ 7.4 Depreciation, depletion, e tc .................. $ 162.9 $ 152.4 $133.5 $120.3 $114.6 $ 48.2 $ 4.9 Dividends a common share(1>............... $1.60 $1.60 $1.45 $1.25 $1.20 J 1.00 $.25 Book value a common sh a re d )............. $32.61 $31.62 $30.27 $28.25 $26.17 $18.34 $3.50 Common shares(l>................................... 33.0 32.3 31.6 30.9 30.0 22.2 11.2 Preference shares................................... - -- -- -- -- - 210,000 Working c a p ita l........................................ $ 409.7 $ 377.7 $350.1 $294.1 $313.8 $150.2 $24.1 Long term debt (less current m atur itie s )........................................................ $ 451.4 $ 480.4 $467.5 $345.5 $352.8 Shareowners' e q u ity ............................... $1,074.8 $1,021.6 $957.5 $871.7 $784.2 $163.3 $407.7 $60.1 Employes1(2)............................................... 58,799 57,647 56,227 52,284 48,133 24,868 10,359 Shareowners........................................ ... 111,363 95,938 93J38 89,833 80,608 60,036 10,119 (1) A djusted for split. (2) In clu d e s M o n s a n to em plo yes in plants o pe rated for U.S. G o v e rn m e n t (1 ,8 7 8 In 196 7). HONS 3522*5 TOWOLDMON0014398 24 M O N S A N T O 'S W O R LD W ID E INTERESTS This list of Monsanto's principal equities gives some indication of the scope and diversity of the company's international operations. Per cent ownerships, in some cases rounded to the nearest whole number, are shown parenthetically. NORTH AMERICA UNITED STATES: C hem atrand R e.aarch Can ta r, Inc. (100% ) conducts research in the field of textiles. Fabric Services, Inc. (100% ) dyes and finishes polyester-cotton blends and other fabrics for th e textiles industry. F iltered Rosin Products Company (100% ) produces gum naval stores and synthetic resins. George Lueders A Company (100% ) m anufactures essential oils, flavors end fragrances. Leonard C onstruction Company (100% ) designs and builds chem i cal and other types of plants. A subsidiary perform s these services in Canada. Monsanto B iod lte Systems, Inc. (80% ) develops and markets processes and plants for removing water pollutants from industrial and m unicipal wastes. M onsanto Export Company (10O%) handles export saieaof Monsanto products in the western hemisphere. M onsanto O raphlc Systems, Inc. (100% ) owns patents, patent licenses and other useful properties in the field of graphic arts. M onsanto In te rn a tion a l Finance Company (100% ) was form ed to obtain investm ent funds abroad to help finance overseas expansion. Monsanto Research C orporation (100% ) conducts research for governm ent agencies and for M onsanto: produces nuclear sources; operates a governm ent-owned laboratory for the Atom ic Energy C om m issio n . Wood Treating C hem icals Co. (100% ) produces wood preservatives. CANADA: Monsanto Canada Ltd. (100% ) m anufactures chemicals and plastics raw materials. Ptax Canada Ltd. (5 0 % ) produces pla stic blownware. MEXICO: M onsanto M exlcana S.A. (1 0 0 % ) produces chem icals, plastics raw m aterials and building products. A subsidiary makes plastic consumer products. CENTRAL AND SOUTH AMERICA ARGENTINA: Monsanto A rgentina S ^ J .C . (100% ) m anufactures chem icals and plastics raw m aterials. COLOMBIA: Fabrlca da H ilaaas Vanylon S.A. (49% ) produces nylon 6 yarns. PANAMA: M onsanto Overseas S.A. (1 00 % ) handles certain inve st m ents and licensing outside the United States. PUERTO RICO: C he m stra n d O verseas 5.A. (1 0 0 % ) m arkets c h e m i cal fibers exported to trees outsids Europs and handles csrtain investm ents outside the U nited States. VENEZUELA: Monsanto Vonexuela, Inc. (100% ) produces petroleu m . EUROPE AND MIDDLE EAST BELGIUM : M onsanto E urope S.A. (1 0 0 % ) supervises investm ents end m arketing activities throughout Europe: produces polyvinyl butyrel plastic interlayer for lam inated safety glass; produces plasti cizers and rubber chemicals. FRANCE: Soclete M onsanto (100% ) makes plastics raw m aterials and plastic containers. ISRAEL: Israel Chem ical Fibres Ltd. (60% ) m anufactures Acrihn acrylic fiber. LUXEMBOURG: M onsanto Cle S.A. (1 0 0 % ) m anufactures nylon 6.6 yarns. SPAIN: Alscondel S.A. (50% ) m akes consum er products of plashes. Two subsidiaries produce chem icals and plastics raw materials UNITED KINGDOM: Lansll Ltd. (100% ) produces acetate flake and yarn, taxtila fabrics and appaiel. M onsanto C hem icals Ltd. (67% ) m anufactures chemicals, plastics and plastics raw m aterials. M ajor subsidiaries produce plastics for construction and packaging. M onsanto Textiles Ltd. (100% ) m anufactures Acriltn acrylic liber end nylon 6,6 yarn*. ASIA AND AUSTRALIA AUSTRALIA: Australian Petrochem icals Ltd. (55% ) manufactures raw m aterial for plastics and rubber. M onsanto Chemicals (A ustralia) Ltd. (85% ) makes chemicals and plastics raw materials. An associate produces fluorocarbons. JAPAN: M itsubishi Monsanto Chemical Company (50%) m anu factures chem icals, plastics, plastics raw m aterials and petroleum additives. M o nsa n to 's participation in in tern a tio na l com m erce and trade Is fu rth e r revealed in thie listin g of com panies engaged in various activities on a more m odest scale than those listed above. O m itted e ntire ly are more than 100 sales agencies representing M onsanto in m ost parts of the world. Qoldfworthy Engineering. Inc. -- U nited States Lomond Ltd. -- Hong Kong M oneti UK, Inc. -- United Kingdom Monsanto GmbH -- Austria Monsanto Agricola do Espaa S.A. -- Spam Monsanto Agricola de Nicaragua S.A. -- Nicaragua Monsanto Chamicis of India Private Ltd. -- India Monsanto Chilo Contorca! a Industrial Ltda. -- Chile Moneanto Comercio e Industrie Ltda. -- Brazil Monsanto (Deutschland) GmbH -- W a tt Germany Monsanto (Cl Salvador) S.A. -- El Salvador Monsanto Far Cast Ltd. -- H ong Kong Monsanto (Guatem ala) S.A. -- G uatem ala Monsanto Italiana S.p.A. -- Italy Monsanto Japan Ltd. -- Japan Monsanto (N icaragua) S.A. -- Nicaragua Monsanto N.V. -- The Netherlands Monsanto Oils Ltd. -- Canada Monsanto Overseas Enterprises Company -- U n ite d S tales Monsanto Research S.A. -- Switzerland Monsanto (Scandinavia) AB -- Sweden Monsanto (Suisse) S.A. -- Switzerland Monsanto (Thailand) Ltd. -- Thailand Monsanto (Vonszuala) C.A. -- Venezuela Plax A.Q. -- Switzerland Sldsplax N.V. -- Belgium Sintticos Siowafc S.A. -- U ruguay HONS 35224)6 TOWOLDMONO014399 DIRECTORS AND OFFICERS BOARD OF DIRECTORS Edward A. O'N eal, Chairman........................... St. Louis Dillon A nderson ..................................................Houston Edward J. Bo c k .....................................................St. Louis David R. Calhoun............................................... St . Louis John L. C hristian..................................................St. Louis F redrick M. Eaton...........................................N ew York John L. G illis......................................................... St. Louis H erbert Hoover Jr........................................Los Angeles Robert K. Mueller...............................................St . Louis Edgar M. Queenv..................................................Sr. Louis J ames S. Rockefeller........................................N bw York Charles H. Sommer............................................... St. Louis Charles A llen T homas........................................ St. Louis M onte C. T ierodahl............................................. St . Louis E X E C U TIV E C O M M IT T E E Charles H. Sommer, Chairman Edward J. Bock Robert K. M ueller John L. C hristian Edward A. O 'N eal John L. G illis Monte C. Throdahl FIN A N C E C O M M IT T E E Charles Allen T homas. Chairman D illon A nderson Edward A. O 'Neal D avid r . C alhoun Edgar M. Q ueeny F redrick M. Eaton James S. Rockefeller H erbert H oover Jr . Charles H. Sommer T ran sfer A gon ts Morgan G uaranty Trust Company of N bw York T he Boatmen's National Bank of St. Louis Registrars T he C hase Manhattan Bank (N ational Association) St . Louis U nion Trust Company p r i n t e d in u .s .a . OFFICERS Edward A. O 'N ea l. Charles H. Sommer . John L. C hristian . . , Edward J. Bo c k . . . . John L. G illis......... Robert K. M ueller . Monte C. Throdahl . . . . Chairman o f the Board .............................. President and Chief Executive Officer ........ Senior Vice President ........................Vice President ........................Vice President ........................Vice President ........................Vice President H. H arold Bidlb...........................................Vice President William H. Bromlby....................................Vice President Jambs E. Crawford J r.................................................... VicePresident Patrick J. D o w d .......................................... Vice President John R. Ec k ..................................................................... VicePresident James D. M ahoney......................................................... VicePresident Finis Mo r g a n ..................................................................VicePresident Edwin J. Putzell Jr.......................................................VicePresident Robert R. R umer............................................................. VicePresident Tom K. Smith Jr.............................................................. VicePresident J. R ussell Wilson...........................................................VicePresident Earl J. Wipflbr ..................................................... Controller Edwin J. Putzell Jr .............................................Secretary Patrick J. Do w d .................................................... Treasurer Jack W. M ueller................................Assistant Controller F rancis A. Stroblb............................. Assistant Controller Walter C. Th ilk in o ...........................Assistant Controller H. D errjsll D ickens..............................................AssistantSecretary John N. Ehlers.......................................................AssistantSecretary Rodney Harris Jr.................................................. AssistantSecretary C. Brent Holleran............................................... AssistantSecretary F ranklin C. Rekfeld.........' ............. Assistant Secretary Lewis L. Baseler........................ .Assistant Treasurer N orvell G . Jones...................................................AssistantTreasurer J. Robert M atlock............................................... AssistantTreasurer Walter J, N aber Jr............................................... AssistantTreasurer Thomas M. R asmussen.......................................... AssistantTreasurer Regional Vice Presidenta Roy L. Brandenburger R ichard T. Clark M . R. D alton Feb. 23, 1968 HONS 332247 TOWOLDMON0014400 MONSANTO COMPANY j 800 N. LINDBERGH BLVD., ST LOUIS, M ISS O U R I 63166 MONS 3522*8 TOWOLDMON0014401